FRAUD MANAGEMENT AND PERFORMANCE OF FINANCIAL INSTITUTIONS IN NIGERIA (A CASE STUDY OF UNION BANK OF NIGERIA PLC)

Abstract

The project examines fraud management and performance of financial institutions in Nigeria. The study’s main objective is to know the magnitude of frauds in Nigeria banks and to know why and how banks personnel commit fraud. The primary source of data collection was used in gathering data from respondents. An empirical force affects the Nigerian banking sector, using the ordinary least square estimation (OLS) techniques called the exact AR Newton Raphson method. Data collected were presented in tables and percentages for easy understanding. It was discovered that within the period of review (2008 – 2013), an aggregate of five fraud cases were reported from the institution. It was also found out that the highest of the cases was foreign exchange transfer closely followed with that of interest computation and application of saving ledger account. It was concluded that adequate and close managerial supervision and control, regular accounts balancing were ranked as highly and most effective measures against fraud. It was recommended amongst others that there is need not to impose confidence to the extreme on employees, since human beings cannot be easily predicted.  

TABLE OF CONTENTS

Title Page                                                                         i

Certification                                                             ii

Dedication                                                               iii

Acknowledgements                                                  iv

Abstract                                                                   v

Table of Contents                                                     vi

Chapter One: Introduction 

1. Background to the Study                                                 1
2. Statement of Problems                                             3
3. Research Questions                                                 3
4. Objectives of the Study                                            4
5. Statement of Hypothesis                                          4
6. Significance of the Study                                                 5
7. Scope of the Study                                                   6
8. Limitation of the Study                                            7
9. Definition of Terms                                                  8

Chapter Two: Review of Related Literature

1. Introduction                                                             10
2. Types of Fraud and Ways of Defrauding Bank         11
3. Causes of Bank Fraud                                             15
4. Effects of Fraud in Banks                                                18
5. Measures for Controlling Fraud in Banks                        20
6. Brief History of Union Bank                                     26

Chapter Three: Research Method and Design

1. Introduction                                                             28
2. Research Design                                                      28
3. Description of Population of the Study                    28
4. Sample Size                                                             29
5. Sampling Techniques                                              29
6. Sources of Data Collection                                       29
7. Method of Data Presentation                                   30
8. Method of Data Analysis                                          31

Chapter Four: Data Presentation, Analysis and Interpretation

4.1   Introduction                                                             33

4.2   Data Presentation                                                    33

4.3   Data Analysis                                                           34

Chapter Five: Summary of Findings, Conclusion and Recommendations

5.1   Introduction                                                             40

5.2   Summary of Findings                                              40

5.3   Conclusion                                                              41

5.4   Recommendations                                                   42

References                                                               44

CHAPTER ONE

INTRODUCTION

Background to the Study

As in many other industries in the Nigerian economy, most banks are faced with problem of fraud. It might be a gross-over statement to call the Nigerian banking system citadels of frauds. Whilst, very truly, fraudulent practices are rampart in Nigeria the level (amount and number) of fraud is not unexpected of a developing and in experiencing banking system such as ours, it is so far to the credit of the Nigeria monetary authorities, the public at-large and perhaps any other concerned Nigeria that no bank has actually failed in Nigeria as a result of fraud. However, one should be disturbed by the regularity of fraud perpetration in our banks and effort should be made by all and sundry to make this bank to quite a reasonable extent of not totality.

The effect of fraud on our banks are far reacting a high height and they include; huge financial losses of the banks and their customer the depletion of shareholder’s fund and the banks capital base. Others are band management embarrassment and loss of confidence by the customers on our banks. The time, energy and money that would have been used in other development purposes expansion, customers, services and perhaps too, other social responsibilities, to the society-are diverted towards setting up fraud control and prevention system. These automatically increase running cost and most painfully, a major set back at the promotion of banking habit among out people.

Although, the monetary authority and all other concerned have been credited for the simple fact that no bank failed in this country as a result of fraud, it is worth nothing that record has it all, fraud had led to the closure of some banks in other parts of the world and this may take a position of the current trend is not solid. The job matter bank of affairs in great Britain and also the collapse of some banks in Kenya are very good examples, since the rate of occurrence has reached an alarming height and thereby causing a strong and urgent concern there is the need to put a final stop.    

Statement of Problem

Considering the effects of fraud and fraudulent acts as pointed out in the introduction, the purpose of this study is to effectively comb and curb the incidence of frauds in our banks using selected banks in Edo State. Among such banks include; Zenith Bank Nigeria Plc, Auchi and GT Bank Plc.

