Fraud and other financial malpractices in the Nigerian banking system a study of selected banks in Nigeria

ABSTRACT

Commercial Banks occupy an indispensable position in the Nigeria economy.  They are the picot upon which other business firms and other activities revolve and “a conduit pipe through which all financial transactions pass”.  However, literature in the field shows  that fraud and  other financial  malpractice in  the Nigeria Banking system nearly always lead to loss of monies that ordinarily belong to someone other than banks.   In every bank cases where frauds with crippling frequency and in large sizes  such  banks  may  be  forced  to  close  down  or  outright distress as a result.   When the commercial Banks lose money and it is wound up or distressed in turn the customers and the nation in general loses of money, which also affects the economy. These study, therefore investigate the various levels of fraud in our Nigerian banking system.   To this end a hypothesis was tested and confirmed that fraud not only drain the economy, but also lead to a lost of confidence by foreign investors.

CHAPTER ONE INTRODUCTION

1.1  BACKGROUND OF THE STUDY

Fraud however is defined as the intentional distortion of the financial statements to secure particular advantages such as the misappropriation of assets. The term fraud is used when it  refers to  irregularities involving the  criminal deception to obtain an illegal or unjust advantage.

Fraud is defined in many perspectives, but basically it is the obtaining of material advantage by unfair or wrongful means,  which  involves  moral  obliquely.  Banking  fraud  and other financial malpractices is a conscious or deliberate effort aimed at obtaining unlawful financial advantage to the detriment of another person who is the rightful owner of the fund.

The Nigerian financial system then was composed of the commercial Banks, Merchant Banks, Development Banks which comprises Nigerian Industrial Development Bank, Nigeria Bank for commerce and industry, Nigerian Agriculture and co- operative  Bank,  Federal  Mortgage  Bank  of  Nigeria,  federal savings Banks, Agricultural credit Guarantee scheme etc, and the micro finance Banks. All these Banks helps in the development and growth of the Nigerian economy through specialization. Thesis where they provide funds for all the sectors   of   the   economy   through   grants   and   loans   for productions and other services.

Gap  thesis  where  they  bridge  the  financial  needs  of  the economy and the fund supply through short and long term loans for indigenous projects and other investments.

Exigency thesis; where especially the Development Banks help to indigenize the economy through provision of fund to purchase foreign interest in the economy. Catalyst thesis; the economy is a predominantly mono-product which depends on oil for its foreign exchange earnings. It helps to speed up diversification in the economy.

It is good to emphasize and exercise the need of utmost good  faith  in  the  Nigerian  Banking system.  There  must  be understanding of what fraud is as against what it is not, fraud must be demystified unveiled and conquered. There must be understanding of the causes, negligence, lack of training, poor supervision etc. effects of fraud and other financial malpractices leading  to  loss  of  money  and  outright  distress  in  Banking system which causes set back in the economy. It is also better to know how to prevent and detect fraud when it does happen, how  to  investigate and  prosecute the  offenders  by  applying suitable penal sanction to deter other potential fraudsters.

1.2  STATEMENT OF THE PROBLEMS

The steady growth of financial obligations of the economy to its citizens, poses great challenges to the financial institutions to prove its reliability, accountability and transparency in its operations. These challenges are therefore, coursed by;

 Due to non transparency attitude of bank officials.

 Due to poor operations of banking facilities

 Non  availability  of  corporate  banking  and  ineffective reforms

 Non    effective    regulatory    system    guarding    bank operations.

1.3  OBJECTIVES OF THE STUDY

The aim of this work is to carryout an empirical study of banks,  their  customers  and  staff  operations  in  relation  to committee of frauds and fraudulent practices. That is to consider the banking practices that give rise to fraud and other financial malpractices with those who perpetrates them.

The intention is to evolve methods whereby the nature and types of fraud existing in banks are identified and known. Moreso, the researcher hopes to set out factors that predispose frauds, the fraudsters and their accomplices.

With a reasonable identification of these objectives, such as:-

(i)     To examine with certainty the dangers of frauds.

(ii)    To evaluate various forms of frauds.

(iii)   To examine bank customers relationship with a view of finding problems and suggesting solutions.

(iv)   To  identify  the  causes  of  fraud  and  other  financial malpractices in our banking system.

(v)    To suggest solutions for combating fraud in our banking system.

1.4  RESEARCH QUESTION

This work seeks to find answers to a number of pertinent questions relating to fraud and other financial malpractices in the Nigerian Banking system. Some of the questions include:

i. What is fraud, fraudulent–profession/financial malpractices, unethical conduct, inside abuse it?

ii.     How does bank, prevent the perpetration of fraud and other financial malpractices against it?

iii.   How is a typical case of fraud and other financial malpractices   in   the   Nigerian   banking   system   be detected and prosecuted?

iv.   How is a typical case of fraud and other financial malpractices   in   the   Nigerian   banking   system   be detected and prosecuted?

v.     Why some potential fraudsters without are prosecuted?

vi.    What type of punishment or penal sanction should the courts apply against fraud and other financial related offenders?

1.5  HYPOTHESES OF THE STUDY

HYPTHESIS 1

Hypotheses of these project work includes;

Ho:       Fraudulent  practices  in  Nigeria  banking  system  is dependent on ethical conduct.

Hi:   Fraudulent practices is not dependent on ethical conduct.

