AN ANALYSIS OF A COMPUTERISED SYSTEM AS AN EFFECTIVE STRATEGY FOR FRAUD MINIMIZATION IN NIGERIAN BANKS

ABSTRACT

 Banks play a very significant role and are a key infrastructure of the financial sector of any economy. The efficiency of the banking sector in a way determines the reliability of the economy.

The banking business is replete with lots of risks. Of all the risks faced by banks, fraud risks are the most pervasive and most destabilizing to banks. Fraud results in the largest source of losses to banks in Nigeria and also the largest single cause of bank failures.

Because of the magnitude of these losses and the level of their impact on banking operations is the only main reason for this research study. Recently, the incidence of frauds has got the attention of all and sundry and has been the focus of the government’s attention. Therefore, the study aimed at examining how computers can be used for detecting fraud in the banks operations especially towards enhancing fraud minimization in Nigeria using UBA Plc. as a case study.

Together, the data for this study, both interviews and questionnaire methods were used. And the data collected was analyzed using simple statistic techniques of percentages, averages, etc. the information generated was used in formulating recommendations that are intended to help banks appreciate the use of computers in their banking operations as deliberate effective measures towards minimizing or preventing fraud in bank operations in the banking industry in Nigeria.

It is hope that when such measures are implemented will

enhance banks stability survival and more profitability in Nigeria.

CHAPTER ONE

1.1  OVERVIEW OF THE STUDY

Fraud can be described as a conscious premeditated action of a person or a group of persons with the intention of altering the truth and or fact for selfish personal monetary gain. It involves the use of deceit and trick and sometimes highly intelligent cunning and known-how. The action usually takes the form of forgery, falsification of documents and authorizing signatures of employees’ as well as customers engaging in fraudulent practices in the banking sector. The existence of frauds in our banks is not uncommon or unexpected phenomenon, because of all the problems confronting the Nigerian banking industry.

The level of frauds in the banking industry of the Nigerian economy has assumed epidemic dimensions causing devastating effects. Which leads to loss of assets and denting of image.

Thus losses resulting from frauds will reduce the resources of the bank thereby reduce level of resources crippling the operations of the bank affected and in some cases the bank may be forced to close down its banking operation for lack of adequate funds. When such asituation arises, it will led to loss of confidence in the affected and also reduced customers patronage.

Therefore, if banks are to be well protected, they must build basic defense, pattern into their everyday operations, through the computerization of its activities or operations.

Also, banking distress occurs when a bank or some banks in the system experience ililiquidility or insolvency resulting in a situation where depositors fear the loss of their deposits and a consequent break down of contractual obligations. While a bank is said to be illiquid when it could no longer meet its liabilities as they mature for payment, it is said to be insolvent when the value of its realizable assets is less than the total value of its liabilities (a case of “Negative net worth”). These could lead to bank runs as depositors lose confidence in the system and seek to avoid capital loss. The uncertainty generated as a result of distress in banking institutions, if left unchecked, often raises real interest rates, creates higher costs of transactions and disrupts the payment mechanism with the attendant economic consequence.

Those factors examined here lead some banks into financial distress character by poor asset quality, uliquidity, under capitalization and insolvency. For example on July 6th 2004 the Central Bank of Nigeria (CBN) Governor Professor Charles Soludo announced the re-capitalization reforms that included among other provisions that existing banks must have N25 billion capital asset by

December 31, 2005. this reform will make some banks either to be acquired by bigger and stronger banks or fold up its activities.

In summary, computerization as an effective strategy can be used for minimization of fraudulent activities in the Nigerian Banking Sector.

1.2  STATEMENT OF THE PROBLEM

The Nigerian Banking Industry seemed to be one of the most profitable within the Nigerian Economy. However, the banks in the course of proving their banking services face the risks of loosing their money through fraudulent practices thereby destabilizing its operation. Therefore, fraudulent practices is one of the largest source of losing money by banks in Nigeria and it is also the largest single causes of bank failure because of its magnitude of impact on banks operation.