Appraisal Of Fraud Control Techniques In Nigeria Commercial Banks


A research of this nature cannot be complete without making reference to the page works directly carried out on the topic (FRAUD) These is no comprehensible and exhaustive body of literature relation to fraud in banking industry in particular and other relate discipline. However, there are some commendable literature reviewed along the following line so as meet the objectives of  the research work

  1. Concept of fraud
  2. Causes of fraud
  • Types of fraud
  1. Effects of fraud
  2. Control of fraud


Fraud has been defined by scholars and authors of various circumstance and time Mr. Emma Okolo on his lecture on 16th February 2004 at presidential Hotel Enugu defined fraud as follows:

  1. “Cheating “ “Deceit” or “Trickery deliberately practice on order to gain some advantage, dishonestly deception or in tended deceive Deceiving illegally in order to make money or obtain goods .
  2. A person who make deceitful pretences, humbling an impostors. A person who deceive other by pretending to have abilities or skill etc. that he does not really have. Fraud involves deceit with the intention of making money or obtaining goods. The second definition is reminiscent of the 419 syndrome currently the topic of debate in the country.

According to Osita Aguolo in his book fundamentals of Auditing defined fraud as the intentional distortion of the financial statement of secure particular  advantages such as the misappropriate of assets the  term fraud is use when it refers to irregularities involving the criminal deception to obtain an illegal or unjust advantage. Professor G.O Nwankwo in his book bank management principles and practice defined fraud as irregularity involving the use of criminal deception to obtain an unjust or illegal advantage. He added that fraud is only established as having been committed following a verdict to effect in count . Emma Okoye in his book, government and public sector Accounting page . (300) defined fraud as a situation where by a person in a position of trust and responsibility in defiance of prescribed norms breaks the rules to defiance of personal interest at the expense of the pubic interest has been entrust to guard and promote. Mike Anya nwokoro in his book banking method and process (P2.11) Simply put fraud to be deceit trick or high couning intelligent gains, an advantage he could not have otherwise gained through lawful just or internal process.

The international chamber of commerce  defined fraud to be any act of unfair dealings whether against the bank or an organization by its customers or by thing party against customer or by the re organization against. Its customer.

In an article “No accounting for fraud” presented by the chattered institute of management accountant. Magazines vole 14 page 2.7 of 1992, said that fraud involves the unlawful manipulations of payment instrument, the creation of spend companies and falsification of accounting records either manually or through the computers J.C Robertson in the same articles (P28) defined fraud as an act of knowingly making material misrepresentation of fact with intention of inducing some one to  believe thducing some one to  believe the falsehood and act upon it and this suffer  loss or damages.

In world Bank staff working paper. No 580 1982 (P.1) fraud is defined by Nechemis as impersonation theft attempt to unlawfully obtain cheat dupe other people.

In the journals “the Nigeria Bankers” presented by the chattered institute of Bankers of Nigeria” July  – December 1994 page of fraud as Deceit or trickery deliberately practiced in other to gain some advantage dishonestly ”For an action to constitute fraud therefore there must be dishonest be dishonest intention and the action must be intended to benefit the perpetrator to determinant of another person.

Going by the definition frauds in the Nigeria economy cannot be restricted to the bank alone fraud do take different dimension which amongst other include the following.

  • Cheating by market woman / man on scale measurement
  • Failure to pay correct import duties / tax evasion
  • Over – invoicing / inflation contracts
  • Payment for services not rendered
  • Stealing and other 419 activities
  • Political fraud

The common elements in all definition of fraud is the use of deception it is obvious that lack of clear definition what actually constitute fraud is one of the reasons why both the law and prefessional body expereince much difficulty in providing guidance on responsibility for the its deletion and how to administer proper antidote if defected. At this millennium, fraud tend to man different to different people with emotional overtone.



According to professor G.O Nkwankwo in his book . Bank management, principal and practices, the cause of fraud is deeply rooted in two major circumstance. These he explained to institutional factor / lapses/ inadequacies and on the other hand, special economic and psychological lapses.

He further explained the fraud to the absence of a commonly accepted definition of  fraud a time is used synonymously with or as a subject of the broader concepts constitutes fraud is one of the greatest causes of fraud. He went further to say become bride ? At what point does a related party transactions becomes a breach of truest ? An in turn fraudulent misappropriation ? Where does a gratification for a job well done stand.



According to professor Uzoagu in his book : money and banking (P.76) the greatest cause of fraud in the current dispensation is  the impact if new technology that opened up new avenue and  more opportunities for fraud. Stressing further, no where is fraud more pronounced than in computer and information technology. The volume and value of payments traffic carried through the inter bank payment system, the increase and modernization of computer net work. The use of automatic teller machine (A TMS) and the electronic fund transfer system (EFTOS) have resulted in increasing frauds. And this has been helped greatly by bank reluctance to admit much more report the fraud –sters




According to Olashore Olasepe in the book finance, banking and economic policy (P123) the increasing internationalization of financial market has equally increase fraud this has offered fraudster new opportunities.

