THE EFFECT OF FRAUD AND MALPRACTICE IN THE BANKING INDUSTRY {A CASE STUDY OF UNITED BANK FOR AFRICA Plc Ilorin}
CHAPTER ONE
1.0 INTRODUCTION
Fraud can be seen as the intentional misrepresentation, concealment, or omission of the truth for the purpose of deception/manipulation to the financial detriment of an individual or an organization (such as a bank) which also includes embezzlement, theft or any attempt to steal or unlawfully obtain, misuse or harm the asset of the bank. (Adeduro, 1998 and, Bostley and Drover 1972).
Fraud and management have been the precipating factor in the distress of banks, and as much as various measures have been taken to minimize the incidence of fraud, it still rises by the day because fraudsters always device tactical ways of committing fraud. This has become a point of great attention in the banking sector as well as every organization in Nigeria. Although this phenomenon is not unique to the banking industry or peculiar to Nigeria alone, the high incidence of fraud within the banking industry has become a problem to which solution must be provided in view of the large sums of money involved and its adverse implications on the economy.
Fraud in its effects reduces the assets and increases the liability of any company. In the case of banks, this may result in the loss of potential customers or crisis of confidence of banking public and in the long runs end up in another failed bank situation.
It is instructive to know that many banking operatives have different reasons for joining various banks. Many have the intention of working for a short time in the banking industry (get whatever they could and find another job that is less demanding), some are in the industry because of their love for banking and all it stands for. While majority are there to enrich themselves by fraudulent means. Due to the upsurge of great viability in the banking sector, its dynamic and fast expanding level of activities, banks are faced with different kinds of challenges, among which is trying to prevent various fraudulent intentions of both staff and customers.
With the aforementioned problems, one cannot help but ask the following questions:
i. Are the fraud detection systems in operation in banks adequate and effective in preventing fraud?
ii. Does the recruitment method have a direct link with the rate of fraud in the banking sector?
iii. Can the banks ever operate without an incidence of fraud?
Conceptual Framework
Fraud is one of the numerous enemies of the business world. No company is immune to it. It is in all works of life, in government, the export trade, shipping transactions, banking, insurance and everywhere. Special organizations have been formed to combat it and Interpol (International Police) tries to deal with at the international level, but it has not and cannot be eradicated (Nwankwo, 1991). Fraud is a universal phenomenon which has been in existence for so long. Its magnitude cannot be known for sure, because much of it is undiscovered or undetected and not all that is detected is published. It is known facts that no area of banking system is immune to fraudsters not even the security team designed to prevent it. Its management has become a central point in banking like the management of risk because of the above facts.
The basic idea behind this study is to examine the banking industry in Nigeria. This is with a view to investigating the causes of fraud and malpractices that is usually associated with the banking sectors.
1.1 STATEMENT OF THE RESEARCH PROBLEMS
Fraud and malpractice are usually the two in evil be setting the entire Banking Industry. Frauds and malpractice have to a certain extent become a household expression in the banks owing to numerous cases of fraud and malpractice which occur everyday
Fraud and malpractice are social issues, they are practice that are socially learnt, determined and socially directed. It is therefore a wrong notion by the generality of the people to say or assume that Nigeria are by nature fraudulent corrupt or dishonest. It is now generally believed that the problem of fraud and malpractice have the highest incidence in Nigeria, compared to all developing countries, for instance, between January and March 1993, Nigeria Deposit Insurance corporation {NDIC} raised on alarm that Bank lost N1 billion to fraudsters.
The problem of fraud and malpractice in our banking system may have some attachment. Therefore, there must be some factors that may have lead to this fraudulent act.
The problems are stated below:
⦁ Bank malpractices
⦁ Failure to appoint trusted and honest official at the bank representative in the clearing house
⦁ Failure to provide locked boxes or bags for carrying cheques to and from the Central Bank.
⦁ Inadequate training facilities for clearing stuff both in the stuff both in the offices and Central Bank.
⦁ Negligence in checking clearing cheques from the banks to avoid a case of possible short change of cheques.
The above statement indicate big time fraud which occurred in banks due to poor negligent handing clearing cheques, bank management and officials have been indicted and out rightly purnished for failing to do their job or doing it negligently to a part that created an enabling environment for fraudulent practices in the bank.
According to Agbadua {1980} fraud is an anti-economic process and must properly be dealt with. He made it clear that for any banking institution to stand there must be proper management and trusted worker that are psychologically fit before employment. Ade and Wole {1982} see fraud and malpractice as a virus spreads from the banking sector to other economic activities and organization even the government and that for any economic to be balanced, an anti-fraud virus should be injected to the banking industry to completely eradicate fraud from the system.
In the Vanguard Newspaper {02/01/204} It was said that fraudulent practice that lead to the fall of so many bank and organizations in time past thus step have been taken by the government by introducing an agency called the Economic Financial Crime Commission {EFCC}. This agency serves as a watch dog to financial institution, organization and even the government.
Authors will enter a most expended area of procedures to detect fraud as they implement State Security Agency No 99 the new standard aims to have the auditors’ consideration of fraud seamlessly blended into the audit process and continually updated until the audits completion of such findings.
They usually describe the information as a means to check fraudulent activities and practices.
1.2 OBJECTIVE OF THE STUDY
The primary objective of this study is to highlight the problems of the fraudulent approaches and malpractice in the Nigeria Banking Industry.
