Fraudulent Practices In The Banking Industry: Causes And Possible Remedies

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There are so many difficulties which this research work is confronted with.  Bank officers were so reluctant to give out helpful information of this project.  And there is also the cost of research and limited time, for acquisition, analysis and proper interpretation of data.

Effort is made by the researcher to personally visit all the places where the above secondary data and primary data were located.

Personal effort was also employed in tracing out relevant information needed to the project.

After due analysis of the available data, the researcher discovered the statistical data of members of staff involved in frauds and forgeries, returns of commercial and merchant banks on frauds and forgeries and so on.

Experience has shown that even in the most regulated home, accident can still happen.

Bank staff should be properly screened before being employed, and adequate banking education should be organized for bank customers.



1.0              Introduction To Back Fraud

1.1       Background of the Study

1.2              Statement of the Problem

1.3              Purpose/Objective of the Study

1.4              Research Questions

1.5              Research Hypothesis

1.6              Significance of the Study

1.7              Scope, Limitations and Delimitations

1.8              Definitions of Terms



2.0              Review Of Related Literature

2.1       What is Fraud?

2.2              Causes of Fraudulent Practices

2.3              Methods Through which perpetuators

use cheques to defraud banks.

2.4              Computer Frauds

2.5              The Role of the Branch Manger on Fraud

2.6              Types of Fraud

2.7              Advance Fee Fraud (“419”)

2.8              Effects of Fraudulent Practices in Banks

2.9              Reasons for Committing Fraud

2.10          Techniques of Fraud Control in Banks



3.0              Research Design And Methodology

3.1       Research Design

3.2              Area of Study

3.3              Population

3.4              Sample and Sampling Techniques

3.5              Instruments of Data Collection

3.6              Methods of data presentation

3.7              Methods of data analysis

3.8              References


4.0              Data Presentation And Analysis

4.1       Test for Research Question

4.2              Test of Hypothesis



5.0              Findings, Recommendations And Conclusion

5.1       Findings

5.2              Conclusion

5.3              Recommendations



2.i        Members of staff involved in frauds and

forgeries 1989 – 1993

2.ii       Members of staff involved in frauds and

forgeries 1994 – 1998

2.iii      Members of staff involved in frauds and

forgeries 1999 – 2002

2.iv      Amount involved by types of fraud 1992 – 1995

2.v       Ten banks with highest number of report fraud

cases 1989 – 1998      Ten banks with highest number of reported

fraud cases 1999 – 2002

2.vii     Returns of Merchant banks on frauds and

forgeries 1989 – 2000

2.viii    Returns of Commercial Banks on frauds and

forgeries 1989 – 2000

2.ix      Returns of Insured banks on frauds and

forgeries 2001 – 2002

2.x       Types of major frauds and forgeries 2002

LIST OF FIGURES2.a       Amount involved in frauds and forgeries 1989 – 1993

2.b       Amount involved in frauds and forgeries 1994 – 1998

2.c       Amount involved in frauds and forgeries 1999 – 2002

2.d       Actual/expected loss in frauds and forgeries 1989 – 1993

2.e       Actual/expected loss in frauds and forgeries 1994 – 1998

2.f        Actual/expected loss in frauds and forgeries 1999 – 2002


Fraud can be described as a conscious premeditated action of a person or group of persons with the intention of altering the truth or fact for selfish personal monetary gain.  It involves the use of deceit and trick and sometimes highly intelligent cunning and know how.  The action usually takes the form of forgery, falsification of documents and forgery of signature and outright theft.

Employees as well as clients of firms in all industries engage in fraudulent practices all over the world.  Although the existence of frauds in our banks is not an uncommon or unexpected phenomenon, it is worrying because of all the various problems confronting the Nigeria banking industry, that of fraud is easily the most intractable.  The bank industry worries more about fraud because of the rather obvious damaging consequences of the acts on health and for the existence of the institutions.

Frauds in banks nearly always lead to loss of monies – monies that ordinarily belong to someone other than the banks.  This loss results in some cases in reduced level of resources available for the use in the operations of the banks.

According to the Nigeria Deposit Insurance Corporation (NDIC) annual report (2002), shows that 797 cases of fraud was reported in commercial banks and the amount involved in N12,919.55 billion.