To achieve the objective of this research, the some problems need to be addressed, this include, why bank personnel commit fraud, how effective are fraud control measures in the banking system and the possibilities of setting sufficient information to predict fraud occurrence in banks.  

Research Questions

The following research questions are relevant for understanding of the study.

1. What is the magnitude of frauds in Nigeria banks?
2. Why and how do banks personnel commit fraud?
3. How effective are fraud control measures in our banks?
4. What is the possibility of setting efficient information to predict fraud occurrence in banks.
   1. Objective of the Study

The main objectives of the study are:

1. To ascertain the magnitude of frauds in Nigeria banks.
2. To know why and how bank personnel commit fraud.
3. To ascertain how effective are fraud control measures in our banking system.
4. To ascertain the possibility of setting efficient information to predict fraud occurrence in banks.

Research Hypotheses 

Hypothesis One

HO:   Efficient information increases the chance of eradicating bank fraud in Nigeria banks.    

HI:    Efficient information does not increase the chance of eradicating bank fraud in Nigeria banks.

Hypothesis Two

HO:   Bank fraud control is not effective in controlling bank fraud in Nigeria.

HI:    Bank fraud control is very effective in controlling bank fraud in Nigeria.

Significance of the Study

Fraud is a hydra like virus which permeates all areas of banking operation and causing lots of losses to the institution. One can not imagine an organization establishment to contribute in its little or large from to societal development, provide adequate returns to the investors.

From all experience, frauds are unique in terms of the system of planning and execution. Knowledge of the various ways which these frauds have been perpetrated in the past and a foresight or an anticipation of the possible system in the future, considering the past, can be efficient and effective in guiding management prevention and re-occurrence of frauds, for instance, a customer’s cheque paid out previously by a cashier to the bearer, debited to the customer’s account and filed out may be taken and made to pass through the system again i.e. paying a single cheque twice or more and at different days.

Secondly, a fraud occasioned by forged mandate the very common one, where the fraudulent person lay had in the cheque book or leave and draw it to any extent and perfectly forged the customer’s signature such that no one can actually say it was not signed or drawn by the legal owner. In either case the bank is to make good such effected customer’s account. In from the above one seems to agree that majority of the frauds are born by the bank and the banks should pursue effective informal control measure to prevent and manage frauds.

This research work therefore is designed to help managers in the financial institution to get acquainted with the view of gaining sufficiently that would enhance their individual and collective experience in management and prevention of frauds.

Scope of the Study

Many definitions of fraud has come up but we shall for the purpose of this research re-state and examine some. Fraud is defined as the act of depriving a person distantly, of something to which he is or would or might but for the perpetration of fraud, be entitled. This study critically examines the fraud management and performance of financial institutions institution in Nigeria which examine the theft and fraudulent of people’s finances into some back-pocket. The study is examined in financial institutions all over the nation but more emphasis on Zenith Bank Plc in Auchi and a time frame of 5 (2008 – 2013)years was used the recent correlation of data using a sample size of 20 was used for effective study.  

Limitations of the Study

As a matter of fact, fraud in banks is a very sensitive one. It is sensitive because it occurs in banks and other bankers hardly agreed on the incidence of fraud in their bank. This is due to the fact that it may scare their customers and competition could capitalize on that. However, personal observation and experience as a long term practice banker has also been put to play in the research work especially that these observation and experience were not originally documented. Other limitations include traveling time and cost associated with traveling. As student, finance is so limited to enable one do a job that demand consideration coverage place especially where one has to travel over and over again for sourcing data (financial institution through human errors and staffs).

Time would have very well sufficient for this task but work is done along side with other equally important job as progress test and examination, lecture period all which reduce the time consideration. The most striking limitation is the non-availability of necessary book on this problem in the school library.

Definition of Terms

1. Fraud: Means an act or course of deception deliberately practiced to gain unlawful and unfair advantage, such deception is directed to the detriment of another.
2. Fraudulent: means deceitful
3. Fraudster: A person or people who plan and execute fraud. They could be trained or not.
4. Internal control system: Means the whole system of control financial and otherwise established by the management in order to carry on the business of the enterprise in an orderly and efficient manner to ensure adherence to management policies, safe guard the assets and source as far as possible, the completeness and accuracy of the records, the individual components of an internal control system are known as control or internal control.
5. Internal check: That aspect of internal control which is concerned with the prevention and early detection of fraud and this will involve the arrangement of book-keeping ad other clerical duties in such a way as to ensure much as possible.

i.      That not a single task is executed from its beginning to its and by only one person i.e. the task should be divided into segments and each segment handled by different person.

ii.     That the work of each clerk engaged on a task is subject to an independent check in the course of their duties.