AN EMPIRICAL EXAMINATION OF FRAUD IN THE NIGERIA BANKING INDUSTRY (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)
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AN EMPIRICAL
EXAMINATION OF FRAUD IN THE NIGERIA BANKING INDUSTRY (A CASE STUDY OF FIRST
BANK OF NIGERIA PLC)
1.0 INTRODUCTION
The word fraud refers to the irregularities involving the use
of criminal deception to obtain an unjust or illegal advantage. It send a wave
of doubts, curiosity, anxiety and concern to people as regards the safety of be
it financial or otherwise. It exists in different sectors of our nations
economy, education, agriculture, mining, production, banking etc.
However, First
Bank of Nigeria Plc was founded in 1894, by a shipping magnate from Liverpool,
Sir Alfred Jones, the Bank commenced as a small operation in the office of
Elder Dumpster & company in Lagos.
The Bank was incorporated as a limited
liability company on March 31, 1894 with Head office in Liverpool. It started
business under the corporate name of the Bank for British West Africa (BBWA)
with a paid – up capital of 12,000pounds sterling, after absorbing its
predecessor, the African Banking Corporation, which was established earlier in
1892. This signaled the pre – eminent position which the Bank was to establish
in the banking industry in West Africa. In the early years of operations, the Bank
recorded an impressive growth and worked closely with the colonial government
in performing the traditional functions of a central bank, such as issue of
specie in the West African sub region
To justify its West Africa coverage, a branch was opened I
Accra, Gold Coast (now Ghana) in 1896 and another in Freetown, Sierre Leone in
1898. These marked the genesis of the Bank’s international banking operations.
The second branch of the Bank in Nigeria was in the old Calabar in 1900 and two
years later services were extended to Northern Nigeria.
Currently with 339 branches spread throughout the federation,
the Bank maintains the largest branch network in the industry. The Bank became
the first financial institution in Nigeria to establish a subsidiary bank in
the United Kingdom.
Over the years, the Bank has experienced phenomenal growth.
With a share capital of N55.6 million in 1980, the Bank share capital grew to
N1.270 billion as at March 2003. the bank’s total asset base was N320.58
billion while its deposit base stood at N193.955 billion as at March 2003. Also
the Bank’s market capitalization stood at N66.05 billion i.e. N26.00k per share
as at 31st March 2003.
To reposition and to take advantage of opportunities in the
changing environment, the Bank embarked on several restructuring initiatives.
In 1957, it changed its name from Bank of British West Africa to Bank of West
Africa in 1969, the Bank was incorporated locally as the standard Bank of
Nigeria Limited in line with the companies Decree of 1968.
Changes in the name of the Bank also occurred in 1979 and
1991, to First Bank of Nigeria limited and First Bank of Nigeria Plc;
respectively.
Apart from this, fraud in the Nigeria Banking Industry is as
old as the system itself, a retrospective analysis disclosed that between 1892
and 1952, a period commonly refer to as “free banking era” in Nigeria. This
happened when there was no form of Banking Act or Ordinance to regulate the
establishment and operations of commercial banks or a central bank which
supervises and control other banks. Within this period expatriate and
indigenous banks were established, all being commercial bank.
Among the banks were:
The British Bank of West Africa in 1894. which later become
the First Bank of Nigeria Plc in 1991.
The Colonial bank in 1917 (later became Barclays Banks
Dominion Colonial and Overseas and presently the Union Bank of Nigeria Plc.
The African continental Bank Plc in 1947
The National Bank of Nigeria in 1933
The Agbormagbe Bank (now called Wema Bank) in 1945 and
Other indigenous banks that failed following introduction of
banking ordinance of 1952 whose provisions they could not meet.
Some of these banks that were registered between 1892 and
1952 never opened doors for business even for a day while some simply collected
customer’s deposit and vanished into tin air. It is a bitter truth that those
that failed were for reasons traceable to fraud; mismanagement and lack of
government patronage. The consequence was, it deprived the individuals,
organisations concerned and nation in general, funds needed for development and
increased standard of living. This resulted in a loss of faith and trust on the
banks by Nigerians and thus on impediment for rapid development of banking
operations in the country.
With the banking ordinance of 1952, some element of sanity
entered the Nigerian banking industry whish was noticed in the regulation of
the formation, operations and activities of commercial banks in the country.
From history to the present, fraud has remained a permanent
feature, a regular cankerworm and an infested blood in the Nigerian banking
industry and assuming greater proportion, different dimensions and sophistication
day after day. Subsequent to the first banking ordinance in 1952 the Central
Bank of Nigeria (CBN) Act of 1959 and other Acts and ordinances with their
amendments from time to time which regulated and controlled the operations of
the banking industry in Nigeria, the occurrence of fraud could not be helped
either.
Today, the era of modern banking operation with improved
communication systems, computer technology and automated electronic gadgets and
other precautionary measures by the banks, fraud has nevertheless been on the
increase with its attendant misfortunes on its victims. Discoveries during
investigations shows that banks now take extra precautions before clearing
cheque because of rampant incidents of fraud and forgery which a bank boss
placed on the average of N1 million per working day of the year in Nigeria.
Because of this precautions, customers now waste a lot of hours in the banks
before ever they were paid their cheques; thus a defect in the quality of banks
services. These customers get tired in the midst of the waiting crowd in the
bank hall. Even with the long process of clearing, fraud could not be
terminated as those who perpetrate it are always clever devising more
sophisticated fraud scheme to circumvent the already installed measures.
It is interesting to note that the Nigerian Banking industry
comprises of the Central Bank, Commercial banks, Merchant banks, Development
banks, People’s bank and community banks. The aim of this research work is to
make an empirical examination of fraud in the industry in general using the
First Bank of Nigeria Plc Enugu. It is hoped
that whatever happened in this bank as regard to fraud also applied to
the rest of the banks in Nigeria.
