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TITLE PAGE

MANAGEMENT OF FRAUDS IN NIGERIAN

COMMERCIAL BANKS: AN INVESTIGATION

OF THE ROLE OF CBN

By

EZUGWU BRENDAN

PG/MBA/11/60337

BEING A RESEARCH PROJECT REPORT SUBMITTED TO THE

DEPARTMENT OF MANAGEMENT, FACULTY OF BUSINESS

ADMINISTRATION, UNIVERSITY OF NIGERIA, ENUGU

CAMPUS IN PARTIAL FULFILLMENT FOR THE AWARD OF

THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION.

AUGUST, 2012.

APPROVAL PAGE

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This project has been approved for the Department of

Management, University of Nigeria, Nsukka.

BY

………………………. ……..……………….

DR. ONODUGO, V.A.

SUPERVISOR DATE:

………………………………. ………..……………..

DR. C.A EZIGBO

HEAD OF DEPARTMENT DATE:

…………………………. ……………………..

PROF. UGWUONA, G.E

DEAN OF FACULTY DATE

………………………….. .………..…………

EXTERNAL SUPERVISOR DATE:

CERTIFICATION

I, Ezugwu Brendan, an MBA Student, Department of

Business Administration, University of Nigeria, Nsukka, with

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the Registration number PG/MBA/11/60337 has

satisfactorily completed the requirement for the course and

research work for the award of master of Business

Administration (MBA) in Management.

The work embodied in the project is original and has not

been submitted in part or in full for any other degree of this

or any other university.

…………………………

Ezugwu Brendan

PG/MBA/11/60337

DEDICATION

This research project is dedicated to my brother

Chukwuma, the Memory of my Perents, and most especially

to Almighty God for his abundant blessings and protection.

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ACKNOWLEDGEMENT

I am most grateful to almighty God who through his

infinite mercy and love, guided me throughout the duration

of the programme. Special thanks goes to my project

supervisor Dr. Onodugo V.A. who guided me to the

realization of this research work. My thanks also go to the

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typist Nkiru who made sure that this project work was well

typed.

ABSTRACT

The research is on the management of fraud in Nigeria Commercial Banks. The main objective of the study is to identify

the causes of fraud in commercial banks. The researcher analyzed the data collected based on the response from the questionnaires distributed The major findings of the study are: 1. The causes of frauds in commercial bank includes

a. Poor management and poor security arrangement

b. Inadequate staff training 2. The various types of fraud in commercial banks include:

a. Loan fraud

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b. Cheque fraud c. Advance fee fraud. On the basis of the above findings, the study concludes that management of fraud in commercial banks is of the great importance and has a lot of benefit which includes

given confidence to the bank customers that their money is safe, encouraging or attracting local or foreign investors. Based on the finding, it is recommended that: a. Government should establish more anti-fraud and anti-

corruption agencies to assist in sanitizing the Nigerian banking system.

b. Bank‟s management should employ strategies that will ensure early and prompt detection, prevention and control of fraud in commercial banks.

TABLE OF CONTENTS

Title Page………………………………………………………………..i

Approval page………………………………………………………….ii

Certification……………………………………………………………iii

Dedication……………………………………………………………...iv

Acknowledgement……………………………………………………..v

Table of Content………………………………………………………vi

List of Tables………………………………………………………….vii

Abstract………………………………………………………………….v

Chapter One:

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1.0 Introduction…………………………………………………….1

1.1 Background of the Study…………………………………….1

1.2 Statement of the Problem……………………………………2

1.3 Objectives of Study……………………………………………3

1.4 Research Questions…………………………………………..4

1.5 Research Hypotheses…………………………………………4

1.6 Significance of the Study……………………………….....5

1.7 Scope of the Study…………………………………………….6

1.8 Limitations of the Study……………………………………..6

1.9 Definitions of Terms…………………………………………..7

1.10: Historical background of CBN and Commercial

Banks in Nigeria……………………………………………….9

References

CHAPTER TWO

2.0 Review of Related Literature……………………………….12

2.1 Origin of Fraud………………………………………………..12

2.2 What is

Fraud?............................................................12

2.3 What is Bank

Fraud?...................................................15

2.4 Nature and Types of Bank

Frauds………………………….16

2.5 major Causes of Fraud in the Commercial

Banks………26

2.6 Implications of Fraud on the Bank and Entire

Economy of Nigeria

……………………………………………34

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2.7 Punishment and Penalties to fraud

Perpetrators………..37

2.8 Fraud Detection, Prevention and

Control…………………40

2.9 CBN Effort to Fraud

Control………………………………….9

2.10 Extent of Fraud of

Banks…………………………………….59

References

Chapter Three

3.0 Research Methodology……………………………………….63

3.1 Area of the Study……………………………………………..63

3.2 Sources of Data……………………………………………….63

3.3 Population of Study………………………………………….64

3.4 Sample Size Determination………………………………..64

3.5 Instrument used for Data Collection ……………………67

3.6 method of Data Analysis……………………………………68

References

Chapter Four

4.0 Data Presentation Analysis and Interpretation………..70

4.1 Analysis of Questionnaires Distribute and

returned….71

4.2 Section A: Demographic

Data……………………………….71

4.3 Section B:

……………………………………………………….73

4.4 Hypotheses

Testing……………………………………………84

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Chapter Five

5.0 Summary of Finding, Conclusions & Recommendations.

5.1 Major

Findings………………………………………………….95

5.2

Conclusion……………………………………………………….9

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5.3

Recommendations……………………………………………..9

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Bibliography

Appendix A

Questionnaire B

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LIST OF TABLES

Table 4.1: Age Distribution of Respondents………...........................71

Table 4.2: Data on the Sex Distribution of the Respondents………71

Table 4.3: Data on Education background ………………………………73

Table 4.4: Data on the martial status of the respondents…………..74

Table 4.5: Data on Impact of fraud on bank performance……………..74

Table 4.6: Data on the relationship between volume of work &

fraudulent activity……………………………………………….75

Table 4.7: Data on the impact of poor management and poor security

arrangement in commercial banks…………………………………..76

Table 4.8: Data on the causes of bank fraud………………………………77

Table 4.9: Data on the effectiveness of CBN……………………………….78

Table 4.10: Data on what constitutes the types of fraud……………….79

Table 4. 11: Data on the spate of fraud in commercial

banks……………………………………………………………………….79

Table 4. 12: Data on the Control Fraud…………………………………….80

Table 4: 13: Data on what makes up personal control………………….81

Table 4:14: Data on the constitution of Accounting Control

…………………………………………………………………….82

Table 4: 15: Data on Inventory Control…………………………………….83

Table 4: 16: Data on respondents response on how fraud can be

detected and control…………………………………………………….84

Table 4: 17: Respondents responses on whether poor management and

poor security arrangement can cause fraud………………………87

Table 4.18: Respondents responses on the effectiveness of CBN……90

Table 4.19: respondent response on the spate of fraud in commercial

banks………………………………………………………………………92

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CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Over the years, irregularities have been the problems of

commercial banks. The term irregularities are used to refer to

intentional distortion of financial statement and

misappropriation of assets for whatever purpose. Fraud is

one type of irregularities. Fraud, in auditing guideline, is

used to refer to irregularities involving the use of criminal

deception to obtain unjust or illegal advantages.

Fraud may entail that proper accounting records have

not been properly maintained, it may also point out that

some internal control system are not effective and could not

form a reliable source of information for an auditor.

Existence of fraud in a financial statement endangers it from

showing a true and fair view and complying with the

provision of the companies and Allied Matter Acts (CAMA)

1990.

Therefore, fraud in banks must be looked at generally

as “acts that involves the loss of assets by banks through

dishonest and deceitful means. The fraudster intentionally

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but dishonestly benefit himself to the detriment of the bank,

the bank staff, bank customers and any other member of the

public via banking operations. Fraud can be committed by

bank staff, bank customers or a third party that is non-

customer (Eze, 2004).

1.2 STATEMENT OF THE PROBEM

Fraud in the Nigerian Commercial banks has been

notable and has remained an unavoidable problem and has

resisted all practicable treatment. This incidence has not

only become an incessant phenomenon but also been on the

increase in the recent past.

In recent years, the volume and frequency of fraudulent

practices in Nigeria banks have been on the increase.

According to the Nigerian Deposit Insurance Corporation

(NDIC), the level of reported fraud in Nigeria banks rose from

N 804m in 1990 to N3, 199m in 1998. Furthermore, the

actual/expected loss to the amount involved in fraud rose

from 3 percent in 1990 to 22 percent in 1998. This is

evidenced in the report, which is the highest fraud ever

reported in any particular year by a Nigerian bank in 1998,

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when united Bank for Africa Plc wrote of N786m on account

of fraud.

The growing scope and scale of fraud in the Nigerian

banking industry is surprising and the general confidence

reposed in the banking institutions has become eroded since

the new concept of distress, bank failure and closures in the

recent years. From available records, out of about 114

financial institutions operating in the country as at 1996, 52

were distressed while 6 were acquired. With the frequent

fraud, people are no longer at ease keeping their monies in

the commercial banks but instead prefer to keep them in

their houses or prefer to hold them in wares.

The commercial banks shares 90% of all cases of

malpractices, forgeries and frauds (Wikipedia 2007).

1.2 OBJECTIVES OF THE STUDY

The main objective of the study includes the following.

(1) To access the impact of frauds on banking public and

on bank performances.

(2) To identify the causes of bank fraud in Nigeria.

(3) To examine the effectiveness of the supervisory and

oversight functions of the CBN.

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(4) To ascertain the incidence of fraud in the Nigerian banking

industry in the last 5 years.

1.4 RESEARCH QUESTIONS

The study poses the following research questions.

(1) What are the impacts of fraud on banking and on bank

performance?

(2) What are the causes of bank fraud in Nigeria?

(3) How effective is the supervisory and oversight functions of

the CBN?

(4) What are the incidences of fraud in Nigerian banking

industry in the last 5 years?

1.5 RESEARCH HYPOTHESES

The following research hypotheses will be formulated for

the purpose of the study.

1. Ho: Economic down turn and termination/retirement of

staff are not impact of fraud ob banking and on

bank performance.

Hi: Economic down turn and termination/retirement of

staff are impact of fraud ob banking and on bank

performance.

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2. Ho: Poor Management and security arrangement in

commercial banks do not cause fraud in Nigerian

banking industry.

Hi: Poor Management and security arrangement in

commercial banks causes fraud in Nigerian banking

industry.

3. Ho: The supervisory and oversight function of CBN in

protecting the depositors, economy, and banks‟

customers is not effective.

Hi: The supervisory and oversight function of CBN in

protecting the depositors, economy, and banks‟

customers is effective.

4. Ho: The spate of fraud in Nigerian banking industry is low.

Ho: The spate of fraud in Nigerian banking industry is

high.

