CHAPTER ONEINTRODUCTION1.1: BACKGROUND OF THE STUDYThe significance of the banking sector in any country stems from its role of financialmobilization from surplus to deficit unit, provision of a competent payment system andfacilitation of the implementation of monetary policies. In intermediation, banks mobilizesavings from the surplus units of the economy and channel these funds to the deficit unit,particularly private business enterprises, for the purposes of expanding their productive capacity.The banking sector has become one of the most critical sectors in the economy with wide effecton the level and direction of economic growth and transformation and on such economicvariables as the rate of unemployment and inflation which directly affect the lives of our people.Today, the very integrity and survivability of these laudable functions of Nigerian banks havebeen deteriorated in view of incessant frauds and accounting scandals.Fraud however has been defined by many scholars Olufidipe (1994) defined fraud as „deceit ortrick deliberately practiced in order to gain some advantages dishonestly‟. According to Boniface(1991), fraud is described as „any premeditated act of criminal deceit, trickery or falsification bya person or group of persons with the intention of altering facts in order to obtain undue personalmonetary advantage‟. Another scholar Idowu (2009) also sees fraud as a deliberate falsification,camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to thefinancial damage of an individual or an organization. Going by the definition of the chambersuniversal learners dictionary Kirkpatrick (1985) define fraud as any person who pretends to besomething that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler.2Having explained what fraud is, it is pertinent to define bank fraud which is the subject matter ofthis study; however bank fraud is the use of fraudulent means to obtain money, assets, or otherproperty owned or held by a financial institution, or to obtain money from depositors byfraudulently representing to be a bank or financial institution. For an action to constitute fraudthere must be a dishonest intention and the action must be intended to benefit the perpetrators tothe detriment of another person.Going by the definitions, frauds in Nigeria cannot be restricted to the banks alone. A lot offraudulent activities are prevalent in Nigerian economy ranging from bloody killings, ritual,kidnapping, robberies, forgery, misappropriation, cheating, and gangsters and looting. Bankfraud ranges from account-opening, money transfer fraud, cheque kiting, telex fraud, moneylaundering fraud, computer fraud, loans fraud and the likes.According to Oseni (2006) the incessant frauds in the banking industry are getting to a level atwhich many stakeholders in the industry are losing their trust and confidence in the industry.Corroborating the view of Oseni, Idolor (2010), stressed that the spate of fraud in Nigerianbanking sector has lately become a source of embarrassment to the nation as apparent in theseeming attempts of the law enforcement agencies to successfully track down culprits. Althoughthe incidence of frauds is neither limited to the banking industry nor peculiar to Nigeriaeconomy, however the high rate of fraud within the banking industry, calls for urgent attentionwith a view to finding solutions.Fraud in its effect reduces organizational assets and increases its liabilities. With regards tobanking industry, it may engender crises of confidence among the banking public, impede thegoing concern status of the bank and ultimately lead to bank failure (Adeyemo, 2012).3According to kimani (2011) `A way of making money is to stop losing it. The level of fraud inthe present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspectof our life to the extent that a three years old child talks about 419, the name give to the newlydiscovered advanced fee fraud that is hunting our nation.In July 2004, central bank of Nigeria (CBN) unveiled new banking guidelines designed toconsolidate and restructure the industry through mergers and acquisition. Banks and OtherFinancial Institutions Act (BOFIA) 1991, section 15, was also designed to prevent fraud and tomake Nigeria banks more competitive and able to play in the global market.The Nigeria Deposit Insurance Corporation (NDIC) 2007 annual report and statement ofaccounts report that cases of attempted frauds and forgeries in insured banks, as at 2007exceeded what was recorded in the year 2006. For instance, the NDIC report for 2007 disclosedthat a total of 1,553 reported cases of attempted frauds and forgeries involving over symbols ₦ 10billion compare with 1,193 reported cases of fraud and forgeries involving ₦ 4,832.17 billion inthe year 2006. The foregoing statistics clearly unfolds the extent to which fraud had had eatendeep into the financial strength benefit the perpetrators to the department of another person.Today, banks cannot withstand the growing pressure of competition among various banks due tothe monster called bank frauds. If this act of fraud is not arrested, it might delete our resourcesbecause foreign investors might not find it wise to transact business via our banks.1.2: STATEMENT OF THE PROBLEMBanks generally have been experiencing fraud since its evolution. This affects the performanceand the profitability of banks and may possibly lead to distress. The inability to identify the4immediate and remote causes of continuous cases of bank frauds in virtually all banks in Nigeriais one of the problems brought to bare.Fraud is a major challenge to the entire banking industry; no bank is immune to it and in allfacets of life (Olorunsegun, 2010). The banking public expects accountability, fairness,transparency in their day operation for effective intermediation.Though there were known cases of fraud in the sector, one major question still remainunanswered which is what is the nature and different ways through which fraud can beperpetuated in banks. It is asserted by Adeyemo (2012) that fraud in the bank is possible withcorroboration of an insider. The banks are expected to ensure that they carry out theirresponsibilities with sincerity of purpose which is devoid of fraudulent practices. This is relevantif the banking sector is to gain public trust and goodwill.Another problem is that the government and its agencies have not put enough effort in theprevention and control of bank fraud in Nigeria; otherwise the level of bank fraud would havereduced to a bearable level. Agencies like money laundering Act which helps to placesurveillance on any account through which such excess cash deposits or withdrawals are made,Nigeria Deposit Insurance Corporation which is involved in managing bank distress, failed banksand financial malpractices in banks Act which was vested with powers to recover the debts offailed banks, dishonored cheques Act which affects banks in their collection and payment ofcheques on behalf of their customers and Bill of Exchange Act which helps to collect theproceeds of trade bills of exchange and cheques are not putting enough effort in the preventionand control of bank fraud that is the reason why bank fraud is increasing day by day in Nigeria.However, environmental or social factors pose a problem in the activities of banking industry asthey contribute to bank fraud in Nigeria. Environmental factors are those that can be trace to the5immediate and remote environment of the bank these factors are manifest in the followingmanner; the desire to get rich quick slow and complex legal process, poverty and the wideninggap between the rich and the poor, competition among bank staff, the desire to belong to anysocial class, job insecurity, peer group pressure and societal expectations.