Effect Of Fraud Control In The Nigerian Banking Sector

Project and Seminar Material for Accountancy / Accounting

Effect Of Fraud Control In The Nigerian Banking Sector


Fraud is an intentional deception made for personal gain or to damage another individual. Fraud is a crime and a civil law violation. Defrauding people of money is presumably the most common type of fraud. Customers of banks are currently experiencing increase in fraud schemes. Scams to get a customer personal information can occur through many different means such as e-mail and telephone

Bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution. In many instances, bank fraud is a criminal offence, while the specific element of a particular banking fraud law varies between jurisdictions; the term bank fraud applies to actions that employ a scheme as opposed to bank robbery or theft.

Controlling bank fraud in the financial sector is a major task for all the stake holders in the sector. Every year, banks lose billions of naira to fraud which comes in all size and shapes both from external perpetrators and internal employees.

Chapter One

1.0 Introduction

1.1 Background of the Study

In its broadest terms, fraud means obtaining of something of value through deception. If fraud were described as an industry it would clearly be one of the fastest growing areas of the economy. One hundred criminals who serve several periods of imprisonment for armed robbery offence were recently reported that he wished he had understood earlier in his criminal career how easy it was to commit fraud. He now considers that fraud involves less traumas, the reward, are far greater and the penalties substantially fewer than in other form of crime. This study will address those forms of fraud that target the financial service sector and how the industry has responded with some measure successful in controlling this ever increasing problems and other measure that can be geared towards achieving further results.

The mere pronouncement of the word, “Fraud”, before people sends a wave of doubts, curiosity, anxiety and concern in general in them as regards the satiety of their resources, be they financial or otherwise. Fraud is seen by people as an enemy, moreover on their own assets even when they themselves are cleaver fraudster’s economy education agriculture, mining, production, banking etc.

In the Nigerian banking industry, fraud is as old as the system itself, dating back to the period between 1982 and 1952 period commonly referred to as “free banking era” in Nigeria, when there was no form of banking act or ordinance to regulate the establishment and operations of commercial banks or a central bank to supervise and control banks within this period, expatriate and indigenous bank were established, all being commercial bank these banks were:

  1. The African banking corporation in 1892 which later became the British of West Africa in 1893 and presently, the first Bank of Nigeria plc in 1894
  2. The colonial bank in 1917 (Later became Barclays Bank dominion colonial and our seas, and presently the union bank of Nigeria Plc).
  3. The British and French Bank (now the united bank of Nigeria Plc): all these being the expatriate banks and the indigenous ones being.
  4. The National Bank of Nigeria 1933
  5. The Agbomagbe Bank (now called Wema Bank in 1945)
  6. The Africa Continental Bank Plc in 1974; and
  7. Other indigenous banks that failed following the introduction of banking ordinance of 1975 whose provisions they could not meet.

Some of these banks that were registered between 1892 never opened their doors for business even for a day while some simple collected customer’s deposits and vanished. Those that failed were for reasons traceable to fraud, mismanagement and lack of government patronage. The consequences were the depletion of the individuals and organizations concerned and the nation in general, funds needed for development and upliftment of living standards. This resulted to a loss of faith and trust on the banks hat tint he country. With the banking ordinance of 1952, some element of sanity entered the Nigerian banking industry which was noticed in the regulation of the formation.

According to Olismbu (1991:20), 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 (2006:16), “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 (2010:63), 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. Among the Nigerian industrial sectors today, one can confidently say that the banking industry is the most visible sector that arouses most public interest. The viability 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.

Fraud however has been defined by many scholars Olufidipe (1994) defined trick deliberately practiced in order to gain some advantage (1991), fraud is described as „any premeditate a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage‟. Another scholar Idowu (2 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 given 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

As earlier mentioned, the Nigerian banking industry, the back bone of Nigeria economy is one of the most profitable of higher performance and could achieved better result in output and obligation to the society. To realize this, the banking industry will have to perform lending role that can reinstate the economy.

The low level of the performance of the Nigerian banking industry is due to an array of problems, one of which is the issue of fraud which is one of the most intractable and monumental problem facing the industry.

The problem of accountability is traceable to the root cause of fraud which results from poor record keeping misappropriation forging, poor internal control, excess power given to the executive or management etc.

1.3 Objective of the Study

The primary objective of the research is to evaluate the fraud control measures in the Nigerian Banks practical means of reducing the incidence of fraud in our bank to achieve these objectives, the following secondary objective have been specified.

  1. To identify the causes of fraud perpetrated in bank
  2. To ascertain the effectiveness of various fraud control measures adopted by banks.
  3. To determine the effects of fraud in the banking industry and the economy in general.

1.4 Research Hypotheses

Hypotheses One
  • Ho: Fraud control measures put forward by the CBN is not effective
  • Hi: Fraud control measures put forward by the CBN is effective
Hypotheses Two
  • Ho: There is no relationship between fraud and Auditing functions in the banking sector
  • Hi: There is a relationship between fraud and Auditing functions in the banking sector

1.5 Significance of the Study

The significance of the research study is hinged on the fact that the fate survival of the banking and financial system, it follows therefore that any serious destruction in the system will not only affect the system alone but the Nigerian economy and the public in general and the consequences which could leave the economy in jeopardy. Therefore, the remediation will help take the problem of fraud thereby reducing bank failures and stabilize the industry.

