BACKGROUND OF THE STUDY
In this dynamic world, the role of Banks, whether in a
developed or developing economy consists of financial intermediation,
provision of an efficient payment system and serving as conduit for the
implementation of monetary policies, it has been postulated that if
these functions are efficiently carried out, the economy would be able
to mobilize meaningful level of savings and channel these funds in an
efficient and effective manner to ensure that no viable project is
frustrated due to lack of funds.
The role of banks in economic development has been richly
articulated in literatures. Pioneer contribution of Schumpeter (1934)
was of the view that financial institutions are necessary conditions
for economic development. This view has been variously corroborated by
other scholars such as Goldsmith (1969), Cameron et at (1972) and
Valentine and Mason (1997:1), in the bid to throw more light on
how the banking sector exhibit or justify their strength of necessity
and importance, said that it is an established fact that banking
consists of three basic functions namely; the acceptance of deposits
from customers, the transfer of these deposits from one account to
another and the lending of money by way of loan or overdraft to
customers. By this daily deposits accepted are credited and money
withdrawn is debited.
An efficient manual accounting system has been in use before the
use of computer came into place. Customers deposit money with banks
either with the use of cheque or passbooks (for the operators of the
current and savings account respectively).
Account operators issue cheques to people, instructing the bank
to pay a named person a specific sum of money on their behalf. When the
branch of each bank receives the cheque, they had to authorize payment
of the amount and also debit the customers account. This arrangement
was satisfactory when the daily number of cheques and their users were
relatively very small. The system began to break down when a larger
number of people started making use of the banking services. This made
the manual system of keeping customers account an increasingly
difficult and expensive task.
The above development prompted the use of computer to overcome the above problems.
The use of computer is still very new in our society; the
computer technology emerged in the late 1940’s in the advanced countries
of America and Europe and was introduced into Nigeria in the 1970’s by
the multinational corporations like UAC, NCR, etc. while the banks
embraced it in the early 80’s.
Banking industry has in the past suffered a great number of loses
through fraud such that a lot of them now face serious financial
problem/hardship and eventually were forced to fold up. The
industrial and commercial Banks (1947-1952) are typical examples of
banks that failed as a result of Fraud.
Fraud as the word implies could mean different things to
different people depending on the angle from which it is been looked at.
According to the Chartered Institute of Public Finance and
Accountancy, United Kingdom, “Fraud” is that intentional distortion of
financial statement or otherwise for gain. While the international
Auditing Guidelines (IAG) defines “fraud” as a particular type of
irregularity, involving the use of deceits to obtain an illegal or
unjust advantage and may involve the following:
- Manipulation, falsification or alteration of records, documents or figures.
- Misappropriation of assets.
- Omitting transactions from records or documents.
- Misstatement of facts
- Recording transaction without substance (fact).
- Misapplication of accounting policies.
Professor G.O. Nwankwo (1991:166) classified
fraud in three ways: by flow, by victim, by the act or method. By
victim are those identified by the victim of the fraud. By flow fraud
is two types; smash or grab and drip fraud smash and grab are usually
small in number, high in value and occurs over a very short period of
time. While the drip type of fraud occurs through bypassing of routine
controls and employing a large number of fraudulent act.
Lastly, by act are fraud facilitated by the increase in volume and
value of the payment traffic, passing through the inter bank
transmission payment systems by the computer and by increasing and
modernization of the banking computer networks and widespread of Aims
(Automated Teller Machines) all of which have made the financial system
more vulnerable to a wide variety of vandalism and fraud.
From my own understanding; fraud is defined or seen as a
deliberate act of cheating in order to get money or goods illegally.
The question then is with the computerization of most Banks, do
they still face fraud risk? How vulnerable is the computer to fraud?
The study attempted to sort out what the use of computer in the
banks is likely to be, whether, prone to fraud or fraud proof. The
various internal control measures, level of safety, detection of fraud
and possible control measures are also highlighted.
The basic need for information and consequent
requirement for means of processing data speedily and accurately
applies to a wide range of work area in business. Perhaps the most
important factor worthy of consideration in every business is Financial
Information, which is denied from processing financial data.
Banks have decided to introduce computer in their operation
because of the benefit derived from there. Looking at the other side
of the coin, one begins to wonder how safe the computer is too.
Major questions on the integrity and security of Computer now
comes to mind on the abuses of computer such as, how easy it is for
disgruntled staff or outsiders to gain access into the computer room to
change the hardware or even steal it?
How easy is it for data to be altered fraudulently for the benefit
of the perpetrator and if these are done, can the system detect them
In this case, data element may leave the source in a particular
state but may enter into the computer in another state. This may mean
the fraudulent insertion of new data, alteration of existing data and
even detection of any entry.
Computer crime or abuse occurs as a result of the following:
- Natural phenomenon
This study is therefore designed to solve the following specific problems.
- What are the types of fraud associated with computer usage in banks?
- What are the possible ways of detecting and preventing fraud associated with the use of computers in banks?
In Nigeria, fraud contributed significantly to
the failure of 36 Banks in liquidation (Ogunleye, 2001). Fraud is one
of the serious economic crimes being perpetrated in our banking
industry today. Frauds result in huge financial loses to banks and
their customers, the depletion of shareholder’s fund and banks capital
base as well as loss of confidence in the sector. Fraud is therefore of
special concern to the regulatory authorities that are saddled with
the responsibility of ensuring the safety and soundness of the entire
banking system. The incidence of fraud in the Nigerian banking system
should be of serious concern to all stakeholders. The cases of
attempted fraud reported to the Nigerian Deposit Insurance Corporation,
in compliance with the provision of the NDIC Act, are presented in the
table below. The table shows the trend in reporting cases of frauds
and forgeries among the insured banks between 1998-2002. The table
reveals that in the last two years there had been significant increases
in the number of reported cases and the amount involved