The Role Of Auditors In Prevention Of Fraud In Banking Industry (A Case Study Of Diamond Bank)

Project and Seminar Material for Accountancy / Accounting

The Role Of Auditors In Prevention Of Fraud In Banking Industry


This study examines the role of auditors in the prevention of fraud in the banking industry using Diamond bank as a case study. In this study, the importance of auditing in our banking industry was looked into and was suggested as the means of preventing or reducing the incidence of fraud in the banking industry or operation. An in-depth analysis was carried out to ascertain the importance of auditors and fraud prevention strategies in the banking industry. From the analysis, it was established that there are incidences of fraud in our banks. It was equally discovered that fraud occurs more frequently on current account department than in any other departments and this is normally done through forged cheques. It was also discovered that bank frauds can hardly succeed without the aid of bank staff. Finally, it was discovered that frauds have effects in operation and progress of the frauds have effects in operation and progress of the banks despite the control technique that have been instituted by the management of the bank.

Chapter One


1.1 Background Of Study

The last two decades have witnessed an alarming increase in the incidence of commercial bank frauds in Nigeria which resulted in heavy loss to the banks and its customers. Nigeria, being a developing economy with increasing level of competence in management experienced one of the most serious threats to the spread and practice of banking within the period.

Nigeria is one of the societies where corruption is the rule. Values are grossly misplaced and there is much emphasis on wealth one is able to accumulate. Undoubtedly bank frauds posses both economic and social problems and huge sum of capital has been lost by banks. Most Nigerians want to be classified and included into the class of wealthy millionaires even when they have not worked hard to be classified as rich people.

There are numerous existing laws targeted at controlling fraud but the general attitude of some Nigerians seems to make nonsense of the statutes existence. Most times, the laws are visited only when the less privileged ones are involved. There is also a strain in the bank customer relationship and the image of the bank as a trustworthy financial centre has been adversely affected. It is necessary that the problem of bank fraud should be critically viewed and handled with perception, considering the geometric rise in fraud activities in commercial bank so as to restore a fraud free banking. In the course of this research we are going to know what fraud is, what is the effect of fraud on the industry and why do you need to prevent fraud?

1.2 Statement Of Problem

It is necessary to highlight that many organizations fail to report cases of fraud to the appropriate authorities as they believe doing so will give undue publicity or negative image of the organization lack of discipline and inability of the law enforcement agents to prosecute offenders accordingly encourage fraudulent practices among individuals.

Some people are over ambitious, hence, prone to country fraud. They dismiss morality as an unnecessary prerequisite for virtuous. The average Nigeria is corrupt, dishonest and lazy seeking for opportunity to cheat.

1.3 Objective Of The Study

The purpose of this study is to show the various fraudulent practices, its prevention in the banking industry (Diamond Bank) and the perpetrators of the act and to expose what the law has to do in such situations. Although a number of studies have been undertaken on the phenomenon of fraud in banks, the increasing pace with which frauds are being committed called for continuous research on the subject to keep track of new devices employed by the fraudsters in defrauding the system, hence the rationale for this research work.

To achieve these objectives, the following secondary objectives have been specified:

  1. To identify the cause (s) of frauds in banks
  2. To identify the various types of frauds
  3. To determine the effects of fraud in bank
  4. To recommend measures for reducing the incidence of bank fraud.

1.4 Research Questions

  1. What circumstance gives birth to fraud in banking industry?
  2. What are the benefits of the prevention of fraud in banking industry?
  3. What are the roles of auditors in prevention of fraud in banking industry?

1.5 Significance Of The Study

The significance of the study is in the fact that it highlights the immediate and remote causes of fraud practices and it prevention in Nigeria Banking System with particular reference to Diamond Bank, Owerrinta. Several attempts have been made by researchers, writers etc on how to minimize or eradicate it if possible. Some efforts have been focused mainly on manufacturing and distributive industry as well as public sector while would be done on areas of banking . This study shall be geared towards finding out causes and prevention of frauds in Nigeria Banking Industry.

Therefore, the suggestions that are advanced in this study would no doubt be useful not only to the banking industry but to all financial institutions be it public or private sector of the Nigeria economy. The content of the research and the suggestions to be proffered will serve as resource for further study in the same or similar areas in banking and other financial institutions particularly in the area of fraud prevention.

1.6 Research Methodology

Primary and secondary data shall be used in the production of this research work. The main source of secondary data would be source from survey reports both published and unpublished materials from the banking sector particularly Diamond Bank of Nigeria Plc Owerrinta and other corporate bodies in various locations. While the main source of primary data was the information obtained through oral interviews and personal contact with some of the officials in the inspectorate department of Diamond Bank.

(i) Primary Source

The researcher will consider it essential to conduct primary investigation through interviews with inspector which will also be conducted at the branch levels with bank officers and notably customers of the bank.

As much as possible information by futuristic will be cross check, examine and verify be the researcher with other sources (through informal discussions) since it was not humanly possible to extend of the time and financial constraints that to reply on the use of sampling method for checking information about the extent of frauds and forgeries in each of the branches in this respect, the statistics method of random sampling was found to be more convenient in the choice respondents and was applied in the case of customers of the banks.

(ii) Secondary Source

Data in the section will be sourced from existing records or relevant document studied and literatures related to the research problem. Other materials from which data would be sourced include research reports, reference books, interviews and the internet.

1.7 Scope Of The Study

This project entitled “The Role of Auditors in Prevention of Fraud In Banking Industry; A Case Study of Diamond Bank” focused on fraudulent activities in the banking sector. The project covers the act of fraud and the role of auditors in preventing it. In order to attain the objectives of the research work, the scope of the study has been defined to embody all relevant aspects of fraud in banking operations.

1.8 Limitation Of The Study

The research is limited to studying the causes and prevention of fraud practices in Nigeria Banking System. As a result of inability of many managers to grant audience with data relevant to frauds more especially the ones treated in their organization, this enable the limited knowledge of what fraud is, what constitute fraud. Some managers consider such discussions as issue of revealing the organization secret. In this way the audience can only be entertained if he is a staff. However, the research is restricted to Diamond Bank Owerrinta whose are ready to assist to make the research a successful one.

1.9 Definition Of Terms

(i) Fraud:

As a conscious premeditated action of a person or group of person with the intention of altering the truth or facts for selfish personal monetary gains.

(ii) Forgery:

Is the act of making or writing fraudulent initiations falsifying or altering any writing for the purpose of doing injury to another person whether natural or corporate.

(iii) Bad Debts:

Can be defined as the credit which bank grant to customers but which the customers are unable to repay. In others words they are debts owed the bank by the customers which are not uncollectable but also is payable.

(iv) Irregularities:

Is an accounting term for practice that does not conform to the normal laws, practices and rules of the accounting profession, having the deliberate intent to deceive or defraud.

(v) Audit:

Is an independent examination of the expression or opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.

(vi) Auditor:

Is an individual or firm carryout the audit of an enterprise and partner of such firm who is appropriate. Auditor can also be an official whose job it is to carefully check the accuracy of business records.

(vii) Internal Audit:

Is defined as continuous review of operation and record undertaken within a business by specially assigned staff.

The Role Of Auditors In Prevention Of Fraud In Banking Industry (A Case Study Of Diamond Bank)

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