1.0 Introduction
1.1 Background of the Study
The Nigeria economy has witnessed a serious jump in the level of frauds 1986 with the liberalization of financial sector that accompanied the implementation of the structural adjustment programme (SAP). Fraud is among the known economic crimes now plaguing the Nigeria financial system.
The extensive liberalization of the economy that has been undertaken since then encourages frauds, and economic problems in general, especially the “white collar” type. Frauds refer to economic crimes through the financial system. However, Economic crimes, according to Kanu (2005), is described as the manifestation of a criminal act done either solely or in an organized manner with or without associates or groups, with an intent to earn wealth through illegal means, carrying out illicit activities which violate the laws of the land and other statutory provisions governing the economic activities of the government and its administration.
These economic crimes are evidently committed mostly through the financial system. Fraud is the use of deception to obtain some financial advantage CBN (2001), while frauds are collectively under economic crimes committed through the financial system.
Therefore, the banking system operations are mostly the conduit pipes through which the funds from economic crimes are transferred or received through various fraudulent and forgery activities which according to CBN (2001) include:Electronic funds deposits through manipulation Fraudulent encashment negotiable instruments, misapplication of lending proceeds and opening of letters of credit without proper documentation.
The effect of economic crimes (financial crimes and fraud) has created senior problems for many financial and non-financial institutions in recent time. According to Udenwa (1998:12), Fraud is a major economic crime which has become one of the most intractable problems of our modern day banking. She also opined that banking fraud and forgeries is international phenomenon, which have become permissive, as fraudsters become more sophisticated and havoc in the approaches.
The nefarious activity of fraud and forgeries has led to serious crises in financial institutions worldwide. Infact, the fear now is that if the increasing wave of frauds and bank frauds are not arrested, it might seriously threaten the survival of many individual banks and the stability of the financial industry as a whole, because the impacts of its operations are largely felt by the entire economy.
Therefore, more time should be spent on board meetings of banks in an attempt to fine solution to the persistent fraudulent practices among management and non-management staff. On the part of the monetary authorities, frauds are special concern because they undermine the safety, soundness and stability of the financial industry and even in some case the entire economy.
To this extent, the researcher intends to investigate into the perpetrators and suggest reasonable steps that could be taken to reduce its effects to the barest minimum.
1.2 Statement of the Problem
The problems of frauds are presently the most serious problem facing the Nigerian banking system and other financial institutions. It has a negative implication on the operation of banks. Infact, if these problems are not reduced by the regulatory authorities, it might seriously threaten the safety, soundness and stability of the financial systems and even the entire economy. This is because of the inherent problems associated with it which include;
- Huge financial losses to banks and their customers
- Distress/ closure of the affected banks
- Loss confidence in Nigeria banks
- Loss of jobs by bank workers
- The depletion of share holders funds and capital base.
1.3 Objectives of the Study
This research work is generally set towards ascertaining the causes of frauds, its affect on banking operations and measures to be taken to reuse its affect in a more specific term the study is aimed at:
- Identifying the reason why people involve in frauds
- Evaluating the trends and patterns of frauds in Nigerian banking system
- Evaluating the implications of bank fraud on the operation of banks and the Nigeria economy.
- Identifying factors/ challenges that tend to militate against effective control of financial crimes and frauds.
- Evaluating strategies to stem the financial crime by the regulatory authorities.
1.4 Research Questions
The following questions were postulated owing to the objectives of the study and the need for a more comprehensive research work;
- What are the causes of fraud in the banking industry?
- Is there effective internal control system in checking fraud?
- What are those loopholes for fund siphoning in the banking system?
- What are the trends and patterns of frauds in Nigeria banking system?
- What are the strategies to stem the financial crimes by the regulatory authorities?
1.5 Statement of Hypothesis
The following hypothesis has been made for the study:
Hypothesis 1: H1
Frauds will cause huge financial loss to the banks and their customers.
Hypothesis 2: H1
Distress in the banking sector has a positive relationship with frauds.
Hypothesis 3: H1
There is a significance relationship between frauds and negative publicity on the business operation of banks.
1.6 Significance of the Study
The significance of this research work is as follows:
- This study would enable bank executives and indeed the policy makers of the banks and other financial institutions to be more educative on frauds, its trend, patterns and the implication on the operation of banks in Nigeria.
- This research work will also provide answer to those challenges encountered by the government for the effective control of the economic crime in Nigeria.
- On the side of regulatory authorities, the study will enhance their control strategies by exposing the modus operandi of the fraudsters.
- The study would also be an invaluable tool for students, academic body, and institution of higher learners and individuals that wants to know more about fraud and frauds and its trends especially in Nigerian economy.
1.7 Scope of the Study
Financial crimes and frauds has being a global phenomenon since the existence of banks in Nigeria. However, for the propose of this study, two banks in Owerri are being selected to be representatives of the Nigerian banks in analyzing their state of frauds, upon which findings, conclusions and recommendation will be applicable to the entire banking system.
1.8 Limitations of the Study
There were some limitations in this research work though it was successful, but there was constrained by some factors on the process if pursuing the study. They are;
- Time available for the study was very short, a topic of this nature requires time, considering problems of data collection based on the empirical evidence in this research work.
- Non-availability of data, surely a number of data exist for this kind of study, but it require fund to source these information from the internet, and or moving from one bank branch to another.
- Inability of some banks officials to disclose facts, which they considered confidential.
1.9 Definition of Terms
The following terms have been defined to reflect the meaning ascribed to them in the context of this research work.
1. Frauds:
An economic crime committed to an individual or bank officers through the banking system.
2. Fraudsters:
This refers to those who are professionally engaged in defrauding people of their money.
3. forgery:
This is the act of making a copy of something in order to deceive,
4. CBN:
Central bank of Nigeria; which is the regulatory authority in the Nigeria banking industry.
5. Yahoo boys:
This is a popular name for internal fraudsters in Nigeria.
6. Cyber-crime:
These are frauds perpetuated through the internet.
7. Fraud:
This is a legal term for a purposeful deception to obtain some financial advantage which results in a financial loss to another.
8. Counterfeit:
Illegal printing of fake currency notes.
9. Defalcation:
This is the removal of cash collected from customer by cashier.
10. God Fatherism:
A political connection in Nigeria.
11. EFCC:
Economic and fraud commission, established for the tracking and eradication of economic crimes in Nigeria.
12. False Document:
A document is said to be false if it contains alterations in any material part either by erasure, alteration or otherwise to the genuine contact.
13. Document:
A piece of written, printed or electronic matter providing information or evidence.
14. E-Fraud:
These are fraud committed through criminal use of banks information technology facilitates.
15. Control:
This comprises all means devised in an organization to direct, restrain government and check its various activities for the purpose of meeting organizational objectives.
16. Banks:
A financial institution which accept deposit from the customer and pay in demand.
17. Money Laundering:
This is the processing of concealing the sources or use of illegally obtained money by converting the cash into untraceable transaction in the bank.
18. NDIC:
Nigeria deposit insurance corporation; is a body set up to insure the deposit liabilities of licensed banks and other deposit taking institutions operating in Nigeria.
19. Empirical Evidence:
This is evidence that based on observation or experience rather than theory.
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