ABSTRACT
The study is an empirical analysis of
the impact of regulation and supervision on the activities of Nigerian
Banks with emphasis on the role of the Central bank of Nigeria and the
Nigerian Deposit Insurance Corporation. It evaluates the roles and
contributions of CBN and NDIC to the Nigerian banking sector. Extensive
field survey and library research was carried out and data collected
were subjected to thorough analysis.
The analysis is shows that the
supervisory and regulatory framework of the Central bank of Nigeria and
the Nigerian deposit Insurance Corporation are not sufficient into
guarantee effective banking practices in Nigeria. Other findings from
the study include the need to increase the maximum insurance coverage
due to the effect of inflation and the persistent fall in the value of
the Naira, the need to disclose transactions continuously to ensure
financial prudence through regular supervision and monitoring of the
financial health of local banks with the aid of the “CAMEL ratings and
other supervisory framework.
There is need to also increase the
awareness of banking activities within the general populace through a
deliberate integration process aimed at demystifying certain inherent
perceptions of the public with respect to distress and the role of the
Nigerian deposit Insurance Corporation (NDIC). Moreover, the public,
investors and depositors were not fully aware of the activities of NDIC
and CBN in liquidating and revocation of banks’ licenses due to the
ineffectiveness of the enlightenment programmes used in carrying out the
awareness.
The study focuses also on the
consolidation agenda of the Central Bank of Nigeria and the processes,
prospect and the challenges of consolidation. A questionnaire and
telephone based research was adopted for the study and the data collated
was tested using the chi-square analysis and supported by fundamental
evidence from the database of the regulatory authorities.
Finally, the study offered suggestion as to how the problems so identified could be ameliorated.
TABLE OF CONTENTS
CHAPTER ONE
1.1 Introduction
1.2 Statement of problem
1.3 Objectives of the study
1.4 Statement of research question
1.5 Research hypothesis
1.6 Research methodology
1.7 Scope of the study
1.8 Justification of the study
1.9 Organization of the study
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction
2.1 Definitions of bank
2.2 Meaning and definitions of fraud
2.3 Criminal motivation in fraud and white collar crime
2.3.1 Psychological causes
2.3.2 Cultural causes
2.3.3 Socially acquired traits
2.4 Causes of fraud
2.4.1 Motivational elements
2.4.2 Situational elements
2.5 Factors influencing fraud
2.5.1 Institutional factors
2.5.2 Organizational factor
2.6 People involved in bank fraud
2.6.1 Fraudsters within the bank
2.6.2 Frauds committed by outsiders
2.6.3 Fraud perpetrated through the combined efforts of member(s) of bank staff and outsider(s)
2.7 Types of fraud
2.7.1 Cashiering fraud
2.7.2 Cheque frauds
2.7.3 Clearing fraud
2.7.4 Banker’s committee report on cheque frauds
2.7.5 Frauds involving manipulation of bank documents
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction
3.1 Research design
3.1.1 Roles of the Central Bank of Nigeria
3.1.2 The role of the Nigerian Deposit Insurance Corporation (NDIC)
3.2 Sources of data and instrument of data collection
3.2.1 Primary data
3.2.2 Secondary data
3.3 Determination of sample size
3.4 Method of data analysis
CHAPTER FOUR:
DATA PRESENTATION AND ANALYSIS
4.1 Data presentation
4.2 Data analysis
4.2.1 Respondents assessment of the impact of regulation and supervision on Nigerian banks
4.3 Hypothesis testing
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
5.2 Conclusion
5.3 Recommendations
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
An advance-free fraud is a confidence
trick in which the target is persuaded to advance sums of money in the
hope of realizing a significantly larger gain. Among the variations on
this type of scam, are the Nigerian Letter (also called the 419 fraud,
Nigerian scam, Nigerian bank scam, or Nigerian money offer, the Spanish
Prisoner, the Black money scam as well as Russian/Ukrainian scam (also
extremely widespread, though far less popular than the former). Both
the so-called Russian and Nigerian scams stand for wholly dissimilar
organized crime traditions, they therefore tend to use altogether
different breeds of approaches.
The 419 scam originated in the early
1980s as the oil-based Nigerian economy declined. Several unemployed
university students first used this scam as a means of manipulating
business visitors interested in shady deals in the Nigerian oil sector
before targeting businessmen in the west, and later the wider
population. Scammers in the early-to-mid 1990s targeted companies,
sending scam messages via letter, fax, or telex. The spread of email
and easy access to email-harvesting software significantly lowered the
cost of sending scam letters by utilizing the internet. In the 2000s,
the 419 scam has spurred imitations from other locations in Africa, Asia
and Eastern Europe, and more recently, from North America, Western
Europe (mainly UK) and Australia.
The number ‘419’ refers to the article
of the Nigerian criminal code (part of chapter 38: “obtaining property
by false pretences; cheating”) dealing with fraud. The American Dialect
Society has traced the term “419 fraud” back to 1992.