Money laundering became a boorning business in Nigeria. Funds laundered through offshore banking centre run into billion of Naira and complete involving the manipulation of bank and brokerage house


According to Onuigbo Okoukwu in his book element of banking and economic (P.67) human avarice is another great causes of fraud. The insatiable appetite to amass wealth and the desire to get rich quickly to join the rich are the causes of fraud in developed and developing societies.


Going by the report of the world bank study on February 1988 social and economic condition also play a vital part in causing and perpetuating fraud, unemployment widespread poverty, the extended family system and widening social and  economic irregularities are all contributing factor as the world bank study it “the incentive to concept whatever official, purpose public institution are agree to have specially great in condition of extreme irregularity and absolute poverty forces individual not only to corruption but also to initiate it where none exist and to take advantage of if where it is present.



          Mohammed Yakassa in the money witch of the guardian volume 17 (P.27) of social Sanctions or misplace social values. According to him, in many cases ultimate discovery is almost the strongest deterrent to fraud.: However under the law no citizen has a duty to report any crime too the authority except transom and terrorism. Any one who report other crime does so voluntarily without the defense that he is fulfilling a statutory duty. He added that beside, many people resent being branded deviant and outcast by acting otherwise in a society where wealth (no matter how acquired ) I worship more than any other human attainments.



G  . N  Nwankwo in his book, Nigeria financial system  opinioned that fraud is mostly caused in an organization as result of weak board and management lacking appropriate knowledge operation. Board and management incapacitated by bizarre  exercise of authority by the appointment of authorities which undermine their authority and effectiveness, in appropriate recruitment and personal and incentive policies based  on farvourism nepotism  and contact or long legs than on merit and achievement. Coupled with the aforementioned insecurity psychoses and widespread staff disaffection, alienation and disloyalty which encourage collusion and engender fraud and other from of malpractice’s.



According to Adenji O.A in his book law and practice of banking in Nigeria, page 128 (1986) the major causes of fraud is the recognition by people that fraud fairly and easy way of making money. For the successful fraudster the reward is enormous and the risk small. Even if caught the chance of being punished publicity is minimal. The punishment meted to fraudster is much lighter than the one met to robber. Organization worries about adverse publicity and the though of having square of policeman delving through their files deferred them from reporting. Banks and other organization only report a thing percentage of fraud to the authorities, giving the perpetrators ample chance to escape prosecution and the banking community is left without opportunity to learn from the mistake of other organization . In a phase from, one will put it that “fear is the formula of the fraudster” .

To sum it all is the ineptitude of the police in prosecuting fraudster. Count as a subdivision of the judiciary arm of government never treat cases of  fraud faithfully on time as cases of frauds is normally adjourned giving the fraudster more time and chance to waugle their ways.



          Finally, professor G.O Nwankwo concluded in his book bank management principle and practice (P.167) 1991 that fraud occurrence in many organization is as a result of inadequate internal control system within the organization. By this is month inadequate in the entire corpus of procedure   within an organization which ensure that cash does not go astray that debt are collected and bill paid in due time. It also include inadequate segregation and segmentation of duties to ensure that defalcation does not takes place among staff, ineffective monitoring system and absent of irregularity, enforced annual leaves since most fraud case in an organization start with the discovery of corrupt practice while perpetuators are always on holidays.

According to the journal of the chartered institute of banker of Nigeria July  – December 1994 page 7 .11 said that bank fraud are cause by the following:



          It is matter of fact that our society in the last twenty years or there about has became one where most people want to be rich overnight by whatever means and this has been responsible for the increase in the number of bank fraud and from of frauds.


          The manner in which we recognize wealth people in our various communities without carry about the source of their wealth has even made the matter worse. Many young and talent men and woman engage in derig trafficking and in committing frauds because our society do not only quondam these but also  encourage them saying songs of praise in their honour, making them Charmin at function naming halls after them in the universities, naming streets, and highways after them in hamlets, village and town.



          For the past 10 years our economic development has wittiness a serious set back with graduates roaming the street in search employment which are not available various government pollicies to revamp the economy through appeared laudable, were all fraudulent t the implementation staff became some of the people responsible for implementing them are fraudulent

Consequently, both the political and economic situation declined from bad to worse with the naira within five years . Devil then found jobs for idle hands with worlds like 419 . Cocaine pushing five in finance . Department of government institution and million our newspaper headlined.


