Bank Fraud And Its Effect On Bank Performance In Nigeria

Project and Seminar Topics with material for Banking and Finance

Bank Fraud And Its Effect On Bank Performance In Nigeria


Fraud is an epidemic dimension that has eaten deep into the banking sector as well as the entire economy. Itsdevastating effect manifests itself in the deteriorating balance sheet of banks as well as in economic backwardness. As a result, measures to eradicate fraud in banking sector become a central focus of the government and the monetary authorities. It was against this backdrop that this study was aimed at providing empirical evidence on the effect of fraud on performance of banks. Data for the analyses were obtained from primary data through questionnaires and secondary data from Nigeria Deposit Insurance Corporation (NDIC) Annual Report. Four hypotheses were formulated to access the impact of looting of fund, social and environmental factors, motivation and government effort on effect of fraud on banks performance in Nigeria. These were tested with simple percentages and chi-square (x2) statistical technique at 5% significance level.

Results showed that lack of adequate motivation is not a major cause of fraud in banks, looting of fund by bank managers and directors constitutes the major form of fraud in Nigeria, government effort and its agencies have negatively impacted on combating fraud in Nigeria and environmental or social factors have negative impact on bank fraud. On the basis of findings, it is recommended that government should make their impact to be felt in combating fraud by establishing more agencies for combating frauds. Those managers and director involved in looting of fund should be persecuted to serve as a deterrent to subsequently once. In addition, bank staff should be properly screened to test their morality and integrity before recruitment. Adequate internal control system should also be establish to have check and balances among bank staff. It is envisaged that if all these are put in place, fraud will be reduced to its barest minimum thereby restoring confidence to bank customers.

List of Appendixes

  • Appendix 1: Letter to Respondents
  • Appendix 2: Questionnaire to Some Staff
  • Appendix 3: Chi Square Table

List of Tables

  • Table Total Amount Involved in Fraud and Forgeries
  • Table Ten Banks With Highest Fraud Cases
  • Table Categories of Banks Staff Involved in Fraud and Forgeries
  • Table 4.1: Analyses of Questionnaires Issued to Respondents
  • Table 4.3.1: Test of Hypothesis 1 With Related Question
  • Table 4.3.2: Test of Hypothesis 2 With Related Question
  • Table 4.3.3: Test of Hypothesis 3 With Related Question
  • Table 4.3.4: Test of hypothesis 4 With Related Question

Table of Contents

  • Cover Page
  • Title Page
  • Approval Page
  • Certification
  • Dedication
  • Acknowledgements
  • Abstract
  • List of Appendixes
  • List of Tables
  • Table of Contents

Chapter One:


  • 1.1: Background of the Study
  • 1.2: Statement of the Problem
  • 1.3: Objectives of the Study
  • 1.4: Research Questions
  • 1.5: Research Hypotheses
  • 1.6: Scope of the Study
  • 1.7: Significance of the Study
  • 1.8: Limitation of the Study
  • 1.9: Definition of Terms

Chapter Two:

Review of Related Literature

  • 2.1: Empirical Study
  • 2.2: Theoretical Framework
  • 2.2.1: Causes of Bank Fraud
  • 2.2.2: Categories of Bank Fraud
  • 2.2.3: Types of Fraud
  • 2.2.4: Fraud and its Effect on Nigerian Banks
  • 2.2.5: Government Attempt to Prevent Bank Fraud
  • 2.26: Ways to Prevent Fraud
  • 2.2.7: Fraud resolution

Chapter Three:

Research Methodology

  • 3.1: Research Design
  • 3.2: Nature and Sources of Data
  • 3.3: Population of the Study
  • 3.4: Sample Size Determination
  • 3.5: Technique of Analyses

Chapter Four:

Presentation and Analysis of Data

  • 4.1 Data Presentation
  • 4.2: Data Analysis
  • 4.3: Test of Hypotheses
  • 4.4: Interpretation of Result

Chapter Five:

Summary of Findings, Conclusion and Recommendations

  • 5.1: Summary of Findings
  • 5.2: Conclusion
  • 5.3: Recommendations

Chapter One


1.1: Background of the Study

The significance of the banking sector in any country stems from its role of financial mobilization from surplus to deficit unit, provision of a competent 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 purposes of expanding their productive capacity.
The banking sector has become one of the most critical sectors in the economy with wide effect on the level and direction of economic growth and transformation and on such economic variables 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 deteriorated in view of incessant frauds and accounting scandals.