HYPOTHESIS 2

Ho:     Typical case of fraud and financial malpractice can be ascertained in Nigeria banking system through detection and prosecution

Hi;    Typical case of fraud and financial malpractice can not be ascertained through detection and prosecution

HYPOTHESIS 3

Ho:   Some potential fraudster are prosecuted

Hi:    Some potential fraudster are not prosecuted

1.6  LIMITATION OF THE STUDY

This work is constrained to some banks within Enugu environ. It may also have some problems of revealing all factors arising from frauds among them. A second limitation is the reluctance of  many bank  staff  and  management to  discuss frauds affecting their banks. Indeed the restriction seems so much that news dailies hardly carryout any sizeable number of fraud report that occur in banks. Reasons adduced include protection of affected banks from scandals and loss of customers. The next reason is to save some offenders (more over the management class) from public ridicule. The management tries to enjoy a false air of efficiency.

Time and finance including the academic treatise have not played small roles in the limitations and details of the work. Actually the required number of pages reduced the scope of write up. These limitations not withstanding, their works still believed to  give a  comprehensive overview of  the types and nature of fraud in Nigeria banking system and adequate prevention.

1.7  DEFINITION OF TERMS

There are many definitions to the word “Fraud”. The term fraud in this broad sense suggests any activity that amounts to unfair dealing and in so far as the range of such activities is infinite, no completely comprehensive definition may be coined.

P.E. Perry and G. Klein in the Dictionary of Banking (1998, P. 119) Defined fraud as An out or course of deception deliberately practiced to gain unlawful or unfair advantages, such  deception  directed  to  the   detriment  of   another,  a deception, a trick or trickery.

It is pertinent to note that “to defraud” ordinarily means to deprive a person dishonestly of something to which he would or might have, but for the perpetration of the fraud.

Fraud can also be described as conscious premeditated action of a person or group of persons with the intention of altering the truths and or fact for selfish personal monetary gain. In legal conception, it involves the use of deceit, dishonesty, trick, misappropriation, theft, diversion of funds, conversion and sometimes highly intelligent cunning and know how.

It entails moral turpitude as against moral rectitude, financial infidelity as against financial transparency. The action usually takes the form of forgery, falsification of documents and un-authorizing   signature   and   outright   theft,   corruption, counterfeiting, Deception, malfeasance manipulation, mis- representation, perjury, suppression and venality.

Fraud may be said to include all aspects of omission and concealments, mis-statement of facts which involves a breach of legal or equitable duty trust or confidence, justly reposed and are injurious to another.

(i)     There must be deceit though the motive is immaterial.

(ii)        There must be  damage to  the person deceived even when there is willful false representation before a course of action arises.

Commercial Banks occupy an indispensable position in the  Nigeria  economy. They  are  the  picot  upon  which  other business firms and other activities revolve and “a conduit pipe through which all financial transactions pass”. Fraud and other financial malpractices in the Nigeria Banking System nearly always lead to loss of monies that ordinarily belong to someone other than banks. In every bank cases where frauds with crippling frequency and in large sizes such banks may be forced to close down or outright distress as a result. When the commercial Banks lose money and it is wound up or distressed in turn the customers and the nation in general loses money, which also affects the economy. This leads to loss of confidence in the Banks and reduces patronage. In our kind of financial system where banking habit is being encouraged and developed this could result in major setback.

The Nigerian society is bedeviled with the desire to get rich quick without working hard for wealth so as to feel important in the society. As it seems that Nigeria believed that wealth is the measure of power and   importance. Nearly all banks in the country including the Central Bank of Nigeria, even some new generation banks seem to be under siege by men of the under- world, with or without insiders (Banks Staff) or employees, their main target is money or by which an undue or unconsciously advantage is taken on another.

This term fraud can also be defined as:

A.     Dishonestly obtaining pecuniary advantage, property, cash by deception.

B.     Advanced fee fraud which is referred to as 419, defined by section 1 of the advanced fee fraud and as: Any person who by any pretence and with intent to defraud or obtaining by trick.

C.     False  Accounting, this  is  committed where a  person dishonestly and with intent to gain for himself or for another or with intent to cause loss to another.

D.     False statements by officers of the bank with intent to deceive customers or creditors.

E.    Dishonest suppressions of documents with a view to gain.

Fraud in the above cases implies a willful act on the part of any one where by another is sought to be deprived by illegal or inequitable means of what he is entitled to, for any action to constitute  a  fraud,  therefore  there  must  be  a  dishonest intention and the action must be intended to benefit the perpetrator at the detriment of another. Taking cognizance of this write up and considering the above definition fraud would be summarized and taken as an intentional act of deception whereby the  Commercial Banks  and  others  are  deprived  of funds, property or other assets.

Although the  definition of  fraud  are  inexhaustible, the researcher regards the above definitions appropriate, sufficient and reinforcing for his purpose as they contain the fundamental elements of fraud which include the following. Frequency occurrence of frauds ultimately distracts the attention of management and  leads  to  increase running cost.  Time  and energies that would have been spent improving customers’ services would be expanded on preventing fraud. Funds that would also have gone into service improvement activities would be expanded in setting fraud control procedures and systems. Time and energies that would have been spent improving customers’ services would be expanded on preventing fraud. Funds that   would also have gone into service improvement activities would be expanded in setting fraud control procedures and systems. Time and energies that would have been spent improving customers’ services would be expanded on preventing fraud. Funds that would also have gone into service improvement activities would be expanded in setting fraud control procedures and systems. Time and energies that would have  been  spent  improving  customers’  services  would  be expanded on preventing fraud. Funds that would also have gone into service improvement activities would be expanded in setting  fraud  control  procedures  and  systems.  Time  and energies that would have been spent improving customers’ services would be expanded on preventing fraud. Funds that would also have gone into service improvement activities would be expanded in setting fraud control procedures and systems. Time and energies that would have been spent improving customers’ services would be expanded on preventing fraud. Funds that  would  also  have gone into service improvement activities would be expanded in setting fraud control procedures and systems. Time and energies that would have been spent improving customers’ services would be expanded on preventing fraud. Funds that would also have gone into service improvement activities would be expanded in setting fraud control procedures and systems.

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