BANK FRAUD AND ITS EFFECT ON THE NIGERIA ECONOMY (A CASE STUDY OF SOME SELECTED MONEY DEPOSIT BANKS ENUGU STATE)

CHAPTER ONE

INTRODUCTION

1.1: BACKGROUND OF THE STUDY

Bank Fraud is a global phenomenon that has been in existence for long and has geometrically increased on daily basis. Bank fraud is a deliberate act that causes a business or economy to suffer damages, often in the form of monetary losses and slow or poor economic growth. Bank Fraud is evident in both developed and developing nations and as well varies across places in its magnitude, its sources, the way it manifests itself and in its effects on administrative performance and development. Olufidipe (2014) defined fraud as “deceit or dubious act deliberately practiced in order to gain some mischievous advantage”. A person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler. By extension, fraud will include embezzlement, theft or any attempt to steal or unlawful obtain, misuse or harm the assets of bank (Nweze, 2008). Fraud according to Adeniji (2014) and ICAN (2006) is a deliberate act by one or more individuals among management, employees or third parties which results in a misrepresentation of financial statement. Financial reforms in Nigeria have evolved various strategies to encourage financial intermediation and mobilization of savings for investment which promote economic growth and development. These reforms seek to act proactively to strengthen the market mechanism, remove systematic and financial crisis thereby ensuring a more liberal financial system and increase reduction of fraud in Nigerian banks and related institutions. Fraud in the banking sector is a global phenomenon and its geometric growth in the Nigerian banking sector has been astounding which has had its toll on the economy generally since the banking sector plays a critical role in every economy, Nigeria inclusive. Bank fraud is the number one enemy of economic growth and development the world over. The fear now is that the increase rate of fraud in commercial banks and related financial institutions, if not arrested might pose certain threats to the stability and the survival of the financial institution and the performance of the industry in particular and moist importantly the economy (Nwankwo, 2015). This fraud is not limited only to other sector; it also affects the banking industry. Bank frauds is generally bringing untold hardship on bank owners, staff, customers and family members as most bank failures are always associated with large scale of frauds and the current economic hardship in the country may have been as a result of gross fraudulent activities in the Nigerian banks overtime (Okoro, 2013). Fraud in the banking sector has been believed to have influenced the level of bank performances both at the micro and macro levels of the economy which has negatively influenced the economy. The banking industry is the essential prerequisite to a robust economy; hence, the basic aim of a bank’s management in order to curtail fraud, need adequate mechanisms that can be put in place in order to curtail the fraud cases as well as the actual losses in the banking sector (Adewumi, 2007). If banking operations are strong, then the economy is better able to withstand negative social impact as a result of fraud. The importance of the banking industry 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 industry has become one of the most importance 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.

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 diverse fraudulent activities 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 that have contributed to the weakness of the banking sector in particular and Nigeria’s poor economic growth and development in general. This has brought untold hardship on the populace.

Fraud is a major challenge to the Nigeria banking sector; no bank is immune to it so also the economy (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 and how does it affect the economy. 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 major challenge 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 examine bank fraud and its effect on the Nigeria economy, other general objectives of the study include;

1. To examine the major causes of bank fraud in Nigeria.
2. To identify the major causes of bank frauds in Nigeria.
3. To highlight the negative effects of bank fraud on the economy.
4. To examine the relationship between bank fraud and economic growth and development in Nigeria.
5. To examine the efforts of government and its agencies in the prevention and control of bank fraud in Nigeria.
6. To recommend ways of reducing bank fraud in the Nigerian banking industry.

1.4: RESEARCH QUESTIONS

1. What are the major causes of bank fraud in Nigeria?
2. What are the major causes of bank frauds in Nigeria?
3. What are the effects of bank fraud on the economy?
4. What is the relationship between bank fraud and economic growth and development in Nigeria?
5. What are the efforts of government and its agencies in the prevention and control of bank fraud in Nigeria?
6. What are the ways of reducing bank fraud in the Nigerian banking industry?

1.5: RESEARCH HYPOTHESES

H01: Bank fraud does not have a significant effect on the economy of Nigeria.

H02: There is no significant relationship between bank fraud and economic growth and development in Nigeria.

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.

SCOPE OF THE STUDY

This study is restricted to bank fraud and its effect on the Nigeria economy.

1.8: LIMITATION OF THE STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9: DEFINITION OF TERMS

FRAUD: Fraud is a type of criminal activity, defined as:'abuse of position, or false representation, or prejudicing someone's rights for personal gain'.Put simply, fraud is an act of deception intended for personal gain or to cause a loss to another party.