Fraud – Prevention of Fraud in Banking Industry

Fraud – Prevention of Fraud in Banking Industry

Fraud  – The question of what is fraud is, insignificant in this report because of inexplicit definitions given to fraud. In tow quantities sense, fraud means cheating, swindling or deceptive/Rick. (IKPE DENNIS P.14). some legal experts have also defined fraud as “an act or course of deception deliberately practiced to gain unlawful or unfair advantage to the detriment of another professor fatherland,

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in this book lifted improved Banking operation proposed a definition which look fraud in an extended sense to include conduct made unlawful and unpunished by civil administrative as well as by criminal jurisdictions, committed by a respectable Proper books of account have kept

  1. Proper returns adequate for the purpose of the audit have been received from branch not visited by the auditors.
  2. The financial statement agrees with the accounting records and returns
  3. The auditor has received all the information and explanations necessary for the purpose of the audit.
  4. In the Auditors opinion, the balance sheet and profit and loss account complies with the provisions of the companies and Allied matters Decree of 1996.
  5. In Auditors opinion, the balance sheet gives a true and fair of the state of company’s affairs at the end of it’s financial years and whether the profit and loss accounts gives a true and fair view of the profit and loss for the financial year.

Types of Fraud

Fraud in banks in very widely in nature, characters and methods of perpetration thus making the classification a very difficult exercise. On the basis of perpetrations, bank fraud may be grouped into three broad category.

  1. Internal fraud – committed by members of staff
  2. External fraud – committed by those not connected with the bank.
  3. Mixed fraud – committed by outsiders in collusion with bank staff.

Using the methods of perpetration as a basis of classification. Types of fraud have been identified as follows.

1. Telex Fraud: This is not common in Nigeria but is usually involves huge sum of money when it occurs. As we all know, Nigerian bankers are allowed to transfer funds abroad on the order or application of a bank customer in settlement of financial obligations after the necessary exchange control approves must have been obtained.

According to (Umobarie 1988 P. 34) and (Danjuma 1989 P, 19) the system of transfer message which are usually manipulated with the collusion of Nigerian telecommunications limited. Text keys are usually manipulated with the collusion of Nigerian telecommunications officials. The message after being duly tested are transmitted abroad through a correspondent bank and later cashed by overseas collaborations (I.E Okonkwo.)

2. Fake Letter Of Credit:- Continuing I.E. Okonkwo (P.75) states that most oversea suppliers receive letters of credit from individuals in the country which is accompanied by bank drafts with fake endorsement, guaranteeing payment.

3. Priniting Of Stationary And Caring Of Stamps:- Stationery and stamps not printed or carved without the express permission and knowledge of the management is tantamount to fraud and can easing be used to defraud the banks, the public and oversea suppliers.

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4. Cash Fraud: According to (J.E. Okonkwo P.76) this is very common with bank cashiers who could make away with cash causing shortage at the end of the day.

5. Forged Cheques: These are the commonest course of loss to banks and their customers. Cheques are the key to the various accounts once they carry the genuine signatures of the accounts holders.

But often, accounts holders are careless with their cheque books, to the extent that a leaf of two are removed from them. The customers signature could be forced thereon and presented for payment (Omolaga A. Adefini P. 158) also company’s staff who have access to the company account can equally forge the authorizing signature in collaboration with dishonest staff of the paying bankers, who are familiar with the elementary banking knows that it takes some days to clear cheque. Through the banking system even when the accounts are within the same clearing cheques before they are cleared and this facilitate fraud.

Causes of Fraud in Banking Industry

Fraud in bank has long been identified as a growing phenomenon all over the world and many factors have been identified to the responsible for this over increasing canker worm in the banking industry. The two major reasons for successful operation of frauds in the Nigerian banking industry as identified by the chief inspector of bank of the bank of north plc on the occasion of the bank of 1st yearly seminar of the Nigerian institute of bankers in Kano includes

  1. That frauds and forgeries involve professional workers who are thoroughly conversant with the banking systems and procedures and who seek to enlist the support and cooperation of the dishonest members of the bank staff.
  2. That the people who are principally involves in banking frauds are always ready of banks in planning, they usually make it difficult for one to predict when and how they will strike.

They are people whose intelligent quotation are much higher than that of the average they committing terrible fraud against the bank.

Effects of Fraud in Banks.

When fraud occurs in any banking industry. There is always unfair and dishonest advantages based on the concepts, “One man’s loss in another man’s gain. Owing to this reason, bank fraud has adverse effect on the banks in particular and the customers in general. These includes

  1. There could be shortage in investment
  2. Shareholders and other customers suffers.
  3. The government as well as the entire economy will be adversely affected.

