Impact Of Frauds In The Banking Industry In Nigeria (A Case Study Of First Bank Of Nigeria Plc)

Project and Seminar Topics with material for Banking and Finance

Impact Of Frauds In The Banking Industry In Nigeria (A Case Study Of First Bank Of Nigeria Plc)


Fraud is an awful phenomenon, which like a vein has invaded Nigeria banking industries and the society in general and put any organization that it come into in a distress point or in a state of liquidation.

This study highlights the nature problem identification and various types of fraud, causes of bank fraud, effect of bank fraud, detection, prevention and control measures adopted by management to check fraud incidents.

The purpose of this research work is to find out whether fraud leads to retrenchment of workers/staff in the banking industry; to know whether fraud reduces the profit on income of the bank and also to know whether fraud leads to liquidation of bank.

Hypothesis was formulated and tested with chi-square and inference drawn there from the method of data collection includes a well structured and easy to follow questionnaire.

Primary data were collected, through this medium from respondents. The findings revealed that compensation of banking servicers and the maintenance of effective internal control mechanism have helped to reduce the incidence of fraudulent activities in the bank. In view of this, it is the recommendation that adequate internal control system should be maintained, effective fraud management, strict adherence of administrative management policies should be ensured to check and possibly eliminate fraud incidence in the bank.

The detection and prevention of frauds should be elaborated effect between banks, their customers, the public and the government.

Frauds in the banking system should as much as possible, be minimized as it kills the bank and destroys the economy of a nation.

Finally, the research work adduced that continuous vigilance should be the watch work if fraudulent practices are to be reduced and possibly eliminated in the banking industry.


The primary objective of this research work is to examine the impact of frauds in the bank and adequately of the measures instituted to ensure its early detection, prevention and total elimination in the bank.

This work is divided into five chapters, the first focused on the problem identification of the study, rationale of the study, significance of the study, background o the study and definition of terms.

Chapter two focused on the literature review which was divided into two; the theoretical review and tropical review.

Chapter three emphasizes on hypothesis, methodology of the study, source of data and limitations of the study. Questionnaires, journals and textbooks were extensively used as method of collecting data needed for the research.

Chapter four involves data presentation, analysis and discussion of the result, while chapter five summarized the findings, conclusion and necessary recommendations were also given.

Table of Contents

Preliminary Page(s)

  • Title page
  • Approval page
  • Dedication
  • Acknowledgement
  • Abstract
  • Preface
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 Problem identification
  • 1.2 Rationale of the study
  • 1.3 Significance of the study
  • 1.4 Background of the study
  • 1.5 Definition of terms

Chapter Two

2.0 Literature Review

  • 2.1 Theoretical review
  • 2.2 Empirical review

Chapter Three

Research Methodology

  • 3.1 Hypothesis of the study
  • 3.2 Methodology of study
  • 3.3 Sources of data
  • 3.4 Limitations of the study

Chapter Four

Analysis and Presentation of Data

  • 4.1 Presentation of data
  • 4.2 Analysis of data
  • 4.3 Discussion of the results

Chapter Five

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • Bibliography
  • Appendix I
  • Appendix II

Chapter One

1.0 Introduction

1.1 Problem Identification

Generally speaking movements in the economy of any nations result from the inter-play of money and other economic variables. In Nigeria, the impact of money and banking has been the dominant factors determining macro-economic performance. Deposit this unique position of banks between other sectors of the economy banks (especially commercial banks) are faced with a good number of economic crisis notable among the cases is fraud.
According to Orji (1998), banks with poor management record higher incidence of all sorts of fraud than banks with effective management. Poor management leads to ineffective and poor control system, indiscipline to staff and this creates an environment where fraud flourishes.

This research wants to investigate on the causes of frauds, the effect as well as the possible measures of preventing frauds;

  1. To identify the causes of bank frauds in Nigeria commercial banks.
  2. To know the effects of bank frauds on the Nigeria commercial banks
  3. To assess the effects of bank frauds on the banking industry and the economy in general.
  4. To identify the possible measures for preventing the occurrence of fraud in Nigeria commercial bank.

1.2 Rationale of the Study

Nigeria being a developing nation is striving to achieve a vibrant ad dynamic economy in order to achieve on enabling economic environment, there is need for a second reliable and efficient financial and banking system devoid of fraudulent practices, it is for the unique relevance f banking in an economy that government, monetary authorities, economic policy makers, industrialists, portfolio invest and well-meaning Nigerians are giving prominent attention to the issue of fraud been orchestrated in our banking system.

The rationale of this study therefore is to modify the attitude of Nigeria Bankers from the negative influences of fraud to the positive aspect of honesty and integrity, secondly it is also important in the sense that it gives in details ways of measures, to be employed by management of financial institution on how to combat fraud.

