THE IMPLICATION OF FRAUD ON BANK PERFORMANCE IN NI,

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THE IMPLICATION OF FRAUD ON BANK PERFORMANCE IN NIGERIA 2000-2014

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TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPETR ONE

1.0 INTRODUCTION

1.1 Background of the study

1.2 Statement of problem

1.3 Objective of the study

1.4 Research Hypotheses

1.5 Significance of the study

1.6 Scope and limitation of the study

1.7 Definition of terms

1.8 Organization of the study

CHAPETR TWO

2.0 LITERATURE REVIEW

CHAPETR THREE

3.0 Research methodology

3.1 sources of data collection

3.3 Population of the study

3.4 Sampling and sampling distribution

3.5 Validation of research instrument

3.6 Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

Abstract

The study examines the implication of frauds on Banks’ performance in Nigeria, it finds out the impact of the total number of reported cases of fraud, total amount involved in Naira and actually expected loss due to fraud on banks performance between the period 2000 to 2014. The data for the study were secondary data generated from annual reports and account of Nigeria Deposit insurance corporation (NDIC) and Financial Institutions Training Centre (FITC). The data were analysed using ordinary least square regression technique to see if there is any relationship between banks frauds and Banks performance. The result of the analysis shows that total cases of fraud reported, amount involved in frauds and actual expected loss due to fraud have significant inverse relationship with commercial banks investment. It was recommended that banks should ensure that guidelines from regulatory agencies like CBN, NDIC are strictly followed to reduce fraud.

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Fraud, according to Nwankwo (1991) arises when a person/organisation in position of trust and responsibility deliberately breaks the rules for personal or corporate gains at the expense of public interest. It is a global malaise that spares no institution and economy. Bank fraud on the other hand is the use of illegal means to obtain money and/or assets held or owned by financial institutions (Nwaeze, 2008). The increasing wave of fraud in financial institutions in recent years pose serious threats to the stability and survival of financial sector and banks in particular (Usman & Shah, 2013). Akinyomi (2012) opined that fraud if not properly checked, might result in huge financial losses to banks and their customers, depletion of shareholders’ funds and banks’ capital base as well as loss of public confidence in banks. Also, the incidence of frauds and forgeries could, in extreme cases, lead to the closure of banks (Fatoki, 2015). Many of the distressed banks in Nigeria today had suffered a great deal from frauds and insider credit abuses (Nwaeze, 2008). Fraud is a global phenomenon that has been in existence for long and it increases everyday by day. Fraud is a deliberate act that causes a business or economy to suffer damages, often in the form of monetary losses. Fraud is rampant in both developed and developing countries and as well varies across places in its magnitude, its sources, the way it manifests itself and in its effects on administrative performance and development. Olufidipe (1994) defined fraud as “Deceit or trickery deliberately practiced in other to gain some advantage dishonesty.’’ Oxford Advanced Learner’s Dictionary defined fraud as the crime of cheating somebody in order to get money or goods illegally. It is also a person who pretends to have qualities, abilities etc. that they do not really have in order to cheat other people. Alashi, (1994) opined that fraud means an act of dishonesty, deceit and imposture. According to Kirkpatrick (1995), “a person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler. By extension fraud will include embezzlement, theft or any attempt to steal or unlawful obtain, misuse or harm the assets of bank (Nzotta, 1999). Fraud according to Adeniji (2004) and ICAN (2006) is an intentional act by one or more individuals among management, employees or third parties which results in a misrepresentation of financial statement. Financial reforms in Nigeria have evolved various strategies to encourage financial intermediation and mobilization of savings for investment which promote economic growth and development (Egwu, 2012). These reforms seek to act proactively to strengthen the market mechanism, remove systematic and financial crisis, ensure a more liberal financial system and increase reduction of fraud. Fraud in banking industry is a global phenomena and its growth in Nigeria economy has been astounding. Fraud is the number one enemy of business growth world over. The fear now is that the increase rate of fraud in the financial institutions, if not arrested mighty pose certain threats to the stability and the survival of individual financial institution and the performance of the industry as a whole and no area of the economy is immune from fraudsters (Nwankwo, 2005). Bank frauds is generally bringing untold hardship on bank owners, staff, customers and family members as most bank failures are always associated with large scale of frauds (Okoro, 2003). Fraud in bank shakes the foundation and credibility of most banks in Nigeria resulting to some of the bank being distressed. The study is faced with challenges to uncover the problem of how fraud affect the performance of Nigerian banking industry and economy in general considering the positive or negative effect based on the present nature of Nigerian banking industry. Going by the definition, fraud in the Nigerian economy cannot be restricted to banks alone. Although, fraud cuts across all sectors of the economy but the size of an enterprises usually determines the volume of fraud perpetrated. The problems such as; inadequate manpower, poor internal control system and internal checks, inadequate incentives and unsuitable legal framework for dealing with offenders, downturn in economy, recognition being accorded the wealthy people regardless of their source of wealth play a major role in the perpetration of frauds. The fear now is threat of which the devilish and unscrupulous act will pose to the stability and survival of individual banks, financial institution the performance of the industry and economy as whole. Fraud results in huge financial losses to financial institutions and their customers, depletion of shareholder funds and capital base as well as loss of confidence in financial institutions. In intermediation, banks mobilize savings from the surplus units of the economy and channel these funds to the deficit unit, particularly private business enterprises, for the purpose of expanding their productive capacity. Fraud however has been defined by many scholars Olufidipe (1994) defined trick deliberately practiced in order to gain some advantage (1991), fraud is described as „any premeditate a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage‟. Another scholar Idowu (2 camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to the financial damage of an individual or an organization. Going by the definition of the chambers universal learners dictionary Kirkpatrick (1985) define fraud as any person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler. Having explained what fraud is, it is pertinent to define bank fraud which is the subject matter of this study; however bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution. For an action to constitute fraud there must be a dishonest intention and the action must be intended to benefit the perpetrators to the detriment of another person. Going by the definitions, frauds in Nigeria cannot be restricted to the banks alone. A lot of fraudulent activities are prevalent in Nigerian economy ranging from bloody killings, ritual, kidnapping, robberies, forgery, misappropriation, cheating, and gangsters and looting. Bank fraud ranges from account-opening, money transfer fraud, cheque kiting, telex fraud, money laundering fraud, computer fraud, loans fraud and the likes.

