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AN EMPIRICAL
EXAMINATION OF FRAUD IN THE NIGERIA BANKING INDUSTRY
(A CASE STUDY OF
FIRST BANK OF NIGERIA PLC)
ABSTRACT
In fact, the main aim of this research
work was to carefully examine fraud in the banking industry using one selected
bank from commercial bank. The reason behind this is that all the banks are
similar and any discovery made will be appreciable to all the banks operating
in the country.
The research identified and expose the
causes, the various forms of fraud and its tremendous effects on banks in
general. It delved into determining the presence of legal loophole in the
Nigerian legal process which facilitates the perpetration of fraud. It also
identify the means of preventing or reducing incidence of fraud in Nigeria
Banking operations.
Apart from this, in carrying out this
research questionnaires were distributed to bank staff. The information
gathered from the respondents were supplemented with oral interviews, personal
observation and a review of some related books journals and newspaper.
The responses of the returned
questionnaire were analyzed under statistical chi – square, statistical
distribution tables of frequencies, percentages, pie chart and bar chart for
the purpose of generalization and influences based on the variable studied.
The result showed that there was
evidence of fraud in the Nigerian banking industry and that its presence has
consequently culminated into general public lack of interest in the banking
industry.
Finally, from the foregone analysis, it
is established that fraud reduces our economic development and the solutions
proffered if carefully and fully implemented, it will go a long way to checking
fraud in the banking operations.
CHAPTER ONE
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:
1.
The British Bank of West Africa in 1894. which later become the First Bank of
Nigeria Plc in 1991.
2.
The Colonial bank in 1917 (later became Barclays Banks Dominion Colonial and
Overseas and presently the Union Bank of Nigeria Plc.
3.
The African continental Bank Plc in 1947
4.
The National Bank of Nigeria in 1933
5.
The Agbormagbe Bank (now called Wema Bank) in 1945 and
6.
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
carryout 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:
a.
To determine if fraud exist in the Nigerian banking industry.
b.
To determine the causes of fraud in the banks in Nigeria
c.
To determine the effects of fraud in the operations of banks in Nigeria.
d.
To determine if there are legal loopholes system that aid fraud and
e.
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.
1.6
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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