FRAUD DETECTION AND PREVENTION IN BANKS A CASE STUDY FIRST BANK ENUGU ABSTRACT Fraud is an inherent vice. It has been on from time immemorial even before the invention of money. However, in our yet developing world with the quest to become rich quick on the increase, fraud is becoming rather rampant. Banks deal essentially in cash and other financial instruments and because of that it has been exposed to greater risk of fraud. The attention of many have been drawn to the banks either directly or indirectly. Most people/workers look up to the banks to rise up to their problems. With such motives some workers go to the banks disappointed. Not getting so much as thought, most of them decide to make away with what they can at the slightest opportunity.
Nigeria’s depressed economy also comes to mind. Fraudulent persons often connive with bank officials to dupe the banks. Telex fraud is also a new dimension. In writing this project I am very conscious of the much work that has been done in this very project. I am going into this research bearing the following objectives in mind, determining actually whether financial fraud exist in Nigerian banks, verifying the effects of financial fraud in banks, finding out how computer aid in the commission, detection and prevention of financial fraud, reviewing the work that has already been done in area of financial fraud. The project will be based on both primary and secondary data interview questions were used to ascertain the true instruments of the analysis. Under secondary data magazines, news papers and published books were used. Responses to the questionnaires were analyzed in percentages, this will enable the researcher to assign and give percentage weight to each alternative in order to make a good comparative analysis and to choose the alternative with the highest percentage.
TABLE OF CONTENTS CHAPTER ONE Introduction 1.1 Background of study 1.2 Statement of the Problem 1.3 Significance of the study 1.4 Objectives of the study 1.5 Formulation of hypothesis 1.6 Scope of the study CHAPTER TWO Review of Related Literature 2.1 Introduction 2.2 Definition of fraud 2.3 Fraud and fraudulent practices and banking services 2.4 Nature and types of frauds 2.5 Causes of Bank Fraud 2.6 Effects of fraud in banks 2.7 Loopholes in the banking system 2.8 Who are fraudsters in banks? 2.9 The fate of depositors in case of bank financial 2.10 Effects of computer on detention and prevention of financial fraud in Nigeria banks 2.11 Measures for controlling fraud in banks CHAPTER THREE Research Design and Methodology 3.1 Sources of Data 3.2 Location of Data 3.3 Method of Investigation 3.4 Interview Questions 3.5 Sample used 3.6 Method of data analysis CHAPTER FOUR Data presentation and analysis 4.1 Data Presentation 4.2 Respondents to Questionnaire 4.3 Test of hypothesis CHAPTER FIVE The research findings 5.1 Summary of findings 5.2 Conclusion 5.3 Recommendations Bibliography Appendix
CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF STUDY Nigerian banking sector continues to be a vital part of the economy. Even since the inception of the nation’s first bank in the 19th century, banks have recorded tremendous growth. In spite of the hardship in the economy, people still rush to work in banks compared to other sectors with the belief of finding greener pastures there. With such negative motives as making money fast in minds, some people go to banks and when they can’t make it so fast, they go on to defraud the banks. Financial fraud occurs where there is money. Banks deal with money and so still remain the widest area open to fraud. Our daily newspapers are flooded with news of frauds. The rate at which fraud occurs continually increases by the year. And new means of perpetrating fraud is devised. In recent times, with advancement in technology in form of invention of computers, telex system , etc frauds have taken a new dimension. In our banks, unscrupulous individuals operate the computer fraudulently. It is now even possible to transfer huge sums of money through telex system. The activities of the popular 419 group should be mentioned since this group deals in exhortation of money from their culprits, they usually withdraw some huge amount of money as well as deposit the money they fraudulently collected from their culprits. Worthy of note is the much work that has been done in an effort to curb fraud, still fraud has continued and had reached such an alarming state, that even bank notes, cheques and other financial instruments were now forged and circulated in the economy. In writing this project, I want to reveal those areas of fraud yet undiscovered and discover the ways of eliminating fraud.