According to Oseni (2006) the incessant frauds in the banking industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry. Corroborating the view of Oseni, Idolor (2010), stressed that the spate of fraud in Nigerian banking sector has lately become a source of embarrassment to the nation as apparent in the seeming attempts of the law enforcement agencies to successfully track down culprits. Although the incidence of frauds is neither limited to the banking industry nor peculiar to Nigeria economy, however the high rate of fraud within the banking industry, calls for urgent attention with a view to finding solutions. Fraud in its effect reduces organizational assets and increases its liabilities. With regards to banking industry, it may engender crises of confidence among the banking public, impede the going concern status of the bank and ultimately lead to bank failure (Adeyemo, 2012). According to kimani (2011) `A way of making money is to stop losing it. The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three years old child talks about 419, the name given to the newly discovered advanced fee fraud that is hunting our nation.

“In July 2004, central bank of Nigeria (CBN) unveiled new banking guidelines designed to consolidate and restructure the industry through mergers and acquisition. Banks and Other Financial Institutions Act (BOFIA) 1991, section 15, was also designed to prevent fraud and to make Nigeria banks more competitive and able to play in the global market.

1.2 STATEMENT OF THE PROBLEM

Since evolution banks have been experiencing fraud, this tends to affects the performance and the profitability of banks and may possibly lead to distress. The larger society expects greater accountability, fairness, transparency and effective intermediation from banks, ensuring that they carry out their responsibilities with sincerity of purpose and unquestionable integrity with respect to their operations as a means towards earning public trust and goodwill. The banking business has become more complex with the development in the field of Information and Communication Technology (ICT) which has changed the nature of bank fraud and fraudulent practices. Berney (2008) observed that customers rely heavily on the web for their banking business which leads to an increase in the number of online transactions. Gates, Jacob and Malphrus (2009) assert that the internet provides fraudsters with more opportunities to attack customers who are not physically present on the web to authenticate transactions. In Nigeria, in spite of the banking regulation and bank examination by the Central Bank of Nigeria (CBN), the supervisory role of the Nigeria Deposit Insurance Corporation (NDIC), and The Chartered Institute of Bankers of Nigeria (CIBN), there is still a growing concern about fraud and other unethical practices in the banking industry. This study thus, examines the extent to which fraud and other unethical practices have affected the Nigerian banking sector both in the past and present.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to examine the implication of fraud on bank performance in Nigeria 2000-2014. But to aid the completion of the study, the researcher intend to achieve the following specific objective;

i) To examine the effect of bank fraud on customers confidence
ii) To examine the relationship between bank fraud and bank performance

iii) To ascertain the impact of bank fraud on organizational image

1.4 RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study

H₀: bank fraud does not have any significant effect on customer’s confidence

H₁: bank fraud does have a significant effect on customer’s confidence

H₀: there is no significant relationship between bank fraud and bank performance

H₂: there is a significant relationship between bank fraud and bank performance

1.5 SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study the findings will be very useful;

To Banks and Financial Institutions as it will be beneficial to the authorities concern with banking operation, managements, staff customers and prospective investors in the industry so as to identify the various means (theft, embezzlement, forgeries etc.) employed in defrauding banks and to identify the cause of frauds in banks in Nigeria. To government as they will find this work relevant to future policy and decision making with particular to restructuring its agencies for better performance in detaching frauds in Nigeria banks. To the general Public the study will be so useful because the banking industry touches the life of everyone in an economy. Banks all over the world have contributed immensely to the economic growth and development of nations. As such, problems such as fraud which can hinder the smooth operation of the banking industry should be viewed with all seriousness in other not to intercept or destroy the rate of development. Finally, to academia it will also be beneficial to people who will intend to carry out further research in this area, to find this study relevant in their research.

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the implication of fraud on bank performance in Nigeria 2000-2014. But in the cause of the study, there are some factors that limited the scope of the study;

Staff Reluctance: In most cases the staff of the banks used in the study often feels reluctant over providing required information required by the researcher.

Researcher’s Commitment: The researcher, being of full time student spent most of her time on other academic activities such as test, class work, assignment, examination etc which takes average focus from this study.

Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

1.7 OPERATIONAL DEFINITION OF TERMS

Fraud: In law, fraud is deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.

Banking sector: The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth, and the regulation of those activities by government agencies.

Financial Crime: Financial crimes are crimes against property, involving the unlawful conversion of the ownership of property (belonging to one person) to one’s own personal use and benefit.

Nigeria: is a federal republic in West Africa, bordering Benin in the west, Chad and Cameroon in the east, and Niger in the north.

Bank performance: A Theoretical and Empirical Framework for the Analysis of Profitability, Competition, and Efficiency. Economic literature pays a great deal of attention to the performance of banks, expressed in terms of competition, concentration, efficiency, productivity and profitability.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.