CHAPTER ONE
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1.1 INTRODUCTION: BACKGROUND TO THE STUDY
As commercial banks continually strive to improve their public image, it is unfortunate that they must be concerned about the dishonesty of their employees.
Yet internal fraud is bringing financial losses to hundreds of banks each year and these crimes often have serious tangible consequences such as undermining public confidence in the banking profession, placing innocent employees when there is suspicion and destroying the defrauder’s usefulness to his family and to society.
Fraud is one of the major problems facing most organizations of the business world. No company is immune to fraud. It is in all walks of life in the government, in insurance, in export trade, and in banking etc (Chibuzor, 2013). Everywhere special organizations have been formed to combat it.
Fraud can be described as a conscious premeditated action of a person or group of persons with the intention of altering the truth and or fact for selfish, personal monetary gains (Nzotta, 1999). Fraudulent actions here include forgery, falsification of document and the authorizing signatures, outright theft or misrepresentation of material fact.
Another point of view contends that to defraud ordinarily means to deprive another person or business entity of something which is his or of something to which he is or might be entitled. Here fraud is an act of deliberate deception with the design of securing a personal benefit (Usually monetary gain) by taking advantage of another.
Alashi S.O. (1994), argue that fraud is an act of dishonesty, deceit an imposture. He further said that according to Kirk (1995) any person who pretended to be something that he is not is a fraudster, a snare, a deceptive trick, a cheat and a swindle. By extension fraud could include embezzlement, theft or any attempt to steal or unlawfully obtain, misuse or harm the assets of the bank (Bank Administration, 1989).
Nwankwo G.O. (1991),described fraud as occurring when a person is in position of trust and responsibility, in defiance of prescribed norms, breaks the rules to advance his personal interest he has been entrusted to guard and promote.
He argued further that fraud occurs when a person through deceit, trick or highly intelligent cunning, gains advantage he could not otherwise have gained through lawful, just or normal processes.
International Auditing Guideline (lAG); defines fraud as a particular type of irregularities involving the use of deceits to obtain an illegal or unjust advantage. Statement of Accounting Standard (SAS) 53 defined fraud as intentional misstatement or omission of amounts or disclosure in financial statement also referred to as management fraud.
The incidence of fraud and forgeries has been on increase in the banking system in Nigeria over the years, especially between 1990-2003. According to the Nigerian Deposit Insurance Corporation NDIC 2003 reports, fraud cases increased from N788.8 million by 1990 to N2655.7 million by 1994.
In 2001 908 cases of fraud and forgeries were recorded by banks involving N2350 million out of which banks lost N931.4 million. By 2002, fraud cases had increased to more than Nl2 billion.
Because of the insatiable demand of human beings coupled with the limited supply of resources, the concept of fraud was involved and this has various dimensions in various organizations. In government for instance, politicians who are entrusted with money commit fraud if such money had been misappropriated or embezzled by them.
Similarly Commercial banks occupy unique position in the economy of the nation because of the money entrusted under their safe keeping by their customers.
It goes without saying therefore, that customers must be protected from all forms of fraudulent practices, either bank employees or banks misguided polices.
Beside frauds are committed in order to enhance their profit level. Such frauds are in the area of charging excessive C.O.T (commission on turn over) and current and window dressing of their profit margin, or in order to improve their shareholders when individuals declared.
Given these situations, along with the fact that banks personnel are expected to have the highest possible degree of honesty. It is obvious that safeguard measures which can reduces fraud and maintain public trust in the banking industry command explicit attention.
1.2 HISTORICAL BACKGROUND OF THE CASE STUDY
The choice of this study (topic) being necessitated by the ugly event of 1930 which brought about on unprecedented occurrence of bank future in Nigeria. Although, between 1930 and 1958 when the Nigeria Central Bank was established more than 21 bank failures were reported.
This is meant to say that among other roles, the Central Bank of Nigeria (CBN) was established to regulate the activities of banks. As banks, occupy a strategic position in the economy of the country it become necessary that their activities must be controlled.In realization of this (study) objective, the Central Bank of Nigeria (CBN) was established by the central Bank Act of 1958.
