Project Materials




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1.1 Background of The Study

The banking industry’s importance in the Nigerian economy cannot be overstated. Banks have been given the reputation of being an essential source of capital for economic progress.

This recognition stems partly from most financial institutions’ perceived function in mobilising varied deposits and channelling them towards successful investment venues.

The magnitude, type, and level of such investment, as well as other complementing elements that contribute to the country’s economic development. As a result, the banking system has been viewed as an agent of economic growth and, possibly, economic development.

However, despite the banking industry’s importance to economic progress, there are a number of problems that impede its proper operation around the world. Among these variables are fraudulent actions, which have been observed in practically every bank throughout the world.

The intent to do wrong is an important aspect of deception. Thus, fraud may be defined as a purposeful distortion of financial statements and misappropriation involving the act of criminal deception to get an unjust or illegal advance for which the penalty may be severe, but it also has a broad legal significance.

There is widespread agreement that three acronyms known as “WOE” (Will, Opportunity, and Exit) induce fraud. The individual is the will to commit fraud, the opportunity to execute the deception, and the exit, which is the escape from sanction. However, bank fraud can be triggered by a variety of circumstances, including:

Absence of thorough, manual, and ineffective internal control;

Inadequate training and the retention of poor management;

Poor bookkeeping and insufficient job rotation;

The ineffective e-banking system using internet facilities;

Internet fraud is one of the most common types of fraud in our institutions today. Some of the frauds are committed by outsiders, while others are committed by the and, in some cases, the management of the bank in question.

The majority of fraud is committed by fraudsters in conjunction with bank employees. As a result of this extremely serious economic crime, some industry employees are being fired, having their appointments cancelled, or retiring prematurely.

Fraud is the number one business problem in the banking industry. No business is immune to deception. It is present in all government employees. Special organisations have been formed to battle it in insurance,

export trade, and banking worldwide, and an international police commission is attempting to deal with it on an international basis, but it has not and cannot be abolished.

It is becoming more powerful, and it is a growing industry. However, the researcher was able to obtain some commendable write-ups on the 1998 Nigerian Deposit Insurance Corporation (NDIC) annual report on commercial bank fraud and forgery cases.

However, from 17 in 1997 to 564 in 1998, the number of recorded fraud cases climbed by nearly 20%. According to Central Bank of Nigeria write-ups on fraud, the total amount involved in reported losses in 1998 decreased to N3,129.11 million from N3,590.31 million in 1997, though the actual 1 expected loss stopped at a higher level of N673.5 in comparison to N224.54 million in 1997.

The common forms of fraud are organisation fraud, confidence schemes (a.k.a 419), and occupation fraud (management employee, computer, procurement, and financial reporting frau). The slick of the underworld, who are mostly involved in bank fraud, are constantly one step ahead of bank planning,

making it difficult to forecast when and how they would strike. They are folks with significantly higher IQs than the ordinary banker. Because it is their stock in trade, fraudsters think and act quickly.

1.2 Statement of the Problem

Frauds in financial institutions can be categorised into two types based on their nature, character, and technique of perpetration. On the basis of perpetrations, there are three basic categories:

internal, mix, and external. Internal fraud is defined as fraud done by members of staff (insiders). External perpetrators are non-staff, whereas mixed fraud involves outsiders collaborating with personnel (insiders).

The following are the most important and common types of fraud emphasised by the Bank Administration Institute (1989) in their fraud prevention and detection series:

a) Advance Fee Fraud (419): An agent approaches a bank, a corporation, or an individual with an offer to access substantial funds at below-market interest rates, sometimes for a long period of time.

The intended source of such monies is not specified, and the only method to gain access is through the agent, who must be paid a fee or commission “in advance.”

b) Cheque Kiting: According to the US Comptroller of the Currency’s Policy. Guidelines for National Bank Directors, kiting is a “method by which a depositor uses the time required for a cheque to clear to obtain an authorised loan without interest charge.”

c) Account – Opening Fraud: This usually begins when a person opens an account and uses it within a short period of time.

d) Money Transfer Fraud: Money transfer fraud may come from a request prepared purely for the aim of committing fraud or from the change of a legitimate funds transfer request.

A valid request can be changed by changing the beneficiary’s name or account number, or by increasing or decreasing the amount of the transfer.

