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

1.2.    STATEMENT OF PROBLEM
Frauds have led to the loss of large amount of money in the economy as a whole and in banking industry in particular. Some critics have even pointed accusing fingers on fraud as contributing significantly to the financial distress of some banks and the poor performance of the others. Central Bank of Nigeria Annual Report for 1994, pointed out a total number of distressed banks were 42 as the end of 1994 and this was as a result of fraudulent practices in these banks. Besides, in view of the role played by banks in the economy, fraud goes a long way depriving the economy of the necessary funds required for sounds economic activities.
It forces the management of each bank to spend their hard-earned money in a bid to check the occurrence. Moreover, it puts question marks on the integrity of the employees and management of the concerned banks and gives rise to absolute loss of confidence in the banks.
Thus, this study wishes to address the following problems:
1.    Could effective Internal control system aid in minimizing the incidence of bank frauds?
2.    Do banks with effective internal control systems have less incidences of fraud than those with less effective internal control systems?
3.    Do employees in merchant Banks adhere more to laid-down rules than their counterparts in the commercial banks.
4.    Do    banks    without    effective    internal    control    system    have    other effective ways of combating frauds?
It is expected that solution to these problems will be suggested in this research study.
1.3.    OBJECTIVE OF THE STUDY
This study is aimed at achieving certain objectives which will mean an other milestone in the efforts to stop, or rather, control or minimize bank frauds. The objectives of the study include:-
1.    Finding out types, causes, nature and techniques of bank frauds, and why people engage in frauds.
2.    Examine the banks’ detection and control, and preventive measures against frauds, the incidence of frauds, and whether banks have adopted special methods of controlling frauds.
3.    To determine why bank frauds have continued to exist inspite of all the control measures adopted.
4.    To suggest the introduction of effective internal control system to help in minimizing the incidence of frauds.
1.4.    HYPOTHESIS
The postulations for this study include the following:-
1.    The clerical category of bank employees are more likely to engage in fraudulent activities than the management cadre.
2.    Banks that have less fraud occurrences are more likely to be profitable than those with high incidence of fraud.
3.    Commercial banks are more likely to have cases of frauds and forgeries than the merchant Banks.
4.    Banks with effective internal control system are better able to combat frauds than their counterparts with less effective internal control system.
1.5.    SIGNIFICANCE OF STUDY
This work will be of immense importance and assistance to management and owners of banks in Nigeria, as well as other developing countries, as it will contribute significantly towards the detection of frauds.
Besides, it will be of immense value in frauds prevention. The banks can benefit from this work by using the suggestions and recommendations made in the study in piloting the affairs of the banks, if this is done, certainly, banks will be operating more profitably as frauds will be reduced to the barest minimum, if not totally eliminated.
Furthermore, the study will have the effect of enhancing the interest of depositors, as well as the banking culture in bank customers. This is because knowledge of fraud and fraudulent practices in banks dampens the spirit of the customers and make them feel unsafe at keeping their deposits in the banks. However, if the suggestions and recommendations embodies in this study are implemented, the writer hopes that it will go a long way to forestall fraud occurrences and hence rekindle once more their interest in banking.
Finally, the government would also find the work beneficial. This arises out of the fact that the government is currently in the forefront of ensuring fair practices in the financial system. This may be borne out of the fact that it realizes the central role that banks play in the development of the economy.
1.6.    LIMITATIONS AND SCOPE OF STUDY
A major factor that grossly limited this study is the rate of response by the prospective. A number of reasons may have given rise to this.
First, the skeptical attitude of most respondents made the response rate to be low. Some respondents envisaged that the completion of questionnaires on the topic will give rise to suspicion by their employers on their possibility of getting involved in frauds.
Again, the traditional philosophy of secrecy of banks in their operations played its own role. A lot of data would not be made available for use because of the preservation of the secrets of banks in order to protect the bank’s image. They argued that the public might lost confidence in them, should they learn that fraudulent practices also occur in such banks.
Finally, no bank likes its competitors to know much it losses annually to fraud because it is an instrument with which internal control efficiency of banks is measured.