1.1 STATEMENT OF
THE PROBLEM
The increasing wave fraud in the banking industry is quite
alarming and sums of money lost as a result are staggering. Bank fraud has
created a lot of distrust between banks and their customers. The Nigerian
Accountant, writing on bank failure, observed that, “The history frame work of bank
failure, will not be complete without adequate attention paid to the activities
of fraudulent members of the board and staff” This express the havoc fraud is
capable of causing in the banking industry.
The methods used in perpetrating fraud are acquiring nuclear
sophistication day – by – day. While the management of banks are busy devising
means of checking fraud, the fraudulent staff are also busy devising new
methods of duping the banks. Fraud leads to an undesired loss of public funds
and puts the integrity of the management of the affected banks in doubts. Every
incidence of fraud chops off some degree of public confidence in the banking
industry and slows down banking habit in Nigeria.
In the light of this, if nothing positive is done to check
these incidence early enough, fraud could lead to the total crippling of the
economy as a whole and the liquidation of the banking industry in particular.
The policy Magazine, writing on “Building public confidence in banks 2”
expresses that banks should build a reputation which can encourage their
customers both existing and prospective, to transact with enthusiasm instead
of reluctance. They should shine to
rebuild the confidence of the public by satisfying its wants both functionally
and psychological.
This research
work is as a result concentrates purely on the bank industry with a view to
providing suitable recommendation that will help in fraud prevention or
minimization.
1.2 PURPOSE OF THE
STUDY
The purpose of this research work is to carry out an
empirical examination of fraud in the Nigeria banking industry with special
reference to First Bank of Nigeria Plc. The research having identified some of
the problems on fraud in the banking industry like insecurity of customer’s
deprivation of funds for development and upliftment of living standards, loss of public
confidence on banks etc. The main objectives amongst others for carrying out
this research work includes:
To determine if fraud exist in the Nigerian banking industry.
To determine the causes of fraud in the banks in Nigeria
To determine the effects of fraud in the operations of banks
in Nigeria.
To determine if there are legal loopholes system that aid
fraud and
To proffer preventive measures and strategies against fraud
so as to salvage the Nigeria banking industry as regards fraud menace.
1.3 SIGNIFICANCE OF
THE STUDY
It is an undebtable fact that fraud can run the confidence
people have in the banking industry. This research work is very relevant in one
way or the other to the Nigerian banking industry in general and particularly
to the First Bank of Nigeria PLC.
Moreover, banks in Nigeria will derive great assistance from
this research work in detecting fraud in their business and subsequently
prevent or minimize them.
This they can achieve by adopting and implementing the
various suggestions and recommendations made in this study in their control
systems.
Also, this study will help readers and those may be
interested in carrying out other study serving as a reference point from time
to time.
Conclusively, it cannot be over emphasized the fact that if
banks were all reduce the incidence of fraud in their operations to the lowest
level they will be operating on a more profitable ground. The public confidence
on banks will once more be restored and economic revival achieved.
1.4 STATEMENT OF
HYPOTHESIS
In carrying out this research work, the following hypothesis
were formulated to enable the research test the validity of the information to
be obtained.
Null hypothesis
Ho: Nigeria banking
industry has not experienced many cases of fraudulent practices.
Hi: Nigeria Banking
industry has experienced many cases of fraudulent practices.
Ho: The rate of
fraudulent mal-practices in the Nigeria banking industry has been minimized.
1.5 SCOPE AND
LIMITATIONS OF THE STUDY
This research work would have been to investigate fraud in
all the commercial banks, people’s bank, Merchant Banks, Development Banks and
Community Banks in the country for the sake of excellence and achievement of
best possible results. As this would be a large population and likely to pose
some problems, the research work is therefore centered on one bank of interest.
The First Bank of Nigeria Plc. Representing the commercial banks.
The researcher encounter the following problems;
Financial constraint: Finance to a large extent determines
the success which a venture can be. For this research work, financial
constraint was responsible for the inability to distribute questionnaires
throughout the branches of the bank and so reliance was made on the information
at their main office.
The less than fair co-operation on the part of the bank
official in supplying the needed information and data posed its own problem.
Most of the bank managers refused to offer past records on fraud or the amount
involved. They bluntly refused saying they are confidential.
Other bank will know their weakness
There customers both present and the investors would lose
confidence on them.
Other banks would use this fraud element against their
operations. In spite of the assurance of strict confidence of any information
or data supplied and that it would be use purely for academic pursuit, they
still refused. This made the researcher to give up the idea of asking questions
which the manager regarded as sensitive. In addition to this, in framing the
questionnaire, the researcher avoid such direct questions that require exact
figures.
Another question was the not on seat and too busy to attend
to you syndromes which the researcher suffered. The researcher made several
visits, and at times, even on appointment suffered this problem.
Distance and time: The bank’s branches were not near and the
academic period was too short. And period was split between the class work and
research work which compounded the problem. The researcher in the face of these
problem was able to make the work sound and reliable.
1.6 DEFINITION OF
TERMS
The meanings and interpretations given to most of the term
used in this research work are defined below
1 Bank : this is the store _house of a nations economy; a place where money and other valuable are
kept for safe custody.
Ii Commercial Bank: There are bank that accept deposits,
provides commercial credits to their customers which involves the creation,
distribution and transfer of deposits.
Iii Internal control system: This is the whole system of
control, financial and other wise,
established by the management in order to
carry on the business of the enterprise in an order and efficient manner, ensure adherence to management policies, safe guard the
completeness and accuracy of the records
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