Role Of Fraud Management In The Profitability Of Nigerian Banks (a Study Of First Bank Nigeria Ltd)

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 This research looks at the role of fraud management in the profitability of Nigerian banks (A study of first bank Nigeria plc). The objectives of this study include to ascertain the role of fraud detection and the contribution of fraud investigation in the profitability of Nigerian banks. Ex-post factor research design was adopted for this study because secondary data was used. Data was collected from the bank’s annual report and fact books covering from the period 2006 –2015 However regression was ran and hypothesis tested using a T-test. Findings were based on the result of the regression and one of the findings of this study is that Fraud detection plays a significant role in the profitability of Nigerian banks. One of the recommendations says that the management should employ the service of an investigator once fraud is suspected so as to detect fraud in the banking system which enhances the profitability of the system.

                      TABLE OF CONTENTS


Title page ­­                                                                                        

Declaration                                                                                       i

Certification                                                                                               ii

Dedication                                                                                         iii

Acknowledgements                                                                           iv

Abstract                                                                                            v

List of tables                                                                                     vii


1.1 Background of the Study                                                            1

1.2 Statement of Problem                                                                           3

1.3 Objectives of Study                                                                     4

1.4 Research questions                                                                     4

1.6 Research Hypotheses                                                                  5

1.7 Significance of the Study                                                            5

1.7 Scope of the Study                                                                      6

1.8 limitations of Study                                                                              6

1.9 Definition of Terms                                                                     7


2.1Conceptual frame work                                                               8

2.2.1 Concept of Fraud                                                                     8

2.1.2 Concept of fraud Management                                                 11

2.1.3 Concept of Banking System                                                    12

2.2 Theoretical framework                                                                13

2.2.1 Theories of Fraud                                                                              15

2.2.2 Effects of bank fraud in Nigeria banking system                     16

2.2.3 Fraud in Nigeria Banking System                                            21

2.3 Empirical Review                                                                        22

2.4 Summary of related literature                                                     24


3.1 Introduction                                                                                26

3.2 Research design                                                                          26

3.3 Nature and sources of data                                                                   26

3.4 Area of study                                                                              27

3.5 Instrument for data collection                                                     27

3.6 Population and sample size                                                                  27

3.7 Model specification                                                                     28

3.8 Model one                                                                                   28

3.9 Validity and reliability of instrument                                          28

3.10 Data analysis                                                                                      28


4.1 Introduction                                                                                30

4.2 Analysis of data                                                                          30

4.2.1 Regression result of the model                                                 30

4.3 Test of hypotheses                                                                      33


5.1 Introduction                                                                                35

5.2 Summary of research findings                                                    35

5.3 Conclusion                                                                                  35

5.4 Recommendations                                                                       35

5.5 Area of further research                                                              36

References                                                                                         37

Appendices                                                                                                 40



 1.1 Background to the Study

The failure of banks to adequately fulfill their role arises from the several risks that they are exposed to; many of which are not properly managed. One of such risks which is increasingly becoming a source of worry is, the banking risk associated with incessant frauds and accounting scandals. The major problems confronting the financial institution today is “fraud”, which has sent many of them out of business and is making the industry customers to lose confidence in them since they have not been able to curb the ugly event called “fraud”.

          Fraud, which literarily means a conscious and deliberate action by a person or group of persons with the intention of altering the truth or fact for selfish personal gain, is now by far the single most veritable threat to the entire banking industry. It is indeed worrisome that while banks are constantly trying to grapple with the demands of monetary authorities to recapitalize up to the stipulated minimum standards, fraudsters are always at work threatening and decimating their financial base. Also more worrying is the rise in the number of employees who are involved in the act as well as the ease with which many escape detection thus encouraging many others to join in perpetuating fraud (Onibudo, 2007).

Idolor (2010) stressed that the spate of fraud in the banking industry has lately become an embarrassment to the nation as apparent in the seeming inability of the law enforcement agents to successfully track down culprits. Whereas the activities of armed robbers are given widespread reviews in the pages of newspapers, especially during major thefts, it is an irony that what they cart away from banks is only a slice of what fraudsters remove from bank tills. Corroborating the view of Idolor, Oseni (2006), stated that the incessant frauds in the banking industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry .Fraud may take the form of; theft of inventory assets, misuse of expense account, secret commission and bribery, false invoicing, electronic and telecommunication fraud, unauthorized use of information, cheque forgery, cheque clone, false financial statements, and so on, but whichever form it takes, the fundamental point is that the banking industry falls victim to fraudulent acts suffers and bears the brunt.

Statistics the activities of fraudsters in the industry have been both amazing and confounding. In 2001, 943 fraud cases involving 11.2 billion were recorded. Ogbu (2000)stated that frauds in Nigerian banks continued to rise in2002 with 77 banks of the 90 in operation, recording cases involving the sum of N12.9 billion. Onyeogocha (2001) attributed it to insider abuses and even board tussles. The NDIC 1996/7 Annual report and Statement of Accounts that the number of frauds reached a magnitude of N1,006 million in 127 cases reported in commercial banks and 587 cases involving N1,543 million. Also the number of insiders (staff) who connive with outsiders to perpetuate the act is alarming. Equally worrisome is the rise in the number of top management staff that have either been indicted or accused of engaging in bank fraud.

