Bank Fraud And Its Effects On Nigerian’s Economy

BANK FRAUD AND ITS EFFECTS ON NIGERIAN’S ECONOMY (A CASE STUDY OF AFRIBANK NIGERIA PIC ENUGU)

MAJOR CAUSES OF BANK FRAUDS

Frauds in the Nigerian’s bank can be grouped into two classes; these are institutional and environmental / societal factors. The institutional factors are those traceable to the internal environment of the banks or financial institutions while the environmental factors are those, which result from the influence of the environment on the banking industry.

2.1.0 INSTITUTIONAL CAUSES OF FRAUDS

Various sectors and professional in the industry seem to be unanimous in their identification of institutional causes of frauds. These are:

VOLUME OF WORK

The amount of work done by officials could be so heavy that frauds could easily pass undetected by such official. For example, somebody who is the marketing / credit manager of a bank taking on the work of seeking for new customers and at the same time taking care cash transaction in the bank. in this type of situation, there is high tendency for the worker’s to commit fraud without being detected because the manager when he remembers that there are some people who asked him to come for opening of a new account with them may not have the time to go through the workers of this subordinates very well. This will give room for those with evil minds to commit fraud.

NUMBER OF STAFF

Where an official supervises quite on large number of staff, there is a high likelihood that fraud could go undetected. For example in a cash department of a bank where cash mainly is being dealt with and where almost all the staff in that department can go into the bank’s strong room to keep the mains they received. If there are large number of subordinates who go in and out of the strong room, there are every likelihood that some them might steal some money in the strong room or even from the cash they received.

NATURE OF SERVICES

Frauds may be caused where documents of value and liquid assets are exposed to an undisciplined staff or unauthorized persons for example, customers.

BANKING EXPERIENCE OF STAFF

All things being equal, frauds in banks or financial institutions occur with higher frequency among staff with little experience and knowledge in financial practice. The more the experience and knowledge of a staff, the less the likelihood that frauds would pass such staff undetected unless with the active support of the staff. Where professionally qualified. Financers are involved in frauds; they are more likely to swindle large sums of money then the less qualified staff.

POOR MANAGEMENT

Financial institutions with poor management records have higher incident of all sorts of frauds than those with effective management gives rise to ineffective and poor control systems, indiscipline among staff and thus creates an environment for frauds to flourish. These inefficiency and inadequate internal control system will only arises as a result of the inability of the internal controller of the bank and the bank manager to monitor how every aspect of the banks transactions are done.

 INADEQUATE / LACK OF STAFF TRAINING

Lack of staff training could affects the morally weak as well as the morally robust staff in the sense that if the staff does not have sound training of the ways by which frauds fraud could be perpetrated in the financial institutions, he cannot detect frauds. And when this is done, an honest man who does not know anything about frauds will be involved. So inadequate / lack of staff training in detecting frauds could affect an otherwise honest staff in apprehending and avoiding the trick of financial intuitions fraudulent.

STAFF NEGLIGENCE

Negligence in actual sense is itself a product of several factors including poor supervision, lack of technical knowledge, apathy, pressure etc. In certain cases, staff negligence could give rise to the perpetration of frauds in financial institutions. The above reason is because when the bank officials are under pressure i.e. people attacking him from all corner including some of the bank’s management in order to help them perpetrate frauds, the officials could give in.

 

Again, if the officials are not knowledgeable technically and cannot supervise very well, there is no way they can know when frauds are at their early stages let alone when they have escalated.

RECRUITMENT OF SYSTEM

Poor recruitment system, where cognate experience, relevant technical knowledge, competence, character and other sterling qualities are scarified on the alter of non – performance related factors such as connections and tribalism constitute important facilitators of frauds in financial institutions. This is so common in Nigerian banking industry where anybody can be employed into the industry simply because the person has somebody who is the regional manager or chairman of the bank. these people are employed without minding the qualifications and characters of the people and when these people commit frauds, their acts are usually over looked.

POOR SECURITY ARRANGEMENT FOR DOCUMENTS

In financial institutions where security arrangement for valuable documents are weak, poor and valuable, it is easy for fraudsters to have their way without detection. For example, in a situation where people’s cheque books are kept to the reach of everybody, the tendency is that people can withdraw money from other people’s accounts without being detected. Again is where the keys to the strong room are carelessly kept within the reach of every body. You could imagine what will happen to the bank.

USE OF SOPHISTICATED ACCOUNTING MACHINES

Where sophisticated accounting machines are in use and are manned by inadequately equipped staff, error could arise and thus lead to the production of variable records.In the hand of dishonest staff, sophisticated accounting machines could be employed to deliberately substitute improper calculations and posting manipulate documents, substitute fictitious documents and alter genius ones. All of these are different ways of perpetrating frauds.

FRUSTRATION

Frustration can breed fraudulent practices in financial institutions especially when management practices are negative to the aspiration and developmental need of staff. When their practices are carried out, they could result in the generality of staff being frustrated. For example, in a situation where a person who may be honest in all his doings is being deprived of his financial benefits deliberately while others of the same level of him are receiving theirs. The person is bound to be angry and frustrated and these could make him to indulge in frauds in order to meet up with his colleagues.