In April 1952, “that as a practical means of consolidating the financial resources of the country for the purpose of rapid economic growth (development) in all its phases, as well as strengthening the existing African Bank and established a Central Bank of the nation within two years from the passage of the motion.”In spite of the obvious good resources of the Central Bank of Nigeria, this institution was not established without considerable debated and consequent delays in Nigeria.
Several Committees were set up to study the possibility of establishing a central bank for the country. Some of these studies include the Trevor Report (1951), Rowan (1952), Fisher (1953) the International Bank for Reconstruction and Development (IBRD) 1953, Mc Newlyn and Rowan (1954) and the Loynes (1957).
While some of these studies adopted the traditional approach and argue .that the establishment of a Central Bank of Nigeria as at that time was premature since the new institution would not perform a different function from that of the existing West African Currency Board.
The report of the case study of 1956 published in 1957, recommended the establishment of a central bank for the country. Loynes’ views and recommendations formed the basis for the draft registration for the establishment of Central Bank of Nigeria which was presented to the House of Representative in March 1958.
1.3 LIMITATIONS OF THE STUDY
The method of the study was limited to the administration of questionnaires. Essentially, because of lack of resources, research could not be conducted on all the commercial banks in Nigeria, but since most of the activities of banks are controlled by the central Bank of Nigeria one would expect similarity in their performance.
1.4 STATEMENT OF PROBLEM
In this study, the problem of internal control facing the management of banks in Nigeria is examined.
These will include:
(a) Weak internal control in banks in Nigeria
(b) Non-frequency of supervision by the central bank examiners in banks
(c) Lack of good remuneration for bank workers
(d) Lack of accountability by bank employees
1.5 OBJECTIVE OF THE STUDY
The objectives of the study are as follows:
- In view of the fraud and forgeries that have become a regular phenomenon in our banking industry in recent years., this work is designed to investigate whether the poor quality of the internal control systems of banks in Nigeria was responsible for frauds and forgeries in banks, or whether it was due to inadequate supervision by the central bank of Nigeria.
- To investigate whether incidence of frauds and forgeries could be attributable to inadequate motivation and reward.
- To determine the level of banks compliance with internal control measures and laid down rules and regulations by central bank of Nigeria.
- To explore other avenues that may be used by the management of banks to improve upon the efficiency and effectiveness of banks internal control system.
1.6 RESEARCH QUESTIONS
The following research questions are put forward as a way to sample opinion of bank workers on minimizing fraud in commercial banks.
(i) What factors are responsible for weak internal control in banks in Nigeria?
(ii) Is it necessary that for central bank examiners to supervise banks?
(iii) Will good remuneration of bank workers, reduce the temptation of bank employees to defraud?
(iv) Does lack of adequate training of staff before exposure to sensitive job situation lead to defraud?
(v) Does lack of accountability by banks staff led to fraud?
1.7 SIGNIFICANCE OF THE STUDY
As the objective of most business organization is to maximize profit, then large scale fraud in banks if not adequately checked will have the unsavory effect of throwing the banks in financial losses and public loss of confidence in them, just as we have experienced in recent years.
Although, no internal control system is 100% fraud free, it is still essential for each bank to organize its staff procedure that loop holes for fraud are minimized/ protected. Banks are the custodian of the actions wealthy and money being their stock in trade, the grease which imbricates the wheel. It is therefore highly essential to evolve effective and adequate control measures to safeguard depositors fund from the incidence of frauds.
1.8 SCOPE OF THE STUDY
The study was carried out to cover some selected commercial banks in some selected cities most especially Kaduna, Abuja, Niger, Lagos and Kano, essentially because of limited time allowed for this study research could not be conducted on all banks in this category.
This is because of lack of resources. But since most of the activities of all of the banks are controlled by the central bank of Nigeria, one would expect similarity in their performance.
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