In very bad cases where frauds occur with crippling frequency and in wholesale sizes, the bank may be formed to closedown as a result.  When the bank loses money and it is wound up, the customers lose money.  This leads to loss of confidence in the banks and reduced patronage.  In our kind of financial environment where banking habit is being encouraged developed, this could result in a major set back for the efforts.

Fraudulent practices in the Nigerian banking industry is therefore of special concern to the monetary control and supervisory authorities who are charged with the safety of individual banks and the soundness of the banking industry.


Banks operate on the pivot of public confidence and trust on the ability of the bank to deliver as and when demanded.  The Nigerian society is bedeviled with the desire to get rich quick so as to feel important, as Nigerians believe that wealth is the measure of power and importance.  It is in realization of this fact that these “get rich quick” minded set of people direct their attention to defrauding the banks.

Frequent occurrence of frauds ultimately distracts the attention of the management and leads to increased running cost.  time and energies that would have been spent improving customer services would be expanded on preventing frauds.  Monies that would also have gone into service improvement activities would be expended in setting fraud control procedure and systems.

Moreover, during the year 2003, total of 23 banks lost N333.3million to theft and fraud according to the Nigerian Insurers Association (NIA) 2003, annual report.

Another reason why the banking industry like any other, worries about frauds is that it varies widely in nature, character and methodology.

There are two main sources of frauds in banks.  The internal and external sources.  Though distinguishable in theory, these sources are very often not separable in practice.  That is to say, a successful often takes place and succeeds as a result of the collaboration, international or unintentional (i.e. due to carelessness or error of judgement, of an insider – bank employee).  Indeed it was recently affirmed that “the public believes and rightly too that most frauds in banks are with the active connivance of bank staff.  Otherwise, how does anybody explain for example, how a cheque drawn in favour of the federal government of Nigeria is paid into some private account and funds withdrawn?  Or how does one explain how a draft prepared in the name of an institution or individual is collected by a completely different institution or individual?

Fraud has caused the loss of whooping amount of money, contributed to the liquidation of several banks and consequently unemployment and similar problems.

This study is therefore beset by the acute problem of discovering the genesis and cause of fraudulent practices in the banking industry.


The objectives of this study are as follows:

·                     To discover the extent and key interest of Nigerians in fraudulent practices.

·                     To evaluate the consequences of frauds in the banking industry and economy at large.

·                     To discover ways in checking and preventing fraud in our banks.

·                     To suggest ways of checkmating fraud.

1.4              RESEARCH QUESTIONS

i.                    How can bank staff contribute to preventing fraud?

ii.                  What are the ways of checking fraud?

iii.                Why do people commit fraud?

iv.                Can fraudulent practices be reduced?

1.5              RESEARCH HYPOTHESIS

1.         Ho:      Nigerians are not fraudulent owing to economy


Hi:       Nigerians are fraudulent owing to economy situation.

2.         Ho:      Most bank frauds are not caused by management


Hi:       Most bank frauds are caused by management lapses.

3.         Ho:      The borrowed nature of Nigeria banking system is not

capable of introducing fraudulent tendencies.

Ho:      The borrowed nature of Nigeria banking system is capable of introducing fraudulent tendencies.


This study shall be remarkable in the following ways;

a.                   It is significant to Nigerian banks to the extent of fraudulent activities.

b.                  It is significant to the depositors.

c.                   It is significant to investors, shareholders and so on.

d.                  It is significant to supervisory authorities e.g. CBN and NDIC.

e.                   It is significant for efficient internal control of banks.


Fraud is an act or course of deception directed at the detriment of another.  In legal terms, fraud is the act of depriving a person dishonestly of something which is or might be entitled to but for the perpetration of fraud.

Moreover fraud can be described as a conscious premeditated action of a person or group of person with the intention of altering the truth or fact for selfish personal monetary gain.  It involves the use of deceit and trick and sometimes highly intelligent cunning and know how.

According of Gerald Klein (1995), dictionary of banking, fraudulent means practicing fraud, intended to deceive in bankruptcy, having the intention to defeat or delay creditors.

While practice is something done often.  It is something that people do often, especially in a particular way.

Fraudulent practices: can be said to be the methods by which people engage in an act or course of deception directed at the detriment of another.

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