1.3 Significance of the Study

This involves who will benefit from the study. The result if made available will help to enlighten Nigerians on the ills of fraud. It will help to remind government, banks managers, investors, industries and banking public of the effective, but harmonious manner of curbing fraud and to enhance an excellent banking culture.
This research is also significance to other future researchers.

1.4 Background of the Study

With an award match to becoming industrialized nation, Nigeria is witnessing true emergence of human, resources as professional, which made possible the establishment of service industries and other business organizations. This belief was rather so strong that the urge to provide financial services can no longer be overlooked. To accelerate economic growth and economic development both government and some organized private groups were issued licenses to operate banks in addition to a few banks that were already into business to operate systematic financial services.

Theses banks employed young men and women, but like every aspect of human endeavour have their challenges. One of the major challenges facing the banking industry and indeed all industries is the incidence of fraud.

Bakere (2002.1) observed that the incidence of frauds in the banking industry has in the recent past posed a very serious threat to the very existence of financial institutions and is a matter of serious concern to the regulatory authorities and the banking public. Despite the stringent measures put in place by monetary authorities and internal control measures to check the activities of fraudsters, frauds in the banks to be on the increase.
Edozie as observed by Adebayo (2001:5) stated that available statistics reveal that thirty-one banks reported that they experienced frauds and forgery cases for the period (January-March 2002).

Banks are institutions known to operate on the centre-pin of public confidence. Today that concept no longer holds as bankers themselves either initiate frauds, or partakes deeply fraudulent activities against banks (employers).
According to Nigerian deposit insurance corporation (NDIC) annual reports (1999:9) more of this bank were run a ground by a few greedy directors and officials who perpetrated frauds and all kinds of unethical practices against their institutions. This is an aberration that continues to erode public confidence in banks.

This scenario has singularly contributed to the liquidation of many banks. Agbata (1998:) observed that one cannot avoid considering the fact that the distress in the banking industry was occasioned by fraud.

Now that cases of fraud have been established in the banks, the need therefore arise to find out problems associated with fraud, its impact on the macro-economy and how these problems are being tackled, hence the need for this study.

1.5 Definition of Terms


According to chambers 20th century dictionary, fraud is defined as deceit, trickery, sharp practice or breach of confidence perpetuated for profit or to gain some unfail or dishonest advantage. This incorporates forgery, embezzlement, outright stealing, alteration or falsification, misappropriation, conversion, misrepresentation and all other manipulations as covered by criminal codes 419 and 465.

Internal Control:

These are methods used by management to safeguard assets, ensure accounting accuracy and maintain adherence to prescribed policies – they are basic fundamental measures to help minimize risk. These policies form part of the mandate, which fall under the responsibilities of the directions and officers of a company. It is their duty to shareholders and members of the organization to ensure that these policies and directives are strictly adhered to and carried out in the most efficient manner possible.

Monetary Policy:

The monetary policy of a nation is a face of its board economic policies. It deals with the discretionary control of money supply by monetary authorities in order to achieve desired economic goals.


Money can be defined as anything which is geneally acceptable in a given society or locality as a means of exchange and for settlement of debts. Money can be in form of commodity money legal tenders bank deposits, bank note, currency etc.

Chapter Five

5.0 Summary, Conclusion and Recommendation

This research work revealed that fraud is more serious in the banking. It is the biggest single cause of bank failure, hence, it is obvious, therefore, why management of fraud like the management of risk generally, is controlled in banking industry. In chapter two of this project the concept of fraud, types, causes, effects and ways of detecting and preventing fraud were discussed.

From the research finding in First Bank of Nigeria Plc, the researcher observed that the level of fraud in Nigeria banks is significant enough reference table 1a in chapter four, it has found that respondents who responded in the affirmative are in the overwhelming majority. Generally, bankers, financiers accountants, depositors and economists periodically returned to the statement that level of fraud in out banks is so alarming, and whether it mature, but no major thinking about solutions or strategies for prevention of bank frauds. This psychological view of not being able to achieve an appreciable leap in this direction gives one the impression, that many bankers are not properly professionalized and therefore professional will be lacking. This is irrespective of the following control measures like efficient internal control system, rotation of job for staff, periodic transfer of staff from branch, disciplinary action against fraud culprits and check and balances which which the management has put in place to curb fraud incidence.

The researcher also observed from First Bank of Nigeria Plc that bankers themselves practice aid or abate fraud. It is established that not only do bankers practice aid or abate fraud but the number of bankers involved in fraudulent practices has been persistently and consistent on the increase.

Management and board of directors have no easy answer to the questions of how to deal with bank fraud, obviously frauds cannot be ceased from the banking system, when bankers are the main culprits. This is agreement with Ud (1998:21) asserting fraud cannot take place in a financial institution of the magnitude of a commercial without the active participation of its employees are collaborating and executing fraud. In line with the above assertion Mgbodille (999:29) noted that modern supervision and communication are necessary and vital tools for detection fraud and preventing it.