          The attract on bank by fraudster in party due to the belief by many Nigeria that the banking sector in the most profitable annual are always liquid and consequently any amount of financial loss to a bank will not materially attract its existence. However, these views are correct.

The examination of the published accounted of some bank have sown that some of the banks cannot even fully provided for losses sustained though fraud and other in he book he effects of the prudential guidelines in various bank balance well known. It is also a known fact that a lot of bank are now . In distress while  some o them are already being rescued  by the Nigerian. Deposit insurance corporation / central bank of Nigeria other are wanting in the wings.




          Failure to observe India – down procedure can be as a result of deliberate action by fraudulent staff or many be as result of negligence. Due to one factor or the other some staff of banks get promoted beyond their level of competence and as such get saddle with responsibilities that they cannot cope with. As a result of many bank and financial house that mushroomed within the past five years experience hand in the industry had thinned out with the result that some who at the best should be branch manager are today managing. Directors there are many instances where this category of bankers get tricked by the fraudsters resulting in huge financial losses to the institution.

The third category of staff are those that are too lizy of follow the procedure. Some of them believe that they have been long on the job and such cannot be tricked by fraudster. A lot of these honest but negligence staff have their job as result of these erroneous belief.

Osita Agoolu in his book fundamentals of auditing says that fraud are caused by the following

  1. Nature of the business and product: Cash : Cash is most susceptible to theft is why fraud is so rampant in the bank because they deal mainly on cash.
  2. Taxation: This circumstance male it possible for management to under state profit of the organization so that they will pay less tax .
  • The quality of management and the known strength or weakness of such management
  1. The liability of the system of internal control and the degree of involvement of top management in the day to day operations.

The chartered institute of Bankers of Nigeria in their titled “The Nigeria bankers” also group causes of fraud into low classes . These are institutional factor and environment societal factors . The institution factor are which result the influence of the environment / societal on the banking industry.


          Various authors and professional in the industry seem to b unanimous in their    identification of institutional causes of fraud the are :

VOUMES OF WORK : The amount of work done by officials could be officials could be so heavy that fraud s could easily pass undetected by such  official.

NUMBER OF STAFF:  Where an official supervises quite a large number of staff, there is a high like / hood that fraud could go undirected.

NATURE OF SERVICES:  Frauds may be cause where documents value and liquid assets  are exposed for exposal to an undisciplined staff or unauthorized persons for example, customers.

BANKING EXPERIENCE OF STAFF :- All thing being equally fraud in financial institution occur with higher frequency among staff with little experience and knowledge in financial practice. The more the experience and knowledge of a staff the leb’s the likelihood that fraud would pass such staff undetected unless with the active support of that staff where professional qualified finances are involve in frauds they are more likely to swindles larger sums of money than the less qualified staff.

INADEQUATE / LACK OF STATE TRAINING: This could attract the morally weak as well as the morally robust in various ways. Lack of knowledge of the way of dealing with fraudulent practices in financial institution could attract on other wish honest staff in apprehending and avoiding the tracks of financial institution fraudsters.

POOR MANAGEMENT :- Financial  institution with poor management record higher incident of all sort of fraud  than those with effective management. Poor management gives rise too ineffective and poor control system, in discipline among staff and this creates an environment for fraud to flourish.

STAFF NEGLIGENCE:- In certain cases staff negligence could given rise to the perpetration of fraud in financial institutions. Negligence itself is product of technical knowledge, apathy pressure etc.

RECRUITMENT SYSTEM: Poor recruitment system, where cognate experience, relevant technical knowledge, competence character and other sterling qualities are sacrificed on the alter of non performances related factors such as connection and tribalism constitute important facilitators of fraud in financial institution.

POOR SECURITY ARRANGEMENT FOR DOCUMENT: In financial institution where security arrangement for valuable documents are weak poor. It is easily for fraudster to have their way without detection.


          Sophisticated accounting machine are in use are in use manned inadequate equipped staff error could arise and this lead to the production of unreliable records. In the hands of dishonest staff sophisticated accounting improper calculation and posting, manipulate documents. Substitute fictitious documents and alter genuine ones. All of these are different ways of perpetrating frauds.

FRUSTRATION: – Management practices, when negative to the aspiration and developmental need of frustrated.. Frustration in turn breeds fraud lent practice in financial institutions .


          Delays create opportunities for hatching frauds in financial institutions thus making prevention and early detection difficult.


CUSTOMERS:- This is a classic example where frauds could be externally hatched and executed. Fraudulent staff in both financial institution and it the employment of corporate customers could collude to take induce advantage of tapes observe in the management control system of corporate customers.

NEGLIGENCE BY CUSTOMERS:- Traditional it is the negligence on the part of customers that provide example opportunities to staff of financial take various forms. Consisting of errors that might have been genuine but which are open to abuses, distortions and defecation by unscrupulous staff both within and outside the institution in the employment of customer.

