DETECTION AND CONTROL OF FINANCIAL FRAUDS IN NIGERIA BANKING SYSTEM: PROBLEMS AND SOLUTION

(Accounting)

DETECTION AND CONTROL OF FINANCIAL FRAUDS IN NIGERIA BANKING SYSTEM

 PROBLEMS AND SOLUTION

(A CASE STUDY OF U.B.A, ENUGU)

ABSTRACT

Banks deal essentially in cash financial instrument and other documents which are generally of a negotiable and easily transferable in nature. Hence it is very pertinent to say that the exposure of banks to both internal and external fraud is very great. This practice is very common to area involving cash, cheque and fund transfer operation. Much research and thought are increasingly being directed towards the study of the causes of fraud in Banks because of its Effects on Banking and the entire economy.  Recent study carried out by financial institutions training centre, Lagos, showed that causes of fraud reported annually between 2002 and 2010 was about 500 and the annual average money involved in attempted fraud was thirty-six million naira while the annual average lost to banks and customers was sixteen million naira. It may not be said to be an over statement that these figure may have risen geometrically upwards afterwards when about seventy eight percent of our banking operations are going to rural areas where poor institutional and infrastructural factors militate against efficient and effective checks on the branches in these rural areas. ` Another problem facing our nations banking system is that of long checks, frustrations, delays and disappointments being experienced in the banking halls by customers while either paying in or withdrawing their hard earned money. These associated problems and deficiencies have in recent years resulted to discouraging growth of banking habit among the public. This our society has been turned into a mere “cash society”.  My personal experience as an accounting personal in one of the private companies and various articles I read on the problems of our banking system have aroused my deep interest in this project topic. It is therefore my pleasure to carryout this topic on ‘detection and control of financial fraud in Nigeria banking system” using U.B.A plc as a case study. 

TABLE OF CONTENTS        

CHAPTER ONE: INTRODUCTION

1.1      Background of the study             

1.2      Statement of the problem

1.3      Purpose of the Study    

1.4      Scope of the study       

1.5      Research Questions             

1.6      Research Hypothesis     

1.7      Significance of the study             

1.8     Definition of Terms              

CHAPTER TWO: REVIEW OF LITERATURE 

2.1     The Legal Framework

2.2     Fraud and Fraudulent Practice in Banking Services      

2.3     What is fraud

2.4      Who are the bank fraudsters

2.5     Causes of fraud in U.B.A bank

2.6     The effects of fraud in U.B.A. Bank      

 

CHAPTER THREE: METHODOLOGY

3.1  Research design    

3.2  Area of the study         

3.3  Population of the Study

3.4  Sampling and Sampling Procedure       

3.5  Instrument use for Data Collection      

3.6  Validation of the Instrument

3.7  Reliability of Instrument       

3.8  Method of Data Collection

3.9  Method of Administration of Research Instruments     

3.10 Method of Data Analysis

 

CHAPTER FOUR

4.0      Data presentation and result

4.1  Summary of Results/Findings       

4.2  Testing of Hypothesis

CHAPTER FIVE

5.0      Discussion implication, recommendation     

5.1  Discussion of result                    

5.2  Conclusion            

5.3  Implication of the Result

5.4  Recommendations        

5.5  Suggestions for further research  

5.6  Limitation of the study  

REFERENCES                                                       

APPENDICES

 

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND TO THE STUDY

       There has been no single accepted definition of term “fraud”. Fraud in whatever form is limitless on classification. This is why courts and writers on fraud shirk or try to escape away from giving a decisive definition. Notwithstanding, the varied meanings attached to the concept of financial fraud the author addressed the subject with the following working definitions.

       Oxford and Chamber dictionaries define fraud as a criminal deception, act of deceptive trick, cheating swindling person or thing that deceives.

       Longman dictionary define fraud as “an act of deceitful behaviour for the purposes of gain which may be punishable by law.

       In the mind of civil court of justice, fraud may be said to cover “all acts, omissions and concealments which involve a branch of legal or equitable duty trust or confidence justly reposed and injurious to another or by which an undue influence or available is taken off.

       Burmi Fagbeni define banking fraud to mean an act or cause of deception deliberately practiced to gain unlawful or unfair advantages such deception directed to the detriments of another. The goes further to define fraud to mean depriving a person dishonestly or some thing which is his or of something to which he or would or might but for perpetration of the fraud be entailed.

