Effects of fraud in the banking industry (a case study of union bank nig. Plc)

Effects of fraud in the banking industry (a case study of union bank nig. Plc)

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ABSTRACT

Financial malpractices in the banking sector are any unethical actions taken by employees or visitors inside the industry. No bank is currently secure from these fraudulent activities, even though their impact in certain circumstances is less severe than in others. These fraudulent acts deplete the capital foundation of the affected institutions. Due to the wide range of consequences of these fraudulent acts, several sorts of checks are implemented and offenders are subject to fines. A blatant example of such methods is the banking tribunals’ actions. Numerous studies on comparable subjects as well as numerous periodicals with reliable material on the topic were examined in order to gather facts for this investigation. Research from banks, supervisory agencies, and occasionally bank staff is consulted when there are questions that need to be clarified. Every sector of any economy engages in fraudulent activity, and no government will stand by while its economy is destabilized by fraud. There are measures in place to stop this act, but they will only be effective if they are also adequately administered. The establishment of rules and organizations tasked with overseeing this financial institution is how the government contributes to preventing fraud in banks. To prevent the institutions from failing, the banking institutions themselves are heavily engaged in the fight against these malpractices.

In conclusion, banks are losing a lot of money as a result of fraud. Although there are regulations and controls in place to prevent these malpractices, it is advised that they be strictly enforced and periodically examined to prevent any potential loopholes.

CHAPTER ONE

1.0        INTRODUCTION

Due to their special role in an economy, banks all over the world have made significant contributions to the progress and development of a country’s economy. Therefore, any issue that has the potential to impede their operations, such as “fraudulent practices,” is frequently taken seriously. Nigeria’s financial system has long been plagued by fraudulent activities carried out by cooperative organizations, people outside of the banks, and bank staff. Between 1992 and 1995, there was an unprecedented rise in bank fraud, especially with the New Generation Banks (NGBs), which made the situation worrying. These violations have caused banks to be unhealthy, technically insolvent, and to completely collapse.

Bank frauds were committed all around the world mostly for personal financial gain. Ajamole (1990) defined fraud as “an act or course of deception, deliberately practiced to gain an unlawful or unfair advantage to the detriment of another” in (Emergence of Computerized Banking). Any unjust act, whether committed against the bank by its clients, the bank by its employees, or the clients of the bank (including its employees), is recognized as fraud. There have been reports of numerous fraud schemes, and the majority of these instances have been heard in various courts and bank malpractices tribunals. Some sanity has returned to the banks since the Failed Bank Tribunals were established.

Fraud is viewed by economists as a systemic breach in the economy. Because investors are afraid, money obtained through dishonest means is occasionally not invested into the system and is instead used for unproductive purposes. Chapter 1 will address the introduction, goals and objectives, significance of the study, limitations, and hypotheses. This project, titled “Bank Frauds Prevention and Control,” is provided in five chapters. The second chapter then looks at the conceptual problems and the evaluated literature. While chapter three makes an effort to investigate the type and scope of fraud, documented instances of it being perpetrated, and the types of employees or clients involved. The topics of fraud detection, causes, impacts, prevention, and control are covered in Chapter 4. Finally, chapter five provides a summary.

1.5        SIGNIFICANCE OF THE STUDY

The significance of this study is in the fact that it highlights the immediate and remote causes of fraud practices, effects, prevention, and control in Nigeria Banking System with particular reference to Union Bank. Several attempts have been made by researchers, writers e.t.c. On how to minimize or eradicate it if possible. In various organizations but such efforts have been focused mainly on manufacturing and distributive as well as public finance management, while little has been done on areas of Banking and other services industries. The studies have been geared towards finding out causes and consequences, prevention and control of frauds in Nigeria Banking Industry.

Therefore, the suggestions that are advanced in this study would no doubt be useful not only to the banking industry but to all financial institutions be it public or private sector of the Nigerian economy. The content of this research and the suggestions to be proffered will serve as resources for further study in the same or similar areas

Banking and other financial institutions particularly in the area of fraud practices (internally) prevention and control.

1.2        STATEMENT OF THE PROBLEM

Economic crises which of course include financial frauds one of the fastest growing industry. In Nigeria frauds are often recorded in almost all branches of all banks particularly commercial ones. These acts have hindered a lot of business opportunities. Similarly, in United States of America (USA) in 1984 congregational ‘Report on 75 failed Commercial Banks between 1980 – 1983, 61% involved criminal misconduct by insiders while 39% by outsiders’. The advent of computer which is hoped to reduce the level of fraud has not helped matters, since that the computer operator are known to have infused with fake figures and created fake accounts which serve as a pipe through which large sums of money are being taken away (illegally). The magnitude of the above problems, its implication to the banking industry has enabled the research content to answer the following questions.