1.6 SIGNIFICANCE OF THE STUDY

The study of these kinds is very important and timely,

especially at this period when the Nigerian central bank,

Nigeria deposit insurance corporation (NDIC) and government

and its agencies are doing something to curb the menace of

fraud in commercial banks. The study will not only raise

public awareness of the presence of fraud in the commercial

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bank but also grants public awareness of the existence of anti-

fraud investigators, thus assisting and encouraging those who

may witness or suspect act of fraud being committed by people

to report it and provide evidence.

The study will go a long way to sensitizing the public on

the adverse effect of fraud on commercial banks and the Nigeria

economy at large. In addition, it will equally serve as a

reference material for researchers in the same field.

1.7 SCOPE OF THE STUDY

The scope of the study seeks to deliberately delineate the

boundaries of the study (Onodugo, 2010). In this research

work, treating the problems as a whole will be too much for the

requirement of this work. Therefore, Enugu state is used for the

analysis of the work to determine the role of CBN in the

management of fraud in Nigerian commercial banks.

1.8 LIMITATIONS OF THE STUDY

The study focuses only on the management of fraud in

Nigeria commercial banks. Constraints to the study are

enumerated;

1. Time Constraint: The limited nature of time available

for the researcher could not allow him to collate all the

information needed for the study.

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2. Financial Constraint: Finance which is the driving

force of any research work was insufficient. Due to this

constraint, the researcher could not visit places where

relevant information for the study could be obtained.

3. Attitude of the Respondents: Some of the s

respondents show negative attitude towards the study

because they felt that there is no financial benefits

attachment.

1.9 DEFINITION OF TERMS

Assets:

Assets are what a person or business owns. Castle and

Owen (1992).

Commercial Banks:

Commercial bank is any bank whose business include the

acceptance of deposit withdrawable by cheque or cash (Okeke,

1996).

Fraud:

Fraud refers to an intentional act by one or more

individuals among management employees or third parties

which results in a misrepresentation of financial statement.

(Adeniyi, 2004).

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Auditor:

An auditor is an independent person or body charged with

the responsibilities of detecting financial irregularities (fraud)

which might impair the truth and fairness of the view given by

the financial statement (Eze, 2001).

Auditing:

Auditing is the process carried out by the independent

examination of and expression of opinion on the financial

statements of an enterprise by an appointed auditor in

pursuance of that appointment and in compliance with any

relevant statutory obligation (Adeniyi, 2004).

Central Bank f Nigeria (CBN):

CBN takes financial policy and regulations as well as

supervision of other financial institutions.

Nigeria Deposit Insurance Corporation (NDIC):

NDIC is an independent agency of the federal government

of Nigeria established to protect depositors and guarantee the

settlement of insured funds when a deposit-taking financial

institution can no longer repay the deposits. Thereby helping to

maintain financial system stability.

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Capital Base:

Capital base is the amount contributed by the powers of a

business which gives them right to enjoy all the future earnings

(Anyanwokoro, 1996).

Shareholders Funds:

Shareholders funds are paid up capital, share premium

statutory reserves. Retained earning, general reserves, minority

interest and other subsidiary reserves excluding preferences

shares and revaluation reserves (Iganiga and Anyanwokoro,

1996).

1.10 HISTORICAL BACKGROUND OF CBN AND

COMMERCIAL BANKS IN NIGERIA

In 1948, an enquiry under the leadership of G.D Paton was

established by the colonial administration to investigate

banking practices in Nigeria. Prior to the enquiry, the banking

industry was largely uncontrolled. The G>D Paton report, an

offshoot of the enquiry became the cornerstone of the first

banking legislation in the country; the banking ordinance of

1952. The ordinance was designed to prevention viable banks

from mushrooming, and to ensure orderly commercial banking.

The banking ordinance triggered a rapid growth in the industry

and with growth also came disappointment. By 1958, a few

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numbers of banks had failed. In 1958, a bill for the

establishment of Central Bank of Nigeria was presented to the

House of Representatives of Nigeria. The Act was fully

implemented on July 1, 1959, when the Central Bank of Nigeria

Came into full operation.

The Nigerian banking industry which is regulated by the

Central Bank of Nigeria, is made up of; deposit money banks

referred to as commercial banks, development finances

institutions and other financial institutions which includes;

micro-finance banks, finance companies, bureau de changes,

discount houses and primary mortgage institutions.

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REFERENCES

Adeniyi, A. (2004), “Auditing and Investigation”. Lagos, El-

Toda Venture Limited.

Castle, E.F & Owens, P.N. (1992), “Elements of Banking”, 2nd

Edition. New York, pretince Hall.

Eze, J.C. (2004), “Principle and Techniques of Auditing”.

Volume II. Enugu, Computer Edge Publishers.

Johnson, U.O (2007), “Introduction to Project writing”.

Enugu, New Dimension Publishers.

Onodugo, V.A, Ugwonah, G.E. & Ebinne, E.S. (2012), “Social

Science Research: Principle, Method and Applications”.

E. L‟ Demak Publishers Enugu Nigeria.

www.n.m.wikipedia.org/wiki/Central-Bank-of-Niegria

www.icr.sakescapital.com/research-int/background/Nigeria-

banking-industry.htm/

www.cenbank.org/supervision.

www.ndic.org.ngl.

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CHAPTER TWO

2.0 REVIEW OF RELATED LITERATURE

2.1 ORIGIN OF FRAUD

It is very difficult to trace the origin of fraud. However,

in the case of fraud perpetrations, Adewole, 1990, opines

that any minor mistakes by an individual which is not

detected in time or at all makes such an individual to think

that the success of such mistakes may be taken advantage of

and may proceed to enact more mistakes, this time,

deliberately so as to test the system‟s check and balance. He

stresses that where a deliberate mistake is made and is

successful, the individual takes benefit of it for selfish end.

He refers to these behaviors as fraud, since it is now a

deliberate action aimed at dishonestly enriching the

individual. The next logical step for such an individual is

definitely to continue with such errors until he eventually

graduates to a hardened fraudster.

It can therefore be deduced that the genesis of fraud is

traceable to the committal of minor, undetected mistake,

which are consequently capitalized upon by individual

intending to defraud (Adewole, 1990.)

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2.2 WHAT IS FRAUD?

Fraud has been variously defined in the literature. Most

developing countries of the world regard fraud as criminal

act. In Nigeria, it is equally recognized as a crime too, this

promoted the promulgation of decree on fraud and other

fraud related matters/structures namely “the failed Banks

and recovery of public debts decree 18 of (1994), banks and

other financial institution decree (BOFID) 1991, Money

laundering Act No 3 of 1995. Federal Intelligence

Investigation bureau (FIIB), Independence Corrupt Practices

Commission (ICPC) and Economic and Financial Crime

Commission (EFCC)‟‟.

According to Oxford Advance Learners Dictionary of

Current English, „Fraud‟ is defined as a criminal act/

deception. According to Udo (1992), Fraud is concerned with

the activities of those who seek to divert to their pockets the

fruits of others hard work. Adeniyi (2004) sees Fraud as an

intentional act by one or more individuals, among

management employees or third parties which results in a

misrepresentation of financial statements which involves;

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1. Manipulation, falsification or alteration of records of

documents.

2. Misappropriation of Assets.

3. Suppression or omission of the effect of transactions

from records or documents.

4. Recording of transaction without substance.

5. Misapplication of accounting policies

According to Adekanye (1983), Fraud is an act of

falsifying or altering of a writing document for the purpose of

doing injury to another person. He continued by saying that

any alteration of a writing document made with intention to

defraud is therefore forgery.

According to Wikipedia (2007), fraud is any insidious,

sneaky crime that ruins individuals and families, Causes

Corporation to go under. Eze (2004) refers to fraud as

irregularities involving the use of criminal deception to obtain

an unjust or illegal advantage. Another definition of fraud

put it that, it is an act by which one person intends to gain a

dishonest advantage over another person.

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2.3 WHAT IS BANK FRAUD?

Frauds in the banks are not new. They are as old as the

industry itself. Bank fraud can be defined as a conscious or

deliberate effort aimed at obtaining unlawful financial

advantage at the detriment of another person who is the

rightful owner of the fund (Orjih, 1998). Bank fraud must be

looked at generally as acts that involve the loss of assets by

banks through deceitful and dishonest means. The intention

of the fraudster is to dishonestly benefit himself to the

detriment of the bank or bank staff or bank customer or any

member of the public via banking operations. Fraud can be

committed by bank customers, bank staff or a combination

of staff and customer or third parties that is non-customers.

Also, bank fraud as a canker worm has eaten deep

gradually into our social fabric and a concerted effort by

individual, government, bank staff and authorities

concerned will be required to minimize its occurrence.

Unfortunately, bank managements are generally unwilling to

release details of frauds that may have been perpetrated in

their banks for fear of loosing their corporate image, (Eze,

2004).

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2.4 NATURE AND TYPES OF BANK FRAUDS

Frauds in banks vary widely in nature, character and

methods of operation. In general, fraud may be perpetrated,

using different methods. On the basis of perpetrators, bank

fraud may be categorized into three groups (Shogotola, 1994).

(a) Internal fraud

(b) External Fraud

(c) Mixed Fraud.

(a) Internal Perpetrators of Fraud: This relate to

members of staff (insiders); Accountant, Executives

Assistants, Supervisors, Clerk (Cashier),

Typist/stenographers, Technicians, Drivers, Cleaners

etc.

(b) External Fraud: These types of fraud are fraud related

to those committed by persons not connected with the

bank. A typical example was that of armed robbery attack

either during the banking hours or during special

movement of cash in transit. More so, some external fraud

could result through carelessness and recklessness or

negligence on the part of some customers. Often times, it

27

comes through corporate accounts in which a dishonest

staff may have access to the company‟s cheque book.

(c) Mixed Fraud: These are fraud committed by collusion

between the insider staff and outsiders customers. It is

general belief that no successful fraud is perpetrated

without the aid of an insider staff. For instance, in one of

the outrageous armed robbery incident in 1986 against

Union Bank Plc, Nnewi, the staff dispositions charts

recovered from the bandits was alleged to have been

designed by a number of staff (insider). That is why

Shongotola cautions that the banking industry has

become not just a battle front with a clear-cut firing line

between banks and the fraudster but a veritable minefield

on which some banks and their top management staff are

in secret league with the enemy.

Categorization on the basis of methods of perpetration

is the most common form of classification employed by

banks. Here, the list of types of fraud is inexhaustible as new

methods are devised with time. However, Shongotola identify

the following.

1. Outright theft and embezzlement.

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2. Defalcation.

3. Forgeries and insider abuse

4. Suppression.

5. Fraudulent substitution.

6. Tampering with reserve.

7. Payment against uncleared effects.

8. Unauthorized lending.

9. Lending to “Ghost” borrowers.

10. Kite-flying and cross firing.

11. Unofficial borrowing

12. Foreign Exchange Malpractices.

13. Impersonation.

14. teaming and lending

15. Fake payments

16. False proceeds of collections.

17. Influence of evil forces.

18. False declaration of cash shortages.

19. Fictitious Accounts

20. Ledger Cards manipulation

21. Misuse of suspense accounts

22. Manipulation of vouchers.

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23. Dry positing.