1.2 STATEMENT OF THE PROBLEM Our banks have in recent times been exposed to greater risk of fraud. The attention of many have been drawn to the banks either directly or indirectly. Most workers look up to the banks to rise up to their problem. People see banks as floating in money and identification with banks as success. With such motives, some workers go to the banks disappointed. Not getting so much as they thought most of them decide to make away with what they can at the slightest opportunity. Since it is said that ”opportunity comes but once”, even the seemly elite may be or are involved in fraud. Nigerian’s depressed economy also comes to mind. Times are so hard that people are trying to make it by all means. Fraudulent persons often connive with bank officials to dupe the banks. Some are imposters who with the help of some bank officials claim to be what they are not and have large sums of money remitted to their accounts. Telex fraud is also a new dimension. Actually, much work has been done on fraud but the wave and sophistication of the scourge continues. As we know, fraud can never be completely eliminated as some people, no matter the high security, will always beat the system to commit fraud.
1.3 SIGNIFICANCE OF THE STUDY This study from the little we know will be very significant to the Nigerian economy as a whole. The banking sector will remain an inevitable aspect of the economy and it would pay for it to be conducted in a very free and fair manner. The areas of risks of financial fraud when detected will help eliminate the problem posed to the public. The study will help restore people’s mind to using the banks as some people are now having the impression that banks are not actually what they are meant to be. The study will be indispensable to the banks. Common areas of risks will be brought to light. Effective ways of eliminating fraud will be examined. 1.4 OBJECTIVES OF THE STUDY There are a number of objectives this study aims at achieving by embarking on this research: 1. To determine actually whether financial fraud exists in Nigerian banks 2. To verify the effects of financial fraud on the banks and Nigerian economy. 3. To find out how the computer aids the commission, detection and prevention of financial fraud. 4. To determine the types and causes of financial fraud. 5. To evaluate management control in the detection and prevention of fraud. 6. To review and make better, the work that has already been done in the area of financial fraud and lay basis for future research. 7. To show that banks through proper detection and control, can help check the activities of 419 groups as it concerns the banks. 8. To recommend ways of solving the problem of financial fraud and find lasting solution to the after effect of fraud.
1.5 FORMULATION OF HYPOTHESIS There is no relationship between the “size” of fraud in a bank branch and the “Size” of the bank branch. The size of fraud is defined in two ways; the number of fraud cases and the amount involved. Thus hypothesis 1 is expressed mathematically as follows: Ho: Y1 ≠ F (x) Y2 ≠ F (x) Hi: Y1 = F (x) Where: Ho = Null hypothesis H1 = Alternative Hypothesis Y1 = Number of fraud cases per bank Y2 = Amount of money involved in fraud per bank Branch X = Staff strength per bank branch 2. That there is no relationship between this “size” of fraud in a bank branch and the “age” of the bank branch. Mathematically: Ho: Y1 ≠ F (P) Y2 ≠ F (P) Hi: Y1 ≠ F (P) Y2 ≠ F (P) Where P = age of a bank branch (number of years since establishment). 3. That relatively inexperienced staff of a bank are more likely to commit fraud. Mathematically: Ho : R F (q) Hi : R = F (q) Where: R = number of fraud cases per category of staff. q = number of years of banking experience 4. That more experienced bankers are more likely to swindle large sums of money. That is, bankers with five or more years of working experience are more likely to swindle a total of ten thousand naira (10,000) and above. Mathematically: Ho: A F (q) Hi: A F (q) What A = amount of money involved (N10, 000 and above) in fraud per bank branch.
1.6 SCOPE OF THE STUDY The study covered the commercial and merchant banks operating in Nigeria. These banks had a total of 1,485 branches of which, 1,071 were filled with cases of fraud by the central bank of Nigeria. Out of the 1,071, 12% or 126 bank branches spread nationwide were selected and surveyed. In order to attain the objectives of this research the scope of the study was defined to embody all relevant aspects of fraud in banking operations. Information was obtained on the number of fraud cases perpetrated in each bank, the different types of fraud; the amount of loss to banks and to customers; the persons involved in fraud; the period of concealment; the incidence of collusion; the causes of fraud and the level of effectiveness of fraud prevention measures. The study also focused on areas relating to staff strength of banks, size of deposit, size of loans and advances, means of fraud prevention and detection.
FRAUD DETECTION AND PREVENTION IN BANKS A CASE STUDY OF FIRST BANK OF NIGERIA PLC ENUGU
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ABSTRACT Fraud is an inherent vice. It has been on from time immemorial even before the invention of money. However, in our yet developing world with the quest to become rich quick on the increase, fraud is becoming rather rampant. Banks deal essentially in cash and other financial... Continue Reading
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