FRAUD MANAGEMENT PRACTICES IN THE FINANCIAL INSTITUTIONS (BANKS)

(Business Administration and Management)
FRAUD MANAGEMENT PRACTICES IN THE FINANCIAL INSTITUTIONS (BANKS)
CHAPTER ONE

INTRODUCTION
BACKGROUND OF THE STUDY
The  banking  sector  plays  a  very  significant  role  in  the  development  of  any  economy (Adeyemo,  2012).  Banks in most economies are the principal depositories of the public's monetary  savings, the nerve centre of the payment system, the vessel endowed with the ability of money creation and allocation of financial resources  and conduit through which monetary and credit policies are implemented (Idolor, 2010 and Akindele, 2011). The success of monetary policy, to a large extent, depends on the health of the banking institutions through which the policies are implemented (Adeyemo, 2012; Godwin, 2009; Oye, 2003).
(1) Among the Nigerian industrial sectors today, one can say that the banking industry is the most visible and arouses the most public interest. The importance of the banking sector in any economy stems from its role of financial intermediation, provision of an efficient payment system and facilitation of the implementation of monetary policies. 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.
According to Olismbu (1991), the banking sector has become one of the most critical sectors and commanding heights of the economy with wide implications on the level and direction of economic growth and transformation and on such sensitive issues as the rate of unemployment and inflation which directly affect the lives of our people. Today, the very integrity and survivability of these laudable functions of
Nigerian banks have been called into question in view of incessant frauds and accounting scandals.
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 views of Oseni, Idolo (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.
Adeyemo (2012) added that, the incidence of fraud 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. The Central Bank of Nigeria (CBN) reported that cases of attempted fraud and forgery in banks, as at half-year 2007 exceeded what was recorded in the whole of 2006. For instance, the CBN half-year report for 2007, disclosed that a total of 741 cases of attempted fraud and forgery, involving N5.4 billion (US $34.8 million), were reported as at June, 2007. Whereas in 2006, the entire cases of fraud reported were 1,193, involving the sum of N4.8 billion (US $30.97). The CBN also maintained that the dwindling situation is occasioned by weaknesses in the internal control system of the affected banks. The foregoing statistics clearly unfolds the extent to which fraud had eaten deep into the financial strength of Nigeria banks.
STATEMENT OF THE RESEARCH PROBLEM
Whatever problems which militate against the proper functioning of the banking sector will invariably have multiplier effects on the other sectors of the economy.  This is one of the reasons why  it  is  essential  to quickly diagnose any factor which may hamper the smooth functioning of the banking sector and urgently address such issues. Fraud has been identified as a major threat to the growth and development of the banking sector, not only in Nigeria but globally.  
Fraud is a major challenge to the entire business world, no company is immune to it and it is in all facets of life (Olorunsegun, 2010). The banking public expects accountability, fairness, transparency and effective intermediation from banks. The banks are expected to ensure that they carry out their responsibilities with sincerity of purpose which is devoid of fraudulent practices. This is germane if the banking sector is to gain public trust and goodwill.
Against this backdrop, the following research questions are raised:
Does poor internal control influences fraud in the financial institutions?
Does incessant fraud in the financial institution leads to loss of corporate image?
Are the fraud detection systems in operation in banks adequate and effective in preventing fraud?
OBJECTIVES OF THE STUDY
The broad objective of this study is to examine fraud management practices in the Nigeria banking industry.
The specific objectives are:
To determine if poor internal control influences fraud in the financial institutions.
To examine whether incessant fraud in the financial institution leads to loss of corporate image.
To find out if the fraud detection systems in operation in banks adequate and effective in preventing fraud.
RESEARCH HYPOTHESES
The hypothesis for this study is;
Hypothesis I
H0:    Poor internal control does not influence fraud in the financial institutions.
H1:    Poor internal control influences fraud in the financial institutions.
Hypothesis II
H0:    Incessant fraud in the financial institution do not leads to loss of corporate image.
H1:    Incessant fraud in the financial institution do leads to loss of corporate image.
Hypothesis III
H0:    Fraud detection systems in operation in banks are not adequate and effective in preventing fraud.
H1:    Fraud detection systems in operation in banks are adequate and effective in preventing fraud.
SCOPE OF THE STUDY
This research work focuses on fraud management practices in the financial institution.
The population of the study is the entire quoted financial institutions in the Nigeria Stock Exchange, while the sample size is restricted to five (5) banks quoted in the Nigeria Stock Exchange.
The length of period covered by the study was five years (2006 – 2010).
SIGNIFICANCE OF THE STUDY
The banking sector is the major player in the entire body of an economy.  Many people and institutions are affected by the operations of banks. Thus the issue of fraud which has octopus nature in the financial sector of the economy needs the total commitment from all the stakeholders in the corporate business world to tackle, including the financial expects in their various fields to map out strategies to prevent it in its entirety.
This study therefore would be useful to bankers, managers, policy makers, accountants, and researchers and all interested in the management and control of fraud in Nigeria.
LIMITATION OF THE STUDY
In the course of carryout this study, the researcher encountered some constraints such as finance and time.
Financial Constraints: Finance is largely needed to tour wider regions or location just to gather data for processing. But this was not adequately available to sufficiently meet the purpose of this study.
Time Constraints: This study coincided with the first and second semester academic demands which made it enormously tasking. More time would have been devoted to critically evaluate the impact of the capital market on Nigerian economy using some basic market indicators.
 REFERENCES
Idolor, E. J. (2010), Bank Fraud in Nigeria: Underlying Causes, Effects and Possible Remedies, African Journal of Accounting, Economics, Finance and Banking Research, 6(6): 62.  
Akindele, R. I. (2011), Fraud as a Negative Catalyst in the Nigerian banking Industry, Journal of Emerging Trends  in Economics and Management Sciences, 2(5), 357-363.
Adeyemo, K. A. (2012), Frauds In Nigerian Banks: Nature, Deep-Seated Causes, Aftermaths And Probable Remedies, Mediterranean Journal of Social Sciences Vol. 3 (2): 297 – 289.
Oye, A. (2003), Financial Management, 5th edition, Lagos: Ceemol Nigeria Ltd.
 Olisabu, E. S. (1991). Banking in Nigeria: Sign post in the nineties. First Bank Quarterly Review June 1991 Edition.
Godwin, C. O. (2009), A Synthesis of the Critical Factors Affecting Performance of the  Nigerian  Banking  System,  European  Journal  of  Economics,  Finance  and Administrative Sciences, 17, 34-42.


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