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
List of tables vii
CHAPTER ONE: INTRODUCTION
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
CHAPTER TWO: REVIEW OF RELATED LITERATURE
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
CHAPTER THREE: RESEARCH METHODOLOGY
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
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
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
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
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
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:
1.4 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
H1: Fraud detection plays a significant role in 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.