NEGLIGENCE BY CUSTOMERS: Traditionally , it is the negligence on the part of customer that provide example opportunity to staff of financial institution to perpetrate frauds. Negligence by customer takes various forms. Consisting of error that might have been guanine but are open  to abuse, distortions and defalcation by unscrupulous staff within and outside the institution the employment of customers.

PERSONALITY PROFILE OF DRAMATIZE PERSONAL: Most individual with inordinate ambition without qualms are prone to committing frauds. This kind of individual is bent on making money by hook by crook.. Such prerequisite for virtuosos life. To them the end and opportunities.

SOCIETAL VALUE : The value system in any society is the best of rule that present what is right or wrong within that society where the possession wealth determine the reputation ascribed to a person that society or bound to whiteness unnecessary completions for acquisition of wealth. This no doubt will lead to some people using dubious means to get rich overnight it can be argued that the main causes of fraud in financial institution in Nigeria it traceable to general honest in society where morality is thrown to the dogs. The inquisition attitude of some peoples towards the sources of wealth the rising society expectation of staff of banks and subsequent desire by such people to line up to such expectation are also contributory factors t fraud in the country.

SLOW AND TORTURE LEGAL PROCESS: Delay in procession fraud cases have a way of frustrating the parities to the case . A frustrated party can abandon the case midway leading to miscarriage of justice the delays can b in form of .

  • Late reporting of cases of cases to the police
  • Late of specialized manpower for the investigation of fraud
  • Layers and prosecution wittiness absenting the selves from court
  • Under delay in the investigation and charging of cases to court and .  
  • Frequency adjournment by the court which could frustrate the appellant and favour the defendant.

All  these make fraudsters to have feeling that they are above the low such can get away act of illegality .

LACK OF EFFECTIVE DETERRENT / PUNISHMENT:-  Although this may be considered as a most point. It is argued in some quarters that lack of effective deferent such as heavy punishment could be a factor that contributes to the un –abating perpetration of fraud in banks.

FEAR OF NEGATIVE PUBLICITY :- Many bank fail to report fraud cases to the authorities, they believe that doing so will give unnecessary any negative publicity to their bank. This attitude encourage individuals with inordinate ambition to defraud in bank. If even said to not that  some staff whose appointments have been terminated or retired on ground of frauds in one bank still manager to secure appointment in other bank.



No another or scholar has up till date been able to give a comprehensive courage on the taxonomy of fraud. They are incapacitated in classification of types of fraud due o their inability to obtain prefect revelation of different fraudsters Mr. Okoye on his Lecture on 21st March 2000 group fraud as follows:

  1. Misappropriation of good and money. This will involved
  2. Simple theft of cash or goods without attempting to conceal it by fraud lent paper work
  3. Teeming and lading in which cash taking or stolen
  • Splitting of cheque in which the cheques received from one customer is partly credited to another account in order to conceal the theft to cash relating that other count. This is another form of teering and leading.
  1. Inclusion of dumping names or non – existent overtime on wages sheet
  2. Claming for non – existent expenses
  3. Authorizing payment to third parties for good or service never received or rendered.
  • Concealment of deification of cash received from customers by issuing fraudulent credit notes.
  • Manipulation of account without direct misappropriation of assets. The objective here is usually to inflate profit improperly in order to increase bonuses, commission or dividend payment.

Accent can be manipulated as follows:

Inclusion of false sales invoice which  are can called by credit passed after the balance  sheet date.

  1. Suppression of purpose invoices or expenses
  • Manipulation of stock valuation
  1. Deliberate misclassification of item so that revenue item are charge to capital. Profit may avoiding taxation by reversing the techniques which will have listed above.


This is the manipulation of customers demand deposit and saving account . To conceal theft of bank funds. The fraud usually depend upon the concealment of consequential debt in loosely controlled account. The concealment may be temporary or permanent concealment is normally done in dormant customers account internal cost Center account by carrying false and off –setting credits in the account from which have been or could be removed. Temporal concealment is done in customer account, inter branch settlement account suspense account nosstro and vostro account and unreconciled correspondents account  depending on the system conversion may be made through withholding incoming cash and credits cheque drawn in customers account and false transfe and bank cheque.

IDENTITY FRAUD :- Arise from the use of false identities to open bank accountants and pay in cash and stolen cheque and other instrument. Bank and building societies are the main victims of identify fraud.

CHEQUE KITTING:- This is use of stolen cheque to obtain cash and goods. Cheques crossing in another from of cheque kitting bank customers who are familiar with elementary banking operational procedure know that it takes some days to clear cheques through clearing zone.