It aims at:
i. Making a distinction between fraud and malpractice in the banking industry.
ii. Identify the cause of fraudulent approaches and malpractice in bans
iii. Identify the various types of fraud pert rated and malpractice in banks.
iv. And preferring ways, means and solution of combating fraud and malpractice.
1.3 SIGNIFICANCE OF THE STUDY
This study goes a long way in helping the banking industry to know how to do against fraud and malpractice in their organization.
1.4 SCOPE OF THE STUDY
Fraud are found practically in all financial institutions in Nigeria, but are most importantly, found in Banking Institutions in regarding from commercial banks and even in Central Bank of Nigeria.
No sector of the Nigeria banking industry is fraud free, the United Bank for Africa. The main reason for choosing Nigeria Banking System is due to the fact that banks are one of the major institutions expected to accelerate the rate of economic growth in Nigeria. And the rate of fraud in banking industries has been increasing in recent time. The study will focus mainly on the type of frauds and malpractice, causes and effect of it in United Bank for Africa. It would show how, this could be curbed or eliminated in order to achieves substantial and sustainable rate of economic growth and development.
1.5 STUDY PLAN
The study is divided into five {5} chapters. Chapter one, will focus attention on the general introduction of the subject matter, statement of research problem, objectives of the key terms.
Chapter two, however, it is the chapter decoded the literature review the chapter started with the introduction, explanation of bank, the banking system, technological complexity, employee disaffection, indifference to internal control, types of frauds bank malpractices and detection of fraud.
Chapter three, discuss the research methodology historical profile of the case study , population of the study, source of data statement of hypothesis, method of data analysis and limitation of the study.
Chapter four, discuss the data presentation and data analysis, testing of hypothesis and findings.
Chapter five is the concluding chapter and its take care of summary, conclusion and recommendation based on finding.
1.6 DEFINITION OF KEY TERMS
⦁ Banking Industry: Financial organization which keeps money in accounts for its clients lends money and exchanges currency.
⦁ Financial Intermediaries: They are financial institutions that termediate between the surplus sector of the economy (household) and the deficit sector (government, business enterprises) by mobilizing the deficit sector to save part of their income that are not consumed and repackage it for lending to the deficit unit at a considerable interest rate.
⦁ Depositors: Someone who deposits money in a bank or building society especially in a deposit account
⦁ Customer: Someone who uses the services of a business.
⦁ Financial Institution: Banks, insurance companies, savings and loans.
⦁ Management: The skill or practice of controlling, directing or planning something especially a commercial enterprises or activity.
⦁ Fraud: In a criminal law, a fraud is an intentional deception made for person is some of your own al gain or to damage another individual; the related adjective is fraudulent.
⦁ Auditing: It is an official inspection of an organization’s accounts.
⦁ Bankrupt: It a legal status of a person or an organization that cannot repay the debts it owes to its creditors.
⦁ C B N: Central Bank of Nigeria is a bank that is responsible for the minting of a country’s currency. It also control all other banks operating in the country, acting as banker to the government, formulation of monetary policies, maintenance of monetary policies, and control of external reserves.
⦁ Internal control: it is a means by which an organization’s resources are directed, monitored, and measured. It plays an important role in preventing and detecting fraud and protecting the organization’s resources.
⦁ Nigeria Deposit Insurance Corporation {N D I C}: They ensure the safety of deposit on frauds, especially those in MFBs, to be closely monitored to ensure the safety of such funds.
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
Fraud and malpractice generally are not limited to financial institutions and their high incidence is not peculiar to this country. It is a global problem. The major difference is that most developed countries have made and continued to make significant efforts at controlling them.
Because of the problems presented to the banking community, bankers, sociologists, psychologists, physiologists and economists are concerned with finding ways and means to dislodge these twin evils and contributions have been made by eminent writers.
Carry Backer (1980) stressed that criminals are made and not born. It opined that before the decision to become a bricklayer, a carpenter, or indeed an economist, an individual ought to have considered the net cost and benefit of each alternative and makes his decision on these bases, we identified opportunity cost of time, quick benefit and cost of punishment as factors of variable which affect decision on cost and benefit.
Oladele Olashore (1965) identified bank operational procedures which the bank established for their internal control as one of the main factors that inhibit the ready provision of bank credits and services to all customers. Although, he never expatiated, but internal control in the banking system is aimed at averting frauds and malpractice.
Chief Y. K. Lot, (FIB) (1985) recalled that banking transaction have always been associated with some degree of fraudulent practices because money and near money are always the stock intrude of the industry. He mentioned further that in Nigeria, the practice has assumed so great sophistication these days that professional bankers are getting worded.
According to the dictionary of bank by Perry, fraud is defined to meet an actor course of deception deliberately practiced to gain unlawful or unfair advantages; such deception directed to the detriment of another. Therefore, the term fraud in its broad sense could be said to suggest any activities that amount into unfair dealing.
Within this broad classes of white collar crime, definition of fraud has been attempted by different authors such as Adewumi (1985), Adekanya (1986) and Ojigede, in their definitions, they agreed that fraud is an action which involves the use of deceit and tricks to alter the truth so as to deprive a person of his entitlement. The intention of the fraudsters is to dishonestly benefit himself to the detriment of the bank, bank staff, and bank customer of any other members of the public via banking operation, fraud can be committed by l Bank customers or third parties, that are non customer.
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