CRIME AND FINANCIAL FRAUD AND ITS IMPACT ON NIGERIA FINANCIAL SECTOR
CRIME AND FINANCIAL FRAUD AND ITS IMPACT ON NIGERIA FINANCIAL SECTOR
1.1 BACKGROUND OF THE STUDY
Fraud is an international socioeconomic disease that affects both the public and private sectors, as well as both emerging and developed nations worldwide.
According to Abiola in Gbegi and Adebisi (2014), fraud is rampant and is turning into a way of life in Nigeria, affecting all tiers of government (from the president down to the councillors). No sector of the economy is safe from Nigeria's current alarming levels of fraud and corruption.
With a score of 27%, Nigeria was ranked 136th out of 174 countries in the 2014 Transparency International Corruption Perspective Index. Her results of 25% in 2013 and 27% in 2012,
respectively, are notable and show inconsistency in the fight against corruption. She was ranked as the third most corrupt nation in West Africa, behind Guinea and Guinea Bissau (Ejike, 2014).
No money is totally free, according to Kasmu (2009); each naira and kobo has both legal and illegal uses, and any amount will have an impact on how it would have been used legally (in an organisation or a country).
Unless it is impossible, individuals, corporations, and concerned government units may seek redress through a variety of institutions, including the police and the court system.
Every sector of the economy is susceptible to fraud. The banking sector in Nigeria seems to be one of the most alluring targets for fraud and deceit. This may be related to the large volume of cash transactions and the use of trade-cash, both of which fraudsters find to be quite alluring.
The banking industry is so vital to the modern economy that practically everyone has a stake in it. According to Olukotun, Ademola, Olusegun, and Olorunfemi (2013), banks support capital development through allocating savings towards investments and financing capital projects, among other factors.
Fraudsters target banks. According to Owolabi (2010), bank fraud has significant repercussions for all parties involved as well as the overall economy of the country. Large-scale fraud has taken place in Nigerian banks, leading to financial hardship at different points for a number of reasons.
A banking system in crisis cannot effectively carry out its intermediation responsibilities due to a credit crunch that will restrict fresh lending. It's possible that the bank's capital adequacy ratio is insufficient or that liquidity is scarce.
According to Owolabi (2010), fraud is the main cause of bank crises around the world, which has occasionally led to bank collapses. Fraud-related bank failures result in great suffering for shareholders, employees, clients, and family members.
According to Odi (2013), bank fraud has destroyed the foundation and reputation of the majority of Nigerian banks, causing trouble for a number of them.
In view of these extremely alarming assertions regarding the impact of fraud on banks, this study aims to assess the effect of fraud on the Nigerian banking system.
STATEMENT OF THE problem
Fraud is a global problem from which no nation is exempt. However, developing countries and their various administrations are particularly exposed.
Every good intention and selfless effort made by true patriotic Nigerians to restore Nigeria's economic glory as it was in the 1980s when the US Dollar had unreserved respect for the Naira in the international market has continued to betray them (Oko).
Both the frequency and the scope of fraud are increasing (Okoye & Gbegi, 2013). On the aforementioned point of view (2009), Modugu and Anyaduba (2013), Gbegi and Adebisi (2014), and Okoye and Akamobi collaborated.
In addition to recognising the pervasive and growing nature of fraud, Imoniana, Antunes, and Formigoni (2013) reaffirmed KPMG's (2009) definition of fraud as an industry that is researched by academics, probed by investigators, sued by attorneys,
and discussed by conference attendees. On the other hand, the industry is built more on dealing with the effects of fraud than on avoiding it. What a poor and inadequate foundation.
According to Owolabi (2010), 200 banks failed in England between 1815 and 1850, a 35-year period, according to the Dictionary of Economics and Commerce. One of the contributing elements to this was fraud. In Uchenna and Agbo (2013),
Nwankwo traced the history of bank failures in Nigeria to the 1930s, when all native banks—aside from the National Bank—collapsed and sowed the seeds of a confidence crisis in the country's financial system. Similar events happened in the late 1940s financial “boom and collapse,” when all but four local banks were dissolved.
Furthermore, between 1952 and 1954, 16 of the 21 indigenous banks failed. In the late 1990s, 26 failed banks were also dissolved, while others underwent reform, were acquired, or were outright sold. According to Nwankwo (2005), fraud had a substantial role in each of these periods.