Customers indulging in this practice usually have two or more bank or branches. He draws a cheque from his account in bank A. knowing fully well that there is no money in the account with bank B. he then draws the uncollected fund or uncleared cheque in bank B, and immediately deposit in bank A, another cheque draw on non – existing fund in his bank at B.


          This type of fraud occur when a fraudsters purporting to operate business, approach a bank or any funding source for funds. The bank lend one the strength of orders received false documentation is presented to obtain the fund which the fraudster then pockets.

FRAUDULENT LOANS : Banks frequently fall victims of defaulting loans. The dishonest usually fails into categories, loan may be made directly by lending bank or through a participation of syndicate involving other financial institution. In this type of fraud, four parties are involved. The borrower who provides false information’s to the loan officer and most often give kick back to the loan officer which normally hareald concealment in financial interest by the officer. Equally, the loan officer who falsifies record  and roll over advance to conceal bad loans. Fraud lend book – keeping and misrepresentation is another from of fraudulent lending.

CORPORATE FRAUDS: Corporate fraud arise when the bank itself or the executive management of the bank becomes an instrument of fraud and the that causes the losses to outsiders like depositors. Most of the epic corporate fraud have certain common features. One is       the obvious need for their perpetrators to falsify the company records so as a conceal their fraudulent act.

PILFERING FROM THE VALUES: – Bank employees most often engages in fraudulent act as pilfering from excess liquidity. Pilfering is a very difficult fraud to detect as it involves deduction of salutary small amount of money from a very huge of money in the vault.

EMPLOYEE FRAUD: A great majority of frauds particularly computer frauds, is carried out by employees, in many cases by management themselves employment fraud usually involve.

  1. Direct and indirect embezzlement and / or misappropriation of cash or equivalent by theft of cash or bearer security, using bank fund for meeting personal expenses or setting personal indebtedness making false ways / overtime claims including moon / lighting and claiming reimbursement of expenses never incurred
  2. Theft of non monetary assets furniture equipment etc.
  • Unauthorized personal use of bank assets including secretarial and computer services.
  1. Legitimate activities entered into on the banks behalf but fraud which a wide variety of unauthorized personal benefit is received.

DIVERSIFICATION OF BANK FUND :- It was common practice in Nigeria in the late 70s and 80s for diversification of currently notes. Usually the large domination to be substituted in mind air during currency movement with boxes of the same weights seals intact containing exercise book or saw dust.

The chartered institute of bankers of Nigeria in their journal titled. “The Nigeria banker” said that fraud in bank very widely in nature character and method of perpetration in general, if may be classified in to ways.

  1. Perpetrators and
  2. Method used.

On this basis if perpetrators, there are three broad categories. Internal, external and mixed internal perpetration of frauds relate to those committed by member of staff (Insiders) while external perpetrators are committed by persons not connected with the bankers. Missed frauds involve outsiders colluding with staff. It is useful for government and its agencies and management to try and identify the category under which various fraud in bank fall. A clear knowledge of this will help in the determination of the best possible solution to proffer solution and the role expected by each group the government and agencies the management and the public.

The moat important and common type of fraud highlighted by bank administration institute (1989) in fraud prevention and detection series are discussed here.

ADVANCED FEE FRAUD (“419)”  This may involve on agent approaching a bank a company or an individual with an offer to access large funds at below market interest rates often for long term. The purported source of such fund is not specifically identifies as the only way to have access to whether it  is through the agent who must receive a fee or commission” in advance”, As soon as the agent collects the fee he disappears into then air and the facility never comes thorough. Any bank distressed bank and bank needing huge funds to bid for foreign exchange can easily fall vitamin to  this types of fraud when the deal fail and the fees paid in advance are lost, these victims are not likely to report the losses to the police or the authorities.

ACCOUNT OPENING FRAUD : This involve the deposit and subsequent cash of fraudulent cheques. It usually start when a person not known to the bank ask to open a transaction account such as current and saving account with false identification by unknown to the bank.

LETTER OF CREDIT FRAUD :- Letter of credit generally arise out to international trade and commerce,   they stimulate trade across national borders by providing however, in some area of the world, fraud has historically been a problem especially in Nigerian Iran and the middle east.

MONEY TRANSFER FRAUD : Money transfer services are kiary account at any banking point world wide in accordance with the instruction from the bank customers some common means  of money transfer are result from a request. A genuine request  can be altered by changing the beneficiary name or account number or changing the amount of the transfer.

LOANS FRAUD: Loan and other form of credit extensions o business and individual customers constitute traditional functions of banks. In the process credit extension fraud may occur at any stage from the first interaction between   the customer and the bank to the final payment of the loan fraud occurs when credit is extended to the loan officer which normally harald concealment in financial interest by  the officer. Equally the loan officer who falsified records and roll over advance to conceal bad loan fraudulent book keeping and misrepresentation is another form of fraudulent lending.