Fraud however has been defined by many scholars Olufidipe (1994) defined fraud as „deceit or trick deliberately practiced in order to gain some advantages dishonestly‟. According to Boniface (1991), fraud is described as „any premeditated act of criminal deceit, trickery or falsification by a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage‟. Another scholar Idowu (2009) also sees fraud as a deliberate falsification, camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to the financial damage of an individual or an organization. Going by the definition of the chambers universal learners dictionary Kirkpatrick (1985) define fraud as any person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler.

Having explained what fraud is, it is pertinent to define bank fraud which is the subject matter of this study; however bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution. For an action to constitute fraud there must be a dishonest intention and the action must be intended to benefit the perpetrators to the detriment of another person.

Going by the definitions, frauds in Nigeria cannot be restricted to the banks alone. A lot of fraudulent activities are prevalent in Nigerian economy ranging from bloody killings, ritual, kidnapping, robberies, forgery, misappropriation, cheating, and gangsters and looting. Bank fraud ranges from account-opening, money transfer fraud, cheque kiting, telex fraud, money laundering fraud, computer fraud, loans fraud and the likes.

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 view of Oseni, Idolor (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. Although the incidence of frauds 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 (Adeyemo, 2012).

According to kimani (2011) `A way of making money is to stop losing it. The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three years old child talks about 419, the name give to the newly discovered advanced fee fraud that is hunting our nation.
In July 2004, central bank of Nigeria (CBN) unveiled new banking guidelines designed to consolidate and restructure the industry through mergers and acquisition. Banks and Other Financial Institutions Act (BOFIA) 1991, section 15, was also designed to prevent fraud and to make Nigeria banks more competitive and able to play in the global market.

The Nigeria Deposit Insurance Corporation (NDIC) 2007 annual report and statement of accounts report that cases of attempted frauds and forgeries in insured banks, as at 2007 exceeded what was recorded in the year 2006. For instance, the NDIC report for 2007 disclosed that a total of 1,553 reported cases of attempted frauds and forgeries involving over symbols ₦10 billion compare with 1,193 reported cases of fraud and forgeries involving ₦4,832.17 billion in the year 2006. The foregoing statistics clearly unfolds the extent to which fraud had had eaten deep into the financial strength benefit the perpetrators to the department of another person.

Today, banks cannot withstand the growing pressure of competition among various banks due to the monster called bank frauds. If this act of fraud is not arrested, it might delete our resources because foreign investors might not find it wise to transact business via our banks.

1.2: Statement of the Problem

Banks generally have been experiencing fraud since its evolution. This affects the performance and the profitability of banks and may possibly lead to distress. The inability to identify the immediate and remote causes of continuous cases of bank frauds in virtually all banks in Nigeria is one of the problems brought to bare.

Fraud is a major challenge to the entire banking industry; no bank is immune to it and in all facets of life (Olorunsegun, 2010). The banking public expects accountability, fairness, transparency in their day operation for effective intermediation.

Though there were known cases of fraud in the sector, one major question still remain unanswered which is what is the nature and different ways through which fraud can be perpetuated in banks. It is asserted by Adeyemo (2012) that fraud in the bank is possible with corroboration of an insider. The banks are expected to ensure that they carry out their responsibilities with sincerity of purpose which is devoid of fraudulent practices. This is relevant if the banking sector is to gain public trust and goodwill.

