Effective Internal Control Of Frauds In Banks A Case Study Of Commercial And Merchant Banks In Nigeria

CHAPTER ONE
1.1.    INTRODUCTION
Banks, especially commercial banks, are the major mobilizers of saving in any economic system by offering savings facilities to the public. Some of the functions of the banks include the acceptance of deposits from the public and channeling such deposits to the deficit sectors of the economy who are in need of inventible funds. These two related and dependent functions bring the banks face to face with the public who come to obtain their services. This implies that banks attend to a large number of customers who they may not, most of the time, personally know, or whose identity the banks may not immediately know. This shows that banks will be unable to have an immediate identity of these customers all of whom either have honest or fraudulent intentions.
The word fraud is described as a social menace perpetuated by a person or a group of persons with the intention of altering the truth and, or fact, for selfish personal gain.
Fraud occurs when a person in a position of trust and responsibility, in defiance of prescribed norms, break the rules to advance his personal
interests at the expense of the public interest he has been entrusted to guard and promote. It also occurs when a person through deceit, trick or highly intelligent, cunning, gains an advantage he could not otherwise have gained through lawful, just, or normal processes.
Worried by this rising tide of bank frauds, the International Corporate Development Agency (ICDA) recently organized a two-day seminar on strategies for minimizing bank frauds.
According to Dr. Falorunsho Abudu, a deputy general manager with First Bank PLC, a resource person at the seminar, major consequences of bank frauds include loss of capital by banks and their shareholders as well as loss of public confidence, litigations, regulatory sanctions and negative publicity.
According to the Nigerian Deposit Insurance Corporation (NDIC) the amount involved in frauds in the nations banking system rose from N804, 196 million in 1990 to N3.309 billion in 1994. NDIC records also show that commercial banks are most hit in this fraud virus as the growth rate of frauds in commercial banks rose by over 700 percent between 1991 and 1994. The higher tendency of frauds in commercial banks may be attributed to the fact that commercial banks operate from chains of branches compared with merchant banks with as small number of outlets.
Frauds in banks could be committed through many ways. These include forgeries on accounts whether savings deposit or current, forgeries of transfer instruments such as drafts and mail over invoicing for services rendered to banks and the opening and operation of false accounts as well as creation of false credit balances.
Dr. Abudu also observed that frauds in banks can be committed through suspension of cheques, diversion of bank frauds, foreign exchange malpractices and embezzlement or outright theft of cash. Other methods are by advances to non-existing customers, misuse of various suspense accounts and the suppression of cash lodgments.
Unfortunately, too, the bank’s internal control systems are only fairly effective. In cases where they try to obey the internal control procedures, they waste so much of the customers time that one could not help wondering whether the bank staff are not sabotaging the internal control procedures.
Studies have also shown that there is a very high customer-bank ratio. Hence, working side by side with this Nigerian banks lack adequate, well trained and committed staff to render effective and efficient services to these customers. This has therefore informed the intention of the writer to examine the effectiveness of an internal control system as an aid to check fraud in banks.