24. Over invoicing

25. Over/under valuation of properties.

26. Inflation of statistical data

27. Duplication of cheque books, drafts, stamps etc.

28. Interception of clearing cheques.

29. Interception and switching of telex messages

30. Fictitious contracts.

31. Laundering.

32. Computer frauds.

However, the bank administration institute identifies

the following as the most important and common types of

bank fraud:

a. Advance Fee Fraud (419):

b. Cheque kiting

c. Account opening fraud

d. Letter of credit fraud

e. Money transfer fraud.

f. Loan fraud.

g. Counterfeit securities.

h. Money laundering fraud

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i. Clearing fraud

j. Computer fraud and

k. Telex fraud

(a) Advance Fee Fraud (419):

Fee fraud may involve an agent approaching a bank, a

company or an individual with an offer to access large funds

at below market interest rate for long term. The purported

source of such funds is not specifically identified as the only

way to have access to it is through the agent who must

receive fee or commission “in advance”. As soon as the agent

collects the fee, he disappears into the air and the facility

never comes through. Any bank desperate for funds

especially the distressed banks and banks needing huge

funds to bid for foreign exchange can easily fall victim to this

type of fraud. When the deal fails and the fees paid in

advance are lost, these victims mare not likely report the

losses to the police or to the authorities.

(b) Cheque Kiting:

Kiting is defined by the United States Controller of the

currency policy and guidelines for national bank directors as

“a method whereby a depositor utilizes the time required for

31

cheque to clear to obtain an unauthorized loan without

interest charge”. The aim of the cheque kiter is to use these

uncollected funds interest free for a short time to overcome a

temporary cash shortage or to withdraw the funds

permanently for personal use.

(c) Account Opening Fraud:

This involves the deposit and subsequent cashing

fraudulent cheques. It usually starts when a person not

known to the bank asks to open a transaction account such

as current and saving account with false identification but

unknown to the bank.

(d) Letters of Credit Fraud:

Letters of credit generally arise out of international

trade and commerce. They stimulate trade across national

boarders by providing a vehicle for ensuring prompt payment

by financially sound commercial banks. However, in some

areas of the world, fraud has historically been a problem. In

Nigerian (Nnewi) in particular, letter of credit (L/C) Fraud

rate is statistically high as a result of importation of motor

parts and other machines.

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(e) Money Transfer Fraud:

Money transfer services are means of moving fund to or

from a bank to a beneficiary account at nay banking point

worldwide in accordance with the institution from the banks

customers. Some common means of money transfers are

mail, telephone, cheques, over the counter, telegraphic,

electronic process, telex and bill of exchange. Fraudulent

money transfer may result from a request created solely for

the purpose of committing a fraud or the alteration of a

genuine funds request by changing the beneficiary‟s name or

account number or changing the amount off the transfer.

(f) Loans Frauds:

Loan and other form of credit extensions to business

and individual customers constitute traditional function of

commercial banks. In process of credit extension, fraud

may occur at nay stage from the first interaction between the

customers and the bank to the final payment of the loan.

Loan fraud occurs when credit is extended to non-borrowing

customer or borrowing customer who has exceeded his credit

ceiling. The fraudulent aspect of this class is that, there is

intent to conceal it from the head office (Inspectorate) staff on

33

routine check to deceive them with plausible but falsified

statements, documents etc. advanced perpetrators of credit

fraud to the extent to applying credit facility approved for one

customer to credit another who is often unrelated to be first

customer. That is to say a credit facility for a customer “A”

yet to be drawn is directed to the use of customer “B”

(Anaeto, 1996).

(g) Counterfeit Security Fraud:

Like counterfeiting of money, counterfeiting of

commercial financial instruments is one of the oldest forms

of crime. Modern photographic and printing equipment has

aided criminals in reproducing good quality forged

instruments. According to Agba, documents may be total

counterfeit or may be genuine documents that are copied,

forged or altered an amount payment date, payee or terms of

payment. A common fraud is to present the counterfeit

stocks or bonds as collected to loan. Other counterfeit items

such as treasury notes, cashier cheque, banker‟s

acceptances or certificates of deposit in counterfeit or altered

forms may be presented to a commercial bank for

redemption. The presenter would drawn out the proceeds or

34

disappear before the financial instruments are found

counterfeit.

(h) Cheque Fraud:

This is used as a means of payment or paying for

financial obligations. Cheque fraud is now common involving

millions of naira annually, Common types of cheque are

personal, business, government travelers, certified drafts and

counter cheque with each having its own characteristics and

vulnerabilities of fraudulent use. The most common of

cheque fraud involve cheques that are stolen, forged

counterfeit or altered.

(i) Money Laundering Fraud:

This is a means to conceal the existence source or use

of illegally obtained money by converting the cash into

untraceable transactions in banks. The cash is disguised to

make the income appear legitimate. Commercial Banks as

well as other banks should be advised to avoid handling such

funds (Umunna, 1989).

(j) Clearing Fraud: most clearing fraud hinge on

suppression of instruments so that at the expiration of the

clearing period applicable to the instrument, the collecting

35

banks will give value as through the paying bank has

confirmed the instrument good for payment. Clearing

cheques can also assist fraudsters to complete a clearing

fraud. This is to say a local clearing item can be routed to

an up country branch. In the process of re-routing the

instrument to the proper branch, the delay entailed will give

the collecting branch the impression that the paying bank

has paid he instrument (IFeduba, 2002).

(k) Telex Fraud:

Transfer of funds from one location to another can be

affected through the telex. The message though often coded

can be altered (decoded) to enable diversion of the funds to

an account not original (Ifeduba, 2012.)

(L) Computer Fraud:

Computer fraud can remain undetected for long time. It

can take the form of corruption of the program or application

packages and be ever breaking into a system via a remote

sensor by a computer specialist or a programmer. Diskettes

can be tampered with to gain access to unauthorized areas or

even give credit to an account for which the funds were not

originally intended. Computer fraud does rarely occur but

36

when it happens, large sums of money are lost (Shongotla,

1994).

2.5 Major Causes of fraud in the Commercial Banks

Many authors have analyzed in some write-ups different

causes of fraud in the commercial banks.

Shongola (1994), grouped the major causes of fraud

usually, into two classes:-

a. Institutional Factors

b. Environmental or societal factors.

The institutional factors are those traceable to the

internal environment of the financial institution while the

environmental or societal factors are those which result from

the influence of the environment or society on the banking

industry.

Institutional Causes of Fraud

According to Shongotola, Institutional causes of fraud

are classified below as;

1. Volume of work:

The amount of work done by officials could be heavy

that fraud could easily pass undetected by such officials.

2. Number of Staff:

37

Where an official supervises quite a large number of

staff, there is a high likelihood that fraud could go

undetected.

3. Nature of Services:

Fraud may be caused where documents of value and

liquid assets (cash) are exposed to an indiscipline staff or

unauthorized persons, for example, customers.

4. Banking Experience of Staff:

Frauds in commercial banks occur with higher

frequency among staff with little experience and knowledge in

financial practice. The more the experience and knowledge of

a staff, the less the likelihood that fraud would pass such

staff undetected unless with the active support of the staff.

5. Inadequate Staff Training:

This could affect the morally weak as well as orally

robust staffs in various ways. Lack of knowledge of the ways

of dealing with fraudulent practices in commercial banks

could affect an otherwise honest staff in apprehending and

avoiding the tricks of bank fraudsters.

38

6. Poor Management:

Commercial banks with poor management record higher

incidence of all sorts of frauds than those with effective

management. Poor management give rise to in-effective and

poor control system, indiscipline among staff and this create

an environment for fraud to flourish.

7. Staff Negligence:

In certain cases, staff negligence could give rise to

perpetration of fraud in commercial banks. Negligence itself

is a product of several factors including poor supervision,

lack of technical knowledge, apathy and pressure and lack of

cognate experience.

8. Recruitment System

In the past, recruitment of staff into the banks was

strictly on merit. However, nowadays, poor recruitment and

selection system where cognate experience, relevant technical

knowledge, competence, character and other sterling

qualities are sacrificed on the alter of no performance related

factors such as connections and tribalism constitute

important facilitator of fraud in financial institution or

commercial banks.

39

9. Poor Security Arrangement for Documents:

In commercial banks where security arrangements for

valuable documents are week, poor and vulnerable, it is easy

for fraudsters to have their way without detection.

10. Lack of Adequate Job Rotation:

The longer a staff stays in a particular job “Creteris

Paribus” the more proficient he is likely to be. However, when

a staff over stays her tenure on job, it can encourage fraud as

the perpetrator is assumed of the fact that no one is likely

unearth his fraud.

11. Use of Sophisticated Accounting Machine

Where sophisticated accounting machines are in use

and manned by inadequately equipped staff, errors could

arise and thus lead to the production of unreliable records.

In the hands of dishonest staff, sophisticated accounting

machines could be employed to deliberately omit entries

substitutes‟ improper calculation and posting, manipulating

documents, substitute fictitious documents and alter

genuine ones. All these are different ways of perpetrating

fraud in commercial bank.

40

12. Inadequate Motivation:

Management practices, when negative to the aspiration

and developmental needs of staff could result in the

generality of staff being frustrated. Frustration in turn can

result to fraudulent practices in commercial banks.

13. Inadequate Infrastructures:

Poor communication system, power failure and

frequent network failure or breakdown which result in

backlog of unbalanced postings, congested office space etc.

are some factors which encourage the perpetration of fraud

in commercial banks.

14. Lapses in the Management Control System of

Corporate Customers:

This is classic example where frauds could be externally

hatched and executed. Fraudulent staff in both commercial

banks and in the employment of corporate customers could

collude to take undue advantage of lapses observed in the

management control systems of corporate customer.

15. Negligence by Customers:

Traditionally, it is the negligence of the part of

customers that provide ample opportunities to staff of

41

commercial banks to perpetrate frauds. Negligence by

customers takes various forms, consisting errors that might

have been genuine but which are open to abuse, distortions

and defalcations unscrupulous staff both within and outside

the institution in the employment of customers.

Environmental/Societal Causes of Fraud

According to shongotola 1994, Environmental causes of

fraud are classified below:-

1. Personality profile of dramatize personnel:

Most individuals with inordinate ambitions without

qualms are prone to committing frauds. These kinds of

individual are bent on making money by hook or by crook.

Such people dismiss morality as an unnecessary or requisite

for virtuous life. To them the end justifies the means they are

usually unscrupulous and opportunistic.

2. Societal Value:

As for Fagbami, 1990, the value system in any society is

the sets of rules that prescribe what is right or wrong within

that society. When the possession of wealth determines the

reputation ascribed to a person, that society is bound to

witness unnecessary competition for acquisition of wealth.

42

This no doubt will lead to some people using dubious means

to get rich overnight. It can be argued that the main causes

of fraud in commercial banks are traceable to the general

dishonesty in society where morality is thrown to the dogs.