Another problem is that the government and its agencies have not put enough effort in the prevention and control of bank fraud in Nigeria; otherwise the level of bank fraud would have reduced to a bearable level. Agencies like money laundering Act which helps to place surveillance on any account through which such excess cash deposits or withdrawals are made, Nigeria Deposit Insurance Corporation which is involved in managing bank distress, failed banks and financial malpractices in banks Act which was vested with powers to recover the debts of failed banks, dishonored cheques Act which affects banks in their collection and payment of cheques on behalf of their customers and Bill of Exchange Act which helps to collect the proceeds of trade bills of exchange and cheques are not putting enough effort in the prevention and control of bank fraud that is the reason why bank fraud is increasing day by day in Nigeria.

However, environmental or social factors pose a problem in the activities of banking industry as they contribute to bank fraud in Nigeria. Environmental factors are those that can be trace to the immediate and remote environment of the bank these factors are manifest in the following manner; the desire to get rich quick slow and complex legal process, poverty and the widening gap between the rich and the poor, competition among bank staff, the desire to belong to any social class, job insecurity, peer group pressure and societal expectations.

1.3: Objectives of the Study

The general objective of this study is to identify bank fraud and its effect on bank performance in
Nigeria but the general objectives of this study are;

  1. To identify the causes of bank fraud in Nigeria.
  2. To identify the forms of bank fraud in Nigeria.
  3. To examine the efforts of government and its agencies in the prevention and control of bank fraud in Nigeria.
  4. To examine the extent to which environmental or social factors contributed to bank fraud in Nigeria.

1.4: Research Questions

The following research question guided this study;

  1. What are the actual causes of bank fraud in Nigeria?
  2. In what way do directors/ managers contribute to bank frauds in Nigeria?
  3. What are the efforts of government and its agencies on bank fraud in Nigeria?
  4. What constitutes environmental or social factors of bank fraud in Nigeria?

1.5: Research Hypotheses

The following research hypothesis were formulated and later tested. They include;

  1. H0: Lack of adequate motivation is not a major cause of fraud in banks.
    H1: Lack of adequate motivation is a major cause of fraud in banks.
  2. H0: Looting of fund by bank manager/directors does not constitute the major form of fraud in Nigeria.
    H1: Looting of fund by bank manager /directors constitutes the major form of fraud in Nigeria.
  3. H0: Government effort and its agencies have negatively impacted on combating of fraud in
    H1: Government effort and its agencies have positively impacted on combating of fraud in
  4. H0: Environmental or social factors does not have a negative impact on bank fraud.
    H1: Environmental or social factors have positive impact on bank fraud.

1.6: Scope of the Study

This study centers on fraud in the Nigerian banking industry with a keen interest on five ( 5 ) insured banks with data covering 2002-2011. The five insured banks covered includes First Bank of Nigeria Plc, Union Bank of Nigeria Plc, United Bank for Africa Plc, Diamond Bank Plc, Zenith Bank Plc, all in Enugu state, Oparah Avenue Branch . To achieve the objectives of this study, primary and secondary data were used. One hundred and twenty five (125) questionnaires were administered to the study respondents that were purposively selected from five (5) insured banks in Enugu.

1.7: Significance of the Study

This research work will be beneficial to the following groups;

(a) Banks and Financial Institutions

It will be beneficial to the authorities concern with banking operation, managements, staff customers and prospective investors in the industry so as to identify the various means (theft, embezzlement, forgeries e.t.c) employed in defrauding banks and to identify the cause of frauds in banks in Nigeria.

(b) Government

The government will find this work relevant to future policy and decision making with particular to restructuring its agencies for better performance in detaching frauds in Nigeria banks.

(c) General Public

The study will be useful to the general public because the banking industry touches the life of everyone in an economy. Banks all over the world have contributed immensely to the economic growth and development of nations. As such, problems such as fraud which can hinder the smooth operation of the banking industry should be viewed with all seriousness in other not to intercept or destroy the rate of development.

(d) Academia

It will also be beneficial to people who which to carry out further research in this area, to find this work relevant in their research.