Other effects of fraud in banks include loss of confidence in banks by customers and therefore a set-back for the efforts dimmed at promoting the banking habit. In addition, the distroating lost and the wastage of time and resources on fraud prevention are other effects of fraud.

Closing down of bank can also because by fraud if the frequency and size of fraud are high.

The Role of Auditors in Fraud Prevention.

Having known an auditor is as well as his roles, it is wise to study the operations of auditors in the banking industry as regards to fraud prevention and control.

It has been observed that banks account are audited once every year. In union bank of Nigeria plc, the auditors comes to conduct monthly check on the bank before the main audit. This enables them to detect of the authenticity of the report presented.

The company and allied matters Decree of 1990 stipulated matters relating to financial statements and audit the various laws of local governments also contain related matters on audits and accounts. But one controversy that has existed as a result of the increasing cases of fraud in the banks is the extent of auditors responsibility in reporting fraud situation of their client banks. This high level of frauds and other financial misdemeanor underscore the need to make detection of fraud and its reporting statutory duties of Auditors

As reported in Anambra State branches of Union Bank Plc, in 1995. there were 13 cases of fraud which resulted to the loss of about #1.2m,. in 1996, it rose to 17 cases of which three were resolved.

Last year, the cases of fraud rose tremendously to 45. it was also established that these frauds occurs more frequently in the current accounts department of the bank. The major forms of fraud in the banks is revealed to be forged cheque fraud. As observed also, fraud can hardly succeed without the aid of bank staff and its affects the operations and progress of the bank despite the fraud control measures instituted by the management of the bank. They think foul and act foul because that is their stock in trade.

Low Rate of Detection.

According to Bello (1986P.23) fraud by it’s nature cannot be detected easily and this encourages the activities of fraudsters. Thos who commit this fraud sincerely belies that they will not be caught and due to this belief, a good member of fraud have taken place without being noticed.

Fraud is usually committed secretly and cannot be detected without the cooperation of the bank staff and the members of the public. The existing laws do not provide for detection of fraud as a primary responsibility of auditors (Dennis P.15)

 Delays in Prosecution of Fraudsters and Lack of Punishment.

According to Dennis (P.14) Feb. 9. 1998. there are numerous existing laws targeted at controlling fraud, but the general attitude of some Nigerians seems to make nonsense to the statutes existence. Most times, the laws are visited only when the less privileged are involved.

Weak Internal Control System

Bello (1986) wrote that this is one of the major loopholes that nips the perpetration of frauds in banking operation. Once the control system is weak, the dishonest staff will appear to have a field day in carrying out their activities. Account are inflated at will, cheque paid are deliberately not debited to the customer’s account.

 Dishonest Bank Staff

It is disheartening to note that members of staff of banks are involves in most reported cases of frauds in our banks. The problem of dishonest bank staff constitutes the greatest percentage in any attempts to check fraud in banks. This will because the dishonest staff will always collaborated with outsiders to defraud the bank.

Reconciliation of Voucher and Unbalanced Book

Some banks do  not promptly respond to advice sent by their counterparts and this may eventually lead to misplacements of such advice which can lead to fraud.

 Abuse of Interpersonal Relationship.

Some of the banks staff have friends in vital department and information obtained casually from such friends can be used to undertake high level fraud. Again Danjuma (1989 P. 19) said that some bank officials have God fathers, the protection of whom they believe they could always enjoy even when

Different Between Fraud and Irregularity

Fraud Irregularity
1. Fraudulent acts has to do with criminal deceptions

2. The purpose by which it is done is to obtain an unjust or illegal advantage

3. Fraud can be done without the movement of financial statement or assets.

4. Fraud can be committed in any business not minding the level of the business.



5. Fraud is a type of irregularity




6. Fraud can detected through compliance Audit only.



7. Fraud can be committed by anybody in the company.




8. Fraud can be easily detected by any body


9. Fraud may not lead to the auditor write a qualified report.

10. It can even be committed by an external person who is not a member of the company.

Irregularity is done with intentional distortions

It may be done without the aim of gaining any advantages.


It involves distortion of financial statements for what ever purpose and misappropriation of assets.

It is mostly rampart in large business units, such as public companies, limited liability company that has to do with financial statement and high volume assets.

Irregularity has to with doing things intentionally which is against the rules and regulation either to gain any advantages or not.

Irregularity can be detected either through compliance or official audit hence it has to do with assets of financial statement.

Irregularity can only be committed by the people who are engaged with  preparing financial statement and those who make use of the companies current and fixed asset.

Irregularity is always detected by the internal auditor external auditor or the auditor general.

Irregularity can easily lead to a qualified report on the company.

Before a irregularity is committed people or person inside the company must know about its or might have done it.

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