The Effect of Fraud & Irregularities on Banks Performance in Nigeria and its Control

Introduction

Organized crime and other violent behaviors became synonymous in many of the banks. This includes the money laundering, internet fraud, credit card and identity fraud. As an action of the government, they proposed a special committee that can address the rising problems in terms of fraud and irregularities in the performances of the banks. All of the stained processes of the banks will create difficulties for the financial sector therefore, it is important to pay attention on the appropriate management within the banks.

Background and Problem Statement

Nigeria has the second largest financial services sector in Sub-Saharan Africa, after South Africa. It is also considered to have the fast growing financial sectors that can compete internationally because Nigeria is identified to gather the opportunity to become an influential player for providing financial services in low income countries. Aside from oil, Nigeria has also a favorable domestic background because of the growth of their population along with the growth of other non-oil products and services. However, Nigeria remains clouded with several of challenges like the poverty, limitations in financing accessibility, poor infrastructures, and high levels of corruption. These are the barriers for the total growth of the country and are associated with their banking sector (Becker, et al., 2008). In order to make Nigeria an attractive country, the financial institution should have the strengths and ensure the improvements in the business processes. Therefore, the study will address the negative effects of bank fraud and other irregularities in Nigeria.

Research Aim and Objectives

The aim of study is to minimize the incidence of fraud and irregularities in Nigerian banks. Therefore, there is a mean to improve the risk management in the banking processes and increase the skills of the employees who can facilitate the banking transactions. In order to provide this aim, there are four objectives that should be settled. First is to identify the reasons or causes of fraud in Nigerian Banks. Second is to recognize the type of bank frauds that are typical in Nigerian banking sector. Third is to determine the control level of fraud among the banks. And fourth is to suggest other effective methods in which fraud can be perpetuated.

Literature Review

Fraud can be seen as the intentional misrepresentation, concealment, or omission of the truth for the purpose of deception/manipulation to the financial detriment of an individual or an organization (such as a bank) which also includes embezzlement, theft or any attempt to steal or unlawfully obtain, misuse or harm the asset of the bank. Banks are the most common place wherein fraud and other irregularities can be found and apparently, the incidence of fraud continuous to rise, affecting the entire economic and financial future. Nigeria and its banking sector indicated the high incidence of fraud that deteriorates the credibility of the services and shifted to be the most common problem in the financial industry. In a typical interpretation, when fraud exists within the financial institution like banks, it definitely affects both assets and liabilities of an enterprise (as an example). There is a unreliable trend which shows the reduction of their assets while there is a sudden increase in their liabilities. In this case, the banks may loss their potential to gain clients and results in a scandal such as the crisis in the confidence. In the long-run, the rotten processes of the bank will cause its downfall. Therefore, the action of the government is to investigate in the existence of the fraud and irregularities in the banking sector because it can affect the entire financial stream and increase the poverty in the country. The fraud and irregularities are also representing the loss of strategic management and control and the unreliable employees in banking operations (Abiola, 2009).

Methodology

The method adopted in this study is the use of survey and interview. The survey is done through the use of Likert Scale questionnaire and conducted among the bank employees. The participants involve the personnel in selected banks and in different positions like the bank teller, accountants/auditors, operation manager, and vault authorities. In this way, the study can determine the perceptions of the employees regarding the fraud incidents and irregularities in their workplace. On the other hand, the interview includes the Branch Managers of the selected banks in Nigeria. The study can conduct the method within the selected 10 banks in Nigeria and represent the entire population on banking institutions. The information, afterwards, will be organized according to the objectives and therefore, determine the effects of fraud on the banking services of the country.

References:

Abiola, I., (2009) An Assessment of Fraud and its Management in Nigeria Commercial Banks, European Journal of Social Sciences, 10(4): 628[Online] Available at: http://www.eurojournals.com/ejss_10_4_14.pdf [Accessed 10 August 2010].

Becker, L., Chammard, M.B., Hussein, Z.W., Kotsuji, Y., & Quagraine, N., (2008) Nigeria: Financial Services Cluster Analysis and Recommendations [Online] Available at: http://www.isc.hbs.edu/pdf/Student_Projects/Nigeria_Financial_Services_2008.pdf [Accessed 10 August 2010].