Full Project-THE IMPACT OF FRAUD AND OTHER SHARP PRACTICES ON THE PERFORMANCE OF BANKING INDUSTRY IN NIGERIA – A Study of selected Banks

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CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

This project works examines the impact of fraud and other sharp practices on the performance of banking industry in Nigeria. Therefore, the world fraud and other sharp practices will be emphasize on the course of this unite up. According to Babatunde (2006) fraud is define as an intentional misrepresentation, of financial information by one or more individuals among management, employees, or third parties fraud usually involves elements of dishonest deceit, non-disclosure of information concealment and other practices ingenuously perpetrated, in order to obtain unjust or illegal financial advantages. Going by this definition fraud in Nigeria economy cannot be restricted to the bank alone fraud in bank is not a new phenomenon as old as industry itself. However, like in the greater society they have become one of the most serious problems of modern day banking.

Other sharp practices that is being perpetrated, in the banking industry includes, embezzlement and theft, misuse of the asset of the bank, manipulation of figures, forgeries but all this can be compressed into fraud, that is, the word “fraud” can be used capture all this act. Fraud can be committed by the employers, customer and management of the bank concerned or others operating independently or in conspiracy, with other inside or outside the financial institution. Fraud had its origin from the day the banking industry started in the country and in as much as the federal government through central bank attempt to solve this problem among other by promulgating different banking legislation, little or no success was achieved in this regard.

There is a genuine fear that the increasing wave of bank fraud is causing a lot of havoc in our financial systems. This is because the bank fraud has eaten deep into every aspect of the banking system to the extent that many banks have lost the confidence of their customers.

Adewumi et’al (1986) defined fraud as “Deceit or trickery deliberately practiced in order to gain some advantages dishonestly” For an action to constitute fraud therefore, there must be dishonest intention, and the action must be intended to benefit perpetrator to the detriment of another person. Oxford Advance Learners Dictionary of Current English defines fraud as “Criminal deception”. According to Udok (1992), fraud is concerned with the activities of those who seek to divert to their pockets the fruits of others handwork. In general, fraud could be said to mean any activity that amounts to unfair dealing. In legal parlance, fraud has been defined as the act of depriving a person dishonestly of something, which is, or of something to which he is, or might be entitled but for the perpetration of fraud.

Fraud in banks are not new, they are as old as the industry itself. However, like in the greater societies, it has become one of the most hard to manage problems of modern day banking. While the concern of the banking community is growing day by day and management vigilance is improving with the help of computerization amongst others. It is pertinent that millions of naira is still being lost to fraud on daily basis. While some of the frauds are the handwork of outsiders, others are perpetrated by the staff and sometimes management of the banks concerned. The most significant percentage of fraud is done by fraudsters in collaboration with bank staff. As a result of this, very serious economic crimes, some staff in the industry have either been dismissed, or have their appointment terminated or prematurely retired. This means that some experienced staff in the sector are lost due to their involvement in fraud. The involvement of some bank executives in large scale fraud is now a source of serious concern in the industry.

Following the lubrication of the financial sector which was part of the structural Adjustment programmes (SAP) introduced in 1986, the banking industry has witnessed tremendous institutional growth. According to Ebhodagbe (1997), the number of banks increased from 15 in 1970, to 115 in 1996.As it is said in economics, numbers give rise to competition. But along with this institutional growth and competition was the growth of fraud, corrupt practices and mismanagements. This problem became alarming between 1992- 1995 with the

unprecedented upsurge in bank fraud particularly the new generation banks. Various types of fraud have been carried out in the banking industry and tried in courts and bank malpractice tribunals. But the fact still remains that these acts have led to unhealthiness, technical insolvency of banks, erosion of public confidence and massive distress etc in the Nigeria banking industry. Financial analysts see fraud as leakage in the economic system because frauds obtained through these means are rarely invested back into the system. Fraud cut across all sectors of the economy and the size of an enterprise usually determines the volume of fraud perpetrated. Equally, problems of inadequate manpower and manpower training, poor internal control system, inadequate incentives and unsuitable legal framework for dealing with offenders contribute to the perpetration of fraud.

1.2       STATEMENT OF THE PROBLEM

This write up is expected provide answer to the following.
1. To find out the cause of fraud in banking industry.

2. To identify the impact of fraud in banking industry.
   3. To make recommendation and suggest solution to solve the problem of fraud in Nigeria banking industry.

The monumental growth and transformation witnessed by the Nigerian banking industry brought with it some sharp practices which metamorphosed into wide spread fraud which is contrary to the desire of any economy. Considering the Nigerian experience in recent past, where fraud, corruption failures and distress have become the order of the day, the question that comes to ones mind is: can we leave this crucial sector\industry to the idea and behaviors of the operators? In order to prevent a collapse of the payment mechanism, encourage monetary stability, ensure an efficient and competitive financial system, protect customers’ interest and ensure a safe and sound banking industry, government has taken steps to regulate the banking industry and various banks have sent their staff on a variety of training to enable them provide better services. But despite all these, operators and staff of the banking industry however, engage in activities that are contrary to the objectives and ethics of banking.

