Accounting Project Topics

Problems of Fraud and Their Solutions in Financial Institutions

Problems of Fraud and Their Solutions in Financial Institutions

Problems of Fraud and Their Solutions in Financial Institutions

Chapter One


Doubtless fraud has become a cankerworm that is eating deep into the system of the Nigeria financial industry consequently bringing dents on the reputation of the banks concerned arid reducing the level of confidence the public has in the entire banking system.

Therefore, the objective of this research work is to find more realistic ways and means to minimize the occurrence of fraud, if not absolutely eradicating frauds in banks. Other objectives of this research work are as follows:

  • To identify the causes of and opportunities (loopholes) for the perpetration of frauds in the Nigerian banking industry.
  • To ascertain the extent of the effect or dangers of fraud on the Nigerian banking industry.
  • To identify the type of fraud and the category or group of people’ most especially within the banks who are likely perpetrators of frauds in the banks.
  • To identify measures that may be out in place for the prevention and detection of frauds in banks.
  • Recommendations need to be effectively implemented. Therefore one of the objectives of this research work is to identify means through which this could be done.



 Origin of Fraud

It is very difficult to trace the origin of fraud however, in the case of fraud perpetration, Adewole, 1990, opines that any minor mistakes by an individual which is not detected in time or at all makes such an individual to think that the success of such mistakes may be taken advantage of and may proceed to enact more mistakes, this time, deliberately so as to test the system’s check and balance. He stresses that where a deliberate mistake is made and is successful, the individual takes benefit of it for selfish end. He refers to this behaviour as fraud, since it is now a deliberate action aimed at dishonestly enriching the individual. The next logical step for such an individual is definitely to continue with such errors until he eventually graduates to a hardened fraudster.

It can therefore be deduced that the genesis of fraud is traceable to the committal of minor, undetected mistakes, which are consequently capitalized upon by individual intending to defraud. (Adewole, 1990).

What is Fraud?

Fraud has been variously defined in the literature. Most developing countries of the world regard fraud as criminal act. In Nigeria, it is equally recognized as a crime too, this promoted the promulgation of decree on fraud and other fraud related matters/ structures namely “the failed Banks and recovery of public debts decree 18 of (1994), Banks and other financial institution decree (BOFID) 1991, money laundering Act No 3 of 1995 Federal Intelligence Investigation Bureau (FIIB), Independence Corrupt Practices Commission (ICPC) and Economic and Financial Crime Commission (EFCC).

According to Oxford Advance Learners Dictionary of Current English “Fraud” is defined as “a criminal act/ deception. According to Udok (1992) Fraud is concerned with the activities of those who seek to divert to their pockets the fruits of others hard work. Adeniyi (2004) sees Fraud as an intentional act by one or more individuals, among management, employees or third parties which results in a misrepresentation, of financial statements which involve.

  1. Manipulation falsification or alteration of records or documents.
  2. Misappropriation of Assets.
  3. Suppression or omission of the effect of transactions from records or documents.
  4. Recording of transaction without substance.
  5. Misapplication of accounting policies.

According to Adekanye (1983) “Fraud” is an act of falsifying or altering of a writing document for the purpose of doing injury to another person. He therefore, continued by saying any alteration of a writing document made with intention to defraud is therefore forgery”.

According to Wiki pedia (2007) fraud is any insidious, sneaky crime that ruins individuals and families, causes corporation to go under. Eze (2004) refers to fraud as irregularities involving the use of criminal deception to obtain an unjust or illegal advantage. Another definition of fraud put it that, it is an act by which one person intends to gain a dishonest advantage over another person.

What is Bank Fraud?

Frauds in the banks are not new they are as old as the industry itself. Bank fraud can be defined as a conscious or deliberate effort aimed at obtaining unlawful financial advantage at the detriment of another person who is the rightful owner of the fund. Orjih (1998).

Bank fraud must be looked at generally as acts that involve the loss of assets by banks through deceitful and dishonest means. The intention of the fraudster is to dishonestly benefit himself to the detriment of the bank or bank staff or bank customer or any member of the public via banking operations. Fraud can be committed by bank customers, bank staff or a combination of staff and customer or third parties that is non-customers.

Also, bank fraud as a canker worm has eaten deep gradually into our social fabric and a concerted effort by individual, government, bank staff and authorities concerned will be required to minimize its occurrence. Unfortunately, bank managements are generally unwilling to release details of frauds that may have been perpetrated in their banks for fear of loosing their corporate image. Eze (2004).

 Nature and Types of Bank Frauds

Frauds in banks vary widely in nature, character and methods of operation. In general, fraud perpetrators, using different methods of fraud perpetration, can commit bank fraud. On the basis of perpetrators, bank fraud may be categorized into three groups (Shogotola, 1994).

  1. Internal Fraud
  2. External Fraud
  3. Mixed Fraud.
  4. Internal Perpetrators of Fraud: This relate to members of staff (insiders) Accountant, Executives Assistants, supervisors, clerk (cashier), typist/ stenographers, Technicians, Drivers, Cleaners etc.
  5. External Fraud: are fraud related to those committed by persons not connected with the bank. A typical example was that of the armed robbery attack either during the banking hours or during special movement of cash in transit). More so, some external fraud could result through carelessness and recklessness or negligence on the part of some customers. Often times, it comes through corporate accounts in which a dishonest staff may have access to the company’s cheque book.





In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.


According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description.

This study was carried out to examine the fraud in the nigerian banking industry: causes, consequences and solution. Selected banks across the country form the population of the study.



This chapter deals with presentation, analysis and interpretation of various data collected in the course of the research, using chi-square (x2) as the appropriate statistical tool.

Table 2. Question 1





The conclusion drawn on this study is that bank fraud as a cankerworm has eaten deep gradually into our social fabric. Management of fraud in commercial banks is of great importance and has a lot of benefits to both the banks, customers and the entire public if properly carried out. This includes:

  1. Giving confidence to the bank customers that their money is safe.
  2. Encouraging or attract local and foreign invetors to invest their money into the banking sector with the impression that their money is secure.
  3. Exposing the fraud victim in the commercial banks for punishment and prosecution.
  4. Giving the commercial banks the impression that their business environment is free from fraud and they are working with faithful and honest staffs.


Based on the findings of the study, the researcher made the following recommendations:

  1. Government should establish more anti fraud and anti corruption agencies to assist in sanitizing Nigeria banking system.
  2. Bank management should employ strategies that will ensure early and prompt detection, prevention and control of fraud in commercial banks.
  3. Banks management should strengthen their security arrangement and use sophisticated security gadget to ensure tight security in both inside and outside the bank premises.
  4. The recruitment system in the bank should be base strictly on merit instead of considering who you know, connection and tribalism. This will ensure efficient and effective staff functioning.
  5. Banks should avoid employing fraud victim in the bank or in other organizations.


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