CORPORATE FRAUDS: Corporate arise when the bank itself or the executive management of the bank becomes an instrument of fraud. This is usually most serious type of fraud and he one that cause the collapse of banks in its extreme form. It usually result also in losses to outsiders like depositors. Most of the epic corporate frauds have certain common features. One is the obvious need for the their perpetrates to falsify the company’s record so as to conceal their fraudulent act. The second is for then to gradually afflicted by delusions of infallibility on grandiose scale.

PILFERING FROM THE VALUES :- Bank employees most often engage in fraudulent act as pilfering from excess liquidity. Pilfering is a very difficult fraud to detect as it involve deduction of salutary small amount of money from a very huge sun of money in the vault. Borrowing customer or to a borrowing customer who had exceeded his credit ceiling, the fraudulent aspect of the class is that there is an intent to conceal it form head office (Inspectorate) staff on routine check to deceive them with plausible but falsified statement, documents etc. . Advance perpetrator of credit fraud go to the extent of applying credit facility approved from one customer to the credit of another who is often unrelated to the first customer, that is to say a credit facility for customer ‘A’ yet to be  drawn down is diverted for the use of customer ‘B’

COUNTERFEIT SECURITIES: – Like counterfeiting of money counterfeiting of commercial bank is one of the oldest form of crime. Modern photographic and printing equipment has greatly aided criminal in reproduction good quality forget instrument. The document may be total counterfeits or may be genuine document that are copied foreged or altered as to amount pay out date, page or term of payment. A common fraud is to present the counterfeit stock such as treasury notes cashiers cheques, bankers acceptance, or counterfeit of deposit in counterfeit or altered form may be presented to a bank for redemption. The presenter would draw out  the proceeds and disappear b/4 the financial instrument are found to be counterfeit.

CHEQUE FRAUD: – The use of cheque as a means of paying for financial obligation is an essential feature of modern economy. Cheques fraud is now common, involving million of Naria annually. Common type of cheques are personal, business government, travelers certified, draft and counter cheque, with each having its own characteristics and vulnerabilities or fraudulent use. The most common of cheque frauds involve cheque that are stolen forged, counterfeited to alliterated.

MONEY LAUNDERING FRAUD:- This is a means to conceal the existence, source or use of illegally obtained money by converting the cash into untraceable transaction in the bank. The cash is disguise to make advise to avoid handling such funds.

CLEARING FRAUD:- Most cleaning frauds huge on suppression of an instrument so that at the expiration of the clearing period applicable to the instrument,  the collecting  bank will give value as though the paying bank has confirmed the instrument good for payment. Clearing cheques can also be substituted to enable the fraudulent divert the fund to a wrong beneficiary. Miscounting of clearing cheque can also assist fraudster too complete a clearing fraud that  is to say a local clearing item can be route to an up country branch. In the process or re – routing the instrument to the proper branch, the delay entailed will give paying bank had paid the instrument.

          COMPUTER FRAUD:-  It can remain undetected for a long time. Computer frauds can take the form of corruption of the programme or remote sensor. Diskettes can be also be tempered with to gain access to unauthorized areas or even give credit to an account for which the fund were not original intended.

RELAX FRAUD :- Transfer of fun from one location to another can be effected though the telex. The massage through often coded can be altered to enable diversion of the fund to an account not originally intended.

  • EFFECT OF FRAUD: According to Henderson and Michael in their book banking operation (P.162) fraud effect are cumulative and circular in any nation and often time extend beyond the bounding of nation state

Fraud has caused untold hardship to the citizen country collectively and individually. Fraud accounted biggest single cause of bank failure and most often fraud account for loss of huge Suni of money by bank the effect of fraud are as follows:


Banking is a business built on the edifice of confidence, once the confidence get eroded, the hard by fraudster normally run into liquidation problem rending such bank to be unable to meet maturing obligations as they fall due in such situation the confidence which the public has no the bank will be eroded.


Fem Ekundayo while writing on holding action and operational Restriction for distressed and near distressed bank in vanguard of 27 June (1998) opined that distresses syndrome observed in some bank, that in most situation lead to liquidation of bank that in the early 90’’’’s were clear manifestation of the effect of fraud. Several kinds of fraud were committed on such bank by the management, outsiders  and most cases customer collaborate with bank staff to perpetrate the fraud. Such fraud as explained by him involve huge sum of money that noting could be done the Central bank. In such situation it becomes Crystal clear that liquidation appear the best or only option.