The problem here includes: what are these activities? Who are the perpetrators? What are the reasons why such acts exist, and what can be done to minimize, if not eradicate them? It is so for many reasons a matter of growing concern the increasing incidence of fraud in the banking industry. The concern is that over the last decade or so, fraud and irreregularities have assumed an alarming dimension in terms of magnitude, sophistication, audacity and damaging propensity. Fraud results in Unwarranted losses for the bank and very importantly, fraud literally clips off a bit of the publics confidence in the orthodox financial institution that banks are, and delay the full development of banking habits in the citizens and in extreme cases leads to the complete failure of the bank. A more growing concern of recent is the categories of staff involved in fraud. More and of the middle and senior/management staff of banks are increasingly being attracted by the lure of fraud, and the successful prevention of a specific fraud, gives rise to a more complex one by the perpetrators.

1.3       OBJECTIVES OF THE STUDY

The purpose of this research is to critically examine the impact of fraud and other sharp practices on the performance of banking industry in Nigeria .Specifically, the objectives include:

1. To understand the nature of fraud in the Nigeria banking industry.
2. To identify and look into the cause of fraud in the Nigerian banking industry.
3. To analyze the extent and effects of fraud on the banking industry and economy in general.
4. To proffer ways of detecting, preventing and controlling fraud in banks.
5. To review existing literatures on fraud, as well as irregularities in banks.

1.4  HYPOTHESIS

The study will test the validity of the following hypothesis

1. Ho: The quality of employees does not affect number of fraud in the banking industry

H1:  The quality of employees affects fraud in the banking industry.

2. Ho: Lack of motivation is responsible for frauds in the banks.

H1:  Motivation discourages fraud in banks.

 1.5       SCOPE OF THE STUDY

The study is intended to give broader view of bank Fraud and other sharp practices like Forgeries, Thefts in banking industry, which is the pilot of Nigeria financial system and the Nigeria economy at large. As a result of the inability of the researchers to cover the entire bank in the country. The researcher has reduced the scope o the study to selected Banks in Nigeria. It will however be supplemented with a review of contribution in the daily newspaper, magazines and various professional journals in respect of the subject provided it is on banking.

1.6     LIMITATION OF THE STUDY

These are same limitation, which handicapped the researcher to make adequate and proper research of this study. These limitation are these inability of the researcher to set enough facts, most the workers or the affected staff interview could not guide adequate and reliable fact that are needed for the study.

Most of ten than not, when the office who could give adequate information are contacted, they always found to be too busy and the title time they could spare to attend to the question of the researcher were not always enough to discuss on some other issues which could have also help the researcher in this study.

1.7     DELIMITATION OF THE STUDY

The word banking industry is too broad for the researcher to know the impact of fraud on it. That is why he deliberately restricts himself on an aspect of it, which is Selected Banks in Nigeria.

1.8     PLAN OF THE STUDY

This study is divided to five chapters, chapter one is on general introduction of the topic, chapter two is frame work o the study and literature review methodology. Where focus on sampling techniques. Chapter three focuses on the research methodology, which deals with sampling techniques, chapter four deals with analysis of data which focuses on the method of collecting test of hypothesis, chapter five is on summary conclusion and policy recommendation.

1.9  SIGNIFICANCE OF THE STUDY

The study will be useful to the general public because the banking industry touches the life of everyone in an economy. Banks all over the world have contributed immensely to the economic growth and development of nations. As such, problems such as fraud which can hinder the smooth operations of the banking industry should be viewed with all seriousness in other not to intercept or destroy the rate of development.

The efficiency of the banking industry is a necessity for the proper working of a nation. Thus, this study would be of great use to authorities concern with banking operations, managements, staff customers and prospective investors in the industry. In Nigeria, bank fraud have assumed a frightening scale and sophistication consequent upon the general economic depression of the last decade and the continuing travails of the banking sector in the wake of government frantic policy experimentation. The study will therefore identify the various means (Theft, embezzlement, forgeries etc) employed in defrauding banks. It will also identify the cause of fraud in banks which may be institutional and societal i.e. factors traceable to the internal and external environments of banks respectively.

The study will also identify the various types of fraud and forgeries (ranging from misappropriation of money, goods or other resources belonging to the employers, forging signatures of important officials and falsification of records and accounts) perpetrated in banks.

1.10  DEFINITION OF TERMS.

Bank: This is define as financial institution where money, securities and other valuables are kept and paid, issued borrowed, lent or exchange.

Dud Cheque: A forged or worthless cheque.

Fraud:- Is the use of deception for unlawful gain or unjust merit.

Profitability:- Is the yielding of a financial merit or other benefit.

Fraudster:- A person that commit fraud.

Perpetrate:- This is to commit a crime or something bad.

Scrutinize:- This means to examine with care and in detain.

Errors: Mistake or something done wrongly

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