Again, when the entire staff of a company has not been paid of the monthly salaries due to mis appropriate of funds by the management, the staff will be frustrated and anything that comes their way, be it physical cash, assets. Also frustration could lead to frauds when a particular people are being promoted as and at when due while others remain stagnant in one position.

INADEQUATE INFRASTRUCTURES

Poor communication system, power failure which result in a backing of unbalanced positions, congested office space etc. are some other factors which encourage the perpetration of frauds in financial institutions. Take for instance, in 1992 when a youth corper in one commercial bank at Lagos State lodged more than N1m into his account from one customer’s account simply because there was a little breakdown in the compiler system. You could imagine what will happen to the bank when there is long breakdown in their computer system.

LAPSES IN THE MANAGEMENT CONTROL SYSTEM OF CORPORATE CUSTOMERS

This is a classic example where frauds could be externally hatched and executed. Fraudulent staff in both financial institutions and in the employment of corporate customers could collude to take undue advantages of lapses observed in the management control systems of corporate customers.

Also one other way in which frauds could be carried out institutionally, is customers negligence. Traditionally, it is the negligence on the past of customers that provides ample opportunities to staff of financial institutions to perpetrate frauds. Negligence by customers takes various forms, constituting of errors that might have been genuine but which are open to abuse distortions and defections by unscrupulous staff both within and outside the institution in the unemployment of customers.

2.1.1 ENVIRONMENTAL / SOCIETAL CAUSES

These have been identified as follow:

 Personality profile of dramatics’ personal

Most individuals with inordinate ambitions without qualms are prone to committing frauds. This kinds of individual is bent on making money by hook or by cook. Such people dismiss morality as an unnecessary prerequisite for virtuous life. To them the end justifies the means and they are usually unscrupulous and opportunity. These type of people can be seen among youths who are anxious of becoming rich within the shortest period of time without knowing that one must suffer before he can eat. Some of them go as far as killing their fellow human beings in order to get what they wanted.

Societal value

The value system in any society is the set of values that prescribe what is right or wrong within that society. Where the possession of wealth determines the reputation ascribe to a person, that society is bound to witness unnecessary competition for acquisition of wealth. This no doubt will lead to some people using dubious means to get rich overnight. It cannot be argued that the main causes of frauds in financial institutions in Nigeria is traceable to the general dishonesty in society where morality is thrown to the dogs, misplacement of societal values, the unquestioning attitude of the society towards the sources of wealth, the rising society expectations from staff of financial institutions and the subsequent desire by such staff to live up to such expectations are also contributory factors to frauds in the country.

Slow legal process

Delays in prosecution of fraud cases have a way of frustrating the parties to the case. A frustrated party can abandon the case minding leading to the miscarriage of justice. The delays could be in the form of:

  • Late filling of case by the police to the law of court
  • Prolonged adjustment of cases by the judges
  • Lack of specialized manpower for the investigation of fraud etc.

All these make the fraudsters to have the feeding that they are above the law or that they cannot be dealt seriously by the law and as such can get with any act of illegality.

Lack of effective detective punishment

It is argued in some quarter that lack of effective deterrent such having punishment could be a factor that contributes to the unbating perpetration of frauds in financial institutions. As discussed in the above point, if the law is not serious with them, they will have the feeling that they are above the law and could get away with any act of illegality.

Fear of negative publicity

Many financial institutions fail to report fraud cases to the law enforcement agencies. They believe that by doing so, it will have a negative effect on their institutions. This attitude encourages individuals with inordinate ambition to defraud these financial institutions because they may reason correctly that the affected institution may not prosecute them. It is even sad to note that some staff whose appointment have been terminated or retired on the ground of community frauds in one financial institution still manage to secure appointment in other institutions.

  • EFFECTS OF BANK FRAUDS

The effects of bank frauds and forgeries in Nigeria cannot be over emphasized. If it is not put to a full final stop now, it will pull down this our developing economy because people will no longer have confidence in Nigerian banks and the international communities with rank Nigeria as the number 1 (one) most corrupt nation in the whole world. However, the effects of bank frauds can be grouped into two headings

  1. Effects of bank frauds on the banking industry
  2. Effects of bank frauds on our economy.

 EFFECTS OF BANK FRAUDS ON THE BANKING INDUSTRY.

These effects could be discussed under the following heading:

  1. Image implications
  2. Crises of confidence among bank customers.

Image implications

Bank frauds are not new. They are as old as the industry itself and the level of fraud in the present day Nigeria has assumed on epidemic dimension. However, frauds have become one of the most intractable problems of modern day banking that most banks in Nigeria don’t even know their left or right. Today, various banks cannot withstand the growing pressure of competition among various banks. Banks with appreciable records of frauds cannot attract customers rather the banks will be losing their customers. This fear of banks going into liquidation because of frauds and their irregularities has engulfed bank customers that any slightest bad rumor they hear about their banks, they will just withdraw all their money.

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