Due to the fact that the primary objective of banking—the safety of money—seemed to be in jeopardy, these bank failures caused significant financial losses for depositors, a loss of confidence among the banking public, and concern about Nigerians' capacity to handle banking operations.
In reaction to these occurrences, the government established the Paton Commission of Inquiry in 1948. This commission's findings led to the creation of the CBN in 1958 as well as the first banking legislation in 1952. A boom that lasted into the late 1990s was brought on by the 1986 bank reform (Structural Adjustment Programme, or SAP) (Olukotun, et al., 2013).
The Nigerian banking sector underwent yet another makeover in 2005 to prevent an impending collapse. There were many bank mergers and acquisitions during the 2005 reform, and just 25 banks remained after the process. The threat of fraud has continued despite the aforementioned measures.
The Nigerian Deposit Insurance Corporation (NDIC) reported that there were 1,532 fraud instances in 2010 totaling 21.29 billion naira, with an estimated loss of 11.69 billion naira. Additionally, 2,352 instances of fraud totaling 28.4 billion naira were reported in 2011, with a genuine loss of at least 4.071 billion naira.
This represents a growth of 53.5%. 10,612 fraud cases were reported in 2014 as opposed to 3,786 cases in 2013, totaling 25,61 billion naira and 21,80 billion naira, respectively.
The amount of money involved has increased by 17.5 percent as a result. The estimated real loss for 2014 was 6.19 billion naira, a 7.5 percent increase from the predicted real loss for 2013 of 5.76 billion naira.
Using the assistance of forensic accountants, the Central Bank of Nigeria found fraud in five commercial banks in 2009. The Chief Executive Officer of Oceanic Bank was consequently charged by the Economic and Financial Crimes Commission (EFCC), and the court gave him an 18-month prison term (Dada, Owolabi, & Okwu, 2013).
Although there have been more reported instances of bank fraud, their impact on the Nigerian financial sector is a significant cause for concern (NDIC report, 2015). The effect of fraud on Nigerian banks has been researched by academics like Kanu and Okoroafor (2013),
Aruomoaghe and Ikyume (2013), Owolabi (2010), Uche and Agbo (2013), Ikpefan (2006), and Odi (2006). Some of them looked at the connection between the fraud and dividends, credit mobilisation, and other elements, while the bulk of them concentrated on the number and kinds of employed employees.
Kanu and Okoroafor (2013) and Ikpefan (2006) noted a strong correlation between bank deposits and fraud in terms of credit mobilisation, while Uche and Agbo (2013) found that the percentage of mobilised funds lost to fraud climbed from 2001 to 2006 but fell from 2006 to 2011.
Odi (2013) and Ademoye (2012) found that fraud had a disastrous effect on bank performance in their studies of the subject, while Inaya and Isito (2016) found that fraud has a detrimental societal impact. Owolabi (2010) stated that bank executives were responsible for over 70% of bank fraud,
whereas Idolor (2010) found that bank personnel did not view improper foreign exchange trading and unofficial borrowing as forms of bank fraud. In light of the aforementioned study, we would like to look into how fraud affects a bank's revenue, assets, and liabilities.
1.3 OBJECTIVES OF THE STUDY
The research's main objective is to:
Examine the reasons behind financial fraud in the financial industry.
Look into how financial fraud affects the financial industry.
Learn how to prevent financial fraud in the financial industry.
1.4 RESEARCH QUESTIONS
The goal of the study is guided by the following research questions.
What contributes to financial fraud in the financial industry?
What effects does financial fraud have on the financial industry?
What measures may be taken to stop financial fraud in the financial sector?
1.5 RELATIONSHIP TO OTHER STUDIES
This study will contribute to the body of knowledge already available on the subject, and it will serve as a source of information for academics, researchers, and students planning to study this or a related issue in the future.
1.6 SCOPE OF THE STUDY
This study used Access Banks in Nigeria as a case study to explore the effects of fraud on the financial sector.
1.7 LIMITATION OF STUDY
Since not all banks could be included, the study was restricted to accessible banks in Nigeria.
1.8 DEFINITION OF TERMS
Crime: an unlawful act or omission that is subject to legal repercussions.
Financial fraud is when someone uses deception, fraud, or other illegal methods to swindle someone out of money or otherwise negatively impact their personal financial situation. Numerous methods, such as investment fraud and identity theft, can be used to accomplish this.
The financial sector is a segment of the economy that consists of businesses and institutions that offer financial services to wholesale and retail consumers.