       Having closely studied these approaches to the definition of fraud especially from the banking perspective. One may correctly see bank financial fraud as a deliberate act by an individual or group within or without the Nigeria banking system to cheat, swindle, deceives or manipulate in other to disposes the banks depositors/shareholders of their funds.

       Therefore fraud and fraudulent in banking transactions can be perpetrated through falsification of entire in accounts of customers with a view to take advantages of the excess proceed.        

       Despite several definitions of frauds, the author believes that the ones so far given are rather appropriate, advantageous and inspiring for the purpose in which the research work intends to achieve. This is because; they contain the basic elements of fraud which include that:

a)          There must be decent or deception directed to the detriment of another or entirety.

b)         A false representation has been made knowingly or without belief in its truth or recklessly, carelessly, whether it true or false.

c)          To obtain damages for deceits, it must be proved that the defendant intended that the plaintiff should act on it and suffered damages in consequences.

The position of banking system in our economy cannot be over emphasized. They act as the ‘conduct pipe’ through which all the financial transactions pass. However, fraud has proved a serious bottleneck to the proper functioning of the roles of the banking system to Nigeria economy. People are beginning to get worries and sooner than later may loose confidence in our banking sector due to mainly the very increasing incidence of fraud in our today’s banks. Banks as the store house of the public funds and properties should be on trust not fraud.

  

1.2     STATEMENT OF PROBLEM

The frequent cases of financial fraud in many financial institutions in our country are now taken as the utmost concern to financial experts and micro economists. This has also initiated the task of seeking solutions to eliminate its occurrences. To some banking experts, the issue of fraud is an internal vice in the Nigeria banking system. They argue on this because a good number of fraud occur among our banks without the knowledge of outsiders even where the public is aware it does not affect the rate at which customers withdraw or deposit money.

These experts are inclined to believe this because the nation is under-banked, the populaces are at no option but to use the available banks like especially the foremost and well established banks like UBA plc even if there are glaring inefficiencies in the operations incompetence and laziness among most banks staff give birth to fraud.

Fraud has paralyzed the roof, the foundation and creditability of our banking system. Just pick up any national daily or from police record and you will be alarmed at the extent and magnitude of bank fraud in Nigeria banking system. Many banks have gone on distressed. Therefore the researcher is aiming at finding out if there is any significant effect or solution to financial fraud in the Nigerian banking system which has to offer to these deficiencies aforementioned with special reference with UBA plc station road, Enugu.

In summary, the major problems of this study are as follows:

a)          The consistent case of financial fraud

b)         Weakness this has attributed to banking industry from prior to the introduction of effective control of financial fraud.        

 

1.3    PURPOSE OF THE STUDY

 This research work is general set towards ascertaining the effects finical fraud have had on Nigeria banking system or banking industry from 2002 to 2012. Furthermore, the study is;

  1.           To diagnose the banking procedures with a view to fishing out loopholes and suggesting way of plugging them.
  2.           To examine the facts contained in the detection and control of financial fraud issued.    
  3.           To research into the reason why people involve in financial fraud              
  4.           To determine if there are any lost of bills the banking have in relation with the financial fraud in banking and to what extent.
  5.           To examine the various management and government controlling devices geared towards checking financial fraud in our banking system.
  6.           To recommend solutions that may help in checking financial fraud in our banking system.
  7.           To identify the problem banks face as a result of the introduction of financial fraud.

 

1.4  SCOPE OF THE STUDY

       This research work on detection and control of financial fraud is with a particular reference to UBA plc Enugu and its cover facts on the issue. This research work has a lot of difficulties. Firstly, top officials of bank were reluctant to give away relevant statistical data on financial frauds that occurred in the organisation.

 

 

1.5  RESEARCH QUESTIONS;

Owing to the need for a compressive study of this topic, the researcher deems it necessary and reasonable to postulate the following research questions. The researcher has no doubt that the answer to these questions will help him to draw conclusions and recommendations are necessary.

The following question are the research questions

1).   What are the commonest causes of financial fraud, can this be checked and controlled.

2).  Has the financial fraud in the banking industry helped to impede problems towards banks failure.

3).  What measure do the bank adopt to check financial fraud.  

4) . To what extent can the customers wait before being attended and assume they are being attended promptly, do they have adequate banking services available to them.

1.6  RESEARCH HYPOTHESIS

To fulfill the above outlined purpose, the researcher declares the following propositions.

