Impact Of Frauds And Forgeries On The Nigerian Banking Industry

Project and Seminar Topics with material for Banking and Finance

Project and Seminar Topics with material for Banking and Finance


This study examines the impact of frauds and forgeries on the banking industry in Nigeria. One of the major characteristics a bank must possess is that its customers must be able to have unflinching and undoubted confidence in the banking the banking system, but due to the act of fraud and forgeries, this confidence has been reduced to the barest level, this does not affect the banking sector alone, but the long-term effect in on economy as good banking system helps to promote economic development. 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.

Table Of Contents

Preliminary Page(s)

  • Title
  • Declaration
  • Approval
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One:


  • 1.1: Background of the study
  • 1.2: Statement of the problem3
  • 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
  • Bibliography
  • Appendix

Chapter One


1.1: Background Of The Study

Banks all over the world have through their unique position in the economy contributed immensely to economic growth and development of nations, hence the banking sector in any country plays fundamental role in increasing the level of economic activity.

A bank is any person, partnership, or company that provide the minimum banking services and which is licensed by the federal government as a banking institution. Such minimum banking services includes acceptance of deposit from the general public making payment to depositors on demands to the extent of the money available in their accounts: granting loan and advances to credit, worthy customers be involved in the clearing of cheques, etc.
Any problem that tend to hinder their smooth operation such as fraudulent practices is often viewed with seriousness for long, Nigeria financial system has suffered from fraudulent practiced perpetrated by banks as a corporate body.

Fraud is any activity that amounts to unfair dealings, he also described forgery as any acting that led to frauds where as forgery itself is an act in which a person knowingly makes a false document or writing with the intent that it may in any way be used or acted upon as genuine, be induced to do or restrain from doing any act whether Nigeria or else where, also in the same vein, Osamwonyi (1998) defined fraud as any activity or deception practiced to cheat, deceived, or circumvent another to his injury.

Thus, the definition of fraud varies widely in nature, but can be summarized as the misappropriation, misrepresentation and manipulation of firms or persons facts and figures, for personal gains. Any acts of unfair dealing, weather against the bank by its customers or against the customer by the bank (including the officials) or against the bank by its officers are regarded as a fraud.

The effect of fraud on the banking system is sometimes very damaging, it leads to loss of money which obviously reduces the profit base of the industry. It also leads to loss of confidence in the banking sector by its shareholder as it might affect their dividend. Fraud is regarded as a leakage in the system. Bank fraud affects banks staffs by way of dismissals, termination or suspension. Therefore, fraud and fraudulent practices in banking industry of any nation retard economic progress. Efforts have being made by governments, institution and various agencies to reduce the widespread of these frauds.

The Nigeria government, for example in 1994 promulgated and ordered. The failed bank tribunal to try frauds and officers of bank connected with contributing towards failed banks. Institutions have also tightened loopholes and recommendation and applied tough measures including internal controls system, compliance with producer for the opening of new accounts and transfer, meticulous examination in hiring and recruiting personal of banks, proper inspection of books and remunerating workers are recommendations that would help to reduce frauds In the banking industry.

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

This study is concerned with finding out the impact of fraud on the banking industry in Nigeria. Distressed banks Nigeria today have suffered a great deal of frauds and the abuse of credit facilities by insides. The extent of frauds in banks rather than abate, has continued to escalate. Since 1970s banks been maintaining a commendable growth but regrettably, our financial system has been saddled with myriads of problem one of these is the intractable fraud that has bedeviled the system. The magnitude of this problem and its impact on the banking industry has inspired this research on fraud in Nigeria’s banking industry.

The non – profitability in some of our banks is partly as a result of frequent fraud incidents. The liquidation of 31 banks in May 2003 by the regulatory authorities that is, Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) can be largely attributed to frauds. This study therefore seeks to evaluate the effects of fraud in bank profitability and survival.

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 Nigeria
    H1: Government effort and its agencies have positively impacted on combating of fraud in Nigeria.
  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

The nature of this study involves the use of second data. Further more, an econometric model will specified to examine the impact of fraud on the banking industry in Nigeria between 2010 and 2015.

The academic study on frauds in the banking industry in Nigeria will be useful to several groups of scholars, students, government and the general public.

Student of banking and finance, economics, accounting and management etc shall make use of this work as a valuable research work. Secondly it shall enable the readers, financial institution, non-banks financial institution, financial analyst and the government to understand the causes of fraud and its impact on the banking industry in Nigeria.

The research work therefore is designed to help the general public get acquainted with various frauds and their method of execution with the view of gaining sufficient knowledge to enrich individuals and collective experience in management and prevention of fraud.

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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