EFFECT OF FRAUD AND MALPRACTICE IN THE BANKING INDUSTRY

CHAPTER ONE

1.0     INTRODUCTION

Fraud can be seen as the intentional misrepresentation, concealment, or omission of the truth for the purpose of deception/manipulation to the financial detriment of an individual or an organization (such as a bank) which also includes embezzlement, theft or any attempt to steal or unlawfully obtain, misuse or harm the asset of the bank. (Adeduro, 1998 and, Bostley and Drover 1972).

Fraud and management have been the precipating factor in the distress of banks, and as much as various measures have been taken to minimize the incidence of fraud, it still rises by the day because fraudsters always device tactical ways of committing fraud. This has become a point of great attention in the banking sector as well as every organization in Nigeria. Although this phenomenon is not unique to the banking industry or peculiar to Nigeria alone, the high incidence of fraud within the banking industry has become a problem to which solution must be provided in view of the large sums of money involved and its adverse implications on the economy.

Fraud in its effects reduces the assets and increases the liability of any company. In the case of banks, this may result in the loss of potential customers or crisis of confidence of banking public and in the long runs end up in another failed bank situation.

It is instructive to know that many banking operatives have different reasons for joining various banks. Many have the intention of working for a short time in the banking industry (get whatever they could and find another job that is less demanding), some are in the industry because of their love for banking and all it stands for. While majority are there to enrich themselves by fraudulent means. Due to the upsurge of great viability in the banking sector, its dynamic and fast expanding level of activities, banks are faced with different kinds of challenges, among which is trying to prevent various fraudulent intentions of both staff and customers.

With the aforementioned problems, one cannot help but ask the following questions:

1.  Are the fraud detection systems in operation in banks adequate and effective in preventing fraud?
2. Does the recruitment method have a direct link with the rate of fraud in the banking sector?
3. Can the banks ever operate without an incidence of fraud?

Conceptual Framework

Fraud is one of the numerous enemies of the business world. No company is immune to it. It is in all works of life, in government, the export trade, shipping transactions, banking, insurance and everywhere. Special organizations have been formed to combat it and Interpol (International Police) tries to deal with at the international level, but it has not and cannot be eradicated (Nwankwo, 1991). Fraud is a universal phenomenon which has been in existence for so long. Its magnitude cannot be known for sure, because much of it is undiscovered or undetected and not all that is detected is published. It is known facts that no area of banking system is immune to fraudsters not even the security team designed to prevent it. Its management has become a central point in banking like the management of risk because of the above facts.

The basic idea behind this study is to examine the banking industry in Nigeria. This is with a view to investigating the causes of fraud and malpractices that is usually associated with the banking sectors.

1.1     STATEMENT OF THE RESEARCH PROBLEMS

          Fraud and malpractice are usually the two in evil be setting the entire Banking Industry. Frauds and malpractice have to a certain extent become a household expression in the banks owing to numerous cases of fraud and malpractice which occur everyday

          Fraud and malpractice are social issues, they are practice that are socially learnt, determined and socially directed. It is therefore a wrong notion by the generality of the people to say or assume that Nigeria are by nature fraudulent corrupt or dishonest. It is now generally believed that the problem of fraud and malpractice have the highest incidence in Nigeria, compared to all developing countries, for instance, between January and March 1993, Nigeria Deposit Insurance corporation {NDIC} raised on alarm that Bank lost N1 billion to fraudsters.