The advance-free fraud is similar to a
much older scam known as the Spanish Prisoner scam in which the
trickster would tell the scam victim that a (fictitious) rich prisoner
had promised to share (non-existent) treasure with the victim if the
latter would send money to bribe the prison guards.
Insa Nolte, a lecturer of University of
Birmingham’s African Studies department, stated that “the availability
of e-mail helped to transform a local form of fraud into one of
Nigeria’s most important export industries”.
Embassies and other organizations warn
visitors to various countries about 419. Countries in West Africa with
warnings cited include Nigeria, Ghana, Benin, Cote d’Ivoire (Ivory
Coast), Togo, Senegal and Burkina Faso. Countries outside of West
Africa with 419 warnings cited include South Africa, Spain and the
Netherlands.
This scam usually begins with a letter
or e-mail purportedly sent to a selected recipient but actually sent to
many making an offer that will ultimately result in a large payoff for
the intended victim. The e-mail’s subject line often says something
like “from the desk of Mr. (Name)” “Your assistance is needed”, and so
on. The details vary, but the usual story is that a person, often a
government or bank employee, knows of a large amount of unclaimed money
or gold which he cannot access directly, usually because he has no right
to it. such people, who may be real but impersonated people or
fictitious characters played by the scammer, could include the wife or
son of a deposed African or Indonesian leader or dictator who has
amassed a stolen fortune, or a bank employee who knows of a terminally
ill wealthy person with no relatives or a wealthy foreigner who had
deposited money in the bank just before dying in a plane crash (leaving
no will or known next of kin), a U.S solider who has stumbled upon a
hidden cache of gold in Iraq, a business being audited by the
government, a disgruntled worker or corrupt government official who as
embezzled funds, a refugee, and similar characters. The money could be
in the form of gold bullion, gold dust, money in a bank account,
so-called “blood diamonds”, a series of cheques or bank drafts, and so
forth. The sums involved are usually in the millions of dollars, and
the investor is promised a large share, typically ten to forty percent,
if they will assist the scam character in retrieving the money. Whilst
the vast majority of recipients do not respond to these emails, a very
small percentage do, enough to make the fraud worthwhile as many
millions of messages can be sent. Invariably sums of money which are
substantial, but very much smaller than the potential profits, are said
to be required in advance for bribes, fees, etc – this is the money
being stolen from the victim, who things he is investing to make a huge
profit.
Many operations are professionally
organized in Nigeria, with offices, working fax numbers, and often
contacts at government offices. The victim who attempts to research the
background of the offer will often find that all pieces fit perfectly
together. Such scammers can often lure wealthy investors, investment
groups, or other business entities into scams resulting in multi-million
dollar lose. However, many scammers are part of less organized gangs
or are operating independently; such scammers have reduced access to the
above connections and thus have little success with wealthier investors
or business entities attempting to research them, but are still
convincing to middle-class individuals and small businesses, and can
bilk hundreds of thousands of dollars from such victims.
If the victims agree to the deal, the
other side will often send one or more false documents bearing official
government stamps, and seals. 419 scammers often mention false
addresses and use photographs taken from the internet or from magazines
to falsely represent themselves. Often a photograph used by a scammer
is not of any person involved in the scheme. Multiple ”people” involved
in schemes are fictitious; the author of the “WEST AFRICAN ADVCNE FEE
SCAMS” article posted on the website of the Embassy of the United States
in Abidjan, Cote d’Ivoire believes that in many cases one person
controls many fictitious persons used in scams.
1.2 STATEMENT OF PROBLEM
Commercial and merchant banks have lived
and relied extensively and entirely on the process of gathering profit,
expansion and gathering appreciable returns for the shareholders.
The realization of these objectives
seems to depend on a host of factors like the introduction of modern
technology, dedicated and efficient management highly skilled and
experienced manpower, adequate knowledge and understanding of the
economic system as well as the ability to effectively compete with other
competitors in the banking business.
However, these objectives have not been
completely achieved. The achievement has been more of delusion than
reality. The constraints impending the realization of these objectives
are myriad in nature, varying from the Central Bank of Nigeria’s tight
fiscal and monetary policies to incompetence of bank’s management and
staff and staff force. In between these two extremes is a social
problem called “FRAUD” a social parasite which is now fast cutting deep
into the threshold of existence and survival of most Nigerian banks.
The problem of fraud in Nigerian bank is
adversely affecting the stability of the country’s financial system and
this has continued to constitute a source of concern to most economic
analysts and astute financial gums in the business world. The major
motivation for fraud as we all know is financial gain, the
“get-rich-quick” syndromes has hinder the entire facet of Nigerian
economic.