Misplacement of society values, unquestioning attitudes of

the society towards the sources of wealth. The rising societal

expectations from staff of commercial banks and the

subsequent desire by such staff to live up to such

expectations are also contributory factors to fraud.

3. Slow and Tortuous Legal Process:

Delays in prosecution of fraud cases have a way of

frustrating the parties to the cases. A frustrated party can

abandon the case midway leading to miscarriage of justice.

The delays can be form of:

(a) Lack of specialized manpower for the investigation of

fraud.

(b) Late reporting of cases to police.

(c) Lawyers and persecution witness absenting themselves

from court.

43

(d) Undue delay in the investigation and charging of cases

to court and

(e) Frequent adjournment by the court could frustrate

appellant and favour the defendant.

All these make fraudsters to have feeling that they are

above the law and as such can get away with any act of

illegality (Adewole, 1990).

4. Lack of Effective Deterrence & Punishment:

Although this may be considered as a most point, it is

argued in some quarters that lacks of effective deterrent such

as heavy punishment could be factor that contributes to non-

abetting perpetration of fraud in commercial banks.

5. Fear of Negative Publicity in Reporting Fraud Cases:

Many commercial banks fail to report fraud cases to the

authorities. They believe that doing so will give unnecessary

negative publicity to their institutions. This attitudes

encourages individuals with inordinate to defraud in

commercial banks. They reason correctly that effected

institution may not prosecute them. It is even said to note

that some staff whose appointment have been terminated or

44

retired prematurely are still manage to secure appointments

in other commercial banks (Shongotola, 1994).

2.6 IMPLICATIONS OF FRAUD ON THE BANK AND

ENTIRE ECONOMY OF NIGERIA.

According to Wikipedia, 2007 the following are the

various implications of fraud on the banks and the entire

economy of Nigeria.

(1) Down Turn in the Economy:

For the past 18 years or so our economic development

has witnessed a serious set-back with graduates roaming the

streets in search of employment which are not available.

Various governments‟ police to revamp the economy though

appear laudable were all frustrated at the implementation

stage because some of the people responsible for

implementing them are fraudulent. Both the political and

economic situation declined from bad to worse with naira

witnessing an unprecedented devaluation of 1,300% within

five years. As at December 2008 and January 2009 the naira

exchange rate with the stood between N 149 to N 150 per $1.

45

2. Termination/Retirement of Staff:

As a result of this very serious economic crime, some

staff in the industry has either been dismissed, or has their

appointment terminated or prematurely retired. This means

that some experienced hands in the sectors are lost due to

their involvement in frauds and forgeries. During and after

the consolidation exercise that took place in the Nigerian

banking industry, it was revealed by the central bank that

some bank directors and senior mangers of those banks that

couldn‟t meet up the N 25 billion minimum capital base gave

themselves unserviceable loans in hundreds of millions. The

Nigerian Deposit Insurance Corporation is still in court with

those involved in this unethical behaviour. Our problem is

that most of those involved these economic crimes are highly

placed or senior politicians. We can‟t know their names

simply because of their positions in the country.

(3) Global Perception:

Nigeria has become synonymous with fraud as some of

its citizens use the boom in internet fraud and corruption

has become an unfortunate staple in Nigeria‟s international

reputation. The country regularly features at the top of

46

international surveys measuring the part played by graft in

different economics. Successive dictatorships have extracted

billions form the exchequer, denuding the public purse of

revenues from Nigeria‟s rich oil reserves. Outside the country

Nigeria has become synonymous with fraud as some, of its

citizens use internet and the boom in of cafes to send “Spam”

emails, promising millions in exchange for the gullible

recipient‟s bank details. This makes it difficult for genuine

business men from Nigeria to go into international business

with foreigners of secure credit overseas.

(4) Frauds deplete shareholders funds and lead to loss

of money belonging to customers. This loss invariably

results in a reduction of the available resources, which could

lead to the collapse of the affected bank. These banks are

also deprived of faithful and honest applicants who might be

unwilling to apply for fear of being associated with fraud.

Fraud causes termination, dismissals and retrenchment of

staff.

(5) The welfare of staff may also be adversely affected

in a bank with persistence fraudulent practices. No

worker or staff will have the courage to fight for staff welfare

47

matters such as promotion, increased salaries, and

improvement in general working condition.

(6) Bank frauds erode public confidence in the banking

system. This constitute a serious set back to the efforts

geared at promoting bank habit in a country where

numerous people prefer to keep their money at home.

(7) Another effect of frauds on bank is that it destroys the

nation economy and its sovereignty since banking sector help

to survive the economy of the nation through money in

circulation. We are all living witnesses to how Nigerian

sovereignty was called into question and its international

trade threatened when a foreign power issued an ultimatum

to its (Nigerian) National Assembly to pass a bill on financial

malpractice. Had the national assembly failed to pass the

bill, the country would have faced international sanctions.

2.7 PUNISHMENT AND PENALTIES TO FRAUD PERPETRATORS

The following units were created to monitor and control

fraud as represented through the sub-structures set up via

security and exchange commission (SEC) for the capital

market operations. Federal Mortgages Institutions (FMI),

National Board for Community Banks (NBCB) for community

48

banks, Insurance Supervisory Board (NISB), for Insurance

Companies, the Central Bank of Nigeria (CBN) decree,

National Drug Law Enforcement Agency (NDLEA), banks and

other financial institution decree (BOFID), Nigerian Deposit

Insurance Corporation decree (NDIC), Companies and Allied

Matter Acts (CAMA), Money Laundering Degree (ML)

Economic Sabotage decree (ESD), Failed Bank and Debt

Recovery (FBDR). Others are Justice, the police, the judiciary

and even the armed forces, economic and financial crime

commission (EFCC) and Independent Corrupt Practices

Commission (ICPC).

All these are reasonable pointers to the facts that our

financial system is riddle with fraud. Perhaps, the recent

return to NDIC on fraud and forgeries in commercial banks

revealed that the phenomena has assumed an unimaginable

level with this in mind the monetary authorizes (CBN), (NDIC)

involved the Federal Intelligence Investigation Bureau (FIIB)

as well as the setting up of tribunal. For example the deferral

intelligence investigation bureau are empowered to arrest,

detain, prosecute and even confiscate property of person

accused of any fraudulent practices and the promulgation of

49

decree N0. 18 of 1994 Failed Bank and Debt, financial

malpractices empowered to arrest, detain, prosecute and

even confiscate property of persons directly or indirectly

connected to the failure or distress of any financial

institution even where the person secured assets have been

sold off by the banks.

So also, the provision of section 39 and 40 of NDIV

decree 232 1988 stressed the need for returns or dismissed,

terminated, disengaged and Retire bank staffs involved in

fraud and fraud related offences.

Within the bank, there are internal punishments. Staff

that has any action of fraudulent intentions/behaviors faces

disciplinary action via suspension for indefinite period with

half pay, denial of year increment, bonus, demotion,

inspection report.

Again, the money laundering decree No 3 of 1995

requires all commercial banks to disclose to the National

Drug Law Enforcement Agency (NDLEA) and the CBN in

writing within 7 days any single lodgment (cash or cheque in

excess of N 500, 000 for an individual and N 2,000, 000 for

corporate body.

50

Furthermore, the banks and other financial institutions

decrees (BOFID) N0 25 of 1991 section 189, stipulates

penalty for the contravention of section 18 (a) an offences

punishable of conviction to a fine of N100,000 or to

imprisonment of a term of 3 years and forfeiture of gains and

benefit to the federal Government section 19 (prohibition of

employment of certain person interlocking directorship) etc

decree 25. section 19 (1) provides that no bank shall:

(a) Employ or continue the employment of any person who

at any time has been adjudged bankrupt or has compounded

with his creditors or who is or has been convicted by a court

for an offence involving fraud or dishonest or professional

misconduct (BOFID) (Ribadu, 2004).

2.8 FRAUD DETECTION, PREVENTION AND CONTROL

According to Eze (2004), the problem of fraud and

forgeries endemic in the banking sector, is unavoidable due

to a variety of reasons such as:

1. The vary nature of banking business which involves

human being, clients and staff of diverse

background and interest in relationship trust.

51

2. The convertible (i.e. cash or near cash) nature of most

banks assets.

3. Wide network of branches. Some remotely located,

poorly staffed, ill-equipped and without adequate

communication facilities.

4. Wide spread application of automated system which

have no finger print or handwriting evidence.

5. Common social misconceptions e.g. that bank has

limitless funds or that banks monies are an

institutional loot or body to be plundered by the able

(Eze 2004).

In this country Nigeria, commercial banks fraud has

assumed a frightened scale of sophistication consequent

upon the general economic depression of last decades and

the constituting travails of the bank sector in the wake of

government frantic policy experimentation.

However, the unfortunate truth from empirical

observation is that majority of commercial banks fraud are

never reported to the police and (NDIC) in spite of the well

known statutory requirement.

52

Some of the fraud actually passes undetected while

some are criminally covered up especially where no actual or

significant loss in sustained.

The common reason for such cover up is to avoid

adverse publicity, protracted police case, litigation and black

mail. Worse still some of the new generation banks have been

known not only they condone but actually commit and

promote gross malpractices e.g. kite flying and across firing

as a matter of corporate deliberate business strategy.

The Nigeria banking industry has become not just a

battle front with a clear-cut firing line between the bank and

the bandits, but a variable mine-field in which some banks

and their top management staff are in secret league with the

enemy. Only the increased alertness and collaboration of

genuine banks together with improved supervisory measure

by the CBN and NDIC will terminate such private

organization.

Commercial banks must wake up to the concern of

elements in their operating environment and serious threats

to their internal security arising from internal and external

factors (Eze, 2004).

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Internal Factors

Internal Factors are those factors that relate to the

insiders or members of staff such as:

1. Absence of a tough, unambiguous corporate policy

committing top management to pursue the severest

sanctions including prosecution for act of dishonesty.

2. Lack of clear procedural guidance or updated

instruction manual.

3. Poor staff of vital functions and loss of experience

personnel.

4. Low workers morale and employee frustration.

5. Staff dismissed or terminated for fraud be re-engaged in

other financial institution e.g. Mortgage banks and

financial houses from where they could sneak attacks

on their erstwhile employers.

Unplanned acquisition of new technological e.g.

computerization.

External Factors

External factors relate to these factors that are not

connected with the bankers such as:

54

1. Special degeneracy which promotes the get rich-quick

syndrome and workshop of materialism.

2. Exploitable defects in the legal and panel system.

The essence of the categorization is to focus on the banks

shop floor i.e. (Branches) with a view to highlighting controls

for fraud prevention in the first place and timely detection

where unavoidable.

Branch Operation Control

In the context, branch is defined as a subordinate

division of a business subsidiary shop, office etc (chambers

20th century dictionary).

Branches are common features of banking co-

operations (especially commercial banks, their establishment

being mostly dictated by market imperatives such as

proximity to prime clients).

