An Assessment Of Crime And Financial Fraud And Its Impact On Nigeria Financial Sector

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An Assessment Of Crime And Financial Fraud And Its Impact On Nigeria Financial Sector

Chapter One


1.1 Background Of The Study

Fraud is a global socioeconomic illness that affects both the public and commercial sectors, as well as emerging and developed countries throughout the world.

Fraud is pervasive and rapidly becoming a way of life in Nigeria, according to Abiola in Gbegi and Adebisi (2014), spreading across all levels of government (from the president down to the councilors). The current level of fraud and corruption in Nigeria is so worrisome that no area of the economy is immune from it. Nigeria was rated 136th out of 174 nations in the 2014 Transparency International Corruption Perspective Index, with a score of 27%. Her scores of 25 and 27 percent in 2013 and 2012, respectively, are noteworthy, demonstrating inconsistency in the battle against corruption. After Guinea and Guinea Bissau, she was named the ‘prestigious’ third most corrupt country in West Africa (Ejike, 2014).

According to Kasmu (2009), no money is completely free; each naira and kobo has its legal and illegal uses, and any quantity will have a negative influence on where it would have been lawfully spent (in an organisation or a nation). Individuals, corporations, and interested government units may seek redress through various institutions, such as the police and the legal system, unless it is impossible.

There is no area of the economy that is immune to fraud. In Nigeria, the financial industry appears to be one of the most attractive brides for fraud and deception. This might be linked to the huge number of cash transactions and the purpose of trade-cash, both of which are extremely appealing to fraudsters. In today’s economy, the banking business is so important that almost everyone is a stakeholder. Banks assist in capital development through mobilizing savings and directing them into investments and funding capital projects, among other things (Olukotun, Ademola, Olusegun & Olorunfemi, 2013).

Banks are targets for fraud. According to Owolabi (2010), bank fraud has far-reaching implications for stakeholders and the nation’s economy as a whole. Large-scale fraud has occurred in Nigerian banks, resulting in financial difficulty at various times due to a variety of causes. A banking system under crisis can not efficiently perform its intermediation duties because there will be a credit crunch, which will result in a stop to new lending. The bank’s capital adequacy ratio may be inadequate, or liquidity may be in limited supply. Most bank crises across the world, according to Owolabi (2010), are caused by fraud, which has resulted in bank collapses in certain cases. When a bank fails as a consequence of fraud, it causes immense misery for shareholders, workers, customers, and family members. Odi (2013) admits that bank fraud has shattered the basis and reputation of most Nigerian banks, leading to the distress of several of them. This study is aimed at evaluating the impact of fraud on the Nigerian banking system in light of these very serious statements about the impact of fraud on banks.

1.2 Statement Of The Problem

Fraud is a global issue that no country is immune to. Nevertheless, poor nations and their different governments are particularly vulnerable. Every good intention and selfless effort made by true patriotic Nigerians towards restoring Nigeria’s economic glory as it was in the 1980s when the US Dollar had unreserved respect for the Naira in the international market has continued to betray every good intention and selfless effort made by true patriotic Nigerians toward restoring Nigeria’s economic glory as it was in the 1980s when the US Dollar had unreserved respect for the Naira in the international market (Okoye, 2016). Fraud is on the rise, both in terms of frequency and scale (Okoye & Gbegi, 2013). Modugu and Anyaduba (2013), Gbegi and Adebisi (2014), and Okoye and Akamobi cooperated on the aforementioned viewpoint (2009). Imoniana, Antunes, and Formigoni (2013) not only acknowledged the endemic and increasing character of fraud, but also re-echoed KPMG’s (2009) definition of fraud as an industry that is studied by academics, investigated by investigators, litigated by attorneys, and debated by conference attendees. The industry, on the other hand, is founded on handling the repercussions of fraud rather than preventing it. What a shoddy and insufficient basis.

The Dictionary of Economics and Commerce indicated that 200 banks collapsed in England between 1815 and 1850, a 35-year span, according to Owolabi (2010). Fraud was one of the factors that contributed to this. In Uchenna and Agbo (2013), Nwankwo traced the history of bank failures in Nigeria back to the 1930s, when all indigenous banks except the National Bank collapsed, causing a crisis of trust in the Nigerian banking system. A similar occurrence occurred during the late 1940s financial “boom and collapse,” when all but four indigenous banks were liquidated. Furthermore, 16 of the 21 indigenous banks collapsed between 1952 and 1954. Furthermore, 26 failing banks were liquidated in the late 1990s, while others were reformed, bought, or sold outright. Nwankwo (2005) stated that fraud had a significant influence during all of these eras. These bank failures resulted in large financial losses for depositors, a loss of trust among the banking public, and concern about Nigerians’ capacity to manage banking operations, since the basic goal of banking—the safekeeping of money—appeared to be jeopardized. In response to these events, the government established the Paton Commission of Inquiry in 1948, which resulted in the first banking legislation in 1952 and the formation of the CBN in 1958. The 1986 bank reform (Structural Adjustment Program, SAP) resulted in a proliferation of banks and a boom that lasted until the late 1990s (Olukotun, et al, 2013).