          According to Mike Anyanwaokoro in his book, Banking methods and process page 264 (1996) disintermediation is a high money situation observe by bank as a result of number of factors. Pertinent among these factors is fraud. He explained that disintermediation has circular and /  cumulative effects on groups and organization and other bodies as well as the entire system in an economy  the development of any economy has a strong the with the ability of how the banking system within economy intermediate effectively.

Intermediation on the inverse, in the process by which bank source or mobilized by the banking industries is given out to investor to invest, that employment will be at full equilibrium as a result of myriad’s of investment outlets. Subsequently, Optimum employment increase capital income per head. Sustained capital income per head induces economic growth in an economy. A relatively sustained level of growth in which is termed development. From the chain effect of intermediation, it is observed that inter – mediation functions performed by banks effect all sectors of the economy is disintermediation.


          According to Mike Anynwaokoro in page 246 (!996) fraud has such effect as increase in cost of operation for the bank which will subsequently reduce the profitanility and liquidating need of investors and depositors. According to him time and energy that would have been incurred in imploring services to customers will be expended in sitting fraud control techniques and system.







Having realized the extent of damages frauds have done to the economy is general and the first bank in particular, it is only proper that solution are proffered as  to how fraud be control.

It is therefore in realization of the dangerous effect of the increasing ware of frauds in first bank internal control system and policies aimed at ensuring that the incidence of frauds is controlled to the barest minimum. Though, these system and policies differ from one bank to other, the following can be regarded as control policies which first bank ensure in order to control frauds in their bank.


OPENING OF ACCOUNTS:- A branch should make sure that all the bank’s policies in respect of opening of new accounts are complied with . If  customer is transferring his account from one bank to another the customer should not be allowed to operate the account until proper and favourable reports have been obtained from the bank by means of status Equirer particularly when the customer is new to the bank.

The manager or a designated senior officer should be interested in knowing why the customer reference must be obtained before cheque book are issued to customers and all posting to new accounts should be carefully scrutinized while no with drawl should be allowed without prior verification of the lodgments.

Company and other accounts must be seen to be properly opened in line with the first bank policy. The source of have cheque lodgments in a new account or a dormant account should be ascertained before acceptance of such cheque and the paying bank of such cheque should be put on notice.





Statement of account must be dully authenticated by a senior officer. The address not be ambiguous and their dispatch must be controlled stopped cheques.

Detail of stopped cheque must entered in such away that those are likely to pay them are well informed. This can be achieved by circulating the “slop notice” to all official concerned including cashiers where appropriate. At quarterly internals, all item in the stopped cheques register / Display carried must be received against and state item deleted in computerized bank, the relevant softness take care of this and in addition occasional physical review of the source documents against the computer display print out should be carried out.


The use of counter cheques should be discouraged while banks should avoid honoring cheques  which are not take from the cheque book supplied to the customer with the introduction of MICR cheques, this practice will soon stop. Payment of third parties across the counter must be properly checked particularly when the third party is not well know to the bank.

Identify card issued by unknown companies  should not sum. First bank should discourage customers from withdrawing large amount in cash where a draft to other means of settlement can suffice.

Use of regiscope / PhotoShop camera to photograph persons drawing large amount should be encourage . Cashier from staff in respect of customer transactions.

As part of control measure to curb incidence of fraud through he clearing house, the committee chief inspector had decided that banks which accept spurious instrument into customers account will hence forth held responsible for any loss that may be sustain as a result of their action. It was also decided that when an account in witnessing an unusually large deposit of cheques the collecting bank should alert the paying bank paragraph 10 of Lagos clearing rules of  January 1987 clearly addresses this problem,.

It is therefore absolutely necessary that all outward clearing cheques should be scrutinzed daily, before dispatch with particular attention being paid to large / unusual cheques and indication of cross firing or Kite flying. When any unusual item is noticed, the paying bank should be altered immediately, These cheques must be under double custody at all time form the time they are dispatched from the collecting bank / branch to the time they are handed over to the paying bank in the  clearing house (soaping of cheques between branch and clearing centre and between clearing centre and between clearing center an CBN)


          Experience has shown that unbalance book provide fertile grounds for frauds hence at time book are intentionally “ Jammed by unscrupulous staff.

Banker should therefore., be restless if their book are not  balance. The situation should in fact be viewed as danger signal. Efforts should therefore be made to balance the book regularly and promptly item in out balance account / Error logged should be under the watchful eyes of the branch / Accountants. Entries in and out of the account must be duly authorize.


          The need for effective reconciliation of books of account in the bank cannot be over – emphasized. There is the need to equip the reconciliation section of the first bank with highly experience and knowledgeable staff. Under no circumstance should the action be regarded as a place for discredited officers.

Starting fraud have within the past few year been perpetrated through unreconcled accounts.