The status of bank branches with head office is defined

in the case of Prince vs. Orient bank corporation where it was

stated that “in principle and in fact, branches are agencies

of one principal banking corporation or firm, notwithstanding

that they may be regarded as district for specially purpose”.

It is important to mention the common rule of agency that

55

would normally apply such that any notice served in the

head office (principal) would be deemed to apply to all its

branches (the agent) allowing a reasonable time for

communication.

The agency relationship however, will aid a clear

understanding of the duties of branch management, refers

both of the function of managing a branch and to the crops

of personnel to whom that responsibility is entrusted.

A holistic view of both the organization and the active

management process must therefore be adopted at every level

of decision making be it head office or branch level.

Branch management to continued, must attain or

suppress the standard of efficiency and security prescribed

by head office. To do so, it must only function

complementarily to the head office management but take

initiative in performing the five basic managerial operations:

1. Setting fraud control objectives and goals.

2. Organizing fraud control activities and exercise.

3. Motivation and communicating effectively.

4. Measuring performance of teams and individuals.

5. Developing people.

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Of course, branch work is a very demanding responsibility

full of unpredictable events and unanticipated situations

which may precipitate or facilitate frauds. Perhaps, no other

position in a bank carries as much risk exposure since every

account and every transaction is a potential for fraud. It has

been indicated that large branch network increases a banks

vulnerability to fraud especially where there is inferior quality

of staff. An empirical fact is that the massive expansion

(Rural banking programme) of the commercial banking

network in Nigeria in the last five years resulted in an

unfortunate dilution of bank staff in key aspects of operation

including branch management, be that as it may, the branch

ability to prevent or detect and control fraud depends

especially on the quality of personnel assigned to it by the

head office and the effectiveness and adequacy of internal

control in place (Eze, 2005).

Internal control is defined by the American Institute of

certified Public Accountant as “the plan of organization and

all the co-ordinate methods and measures adopted by a

business to safeguard its assets, check the accuracy and

reliability of it accounting data, promote operation and

57

encourage adherence to prescribed management policies. A

second similarly definition is offered by the Institute of

Chartered Accountants of England and Wales who refers to

internal control as “the whole system of controls in financial

and otherwise established by management in order to carry

on the business of the company in an orderly manner to

safeguard its assets and secure as far as possible the

accuracy and reliability of its records.

Both the human resources and the internal control

system which rest on the efficiency and security of the

branch must be closely monitored by the branch. The

measures which ensure timely detection and control of fraud

are categorized by Shogotola (1994) as the following:

a. Personnel Control

b. Administrative Control.

c. Accounting Control

d. Financial Control

e. Inventory Control

f. Process Control.

g. Petty cash

h. Main cash

58

i. Non cash payment

j. Non cash lodgment

k. Inter bank Settlement

l. Account (Current).

m. Impersonal Ledger Account.

n. Human Resource Control

a. Personnel Control: Under this we have

1. Proper recruitment procedure: screening, referees

sworn, declaration certificates, photography, permanent

home address.

2. Proper Disengagements Procedure: Timely notification

of relevant department‟s cancellation of rights and

privileges, withdrawal of staff identify cards.

3. Positing and Placement: Properly documented positing

written job description with defined authority and

responsibility level. Others are:

a. Job rotation

b. attendance logs or register

c. Enforced holidays and annual leave or absence training

programmes.

59

(b) Administrative Control: Under the administrative

control Measure we have:

1. Segregation of duties.

2. Dual custody.

3. Movement logs and registers.

4. Access rights and restrictions.

5. Security personnel.

6. Franking machine

7. Archival system.

8. Passwords.

9. Regis cope and

10. Cameras.

(c) Accounting Control: Accounting Control includes

the following:

1. Data validation.

2. Prompt positing of transaction

3. Balancing

4. Reconciliation.

5. Call over of positing entries.

6. Signed authentication and approvals

7. Budgeting standards and projections

60

8. Variance analysts

9. Reviews and statistics.

10. Returns.

(d) Finance Control: This Includes:

1. Cash limits.

2. Signing power

3. Specialized stationer (e.g. certified payment coupons).

(e) Inventory Control: Inventory control identified the

following:

1. Logs and listings

2. Physical checks and counts.

3. Bin cards, stock receipts noted, stock issued vouchers.

4. Locks and keys.

5. Balancing stock, figures with the general ledger.

(f) Process Control: This includes the:

1. input/output validation.

2. Program

3. Key computer personnel (data processing manager, data

administrator, programmers, system analyst, operator,

librarian data, operators, computer operator). The

various principles and types of controls are rationally

61

applied to every aspect of branch operation as fraud

antidotes or early warning system. However, it has been

accepted fact that fraud at branch level focused on the

following:

4. Means of payments (cash cheques, bankers payment,

inter branch transfer) etc.

5. Account (house ledgers impersonal account customers

accounts).

(g) Petty Cash:

Cash payment for goods and services are usually

reserved for very small amounts and made through petty

cash control centers on a specified imprest limit. All

expenses must be supported by duly approved vouchers and

cash receipts and properly entered in the petty cash book.

Reimbursements to imprest should be covered by

cheque issued and not made directly from the till or vault.

Petty cash advance (IOU‟s) must receive prior approval and

be retired within a specified period.

(h) Main Cash:

A lot of controls are also exercise over the main cash.

These include dual custody of the vault and strict entry and

62

exit procedures. Insurance limits on premises and in-transit

rules forth cash movements within or without limits

allowable with the cashier and their staff in the banking hall,

daily physical checks and balancing as well as agreeing the

vault book with the bullion officer cash control book on daily

basis. Daily exchange of tills and till book and occasional

surprise check on cashiers are effective control techniques.

The use of a control register to monitor cash movement

checks by receiving cashier branch management should

ensure that these controls are established and adhere to.

(i) None Cash Payment:

Most fraud in commercial banks involving none cash

payment mode includes:

Cheques (cheques on collection) bankers payments for

payment to other banks. Inter branch vouchers (for transfer

between sister branches. Cash cheques are negotiable free or

equities in other words, they are payable over the counter if

regular on the face of it i.e. drawn according to mandate and

correct in particular. A branch must however, exercise

reasonable care to confirm that the cheque is genuine and

that payment is made to the genuine payee (use of tally in

63

some banks). This may involve measure like contacting the

drawer and using a photocopies camera. The branch internal

control unit (ICU) system would ensure that large payments

are scrutinized by two or more persons in the hierarchy.

(j) None Cash Lodgment:

None cash cheques lodges into customers account are

processed for payment in two district ways if they are house

cheques i.e. if the drawers and payees accounts are

dominated in the same branch processing following more of

or less the same branch , the same treatment as cash credit

entry to the payee account. If they are drawing on other

banks (or branches) they are sent to them for collection

through the process of clearing. We have witnessed majority

of cheque frauds that involve clearing cheques. For this

reason, branch management must exercise extreme control

here. Caution notices must be sent to the paying

branch/bank on any unusual cheque lodgment received in

any account.

This alert has proved quite effective in thwarting

many fraud attempts. Equally important is to ensure that

only persons of impeccable character are entrusted with

64

clearing items which clearing accounts are balance and or

reconciled daily. Again in approving any cheques from

payment, the branch management must ensure that account

is sufficiently funded or that drawings are within the

approved credit line (if any )attention must be paid to stop

orders in all cases and to caution notices in the cases of

clearing cheques.

(K) Inter Bank Settlements:

Bank to bank payments are usually affected with

special instruments known as bankers payment. Similarly,

there are preprinted as inter-branch voucher for the

settlement and transfer between branches of the same bank.

Both sets of instruments are safe custody items which

should be closely controlled even when blank. At issuance,

stub or counter foil must signed by the authorized issuing

officers and retained for audit s purposes. All serial numbers

must be well accounted for any lost instruments is a danger

signal.

(l) Accounts (Current):

The second focal point of anti-fraud control must be

closely guarded from the time of account opening to eventual

65

closure. It must always be borne in mind that (apart from a

few incident of direct theft or defalcation) most frauds of nay

value are perpetrated on and or through an account. The

opening of an account must therefore be subjected to the

strictest care. For current account, satisfactory references

from reputable persons and precious bankers must be

obtained, the customers business address and other

personal record confirmed before he is issued with a cheque

book. For a corporate body or registered business, a prior

search should be conducted at the Corporate Affairs

Commission and a clean report should be held in the

mandate file together with a certified copy of the registration

certificate and memorandum and Article of Association,

passport, Photographs and photo scope impression of

account signatories are essential controls and signed

mandates (files and signatories cards) must be securely

preserved.

(m) Impersonal Ledger Account:

In the case of impersonal ledger account only those on

the head office approved chart of account should be opened

and duplication must be scrupulously avoided or in

66

computerized system precluded by program control. Periodic

review of personal accounts should be carried out by branch

management and appropriate precautionary actions being

taken on those not satisfactorily conducted e.g. long standing

credit balances should be transferred to dormant account

while abandoned merger accounts should be closed after due

notice to customers concerned. Closure of current account

must be preceded by a demand for unused cheque leaves.

Furthermore, it is important that the ledger balanced be

regularly checked. A good computerized system would

provide branch management with the daily detailing of all

leer balanced thus a very important control and managerial

attention should be given to accounts with irregular

balances e.g. assets account with credit balances, liability

accounts with debit balances, rejection accounts and transit

accounts with balances. All suspense account (especially

receivables and payables) should be kept under close

security with regular balancing and reconciliation while

dormant account and unclaimed balances should be

administrated on top security status.

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(n) Human s Resources Control:

It has become a generally accepted truth that the

personality of the branch manger is perhaps the most

important signal factor in fraud prevention and control. The

best internal measures would be rendered ineffective, if

human agents for their implementation are ineffective. The

buck literally stops with the branch managers to see that

controls are put in place, that they are working that violating

or exceptions are promptly reported and corrective action is

timely and adequate. However, in order to perform these

corrective actions, the personality must posses the following

qualities:

1. Knowledge Ability: The branch managers must be

knowledgeable enough not only to supervise but lead by

example both on the job and outside the office.

2. Technical Competence: On the job he must be

technically informed for only so can he succeed in

inspiring confidence. Ability to personally check paper

work and ask intelligent questions would discourage

staffs from errors and fraud attempts. It is therefore

necessary that the branch manager should posses

68

appropriate educational qualification as well as sound

on the job training. He must be capable of developing

both himself and other others. He must be receptive to

new ideas and responsive to innovation. He ought to

adopt new technologies (computerization) Okonkwo et al

(1984).

3. High level of self Discipline: He must posses and

exhibits a high level of self discipline and sound

ethnical standards otherwise he cannot provide the

morale and leadership necessary for the prevention of

fraud and abuse. A manager who displays divided

locality or conflict of interest or who indulge in various

corrupt and unethical practices (such as bribery,

extortion, kick back contract inflation) cannot keep his

subordinates in check” he who preaches equity must

come with clean hands” indeed, since the position of a

branch managers is a core factor to fraud detection,

prevention and control, the appointment should be

crucial management decision which should not be

subjected to undue politics or extraneous

considerations such as nepotism, favoritism etc.