Nowadays, “yahoo boys” are scammers in Nigeria who send bogus emails to would-be victims encouraging them to apply for fake contracts or fake lottery tickets, thereby winning non-existent money from a dead billionaire’s account in different parts of the world.

They collaborate with fraudulent bankers in the Western Union department to withdraw their ill-gotten hard currency or without the bank’s knowledge of the beneficiary’s genuineness.

e) Talex Fraud: Through the talex, cash can be transferred from one area to another. The message, which is frequently coded, can be altered to allow funds to be diverted to an account that was not originally intended.

f) Monetary Laundering Fraud: This is a method of concealing the presence, source, or usage of illegally obtained money by transforming it into an untraceable bank transaction. The money is disguised in order to make the income appear legitimate.

g) Computer Fraud: Computer frauds can include corrupting programmes and even breaking into the system via a remote sensor by a computer programmer or specialist diskettes can also be tampered with to gain access to authorised areas or even credit to an account for which funds were not originally intended.

Loan fraud happens when credit is offered to non-borrowing consumers or to borrowing customers who have surpassed their credit limit.

The fraudulent feature of this class is the desire to conceal it from the head office (Inspectorate) staff during normal checks in order to fool them with convincing but false statements, documents, and so on.

According to an ACFE survey of fraud specialists, intense financial pressure amid the economic crisis has led to an upsurge in fraud. The survey’s findings, which were released in the new ACFE paper “occupational fraud:

a study of the impact of an Economic Recession,” also revealed that layoffs are widespread and are causing gaps in organisations’ internal control systems.

The Wall Street Journal has published a research based on the responses of more than 500 randomly selected Certified Fraud Examiners (CFEs). CFEs are fraud detection, prevention, and deterrent experts who must pass a demanding exam as well as fulfil high professional, educational, and ethical criteria.

More than 55.4 percent of respondents reported that the level of fraud has increased slightly or significantly in the previous months when compared to the degree of fraud they investigated or saw in previous years.

Furthermore, nearly half of respondents (49.1 percent) listed rising financial pressures as the most significant cause contributing to a rise in fraud, followed by increased opportunity (27.1 percent) and increased rationalisation (23.2 percent).

The Central Bank of Nigeria stated that Nigeria’s lagging progress was due to flaws in the banks’ internal control mechanisms. This definitely paints a picture of how fraud was committed in the financial soundness of Nigeria’s banks. In a nutshell, the threat has caused incalculable harm to banks and requires immediate attention. As a result, the attempt to halt economic decline gave rise to the theme of this research.

Furthermore, fair and accurate credit transactions are used to prevent identity theft, improve the resolution of consumer disputes, improve the accuracy of consumer records, give consumers access to credit information,

and for other purposes, as well as provisions to help reduce identity theft, such as the ability for individuals to place advertisements on their credit histories if identity theft is suspected.

It decreases client loyalty, limiting banks’ ability to profit.

Fraud will also increase the bank’s operating costs as more Inspectorate workers are hired to detect and prevent fraudulent activity.

Customers may lose money deposited in banks to fraudsters because much of this money is not easily recoverable. It also causes the buyer and their family enormous grief.

1.3 Objectives 0f The Study

The following are the study’s objectives:

1. To identify the sources of fraud in banks.

2. To recognise the numerous types of fraud that occur in banks.

3. To ascertain the negative impact of fraud on banks and their customers.

1.4 Research Questions

i) What are the root reasons of bank fraud?

ii) How frequently is fraud perpetrated or committed in banks?

iii) What are the various types of fraud committed in banks?

iv) What are the negative consequences of fraud on banks and their customers?

1.6 Importance of the Research

The research work will make it feasible to address the threat of fraud in Guarantee Trust Bank. It will also indicate the impact of the fraud on the consumer and the bank.

The research will also serve as a model for the banking industry in general in terms of fraud control. It will also be a wonderful resource that will be preserved in the library for students to use as a reference.

1.6 Scope of The Study

The research will be based on Guarantee Trust Bank’s manual and computerised accounting systems.

It will also limit the impact of these on the bank and its clients, as well as providing a solution to the bank’s fraud. The scope of the research will be limited to Guarantee Trust Bank’s Kano road branch in Kaduna North, Kaduna.

1.7 Limitations of The Study

Data constraints influenced the study in terms of how tiny (amount) the demanding academic obligations were further compounded, the combination of the two was frenetic and stressful.

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