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THE ROLE OF INFORMATION AN]) COMMUNICATION TECHNOLOGY (ICT) IN FRAUD DETECTION IN NIGERIAN BANKS.

10,000 3,000

(A CASE STUDY OF FIRST BANK OF NIGERIA ENUGU)

Topic Description

CHAPTER ONE

1.1 BACKGROUND OF STUDY

Historically, fraud has always existed with the nature and life of mankind. There is a general consensus amongst criminologist that fraud is caused by the elements called “WOE”- Will, Opportunity and Exit. i.e., the will to commit the fraud by the individual the opportunity to execute the fraud and the exit which is the escape from the sanctions against successful or attempted fraud.

Fraud is a global phenomenon. It is not unique in any sector of the economy or peculiar to Nigeria. The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three year old child talks about yahoo mail or 419, newly discovered sobriquet for advanced free fraud that is hunting us as a nation. Nigeria, with all of its natural and human resources, tethers on the brink of destruction because of fraud. Much of what we do is “cutting leaves” instead of dealing with the root problem. Generally, fraud takes its root from the human heart. It is an axiom that the heart is deceitful above all things and is desperately wicked.

Fraud is the number one enemy of the business world, no company is immune to it and it is in all works of life, it is becoming predominant in the banking industry, as banks are now persistent targets of frauds. Nwankwo (1991) said that there is no where fraud is more serious than in banking. It is the biggest cause of bank failure. The fear is now rife that the increasing wave of fraud in the financial institutions in recent years, if not arrested might pose certain threats to stability and the survival of individual financial institution and the performance of the industry as a whole and no area of the economy is immune from fraudsters and even the banking system. Fraud if not checked might cause run on in the banking sector.

Fraud together with its sister white-collar crimes which came into being later in the 19th and 20th century inter alia corruption, money laundering, tax evasion, externalization of foreign currency to itemize just a few have stood as potent weapons capable of hemorrhaging the entire world economies particularly the banking sector because of its high risk factor.

Since fraud is carried out over a period of time, a minor one at the initial stage snowballs into a sizeable one over a period of time. However, the incidence of fraud has become a nightmare to the bankers who are particularly concerned, not only because it is on the increase, but also it acquires sophistication and tries outwitting every new technology. In the past years, cases of frauds in banks have been on the increase with each year recording staggering figures, even though most of the reported cases are essentially different types of fraud, An example is defrauding a bank using a genuine account of an employee who is the defrauder. Another one is through the use of fictitious account; also, fraud is carried out with the aid of an employee’s friend. Similarly this unhoiy act is sometimes done using an account of a third party that depends on an employee-insider to perpetrate the cnrne.

Fraud is a universal phenomenon which has been in existence for so long. Its magnitude cannot the security team designed to prevent it. Its management has become a central point in banking like the management of risk because of the above fadts. Fraud and its management have been the precipitating factor in the distress of banks, and as much as various measures have been taken to minimize the incidence of fraud, it still rises by the day because fraudsters always device tactical ways of committing fraud. This has become a point of great attention in the banking sector as well as every organization in Nigeria.

Technology is invented by man to manipulate his social and physical environments. The sociology of science and technology made us to understand that, technology came with both manifest and latent intents. The manipulation of computer and other information and communication technology (ICT) to detect fraud in banks gives more insight into the manifest function of technological revolution. When computer was invented, the intention of its inventors is to hasten data processing with effortless ease. That it has been doing efficiently by giving timely and accurate information. The ability of computer to control manipulations,

 

frauds, and forgeries continue to give the banking system the urge to upgrade their information communication technology (ICT) department. If not for the introduction of information communication technology system in Nigeria, fraud could have defeated the Nigeria banking industry. In this view, despite the introduction of the first banking ordinance in 1952 and central bank act in 1958 including acts and ordinance with the amendments over the years to control and regulate the activities of the banks, fraud rather increased in size and the techniques gained more sophistication.

The introductions of modern banking methods like automatic electronic gadgets; communication systems and computers; fraud has a watchdog to check its excesses. Due to forgery in cheques, bankers are extremely carefully when clearing them, and most times the forged cheques look authentic and the owner will have to confirm the signature on the cheque as his own. It is against this backdrop that this study seeks to evaluate the role of information and communication technology in Nigerian banks with special reference to First Bank of Nigeria plc.

1.2 STATEMENT OF THE PROBLEM

The enormity of bank frauds in Nigeria can be inferred from its value, volume and actual loss. A good number of banks’ frauds never get reported to the appropriate authorities, rather they are suppressed partly because of the personalities involved or because of concern over the negative image effect that disclosure may cause if information is leaked to the ban1cin’ public. The banks’ customers may lose confidence in the bank and this could cause a setback in the growth of the bank in particular.

Fraud leads to loss of money, which belong to either the bank or customers. Such losses may be absorbed by the profits for the affected trading period and this consequently reduces the amount of profit, which would have been available for distribution to shareholders. Losses from fraud which are absorbed to equity capital f the bank impairs the bank’s financial health and constraints its ability to extend loans and advances for profitable operations. In extreme cases rampant and large incidents of fraud could lead to a bank’s failure.

Fraud can increase the operating cost of a bank because of the added cost of installing the necessary machinery for its prevention, detection and protection of assets. Moreover, devoting valuable time to safeguarding its asset from fraudulent men distracts management. Overall, this unproductive diversion of resources always reduces outputs and low profits which in turn could retard the growth of the bank. It also leads to a diminishing effect on the asset quality of banks. This work therefore tends to look into how the Nigerian banks can use information and communication technology (ICT) to detect and minimize fraud.

 

1.3 RESEARCH QUESTIONS

  1. How has the introduction of ICT into the banking industry reduced the incidence of fraud?
  2. Do lack of motivation contributes to incidence of fraud in FBN
  3. Are the Nigerian banking laws adequate for fraud control in Nigerian banks?
  4. Do poor salaries and inadequate working conditions induce bank staff to commit fraud?
  5. How effective is information and communication technology in detection of fraud in Nigerian banks?

1.4 OBJECTIVES OF THE STUDY

The main aim of this study is to find a practical means of detecting the incidences of fraud in Nigeria banks with the aid of information and communication technology. While specific objectives are:

  1. To investigate whether the introduction of information and communication technology into the banking industry reduced the incidence of fraud.
  2. To investigate if lack of motivation contributes to incidence of fraud in FBN
  3. To investigate if the Nigerian banking laws are adequate for fraud control
  4. To find out if poor salaries and inadequate working conditions induce bank staff to commit fraud.

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