69

2.9 CBN EFFORT TO FRAUD CONTROL

The subject of fraud in the commercial banks is of

special interest or concern to the monetary and supervisory

authorities particularly the CBN. This government agency is

concerned about the safety of individual‟s institutions and

the soundness of the banking system. The CBN specifically

checks the activities of commercial banks operations in order

to regulate and to make sure that no banks operate without

following the due process of rules and regulations (CBN

Annual Report, 2007).

2.10 EXTENT OF FRAUD OF BANKS

Bank fraud in Nigeria has increased and will continue

to increase because it is a part of everyday life. “The

magnitude of fraud is, of course, not known because much of

it is undiscovered or undetected and not all that is detected

is published. (Nwankwo,1991). In Nigeria, where the

statistics are non-existent, it is put at about #200 million per

annum of which about 15%-20% would be successful. It is

appropriate to have a feel of the extent of loss through bank

frauds in Nigeria in order to appreciate the havoc the

cankerworm has been wrecking on the economy.

70

The sum of #2.2 billion was involved in banks fraud in 3

year, 1991-1993, out of which commercial banks accounted

for about 94.1 percent the actual/expected loss to the

banking system within the same period totaled about #0.3

billion with commercial banks accounting for about 95.7

percent thereof.

In 1998, the nation‟s banking industry lost #3.196

billion while in 1999, it lost a whopping sum of #7.404 billion

to fraud. Similarly, the actual/expected loss stood at a higher

level of #2.713 billion relative to #623.50 million in 1998

(NDIC Annual report and statement of account 1999).

Nigeria‟s banks have seen almost $10m disappear

through employee fraud in 2002. A rise of more than 40% on

the year before, a survey by the country‟s banking regulator

has found.

The total amount stolen was 1.29billion naira, up from

906.3m in 2001, the Nigeria Deposit insurance corporation

reported. Ten times that amount #12.91bn was recorded in

attempted fraud, up from 11.24bn for a rise of 15%. Most of

the thefts, NDIC said, were the result of either forgeries or

illegal withdrawals from customer‟ accounts.

71

The figures may well be an understatement, though; as NDIC

said it believes financial institutions routinely underreport

fraud losses for fear of negative publicity. In May 2003,

Nigerian bank fraud moved up to 40%. The banking regulator

says theft by bank employees soared last year, but suspects

that much more fraud may go unreported.

It is not only Nigerian banks and citizens that are

exposed to bank frauds. Such frauds are also focused on

foreign banks and their citizens. How much that has been

stolen by such fraud is not clear. But BBC news-business

says that us citizens lose in 2004 move than $100m (€63.4m)

a year to Nigerian fraudsters. However, Nigerians do indeed

involve themselves in genuinely legal business apart from the

infamous banking scams (Nwankwo, 1991).

72

REFERENCES

Adeniyi, A.A. (2004), “Auditing and Investigation”. Lagos. El-

Today Ventures limited.

Adewunmi, W. (1986), “Data Processing and Management

Information System”. Lagos, Macmillan Nigeria

Publisher Limited.

Alashi, S.O. (1994), “Fraud Prevention and Control, Role of

Government and Its Agents”. Lagos, July-Dec,

2007

Anyanwu, J.C (1993), “Monetary, Economics Theory, Policy

and Institutions”. Onitsha, Hybrid Publishers Ltd.

Eze, J.C. (2004), “Principles and Techniques of Auditing”.

Enugu, Edge Publishers.

Castle, E.F. & Owens P.N. (1992), “Elements of Banking”. 2nd

Edition, New York, Pretince Hall Publishers.

Johnson, U.O (2007), “Introduction to Project Writing”.

Enugu. New Dimension Publisher.

73

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

In this chapter, the method adopted by the researcher

in carryout this research work is discussed. The chapter

contains the area of study, sources of data population and

sample size determination, instrument used for data

collection, method of data analysis, validity and reliability of

data.

3.1 AREA OF THE STUDY

The study was carried out in the following selected CBN

branch and commercial banks in Enugu, South-East Nigeria;

CBN, Enugu, ENU-Branch, Access Bank Plc, Zenith Bank Plc

and Union Bank Plc.

3.2 Sources of Data

Data employed in the study were generated form both

primary and secondary sources.

Primary Data: Primary data are all data collected for a

specific purpose by the researcher (Prof B.C Osisioma, 2006).

The primary data is the original or first hand information

obtained by the researcher form the respondent directly for

the purpose of the study. The Primary sources was gathered

74

from the staff of CBN and commercial banks in Enugu South

East Nigeria.

Secondary Data: The secondary data are facts that the

researcher collected from already existing sources. In this

study, data are sourced from journals, text books,

newspapers, magazines and internet.

3.3 POPULATION OF STUDY

The target population of the study consists of senior

staff of selected CBN branch office and commercial banks in

Enugu South-East Nigeria.

Located below are the information received from CBN

branch and commercial banks in Enugu concerning their

population.

Enugu, ENU-Branch = 410

Access Bank plc = 304

Zenith Bank plc = 303

Union Bank plc = 203

Total 1220

3.4 SAMPLE SIZE DETERMINATION

Based on the population of the selected CBN branch

and commercial banks, the sample size was determined at

75

5% error tolerance and 95% degree of confidence, using

yamane‟s formula.

N = N 1 + ne2

Where:

n = Population size

N = Total number of staff

e = Error tolerance (5%)

1 = constant

From the study, the sample size is computed as:

n = 1,220

1 + 1220 (0.05) 2

= 1, 220

1 + 1220 (0.0025)

= 1220

4.05

n = 301

A stratified sampling method was adopted so as to

ensure that the selected CBN branch and commercial banks

were covered in the ratio of 3: 2: 2: 1 using proportionality

Formula thus:

Q = A x n

N 1

76

Where: Q = the number of questionnaires to be allocated to

each segment.

A = the population of each segment

N = the total population of the entire segment.

n = the estimated sample size used in he study.

From the study, the proportionality formula applies thus:

CBN Enugu, ENU – Branch = 410

Access Bank plc = 304

Zenith Bank plc = 303

Union Bank plc = 203

Total 1220

CBN Enugu, ENU – Branch = 410 x 301 = 101

1,220 1

Access Bank Plc = 304 x 301 = 75

1,220 1

Zenith Bank plc = 303 x 301 = 75

1,220 1

Union Bank Plc = 203 x 301 = 50

1,220 1

Total = 301

77

Table 3.1

Banks A Q

CBN Enugu, ENU – Branch 410 101

Access Bank plc 304 75

Zenith Bank plc 303 75

Union Bank plc 203 50

Total 1220 301

INSTRUMENT USED FOR DATA COLLECTION

QUESTIONNAIRE:

The questionnaire is made up of 17 questions

consisting of multiple choice and dichotomous questions.

(a) Dichotomous Questions: Are close ended questions

which requires the respondents to answer yes or no.

(b) Multiple choice questions: Are questions that

required the respondents to choose from a set of

alternative options asked.

INTERVIEW

The interview is an on the spot response obtained from

the respondents. It provides complimentary data to the

questionnaire.

78

METHOD OF DATA ANALYSIS

The collected data were subjected to simple statistical

treatments. They were organized and presented in tables and

percentages.

Also, the chi-square (x2) statistical method was used to

test the hypotheses. The chi-square formula is calculated as

follows.

X2 ∑ (0 – 0e) 2

0 e

Where: x2 =

Chi-square calculated.

Oi = observed frequency

Oe = Expected frequency

∑ = Summation sign.

K = level of significance

d = Degree of freedom.

The x2 will be tested at a degree of freedom given by

Df (n – 1) = (r – 1) (c – 1)

Where; Df (n – 1) = Number of degree of freedom

C = Number of columns for response

R = Number of rows for responses.

79

REFERENCES

Emma, E.O. Chukwuemeka (2006), “Research Method and

Thesis Writing”. Enugu. HRV Publisher.

Johnson, U.O (2007), “Introduction to project Writing for

Business and Financial Studies”. Enugu. New

Dimension Publishers.

Ugwuonah, G.E (2005), “Data Analysis and Presentation”.

Enugu. Cheston Publisher.

80

CHAPTER FOUR

4.0 DATA PRESENTATION ANALYSIS AND INTERPRETATION

This chapter deals with presentation, analysis and

interpretation of various data collected in the course of the

research, using chi-square (x2) as the appropriate statistical

tool.

The chi-square (x2) test provides basis for testing

whether more than one population may be considered equal.

X2 provides a means of comparing a set of observed

frequency with a set of expected frequencies. The calculated

x2 will be compared with the critical value of x2. The

difference will form the basis for accepting or rejecting the

null hypothesis.

81

4.1 ANALYSIS OF QUESTIONNAIRES DISTRIBUTED AND

RETURNED

Questionnaires Distributed, Returned and not Returned

Table 4.1 Data on Questionnaires Distributed, Returned

and not returned.

RESPONSE

QUESTIONNAIRE

GIVEN

PERCENTAGE(%)

GIVEN

QUESTIONNAIRE

(%) RETURNED

PERCENTAGE(%)

RETURNED

Questioner

not

returned

Percentage

(%) not

returned

CBN, ENUGU,

ENU- BRANCH

101 33 91 31 10 3.3

ACCESS BANK 75 25 67 22 8 2.6

ZERITH BANK 75 25 67 22 8 2.6

UNION BANK 50 17 45 15 5 1.5

TOTAL 301 100 270 90 31 10

Source: Survey Data, 2012

I observed that out of 301 questionnaires distributed,

270 representing 90% were returned, while 31 representing

10% were not returned.

4.2 Section A: Demographic Data

Question 1: What is your Age Distribution?

TABLE 4.1 Age Distribution of Respondents

AGE GROUPING NUMBER OF RESPONDENTS % NUMBER OF

RESPONDENTS

18-28 27 10

29-38 84 31

39-48 103 38

49-58 37 14

59 and above 19 7

Total 270 100

Source: Survey Data, 2012.

82

The table above shows that 10% of the respondents are

within the age group of 18 and 28, 31% are within the age of 29

and 38, 37% are within 39 and 48, 14% are within 49 and 58

[while the remaining 7% falls in the age of 59 and above.

From the table, it could be observed that the highest

number of respondents fall within the age of 39 and 48. This

could be because that, this is the age at which people are more

energetic and posses the potential of undertaking high energy

task.

On the other hand, the age group of 59 and above recorded

the least number of respondents. This could be that, at this age,

people tends to be weak and a tattle energy and potential are

reserved to undertake high energy demanding task especially in

industries.

Table 4.2 Data on the Sex Distribution of the Respondents

SEX (GENDER) NUMBER OF RESPONDENTS % NUMBER OF

RESPONDENTS

Male 210 78

Female 59 22

Total 270 100

Source: Survey Data, 2012

The above data shows that 210 respondents representing

78% are male while 75 respondents representing 22% are female.

