CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The banking sector plays a highly significant role in the development of any economy (Adeyemo, 2012). Banks in most economies are the principal depositories of the public's monetary savings, the nerve centre of the payment system, the vessel endowed with the ability of money creation and allocation of financial resources and conduit through which monetary and credit policies are implemented (Idolor, 2010 &Akindele, 2011). The success of monetary policy, to a large extent, depends on the health of the banking institutions through which the policies are implemented (Adeyemo, 2012). Any problems that militate against the proper functioning of the banking sector will invariably have multiplier effects on the other sectors of the economy. This is one of the reasons why it is essential to quickly diagnose any factor which may hamper the smooth functioning of the banking sector and urgently address such issues.
Fraud has today been identified as a major threat to the growth and development of the banking sector, not only in Nigeria but globally.The increase in the prevalence of fraud has been exacerbated by the growing and emerging technology that has albeit enabled the banking sector to operate effectively and without boarders or physical geographical location.
Globally, remote banking is regarded as a characteristic of the new economy, which involves electronic transactions between banks and their customers with its resultant spread of varying types of electronic and information technology fraud (Adedipe, 2016).
The emergent modern technologies have resulted in significant transformation of banking approaches and techniques. Globalization, transforming social trends, competition and particularly information and communication technology advancements has brought intense reform of the banking system (Njenga, & Osiemo,2013). Generally, information infrastructure is considered worldwide as an opportunity for introducing innovative electronic distribution channels for bank products and services. In contrast, fraudulent electronic activities are increasing and becoming sophisticated, severely threatening and menacing the trust and security of electronic banking services (Orji, 2015).
Banks encounter challenges in preventing and detecting fraud, and these challenges can often be aggravated by the organizational frameworks, political frameworks, regulatory frameworks and newly invented technology approaches that are in place. Nevertheless, even the issuing of momentous regulatory frameworks and the regulatory supports of a given economy or nation cannot be predicted to eliminate or minimize the occurrence of fraud in the banking sector (Singh, & Singh, 2015).Additionally, fraud imposes numerous costs to both its financial and non-financial victims (Rahman &Salim, 2010). For the banking financial institutions, they might suffer loss in terms of monetary transactions, reputational risks, and human capital, including the acquaintance to the risks of bankruptcy (Idowu, 2009). Developing effective preventive measures against fraud, identifying the methods through which fraud is or can be committed, establishing effective control measures and putting in place fraud resolution guidelines not only helps the universal banks to prevent the loss of revenue and assets, but also improves the quality of their business procedures and their overall standing in the financial services environment (Rahman & Anwar, 2014).
It is against the above backdrop that the current study sets out to evaluate the fraud control measures in currently adopted by the Nigerian banking sector.
1.2 Statement of the Problem
Fraud is a major challenge to the entire business world as no company is immune to it and it is in all facets of life (Olorunsegun, 2010). The banking public expects accountability, fairness, transparency and effective intermediation from banks. The banks are expected to ensure that they carry out their responsibilities with sincerity of purpose devoid of fraudulent practices. This is critical if the banking sector is to gain public trust and goodwill. In the recent years, there has been an upsurge in fraudulent practices in the banking sector which is concomitant withincreasing level of activities.Thus banks are now faced with numerous problems among which is trying to prevent various fraudulent intentions of both bank employees and customers.
Controlling bank fraud in the financial sector is a major task for all the stakeholders in the sector. Every year, banks lose billions of naira to fraud which comes in all size and shapes both from external perpetrators and internal employees.
The worrisome issue in Nigeria is the extent of involvement in the act of e-banking fraud by bank management staff and collusion with outsiders, as well as the ease with which many elude detection, hence inspiring many others to cooperate in perpetrating fraud (Usman & Shah, 2013). The consistent incidents of fraud in the banking sector has currently become discomfiture and disconcertment to the country, as is obvious from the apparent incapability of the anti-fraud agencyand other law enforcement agencies such as police to effectively get hold of the perpetrators (Uchenna, &Agbo 2013).
Statistics on the impacts of fraud perpetrators in the banking institutions are both confounding and amazing. Akindele (2011) predicted that on average, the bank sector in Nigeria was at a risk of losing a million Naira every working day because of the occurrence of frauds, which happen in diverse ways. Correspondingly, this estimation is low compared with the Nigeria Electronic Fraud Forum (Neff) (2016) report, where banks reported the vast amounts of N485,194,350 (£1,239,488) being lost to fraudsters in 2013 and N6,215,987,323 (£15,879,491) in 2014 with 822 and 1461 cases in each year respectively. Also, a report by NeFF (2017) shows that a total actual loss of N2.19 billion (the equivalent of £4.88 million) was recorded by Nigerian Deposit Money Banks (DMBs) in 2016. This was broken down into N511.1 million (£1.12 million) of value lost across counter, N464.5 million (£1.03 million) lost to ATM fraud, N132.2 million (£0.29 million) to e-commerce fraud, N320.6 million (£0.71 million) lost to internet banking, N235.1 million (£0.52 million) to mobile banking, N243.3 million (£0.54 million) to POS, N83.7 million (£0.19 million) to web fraud, N10.1 million (£0.022 million) value to Kiosk fraud, N4.54 million (£0.03 million) to cheque fraud and N190.9 million (£0.42 million) to other losses.
Preventive measures put in place to curb fraud in the banking sector include First, internal control mechanism, Bhasin (2016) has described, SarbanesOxley dictates that enterprises are strictly devoted to internal controls. However, the most systematic Sarbanes-Oxley compliance strength cannot offer complete security against the occurrence of fraud. Proactive establishments will add extra controls, as well as thorough approval of segregation of duties and procedures. Second, education, awareness and training mechanism, Bhasin (2016) in a study titled “Combatting Bank Frauds by Integration of Technology” stated that employees must understand the impact of the menace of fraud in the business.
Third, Bank Verification Mechanism, Bhasin (2016), George and Jacob (2015) stated that one of the most significant insecurity problems organizations encounter is fraud committed by dependable insiders and customers. Human resources department and cash control unity must perform background verifications on prospective employees and customers, and honest testing is required from the organization itself. Fourth, rules and Regulations Mechanism, Wells (2005), in the study “New Approaches to Fraud Deterrence”, found that fraud risk management policies and procedures are appropriate and significant for prevention, fraud detection and investigation, and there is a need for reporting policies, resolutions and procedures to be communicated to organizations’ employees. Fifth, technological mechanism, there are various technological mechanisms used to prevent and detect e-banking frauds. Bhasin (2016), in a study titled “Combatting Bank Frauds by Integration of Technology”, conducted via a questionnaire-based survey with 345 bank staff in Malaysia, listed the current tools for detecting e-banking fraud, such as automated analysis tools, data visualization tools, behavioural analysis, deep learning and internal audit functions.It is against this backdrop that this study seeks to evaluation of fraud control measures in the Nigerian banking sector.
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