Most banks executives detest the news of
fraud in their respective banks. In fact such news often sends
disintegrating sock waves through their body system. It also reveals a
lapse in the bans, security and decision or operation process. It may
not be easy to quantify loss by banks to fraudsters. In view of this
realization a large sum of money are set out in the budgets of banks
every year for the purpose of combating fraud to the detriment of
further development of bank staff.
1.3 OBJECTIVES OF THE STUDY
The primary objective of this research
is to find practical means of minimizing incidence of fraud in Nigerian
banks. Hence to achieve this objective, the following secondary
objectives are to be pursued:
- To determine the magnitude and frequency of fraud in banks
- To identify the causes of fraud in banks
- To identify the various types of fraud and means employed in defrauding bank
- To recommend measures for reducing the incidence of bank fraud.
The study will also try to examine the
party that bears the loss in case of an occurrence of fraud. What
provision does the legal system make as a deterrent to fraudsters? From
the study, the research will also try to identify the roles which banks
and the society at large should play in brining fraud to its lowest
ebb.
1.4 STATEMENT OF RESEARCH QUESTION
- Advanced free fraud hinders a bank from attaining its goal within the stipulated period
- Fraud cases appeared to be considerably lower in merchant banks than in commercial banks why?
- Frauds committed by
senior and management staff are usually few in number but they are big
time fraud which always reflect high level sophisticated techniques in
carrying them out.
- Impact of technology has
also been identified as another organizational factors with the
introduction of advanced technology in telex and electronic funds
transfer.
1.5 RESEARCH HYPOTHESIS
The researcher adopted the Chi-Square
goodness-of-fit test to test the hypothesis. The Chi-Square statistics
formula is given as
X2 = Summation of (Oi- Ei)2
Ei
Where Oi = Observed frequency
Ei = expected frequency
The degree of freedom n = 5, V = 5-1=4
Level of significance = 5% or 0.05
Note: Ei = total frequency 450 divided by 5 = 90
HYPOTHESIS 1
Ho: The supervisory and regulatory
functions of the Central Bank (CBN) and the NDIC have been effective in
curtailing distress in the Nigerian banking system
H1: The supervisory and
regulatory functions of the CBN and the NDIC have not been effective in
curtailing distress in the Nigerian banking system
1.6 RESEARCH METHODOLOGY
This involves the use of some
statistical tools such as percentages, mean score and Chi-square test in
order to make comparison, test the hypotheses and draw conclusions.
Percentages is a statistical tool that uses 100 as its base. It is
simple and makes comparison easier – percentages are used in describing
relationship. Chi-square test provides a means of comparing a set of
observed frequencies with a set of expected frequencies. The test
statistic for testing hypothesis is based on this quantity.
Chi-Square = X2 = S(O – E)2
E
1.7 SCOPE OF THE STUDY
The research work covers only Nigeria
banks within the period of 2000 and 2007. Fraud occurs in almost every
sector of the Nigeria economy but for the purpose of this study,
discussion will be restricted basically to the banking industry.
Therefore, in order to attain the objectives of this research aspects of
fraud in banking operation, information obtained is entrenched within
the scope of data on number of fraud cases perpetrated in each bank, the
different types of fraud, the amount of loss to banks and to customers,
the category of person involved in fraud, the period of concealment and
the incidence of collusion.
Furthermore, since the only latest
source of compiled, accurate, attested and authentic data on fraud in
Nigerian banks is that published annually by the Nigeria Deposit
Insurance Corporation (NDIC). The secondary data will be good
assistance for the study and the results shall be heavily relied on for
the purpose for the analysis of the research findings.
1.8 JUSTIFICATION OF THE STUDY
The banks are vital to the development
of any nation. They are in fact pivot of a nation’s economic growth.
The great resources at the command of the Nigerian banking sectors make
it a vital factor in the process of restructuring and diversifying the
productive base of the economy to reduce dependence on oil sector.
Nevertheless, the performance of the
banking industry has been at a sub-optimal level. This is due to an
array of problems of which the issue of fraud is evil of the most
intractable and monumental. The magnitude of these problems and
implication for the industry has inspired this research on fraud in
banks.
Fraudsters can be found in and outside
any organization and frauds are perpetrated independently of either of
these two categories. However, appreciable proportion of frauds in
Nigerian banks today is committed through the joint efforts of both
outsiders and banks staff. This dual effort has made the problems of
fraud appear more of a puzzle. Some top executive members of banks who
have assessed to information also indulge in this ungodly act.
This study is therefore necessary for the purpose of exposing the strategies and tactics of fraudsters.
1.9 ORGANIZATION OF THE STUDY
The research work is carefully
structured into five chapters. Chapter one will focus on introduction
to the study, statement of research problem, objectives of the study,
statement of research questions, scope of the study, and justification
of the study.
Chapter two will center on the literature review on the effect of advanced free fraud in banking system in Nigeria.
The third chapter considers the research methodology.
Chapter four will the data presentation and the analysis of the findings.
Finally, the fifth chapter is the summary, recommendation and conclusion