This indicates that number of men engaged in banking industry

83

out number that of women. But it does not mean that there is

gender distribution in the industry rather more men are engaged

in the sector than women.

QUESTIONS 3: What is your Educational Qualification?

Table 4.3 Data on Education Background

QUALIFICATION NUMBER OF RESPONDENTS % NUMBER OF

RESPONDENTS

SSCE 44 16

OND 49 18

BSC/HND 86 32

MBA/MSC 53 20

PHD 38 14

Total 207 100

Source: Survey Data, 2012

The data above shows that 32% of the respondents are

HND/BSC holder while 20% are MBA/MSC holders, also are

PHD holder which constitutes about 14% of the respondents.

These are the percentages who are educated enough to

understand what banking industry is all about. The

remaining16% and 18% are SSCE and OND holder respectively.

84

Question 4: What is your Marital Status?

Table 4:4 Data on the Marital status of the Respondents

Marital NUMBER OF RESPONDENTS % NUMBER OF

RESPONDENTS

Married 73 27

Single 53 20

Divorced 45 17

Widowed 39 14

Separated 60 22

Total 270 100

Source: Survey Data, 2012

The above table shows that 27% of the respondents are

married, 20% single, 17% are divorced while 14% and 22% are

widowed and separated respectively.

4.3 Section B

Question 1: Economic down turn and retirement of the staff

are impact of fraud on bank performance?

Table 4.5 Data on Impact of fraud on Bank Performance

OPTION RESPONSE PERCENTAGE (%)

Agree 90 33

Strongly agree 164 61

Disagree 10 4

Strongly disagree 6 2

Total 270 100

Source: Survey data 2012

85

The table above shows that 90 respondents

representing 33% indicated agree, 164 respondents

representing 61% indicated strongly agrees, 10 respondents

representing 4% indicated disagree while 6 respondents

representing 2% indicated strongly disagree.

This shows that economic down turn and retirement of

staff is impact of fraud on bank and bank performance.

Question 2: When an official supervises quite a large

number of staff, there is a high likelihood that fraud could go

undetected?

Table 4.6: Date on the Relationship between Volume of

work & fraudulent activity.

OPTION RESPONSE PERCENTAGE (%)

Agree 155 55.5

Strongly agree 60 22.2

Disagree 35 13

Strongly disagree 25 9.3

Total 270 100

Source: Survey Data, 2012.

The table above shows that 155 respondents representing

55.5% indicated agree, 60 respondents representing 22.2%

indicated strongly agrees, 35 respondents representing 13%

86

indicated disagree while 25 respondents representing 9.3%

indicated strongly disagree.

This shows that when an official supervises quite a

large number of staff, there is a high likelihood that fraud

could go undetected.

Question 3: Poor management and poor security arrangement in

commercial banks can cause fraud.

Table 4.7: Data on the impact of poor management and

poor security arrangement in commercial Banks.

OPTION RESPONSE PERCENTAGE (%)

Agree 86 32

Strongly agree 168 62

Disagree 9 3

Strongly disagree 7 3

Total 270 100

Source: Survey Data, 2012.

The table above shows that 86 respondents

representing 32% indicated agrees, 168 respondents

representing 62% indicated strongly agree, 9 respondents 3%

indicated strongly disagree.

This shows that commercial banks with poor

management and poor security arrangement records higher

87

incidence of all sorts of fraud than those with effective

management.

Question 4: What are the causes of banks fraud?

Table 4.8: Data on the causes of bank fraud

OPTION RESPONSE PERCENTAGE (%)

Poor management 32 12

Staff negligence 50 19

Poor securely

arrangement

36 13

All of the above 152 56

Total 270 100

Source: Survey Data, 2012

The table above shows that 32 respondents

representing 12% indicated poor management, 50

respondents representing 19% indicated staff negligence, 36

respondents representing 13% indicated poor security

arrangement while 152 respondents representing 56%

indicated all of the above.

This shows that poor management, staff negligence and

poor security arrangement are causes of banks fraud.

88

QUESTION 5: The supervisory and oversight function of is

effective.

Table 4.9: Data on the effectiveness of CBN

OPTION RESPONSE PERCENTAGE (%)

Agree 35 13

Strongly agree 45 17

Disagree 55 20

Strongly Disagree 132 50

Total 270 100

Source: Survey Data, 2012.

The table above shows that 35 respondents

representing 13% indicated loan fraud, 45 respondents

representing 17% indicated cheque fraud, 55 respondents

representing 20% indicated money laundering fraud while

135 respondents representing 50% indicated all of the above.

This shows that the supervisory and oversight function

of CBN is effective.

89

QUESTION 6: Would you say that cheque kiting, account

opening fraud and the letter of credit fraud constitute types

of bank fraud?

Table 4.10: Data on what constitutes the types of fraud.

OPTION RESPONSE PERCENTAGE (%)

Yes 260 96

No 10 4

Total 270 100

Source: Survey Data, 2012.

The table shows that 260 respondents representing

96% indicated yes while 10 respondents representing 4%

indicated no.

This shows that cheque kiting, account opening fraud

and letter of credit fraud constitute types of bank fraud.

QUESTION 7: What is the spate of fraud in commercial

banks?

Table 4:11: Data on the spate of fraud in commercial

banks.

OPTION RESPONSE PERCENTAGE (%)

High 8 3

Very high 10 4

Low 170 63

Very low 82 30

Total 270 100

Source: Survey Data, 2012.

90

The table above shows that 8 respondents representing

3% indicated high, 10 respondents representing 4% indicated

very high, 170 respondents representing 63% indicated low

while 82 respondents representing 30% indicated very low.

This shows that the spate of fraud in commercial banks

is low.

QUESTION 8: Fraud can be detected and controlled

through?

Table 4.12: Data on the Control of fraud

OPTION RESPONSE PERCENTAGE (%)

Personnel & administrative

control

42 16

Accounting & financial control 58 21

Inventory & process control 50 19

All of the above 120 44

Total 270 100

Source: Survey Data, 2012.

The table shows that 42 respondents representing 16%

indicated personnel & Administrative control, 58 respondents

representing 21% indicated accounting & financial control,

50 respondents representing 19% indicated inventory and

process control while 120 respondents representing 44%

indicated all of the above.

91

This show that fraud can be detected and controlled

through

1. Personnel and administrative control.

2. Accounting and financial control

3. Inventory and process control

QUESTION 9: What constitute personnel control?

Table 4. 13: Data on what makes up personnel control

OPTION RESPONSE PERCENTAGE

(%)

Proper recruitment procedure 62 23

Proper disengagement

procedures

65 24

All of the above 123 46

Non of the above 20 7

Total 270 100

Source: Survey Data, 2012.

The table above shows that 62 respondents

representing 23% indicated proper recruitment procedures,

65 respondents representing 24% indicated proper

disengagement procedures, 123 respondents representing

46% indicated all of the above while 20 respondents

representing 7% indicated non of the above.

92

This shows that proper recruitment procedure, and

proper disengagement procedures constitute personnel

control.

QUESTION 10: What constitute accounting control?

Table 4.14: Data on the constitution of Accounting

Control

OPTION RESPONSE PERCENTAGE (%)

Data validation 47 17

Prompt posting of

transactions

58 22

Balancing 55 20

All of the above 110 41

Total 270 100

Source: Survey Data, 2012.

The table shows that 47 respondents representing 17%

indicated data validation, 58 respondents representing 22%

indicated prompt positing of transactions, 55 respondents

representing 41% indicated all of the above.

This show that data validation, prompt position of

transactions and balancing constitute accounting control.

93

QUESTION 11: What constitute inventory control?

Table 4.15: Data on Inventory Control

OPTION RESPONSE PERCENTAGE (%)

Longs and listing 40 15

Physical checks &

counts

49 18

Balancing stock

figure with general

ledger.

42 16

All of the above 139 51

Total 270 100

Source: Survey Data, 2012.

The table above shows that 40 respondents

representing 15% indicated logs and listing, 49 respondents

representing 18% indicated physical checks & counts, 42

respondents representing 16% indicated balancing stock

figure with general ledger while 139 respondents

representing 51% indicated all of the above.

This shows that logs and listing, physical checks and

counts, and balancing stock figure with general ledger

constitute inventory control.

94

4.4 HYPOTHESES TESTING

In this section, the hypotheses associated with the

study will be tested using chi-square. The data already

presented will be used in testing the hypotheses.

Hypothesis 1

Ho: Economic downturn and retirement/termination of staff

are not impact of fraud on bank and bank performance.

Hi: Economic downturn and retirement/termination of staff

are impact of fraud on bank and bank performance.

The above hypotheses are tested using the data from

the questionnaire respondent question 1. Table 4.5

Question 12: Economic downturn and retirement of staff are

impact of fraud?

Table 4.16: Data on respondents response on how fraud

can be detected and control.

OPTION RESPONSE PERCENTAGE (%)

Agree 82 30

Strongly agree 170 63

Disagree 10 3

Strongly disagree 8 3

Total 270 100

Source: survey Data, 2012.

95

Test statistic

X2 = (0-e)2

e

Where X2 = chi-square

0 = observed frequency

E = expected frequency

= summation

Level of significant is 0.05 (5%)

Degree of freedom is (r-1) (c-1)

= (4-1) (2-1)

= (3). (1)

= 3

Critical value with 3 degree of freedom at 0.05 level of

significance from the chi-square table = 7.81.

The expected frequency.

= 82+170+ 10+ 8 270

4 4 = 67.5

e = 67.5

96

Calculation of chi-square (x2)

0 E 0-e (o-e)2 (o-e)2/e

82 67.5 24.5 210.3 3.12

170 67.5 102.5 10506.3 155.65

10 67.5 -57.5 3306.3 48.98

8 67.5 -59.5 3540.3 52.45

X2=260.2

Decision Rule

Reject Ho (Null hypothesis) if the computed value of x2

is greater than critical value and accept H1, otherwise accept

Ho.

X2 computed is 260.2 from the table above, the

computed x2 value is greater than the critical value i.e. 260.2

> 7.81.

Decision

We reject Ho, the null hypothesis, and accept H1 which

states that “economic downturn and retirement/termination

of staff are impact of fraud in bank and bank performance.

HYPOTHESIS 2

Ho: Poor management and poor security arrangement in

commercial banks cannot cause fraud.

97

Hi: Poor management and poor security arrangement in

commercial banks can cause fraud.

The above hypothese is tested using the data from

The questionnaire respondents question 3, Table 4.6

Question 13: Commercial banks with poor management and

poor security arrangement record higher incidence of fraud.

Table 4.17: Respondents responses on whether poor

management and poor security arrangement can cause

fraud.

OPTION RESPONSE PERCENTAGE (%)

Agree 86 32

Strongly agree 168 62

Disagree 9 3

Strongly disagree 7 3

Total 270 100

Source: Survey Data, 2012.