          As a result of the involvement of staffs and top management staffs in fraudulent activities in the banking industry, Fraud control is becoming an issue that the regulators and top banking executives who are in saddle when fraudulent activities takes place or more succinctly when someone commit an act of fraud in the financial institutions under their management. Owing to the fact that fraud affects the profitability and reputations of banking institutions, to minimize or control the alarming rate of fraud in the banking industry, there ought to be need for the players in the industry to set up and implement an effective and efficient control system that will adequately monitor the daily activities of the industry without leaving any gap, (Anyanwu,1993). Consequently, appropriate personnel policies and practices should be put in place since fraud is committed by people of moral decadence. Therefore, qualified auditors should be employed to ensure effective and efficient detection and prevention of fraud and financial reporting in Nigerian Commercial banks. Against these backgrounds, the main purpose of this study is to thus, ascertain the role of fraud management in the profitability of Nigeria banking system.

 1.2 Statement of Problem

The larger society expects greater accountability, fairness, transparency and effective intermediation from banks, ensuring that they carry out their responsibilities with sincerity of purpose and unquestionable integrity with respect to their operations as a means towards earning public trust and goodwill. The banking business has become more complex with the development in the field of Information and Communication Technology (ICT) which has changed the nature of bank fraud and fraudulent practices. Berney(2008) observes that customers rely heavily on the web for their banking business which leads to an increase in the number of online transactions. Gates, Jacob and Malphrus(2009) assert that the internet provides fraudsters with more opportunities to attack customers who are not physically present on the web to authenticate transactions. In Nigeria, in spite of the banking regulation and bank examination by the Central Bank of Nigeria (CBN), the supervisory role of the Nigeria Deposit Insurance Corporation (NDIC), and The Chartered Institute of Bankers of Nigeria (CIBN), there is still a growing concern about fraud and other unethical practices in the banking industry. Evidence from the NDIC Report (2008) revealed that the report of the examinations and special investigations from the banks were still bedeviled with problems of fraud, weak board and management oversight; inaccurate financial reporting; poor book-keeping practices; non-performing insider-related credits; declining asset quality and attendant large provisioning requirements; inadequate debt recovery; non-compliance with banking laws, rules and regulations;

and significant exposure to the capital market through share and margin loans. This is a problem which makes the activities of the fraud management difficult or impossible and affects the profitability of the banking system and the economy at large.

 1.3 Objectives of Study

The broad objective of the study is to conduct an empirical study into the role of fraud management in the profitability of Nigeria banks with special reference to First Bank of Nigeria Plc.

The specific objectives of this study are:

  1. To ascertain the role of fraud detection in the profitability of Nigerian Banks;
  2. To determine contribution of fraud investigation in the profitability of Nigerian Banks.

1.4 Research Questions

To guide the conduct of this research, the following questions are raised:

1. What is the role of fraud detection in the profitability of Nigerian Banks?

2. What is the contribution of fraud investigation to the profitability of Nigerian Banks?

1.5 Research Hypotheses

  1. H0: Fraud detection does not play a significant role in profitability of Nigerian banks.

H1: Fraud detection plays a significant role in profitability of Nigerian banks.

  1. H0: Fraud investigation does not contribute significantly to the profitability of Nigerian banks

H1: Fraud investigation contributes significantly to the profitability of Nigerian banks.

1.5 Significance of the Study

The study will be of invaluable benefits and useful to all categories of bank managers, financial information users such as existing and potential shareholders, they are the direct beneficiary of companies and they will get bonuses if the companies operate successfully. The use of fraud management will reduce the risk of fraud and increase the bank’s profit which will reflect on the dividends of the shareholders.

          Also, creditors and fund providers will also benefit from the presence of fraud management system in the Nigeria banking system as the will guaranteed of the safety of the funds.

          Besides, researchers and students in the field of accounting, banking and finance who want to know more about frauds, its causes and possible ways of preventing it. They will also find the study beneficial as it will add to the existing stock of knowledge for students and serve as a reference point for subsequent researchers.

          The findings of this study will be of great importance to the policy makers especially the Central bank of Nigeria in their efforts to deter, prevent and at worst detect fraud timely, as the threat of fraud in Nigeria can be contained by taking the right steps.

 1.6 Scope of the Study

The study is aimed at ascertaining the role of fraud management in fraud control, fraud prevention, fraud detection, fraud remediation and their effects on the Profitability of Nigerian banks with special reference to First Bank of Nigeria Plc.

 1.7 Limitations of the Study

The progress of this study has been hinder by certain constraints during its course, some of which includes: technical factors such as power supply which have limited the speed of the researcher in concluding this research work and have subjected the researcher to sourcing power from substitute power supplies such as generator sets and power banks.

          Furthermore, financial constraints which have restricted the researcher from getting a wide range of materials for the study as the researcher have had to narrow down its respondents in a bid to reduce the cost at which the questionnaires are printed, also, resulting from financial constraints, the researcher have been restricted from visiting other branches of the financial institution of concern to get concrete information which will be beneficial to the progress of this study. However, the researcher was able to solve the financial constraint by resulting to borrowings from friends and family members to further the research work.

1.8 Operational Definition of Terms

1. Fraud management- This involves the use of various management techniques to control and prevent fraud.

2. Financial fraud- This involves the financial account transaction such as bank account including a consumer lone or credit card account.

3. Fraud prevention- This involves taking steps that best protect against identity theft and other external treats targeting company .

4. Fraud ring - A group of individuals who scheme together to execute fraudulently activities.

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Role Of Fraud Management In The Profitability Of Nigerian Banks