To avoid an impending collapse, the Nigerian banking industry underwent yet another overhaul in 2005. The 2005 reform was distinguished by a significant number of bank mergers and acquisitions, with just 25 banks remaining following the exercise. Despite the foregoing safeguards, the threat of fraud has persisted. According to the annual report of the Nigerian Deposit Insurance Corporation (NDIC), 1,532 incidents of fraud were recorded in 2010, totaling 21.29 billion naira, with an estimated loss of 11.69 billion naira. In addition, in 2011, 2,352 incidents of fraud involving 28.4 billion naira were recorded, with an estimated real loss of 4.071 billion naira. This is an increase of 53.5 percent. In 2014, 10,612 fraud instances were recorded, compared to 3,786 in 2013, with a total value of 25.61 billion naira and 21.80 billion naira, respectively. This is a 17.5 percent increase in the amount of money involved. The projected real loss for 2014 was 6.19 billion naira, compared to 5.76 billion naira in 2013, a 7.5 percent rise.

In 2009, the Central Bank of Nigeria discovered fraud in five commercial banks while using the services of forensic accountants. As a consequence, the Economic and Financial Crimes Commission (EFCC) charged the Chief Executive Officer of Oceanic Bank, and the court sentenced him to 18 months in jail (Dada, Owolabi & Okwu, 2013).

Although recorded incidents of bank fraud have been on the rise, their impact on the Nigerian banking system is a major source of worry (NDIC report, 2015). Scholars such as Kanu and Okoroafor (2013), Aruomoaghe and Ikyume (2013), Owolabi (2010), Uche and Agbo (2013), Ikpefan (2006), and Odi (2006) have studied the impact of fraud on Nigerian banks (2013). While the majority of them focused on the quantity and types of employees engaged, some examined the fraud’s link to dividends, credit mobilization, and other factors. In terms of credit mobilization, Kanu and Okoroafor (2013) and Ikpefan (2006) observed a strong link between bank deposits and fraud, while Uche and Agbo (2013) discovered that the proportion of mobilized funds lost to fraud increased from 2001 to 2006 but decreased from 2006 to 2011. In their research into the impact of fraud on bank performance, Odi (2013) and Ademoye (2012) discovered a catastrophic impact of fraud on bank performance, while Inaya and Isito (2016) discovered that fraud has a negative societal impact. In terms of bank staff involvement in fraud, Owolabi (2010) reported that bank executives were engaged in over 70% of bank fraud, whereas Idolor’s (2010) study indicated that bank employees do not consider unofficial borrowing and foreign exchange malpractices to be forms of bank fraud. In light of the aforementioned research, we’d like to investigate the influence of fraud on a bank’s earnings, assets, and liabilities.

1.3 Objective of the Study Objective

The overall goal of the research is to:

  1. Investigate the causes of financial fraud in the finance sector.
  2. Investigate the impact of financial fraud on the financial sector
  3. Find out ways financial fraud can be curbed in the financial sector.

1.4 Research Questions

The following research questions guide the objective of the study.

  1. What are the causes of financial fraud in the finance sector?
  2. What is the impact of financial fraud on the financial sector?
  3. In what ways can financial fraud be curbed in the financial sector?

1.5 Significance Of The Study

This research will also add to the current body of literature on this subject and will also act as a resource for academics, researchers, and students interested in conducting future research on this or a similar topic.

1.6 Scope Of The Study

The impact of fraud on the financial industry was investigated in this study, which employed Access Banks in Nigeria as a case study.

1.7 Limitation Of Study

The study was limited to access banks in Nigeria as not all banks could be covered.

1.8 Definition Of Terms


An action or omission which constitutes an offence and is punishable by law.

Financial Fraud:

Occurs when someone defrauds someone of money or otherwise affects their personal financial well-being by deception, fraud, or other illegal means. This may be accomplished in a variety of ways, including identity theft and investment fraud.

The Financial Sector:

The financial sector is a section of the economy made up of firms and institutions that provide financial services to commercial and retail customers.

Chapter Two

Literature Review


Our focus in this chapter is to critically examine relevant literature that would assist in explaining the research problem and, furthermore, recognize the efforts of scholars who have previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps

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