1.8: Limitation of the Study

Bank fraud and its effect on the performance of banks is an extensive topic that may involve commercial banks and community banks. The researcher will like to touch all aspects of banking activities, but for lack of time and financial constraints, the researcher limit his work to frauds in five (5) insured banks.

1.9: Definition of Terms


Fraud can be defined as a deceit or trick deliberately practiced in order to gain some advantages dishonestly.

Bank Fraud

Bank fraud is defined as the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution.


This is an acronym for Nigeria Deposit Insurance Corporation. It is specially charged with the responsibility of protecting depositors by insuring customers deposit to the tune of N200,000.

Chapter Five

Summary of Findings, Conclusion and Recommendations

5.1 Summary of Findings

The findings from the review of related literature and data analysis revealed that Greed is a major cause of fraud, added to the fact that majority of the staff members considered their remuneration as adequate. It was also observed that staff members of bank are involved at all stages of fraud, including: initiation, execution and concealment. The study also revealed that computer fraud accounted for the majority of the fraud perpetuated in the bank. Meanwhile, among the consequences of fraud, loss of revenue and loss of customers‟ confidence top the list.

Fraud as witnessed in recent times has resulted in the collapse of many banks, in most cases leaving the investors of such bank losing their money. This raises the question of how reliable are banks to trust ones money with them, the ethics of banking profession which is honesty, reliability and competence are far fading away. It is disheartening to note that the successful prevention of a particular fraud give rise to a more complex and sophisticated one by the perpetrators and the category of staff involved are increasingly those of higher rank. This brings a great concern to the society, the government and the bank itself. Giving the pivotal roles banks play in the nation‟s economy, it is therefore critical for measures to be taken to prevent the occurrence of fraud and irregularities in our banks. Following this saying, it is high time drastic measures are taken to recultrate the damaged confidence people have in banks and the Banking profession. In this regard, the government established CBN and NDIC to regulate and supervise the banking industry.

5.2 Conclusion

Fraud has been identified as a major threat to the growth and development of the banking sector globally. This study examines bank fraud and its effect on bank performance in Nigerian banking sector. From the review of related literature and data analysis, this study concludes by stating that fraud remains a major threat to the growth and development of the banking industry. Urgent and appropriate actions must be taken both by the government, regulatory agencies and management of banks to ensure sanity in the system.

5.3: Recommendation

To eradicated fraud in banking sector, it is recommended that:

  1. As banks are to increase their requirements pertaining to qualifications; draw up more efficient screening techniques, ascertain that references are not fictitious at the recruitment stages. The task of bank management is challenging enough without the event present risk of fraud, so awareness should also be created so as to „nip‟ the situation in the „bud‟ before anything serious occurs. This requires more than just sound judgment and dynamic action; it calls for commitment that can only be gained if the management has ensured that all the motivational incentives have been put in place. A total alertness that takes nothing for granted and awareness that trust could be misplaced, this being a diligent and painstaking approach.
  2. Training techniques should be upgraded to test honesty and integrity and not just technical skills. This should entail extensive training programmed regularly done, as well as personality tests and IQ tests so as to understand the personality and character of the trainee. This would reduce negligence and carelessness in carrying out basic procedures that could pose as loopholes for fraud.
  3. Banks staff should be properly screened to test their morality, trustworthiness, sincerity and fear of God before employed, segregation of duties should be adopted across board so as to enable the bank have effective reconciliation of their inter branch accounts emphasized by so doing equipping the reconciliation section of the bank with highly experienced and skilled staff. Staff members should be provided with equipment that is in good order to enable they perform their duties.
  4. Establishment of adequate internal control system has also been identified as necessary in fraud prevention especially on proposed account-holders to be obtained and verified before any account is opened and all payments instrument with huge amount should be referred to the issuing bank before payment.
  5. Reward should also form part of bank policy to encourage staff and customers who have helped to frustrate intended fraud cases in the past.

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