Corporate Fraud Control And Prevention Systems In Commercial Banks

Corporate fraud prevention systems are the series of physical,  logical  and procedural barriers established by an organization to discourage the incidence of fraudulent activities in the organization. The aim of a fraud prevention system is to hinder, to stop or to make impossible the occurrence of fraudulent activities in an organization. The Chambers Dictionary (2006) described prevention as an action of stopping someone from  doing  something or stopping something from happening. It stated that prevention is the strategy established for the avoidance or preclusion of something by care, forethought    or obstruction. Fraud prevention systems are, therefore, installed to stop people from committing fraud or to stop fraud from occurring in the first place. According to the bank of Netherlands (2006), fraud prevention systems are designed to ensure that events, which threaten operations in an organisation, for example a commercial bank, do not occur or occur infrequently.  The  bank stated that careful designing and locating of computer centers  and  other  security devices to stop unauthorized access to assets and systems in the organisation are aspects of fraud prevention.

Adequate investment in fraud control and prevention  systems  strengthens commercial banks’ defences against any  form  of  fraudulent activity. Regularly maintained fraud control and prevention systems also ensure that most corporate frauds are minimized. According to Usman (2004), frauds may not be totally eliminated though there are control and preventive measures that can drastically reduce the amount of frauds in a business. Such measures, according to him, include adequate physical and electronic security, pre– employment screening, installation of surveillance equipment, etc. The author further stated that organizations that seek those measures are successful while those that ignore them lose heavily.

Most commercial banks, according to Vital (1999) have control facilities and measures designed to assist in the prevention of fraudulent activities. However, Vital regretted that some of them are not utilized extensively to curb fraud menace. The extent to which they are utilized determines their success in fraud control and prevention. The extent of utilization of the systems available, therefore, needs to be ascertained for effective fraud control and prevention. Akwaja (2007) supporting the view stated that the utilization of the fraud prevention measures in banks is still low. He stated that Nigerian commercial banks have lost heavily in the past few years to fraud prevention measures that were not properly implemented.

The fraud control and prevention systems utilized in commercial banks should be effective. Onah (2003) defined effectiveness as the degree of success expected from a chosen procedure or method. He stated that effectiveness is a function of the adequacy of the methods and procedures. According to Osuala (2004), effectiveness is the ability to do the right thing to achieve the goal of a business. Effective fraud control and prevention systems can reduce fraudulent activities with minimum expense, waste and effort. They should be cost- effective to the organisations that establish and utilize them. The degree  to which the available fraud control and prevention systems minimize the  incidence of fraudulent activities is based on their effectiveness. However, Charlton and Taylor (2004) stated that the effectiveness of the fraud prevention systems in financial institutions including commercial banks has not yet been ascertained.

Most commercial banks encounter some problems in the establishment and implementation of fraud control and prevention systems. These problems emanate from poor infrastructure, lack of finance, unskilled manpower and complexity of operations. Ojuri (2007) stated that the banks encounter the problems of high costs of acquisition and maintenance of systems. They also suffer from the problems of complex programme application, network and  power disruption, and shortage of skilled personnel to operate the complex systems.

Commercial  banks have always strived to improve their fraud control  and prevention strategies. However, Shackell (2000) stated  that  as  the responses of the commercial banks become more successful so the fraudsters have become more creative by evolving new and more deadly methods of frauds. Shackell (2000) stated that corporate fraud is an undeniable fact of business life, affecting businesses, large or small. Shackell further stated that as the systems and technologies are further developed, the perpetrators  of  corporate frauds tend to become bolder and more advanced in their crimes, thus forcing organizations to evolve new techniques for averting the newer forms of fraudulent activities. It is therefore imperative on commercial banks to seek  ways of improving their fraud defences and to counteract any problems they experience in the establishment and utilization of the systems. Current firewall technologies like data encryption, passwords, personal identification, etc are, therefore, the imperatives for banks.

KPMG (2006) stated that corporate organisations continuously strive to achieve compliance with an array of new anti-fraud laws and regulations that   are prescriptive on the design of controls and prevention strategies against corporate fraud and misconduct. KPMG  also stated that it is the responsibility  of the management of an organisation to understand the fraud and misconduct risks that can undermine the business objectives. KPMG further stated that it is also the responsibility of management to determine the anti-fraud programmes utilized against fraud and misconduct in the organisation. The focus of management, according to KPMG, is also to gain insight on better ways to design or evaluate controls to prevent, detect and respond  appropriately  to  fraud and misconduct. Other responsibilities of management as it concerns corporate frauds and misconducts are to create sustainable processes and structures for managing fraud risks and for improving performance in the organisation. Furthermore, KPMG stated that it is also the duty of management of any organisation to strive to achieve the highest levels of business integrity through sound corporate governance, internal control and transparency.