Test statistics

X2 = (o-e)2/e

Where

X2 = Chi- square

o = Observed frequency

e = Expected frequency

= Summation

98

Level of significance is 0.05 (5%)

Degree of freedom is (r-1) (c-1)

(4-1)(2-1)

(3). (1) = 3

Critical value with 3 degree of freedom, at 0.05 level of

significance from chi-square table = 7.81

Expected frequency = 86+168+9+7

4

= 270

4 = 67.5

Calculation of chi-square (x2)

0 E 0-e (o-e)2 (o-e)2/e

86 67.5 18.5 342.3 51

168 67.5 100.5 10100.3 149.6

9 67.5 -58.5 3422.3 50.7

7 67.5 -60.5 3660.3 54.2

X2=259.6

99

DECISION RULE

Reject Ho (Null hypothesis) if the computed value of x2

is greater than critical value and accept H1, otherwise accept

Ho.

X2 computed is 259.6 from the table above, and the

value is grater than the critical value i.e. 259. 6>7. 81.

Decision

We reject H0, the null hypothesis, and accept H1 which

states that “poor management and poor security

arrangement can cause fraud in commercial banks”.

HYPOTHESIS 3

Ho: The supervisory and oversight function of CBN in

protecting the economy, deposition and bank‟s

customer is not effective.

Hi: The supervisory and oversight function of CBN in

protecting the economy, deposition and bank‟s

customer is effective.

The above hypotheses is tested using the data from the

Questionnaire respondents question 5 tables 4.9

100

QUESTION 14: The supervisory and oversight function of

CBN is effective.

Table 4.18: Respondents response on the effectiveness of

CBN.

OPTION RESPONSE PERCENTAGE (%)

Agree 35 13

Strongly Agree 45 17

Disagree 55 20

Strongly Disagree 135 50

Total 270 100

Test statistics

X2 = (0-e)2

e

Where x2 = chi – square

0 = observed frequency

E = expected frequency

E = summation

Level of significance is 0.05 (.5%)

Degree of freedom is

(r-1).(c-1)

(4-1) (2-1)

(3) (1)

101

Critical value with 3 degree of freedom at 0.05 level of

significance, form chi-square table 7.81

Expected frequency = 35+45+ 55+135

4

= 270 = 67.5

4

Calculation of chi-square (x2)

0 E 0-e (o-e)2 (o-e)2/e

35 67.5 -32.5 1056.3 15.6

45 67.5 -22.5 506.3 7.5

55 67.5 -12.5 156.3 2.3

135 67.5 67.5 4556.3 67.5

X2=92.9

DECISION RULE

Reject Ho (Null hypothesis) if the computed value of x2

is greater than critical value and accept H1, Otherwise accept

Ho. x2 computed is 92.9 from the table above, the computed

x2 value is greater than the critical value i.e. 92.9 > 7.81.

Decision

We reject Ho, the null hypothesis, and accept H1 which

states that “the supervisory and oversight function of CBN in

102

protecting the economy, depositors and banks‟ customers is

effective.

HYPOTHESIS 4

Ho: The spate of fraud in commercial banks is high

Hi: The spate of fraud in commercial banks is low

The above hypotheses are tested using the data from

the questionnaire respondent question 7, table 4:11.

QUESTION 16: What is the spate of fraud in commercial

banks?

Table 4.19: Respondent response on the spate of fraud in

commercial banks.

OPTION RESPONSE PERCENTAGE (%)

High 8 3

Very high 10 4

Low 170 63

Very low 82 30

Total 270 100

Source: Survey Date, 2012.

Test statistic

X2 = (o-e)2

e

Where X2 = Chi- square

0 = Observed frequency

103

E = Expected frequency

= Summation

Level of significant is 0.05 (5%).

Degree of freedom is (r-1) (c-1)

= (4-1). (2-1)

= (3). (1)

= 3

Critical value with 3 degree of freedom at 0.05 level of

significance from the chi-square table = 7.81.

The expected frequency

= 8+10+170+82+ 270

4 4 = 67.5

Calculation of chi-square (x2)

0 E 0-e (o-e)2 (o-e)2/e

8 67.5 -59.5 3540.3 52.4

10 67.5 -57.5 3306.3 49.6

170 67.5 102.5 10506.3 155.6

82 67.5 14.5 210.3 3.1

X2=260.1

104

DECISION RULE

Reject Ho (Null hypothesis) if the computed value of x2

is greater than critical value and accept Hi. Otherwise, accept

Ho.

X2 computed is 260.1 from the above table and the

value is greater than the critical value i.e. 260.1>7.81.

Decision

We reject Null hypothesis, and accept Hi, which states

that the extent of fraud in commercial banks is low.

105

CHAPTER FIVE

5.0 SUMMARY OF FINDINGS, CONCLUSIONS &

RECOMMENDATIONS

5.1 Major findings

The major findings at the end of this research

investigation include the following.

1. Poor management and poor security arrangement

can cause fraud in commercial banks

2. The supervisory and oversight function of CBN in

protecting the economy, depositors and bank‟s

customers is effective.

3. The spate of fraud in commercial banks is low

4. Economic downturn and retirement of staff are

impact of fraud in banks.

5.2 CONCLUSION

The conclusion drawn on this study is that “there is

existence of frauds in Nigerian commercial banks”.

Management of these frauds in commercial banks is of great

importance and has a lot of benefits to both the banks,

customers and the entire public if properly carried out. This

includes:

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Giving confidence to the bank customers that their

money is safe and encouraging or attracting local and foreign

inventors to invest their money into the banking sector with

the impression that their money is secure.

Exposing the fraud victim in the commercial banks for

punishment and prosecution and giving the commercial

banks the impression that their business environment is free

from fraud and they are working with faithful and honest

staffs.

5.3 RECOMMENDATIONS

Based on the findings of the study, the researcher made

the following recommendations:

1. Government should establish more anti fraud and

anti corruption agencies to assist in sanitizing

Nigeria banking system.

2. Bank management should employ strategies that will

ensure early and prompt detection, prevention and

control of fraud in commercial banks.

3. Banks management should strengthen their security

arrangement and use sophisticated security gadget to

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ensure tight security in both inside and outside the

bank premises.

4. The recruitment system in the bank should be based

strictly on merit instead of considering who you

know, connection and tribalism. This will ensure

efficient and effective staff functioning.

5. Banks should avoid employing fraud victim in the

bank or in other organizations.

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BIBLIOGRAPHY

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Adewunmi, W. (1986), “Data Processing and Management

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Limited.

Anyanwu, J.C (1993), “Monetary, Economics Theory, Policy

and Institutions”. Onitsha, Hybrid publishers ltd.

Eze, J.C (2004), “Principles and Techniques of Auditing”.

Enugu Edge Publishers.

Castle, E.F and Ownes, P.N (1992), “Elements of Banking”.

2nd Edition New York. Pretince Hall Publishers.

Johnson, U.O (2007), “Introduction to Project Writing”.

Enugu New Dimension Publisher.

Nwankwo, E.O (1991), “Bank Management Principles and

Practice”. Lagos. Mathouse Press ltd.

Ngotta, S.M (1999), “Money, Banking and Finance, Theory and

Practice”. Owerri. Intercontinental Educational Books

and Publishers.

Michael, A. (2005), „A Handbook of Human Resources

Management Practice”. 9th Edition, London.

109

Mbamalu, A.A. (2002), “Research Project on Bank Fraud and

its Implication on Nigeria Economy”. University of

Nigeria Enugu Campus.

Orjih, J. (1998), “Elements of Banking”. Enugu,

Communications Publishers.

Shongotoal, I.O. (1994), “Fraud Detection Prevention and

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Department of Business Administration, Ahmadu

Bello University.

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APPENDIX A

Department of Management,

University of Nigeria, Enugu Campus.

Dear Respondent,

I am a post Graduate student of the department of

management, Faculty of Business Administration, University

of Nigeria Enugu campus. I am undertaking a study on the

management of fraud in Nigeria commercial banks.

The information required here is purely for academic

purpose kindly respond by providing answers to the following

questions.

Thanks

Yours faithfully,

Ezugwu Brendan.

Researcher

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SECTION A

PERSONAL PROFILE

Please tick ( ) in the box where appropriate

1. Sex?

(a) Male [ ] (b) Female [ ]

2. Age?

(a) 20- 30 years [ ] (b) 31-40 years [ ]

(c) 40-50 years [ ] (d) 51-60 years [ ]

3. Educational qualification

(a) FSLC [ ] (b) WAEC/GCE [ ]

(c) HND, BSC [ ] (d) MSC, MBA PHD [ ]

4. Marital status

(a) Single [ ] (b) married [ ]

(c) Widowed (d) Divorced [ ]

5. Number of years worked with the bank

(a) 0-4 years [ ] (b) 5-9 years [ ]

(c) 10-14 years [ ] (d) 15-19 years [ ]

6. Category of staff

(a) Junior [ ] (b) Senior [ ]

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SECTION B.

Please tick ( ) in the box where appropriate

Indicate the name of your bank.

a. CBN, Enugu Enu- Branch [ ]

b. Access bank [ ]

c. Zenith bank [ ]

d. Union bank [ ]

7. Economic downturn and retirement/termination of staff

are impact of fraud?

(a) Agree [ ] (b) Stron gly agree [ ]

(c) Disagree [ ] (d) Strongly disagree [ ]

8. When an official supervises quite a large number of staff,

there is a high likelihood that fraud could go undetected?

(a) Agree [ ] (b) Strongly agree [ ]

(c) Disagree [ ] (d) Strongly disagree [ ]

9. Commercial banks with poor management record higher

incidence of all sorts of fraud than those with effective

management.

(a) Agree [ ] (b) Strongly agree [ ]

(c) Disagree [ ] (d) Strongly disagree [ ]

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10. What are the causes of bank fraud?

(a) Poor security management [ ]

(b) Staff negligence [ ]

(c) Poor security arrangement [ ]

(d) All of the above [ ]

11. The supervisory and oversight function of CBN is

effective?

(a) Agree [ ] (b) Strongly agree [ ]

(c) Disagree [ ] (d) strongly disagree [ ]

12. Would you say that cheque kiting, account opening

fraud, and the letter of credit fraud constitute types of

bank fraud?

(a) Yes ( ) (b) No ( )

13. What is the spate of fraud in commercial banks?

(a) High [ ] (b) Very high [ ]

(c) Low [ ] (d) Very low [ ]

14. Fraud can be detected and controlled through

(a) Personnel and administrative control [ ]

(b) Accounting and financial control [ ]

(c) Inventory and process control [ ]

(d) All of the above [ ]

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15. What constitute personnel control?

(a) Proper recruitment procedures [ ]

(b) Poor disengagement procedure [ ]

(c) All of the above [ ]

(d) Non of the above [ ]

16. What constitute accounting control?

(a) Data validation [ ]

(b) Prompt posting of transactions [ ]

(c) Balancing [ ]

(d) All of the above [ ]

17. What constitute inventory control?

(a) Logs and Listing [ ]

(b) Physical checks & counts [ ]

(c) Balancing stock figure with the general ledger [ ]

(d) All of the above [ ]