The research study will go a long way to show the effect of fraud in banks, its implication on the industry and possible remedies. It also shows the impact of those remedy on the economy and society in general. Banks and other financial institutions are expected to gain double from this study. First the study will highlight operations, lapses and others that give room for fraudulent activities in the banks and secondly will also stimulate self-assessments by banks the research work will also go a long way in increasing the knowledge of students of banking financial management accounting, administration and other related discipline.

1.6 Scope and Limitation of the Study

This study is primarily concerned with the effect of fraud control in the Nigerian banking sector. This study covers CBN Uyo branch. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

1.7 Definition of Terms


In law, fraud is deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud itself can be a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation), a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities) or it may cause no loss of money, property or legal right but still be an element of another civil or criminal wrong.

Banking Sector:

The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth, and the regulation of those activities by government agencies.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  1. Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain a critical analysis of the effect of fraud control in the Nigerian Banking sector.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of fraud in the banking sector.

5.2 Summary

This study aimed at having a critical analysis of the effect of fraud in the banking sector. Three objectiveswere raised. These objectives include: To identify the causes of fraud perpetrated in bank, to ascertain the effectiveness of various fraud control measures adopted by banks, to determine the effects of fraud in the banking industry and the economy in general.

5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn. Based on the research findings, it can be inferred that it is important to emphasize that the management and regulation of bank fraud was quantitatively important in the performance of Nigerian economy and the banking sector as a whole. It was observed that bank fraud whether through electronic device, clearing or cheque has had a positive effect on the performance of commercial banks in Nigeria and this affect the growth of the Nigerian economy. This is because the results obtained from this study support both theoretical and empirical evidence that bank fraud have a great consequences on the performance of Nigerian commercial banks and concluded that the level of ATM bank fraud over the years have indeed negatively affected insignificantly on performance of commercial banks in Nigeria and the Nigerian economy as a whole; that forged cheque has negative effect but significant on the performance of commercial banks in The threat of fraud in the Nigerian banking industry can be contained by taking the right steps. A bank that is alert to the risks that affect its business, that puts in place appropriate controls and procedures, monitors the operation of these controls and their effectiveness, creates favorable working environment and maintains an anti-fraud culture, is going to be better placed to deter, prevent and at worst detect fraud timely. Above all, the fight against fraud requires a holistic approach through the efforts and cooperation between individuals, organizations, law enforcement agencies and other stakeholders.

5.4 Recommendation

The above research findings are very significant and have far negatives effects on the Nigerian banking sector. It has become expedient to act on them in order to guard against future occurrence. The following recommendations were made to improve the consequences of bank fraud on the growth of the Nigerian economy;

  1. The regulatory and supervisory bodies of banks in Nigeria need to improve their supervision using all tools at their disposal to appropriately check and curtain the incidence of fraud and fraudulent practices in the banking industry in Nigeria.
  2. Furthermore, training techniques should be upgraded to test honesty and integrity and not just technical skills. This should entail extensive training programme 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. A good internal organization should be put in place by banks. This will ensure that proper delegation exists, duties and job, are clearly divided and that jobs do not overlap. Similarly, staff members should not have unlimited access to sensitive machines and instruments like cheques, and official stamps. Data security should be ensured at all times. The bank however, should make it a point to take good care of their staff through fringe benefits and incentives Jobs at the bank should be constantly rotated, so that no staff stays in one position for too long.
  4. It is also recommended that Auditors and Accountants in organizations and financial institutions should be trained on how to carry out forensic investigation since the fraudsters are now sophisticated in their act. Also internal control systems should be strengthened to block opportunities that attract fraud perpetrators.

Project Material Download

3,000 Naira

The Complete Material Will Be Sent to You in Just 2 Steps

Quick & Simple…

Step One Purchase

Make Payment (Through Transfer) of ₦3,000 to Any of the Account Below

Access Bank PlcAcc No: 0811003731
Samphina Academy
Current Account
Zenith BankAcc No: 1225513212
Samphina Academy
Current Account
PalmPay Main LogoAcc No: 8143831497
Samphina Academy
Digital Account

Or CLICK HERE To Pay With Debit Card

CLICK HERE To Purchase Material ($15)
Make Payment of 80 GHS to 0553978005 | Douglas Osabutey | MTN MoMo

Step Two Purchase

Send the Following Details on WhatsApp ( 08143831497) After Payment

  1. Payment Details

  2. TOPIC: Effect Of Fraud Control In The Nigerian Banking Sector

The Complete Material Will Be Sent To You On WhatsApp After Receiving Your Details
T & C Apply

  Contact Our Help Desk

Need a Different Topic? Perform a Quick Search

List of Related Works

Click on Any Topic to Preview the Content


Samphina Academy

Samphina Academy is an Online Educational Resource Center that is aimed at providing students with quality information and materials to aid them in succeeding in their academic pursuit.