Ho1: Most financial frauds have not succeeded because of the complexity of banking activities.

Ha1: Most financial frauds have succeeded because of the complexity of banking activities.

Ho2: Auditing and investigations are not indispensable weapons in the efficient management of the banking industry.

Ha2: Auditing and investigations are indispensable weapon in the efficient management of the banking system.

Ho3: The problem of financial fraud is not limited to UBA station Road, Enugu nor to banking system as a whole but to the society.

Ha3: The problem of financial fraud is limited to UBA station Road, Enugu nor to banking system as a whole but to the society.

Ho4: Commercial banks do not place any value on the auditors reports.

Ha4: Commercial banks place adequate value on auditors reports.

1.7  SIGNIFICANCE OF THE STUDY

       This study is intended to highlight the indispensable position of an auditor and those concerned to work in an enviable financial house like banks.

       This project will equally be of immense help to other establishments and organization both in public and private sector. To drive the need to establish a visible internal audit unit as a means of internal control should not be over-emphasized.      

       It is hoped that the management of UBA of Nigeria plc station road, Enugu in particular should use the findings of this research to equip the audit the audit department (i.e audit department and inspection). This department being the watch – dog of bank should be given more teeth to bite then more banking prospective investors, promoters, shareholders would find this study very – useful. This will serve as an eye opener to them on what it takes to invest in banks.

       This will also help readers and those who may wish to make reference on the topic of study may be while undertaking similar research work.         Government agencies can install adequate internal control measures to avert the incessant frauds and embezzlement rampant in financial houses, ministries and parastals today.      

       For prospective auditors and accountants, it is a material of reading. They should be able to understand what is fraud and where to audit, how and why auditing and internal control system is an invertible ambient of the business system.

1.8  DEFINITION OF TERMS

Most word used in this research work is rather technical and may not easily be understand by all.

-         To enable renders and users have a proper grasp and understanding of the research work, an attempt is hereby made to define word considered technical.

-         Internal Control System (ICS), - The whole system of control both financial and otherwise established by management in order to carry on the business of the enterprise in an orderly and efficient manners – ensure adherence to management policies, safeguard the assets and secure as for as possible the completeness and accuracy of the records.

-         Auditing:- This is an improved calling by an organization seeking to investigation on the totality of stock remaining and financial prepared by the company’s accountant so as to know whether of not the organization or doing well.

-         External Auditor: - This is the invited auditor who is elected by the shareholders so as to express its view about the account carried out by the internal accountant or the company or parastatal, telling of them of the account shows a free and fair view.

-         Internal Auditor: This is the company’s staff (Accountant) who is elected by the management board to investigate and present the raw view of the statement of account of the company or organization and he can be seen as the auditor within the management.

-         Audit:  This is defined as an independence examination and expression of an opinion on the financial statement of an enterprises or organization by an appointed person called “auditor”

-         Auditor:  The person is a qualified professional accountant.

-         Audit Working Paper: These are records of audience gather by the auditors before, during and after audit work.

-         Fraud – Is an act of deception deliberately practices gain unlawful advantages such deception directed to the detriment of another.

-         Financial Statement: These are part of an enterprise, annual report, the purpose of which is to communication information about the company to those who have a right to receive if that is shareholders.

-         Accounting: Is the process of identifying, measuring and communication economic information to permit informed judgment and decision by user of the information.

-         Computer: Is an electronic device used in collecting and processing data into useful information.

-         Company: A company is an artificial being invisible, intangible and existing only in the contemplation of the law, it is a legal entity establish by the association of two or more persons in accordance with the company acts enacted for a defined object.

-         Financial fraud : Is a situation in which the legal and ethical management of financial resources does not take place, this type of fraud occurs due to deliberate decision and actions made by people who handle money an other assets on behalf of employers or clients.

-         Fraudulent Activities:  Misappropriation, improper action  and similar irregularities include, but are not limited to such things as;

-         Forgery or alterations of checks, drafts, securities, etc.

-         Any irregularity or improper actions in the handling or reporting of money transitions etc.

-         Embezzlement: is the fraudulent conversion of another property by a person who is in a position of trust, such as an agent or employee.

-         Internal Control: Is a process designed to ensure reliable financial reporting, effective and efficiently operations and compliance with applicable laws and regulations.  Safeguarding assets against theft and unauthorized use, acquisition or disposal.  

-         Banking Activities: Are such activity which includes collecting deposits from customer and giving them interest etc.

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