1. How does a fraud practice in the bank affect the bank?

1. What are the impacts of fraudulent acts of bank, over the transaction of their customers?

• What are the existence measures in Banks that can be used to check such fraudulent acts?

1. What measures can be used for prevention and control of such fraud practices in Banks (Commercial Bank)?

1.7        LIMITATION OF THE STUDY

This research is limited to studying the causes and consequences, prevention and control of fraud practices in Nigeria Banking System. As a result of inability of many managers to grant audience with data relevant to frauds more especially, the ones treated in their organization, this enabled the limited knowledge of what fraud is, what constitute fraud. Some managers consider such discussions as issue of revealing the organizational secret, in this way the audience can only be entertained if he is a staff. However, the research is restricted to Union Bank whose staff are ready to assist to make the research a successful one.

1.3        OBJECTIVES OF THE STUDY

The purpose of this study is to show the various fraudulent practices in the banking industry and the perpetrators of this act and to expose what the law has to do in such situations.

Although a number of studies have been undertaken on the phenomenon of fraud in banks, the increasing pace with which frauds are being committed called for continuous research on the subject to keep track of new devices employed by the fraudsters in defrauding the system, hence the rationale for this research work. To achieve this objective, the following secondary objectives have been specified.

1. To identify the cause(s) of fraud in banks,

1. To identify the various types of fraud perpetrators in banks,

• To identify the various means employed in defrauding banks,

1. To determine the effects of fraud on the business of banking

1. To recommend measures for reducing the incidence of bank fraud.

1.6        SCOPE OF THE STUDY

This project entitled “Effect of Fraud in the Banking Industry; A Case Study of Union Bank” focused on fraudulent activities in the banking sector. The project covers the act of fraud and forgeries in the banks, the effects it has on the banks and means of correcting the anomalies. In order to attain the objectives of this research work, the scope of the study has been defined to embody all relevant aspects of fraud in banking operations.

1.4        RESEARCH HYPOTHESIS

Primary and secondary data were used in the production of this research work. The main sources of secondary data were survey report, both published and unpublished materials from the banking sector particularly Union Bank of Nigeria Plc and other corporate bodies in various locations. While the main source of primary data was the information obtained through oral interviews and personal contact with some of the officials in the inspectorate department of Union Bank.

Primary Source

The researcher considered it essential to conduct primary investigation through interviews with inspectors at the unit especially the Chief Inspector at interviews were also conducted at the branch levels with some bank officers and notably customers of the bank.

As much as possible information supplied by respondents were cross-checked, examined and verified by the researcher with other sources (through informal discussions) since it was not humanly possible to extend this study to cover the entire branches within the area under study because of the time and financial constraints that to reply on the use of sampling method for checking information about the extent of frauds and forgeries in each of the branches in this respect, the statistics method of random sampling was found to be more convenient in the choice of respondents and was applied in the case of customer of the banks.

The method entails the division of area under study into regional zones, and by random sampling of four main branches were selected for example Union Bank, Hospital Road, Kaduna South, Bank Road in Kano and Zaria main branch under Kaduna Regional Office. Two small branch offices and twenty (20) main customers for personal interviews. The statistical method of arriving at average responses and percentages were used in the analysis and the interpretation of data.

Secondary Source

Data in this section were sourced from existing records or relevant document, research studies and literatures related to the research problem. Other materials from which data were sourced include business journals, business magazines, daily newspapers as well as textbooks.

DEFINITION OF TERMS

FRAUD: It has various definitions given by different auditors. Obviously fraud is synonymous with irregularities. For the purpose of this study, it can simply be

defined as a conscious premeditated action of a person or group of persons with the intention of altering the truth or facts for selfish personal monetary gains.

FORGERY: is the act of making or writing fraudulent initiations falsifying or altering any writing for the purpose of doing injury to another person whether natural or corporate.

COUNTERFEITING; is the act of applying or deliberately making something to be exactly like the original in order to deceive.

BAD DEBTS: Can be defined as those credit which bank grant to customers but which these customers are unable to repay. In other words they are debts owed the bank by the customer which are not only uncollectable but also in payable.

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