  • Central Bank Clearing Account
  • Local Bank Clearing Account
  • Head Officer / Inter Branch Account
  • Correspondent Account


          Various suspense  Account exist in first bank . The Outstanding item on these accounts must be monitored by a very senior staff. Authorization of entire into the account should also be restricted to specific officers other than those monitoring the accounts. .

Long outstanding item should be continuously traced until they are reversed (transfer from hold over Account to suspense Accounts then to Bank control Accounts unpresented draff etc. )

In recent time, fraud syndicates have with the collaboration of some bank staff beaten various control devices established by bank and succeeded in swindling million of Naria though draft mail transfer cable transfers etc. In most of the fraud could have been exposed / Prevent if the staff involved complied fully with First bank policies and procedure and taken addition care in the discharge of  their duties, it is recommended in the light of these recent development that all payment instrument for substantial amount should be verifier with issuing branch / bank before payment or test number on the massage on instruments agree even where the embossment on the instrument appears genuine.


All processed voucher by dully concealed and give adequate  fire resisting / double custody. Special attention should be paid to sustpeses accounts vouchers profit and loss voucher. Paid drafts and fixed deposit receipts.

Microfilm system should be used is applicable.


Purchases should be made within approved limits while price being paid must be reasonable. Settlement of large purchases by cash should be discourage and compliance with the bank laid down purchase procedure should be maintained.



  • Access to the computer room must be restricted to authorized person while government register must be maintained.
  • All required report must be produced as indicate on the daily report check list.
  • When certain reports are mot received extra care must be taken in handling the previous days vouchers with a view to making an up date of accounts that have operation during the days.  
  • The last report must be kept under surveillance by a senior officer.
  • Pass words or computer operate should be kept in strict confidence and deleted when there is movement of affected staff.


It has been proved that reasonable incentive to staff has helps to reduce the incidence of their involvement in fraud reward for prevention of fraud “ should also form past of bank policy to encourage staff and customers to frustrate fraud.


Banks management must involve a sound employment policy to ensure that the right camber of staff are employed into the banking industry it is also necessary that every good reference on staff are obtain from both their last school and other responsible citizen whose reputation are not in doubt.

Personnel department of Bank must not fail to make use of the circularizaion among bank of the list of staff who have either been dismissed or terminate on grounds of  fraud so as to avoid employing people who were either dismissed or terminate for being involved in fraudulent practice in other banks.

Staff must be properly trained on their various assigned duties to enable them appreciate their responsibilities in detecting and control frauds. No staff should be places on cash to other specific duties unless he has been properly trained to appreciate the demands of the job. Banks should avoid using new as either chasers of reference clerks


          The federal high court should be given adequate power  to speedily try offenses related to bank fraud and impose heavy penalties on those convicted the penalties should include forfeiting assets fraudulently acquired by the convict to state.


Other control measures that should be in place should include the following:

  • Government enforcement of provision of the bank decrease as they relate to the issuance of dud cheques.
  • Use of closed circuit television surveillance camera in banking halls and other sensitive area of operation.
  • Establishment of a proper and speedy procedure of meting out disciplinary measurement against those staff involve in frauds to serve as deferment to others.
  • Proper custody of bank record and all security documents (These should always be under the control of very responsible and reliable officer).
  • Reactivation of dormant Accounts must b properly authorized .
  • Life style of staff should be monitored by management bank.
  • Finally, acute shortage of staff in any unit should be discourage as this can result in pressure of work in the available few hands and therefore lack of proper supervisor result in compromise of control produce.


It should be obvious from the catalogue of causes, nature and type of frauds that have been give that their control should be a collaborative effort involving government and staff and the general public. While the major task have is to articulate the role of government and its agencies in this respect, it should be emphasized that the key to controlling fraud  it is pertinent to submit that the role of government and it agencies is more of curative have the dual role of controlling fraud.



          The role of government is controlling of fraud in bank is a Herculean task. It bordered mainly on ensuring disciplined society, Promulgating of appropriate statutes, establishing relevant institutions and ensuring enforcement of various legal provision.

The war against indiscipline and corruption (WAI.C)P launched by government. If well prosecuted and faithfully implemented would go a long way in controlling fraud in our society. This deduction is based on the realization that indiscipline and corruption in the society create false value be like the joneses in an attempt to be like the “jonses”. People get involved in unorthodox practices. The (WAIC) prgramme of the government to control frauds in the country.



The agencies in this category include the securities and exchange commission (SEC) for the capital market operators Federal mortgage bank of Nigeria (FMBN) for primary mortgage bank National Broad for community Banks (NBCB) for community bank and the National insurance supervisory Board (NISM) for insurance companies

All these government bodies supervisor the relevant bank their safety and soundness and equally curtail fraud in those institutions.

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