The researcher also established that there is significant negative impact on the performance of banks following the incidence of frauds. The analysis on data 3b converted chi-square (X2) table shows that x2 calculated of 194.98 is greater than (>) table 16.92 at a confidence level of 95 as with degree of freedom of 0.05, the null hypothesis was rejected and the alternative was accepted. That is to say there is an enormous negative impact on the performance of banks occasional by frauds.

5.1 Summary

Brief summaries of what I did from chapter 1-4.

5.1 Summary of the study

Based on the investigations made a brief account of the study made is given as follows:

Chapter 1

In this chapter, I have introduced the problems I wish to study. This chapter covered the problem identification of the study, rationale of the study, significance of the study, background of the study and definition of terms.

Chapter 2.
Literature Review

The literature review acquaint me with a review of earlier studies done in the areas of the research. The aim of this chapter is to provide me with a conceptual framework as well as what has been done on the study of the impact of frauds in the banking industry in Nigeria (a case study of first bank of Nigeria Plc). This chapter was divided into two sections in order to achieve this purpose ie theoretical review and emperical review.

Chapter 3
Hypothesis of the study

The (3) three hypothesis stated for the study were based on how frauds in first bank Plc leads to retrenchment of workers/staff in the banking industry, it reduces there profit or income of the bank and also leads to liquidation of bank.

Research Methodology

The methodology described the procedures adopted in the study which included population, sample size, instrument of data collection, the method of data analysis and tools for data analysis is the use of chi-square (x2).

Sources of Data

Data was collected through primary sources which collection was also used through interviews and questionnaires distribution. Data was collected through secondary source which was the gathering of information, from past works or related literature, journals, testbood and other materials which are related to the topic being studied.

Limitations of the Study

These are the factors that mitigates against the study ie that makes the work not to be 100% and they include, time constraints, financial constraints as a result of high cost of transportation fare to the various bank branches to gather data.

Chapter Four
Presentation of data

The tabular method of presentation was used for the study based on the data collected from the questionnaires and oral interviews conducted by the researcher. The researcher used the tabular form to analyse the answer from the respondents which are shown in percentage (%).

A total of 100 questionnaires were sent out and 90 questionnaires were completed and returned back. The data collected and presented are extract of the questionnaire, they include.

Whether frauds in first bank Plc leads to the retrenchment of workers/staff in the banking industry, whether frauds reduce the profit or income of the banking and whether fraud leads to liquidation of bank.

Data Analysis

Chi-square (X2) contingency was used for analysis

Formular: x2 = (0i-Ei)2

Decision Rules

Reject Ho: if the calculated/computed x2 value = 121.41 is greater than 12.99 the critical value.

Discussion of Result

Hypothesis 1 stated that frauds leads to the retrenchment of workers/staff in the banking industry, while hypothesis 2, stated that frauds reduces the income/profit of bank. Hypothesis 3, stated that frauds leads to liquidation of bank.

Suggestion for Further Research

Other areas of my topic that future scholars can undertake are as follows:

  1. Student can undertake on fraud prevention measures and forms of fraud in the banking industry.
  2. They can equally embark on internal and external audit control of fraud in the banking industry.
  3. Others can equally embark on effects of fraud on the bank profitability.
  4. Impact of fraud on the macro-economy

5.1 Conclusion

While important progress has been and will continue to be made in dealing with the problems of fraud that have caused the banking system crises in the recent past, some underlying factors need to be recognized.

First, the benefits of strengthened supervision need to be weighed as supervision. Sometimes take different views about the need for more direct control and regulations of derivative transaction.

Second, there is the related issue of incentive compatibility. The moral hazard problem is a key foundation of all social and economic vices.

Prospects for the survival of banking system are favourble, provided that the above issues are being taken care of. It is what will make the difference between failure of the banking system, between profit and loss between progress and retrogression and between development and underdevelopment. Embodied in banking system soundness are a fresh reawakening of customers or depositors interest, professional pride, occupational commitment, job, creation, wealth creation, capital formation and increased in flows of foreign exchange and foreign investments, it will leads to satisfactory accomplishment and achievement of all state holders.

5.3. Recommendations

Interview of the findings, highlighted above, the following recommendations are put forward to monetary banking regulating bodies.

  1. Given the complexity and the scope of innovation in modern banking as well as scope for and difficulty of detecting fraud or simply mismanagement effective monitoring, requires a constant process of probing, analysis and questioning banks activities, financial ratios and data.
  2. As a matter of principle and in order to reduce economic, professional and occupational hazard, owners and managers need bear the cost of installing communication equipment for easy information, especially as it concerns cheque clearing.
  3. In policy and practice supervising must be guided by the principle of maintaining the integrity of the system as while rather than that of individual institutions or selfish interest.
  4. Workshop and seminars should be organized to get employees well informed about the dangers inherent in bank frauds.

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