EFFECFTIVE INTERNAL CONTROL AS THE BASIS FOR PREVENTION AND DEDUCTION OF FRAUD IN BANK IN NIGERIA (A CASE STUDY OF ZENITH PLC ENUGU)
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EFFECFTIVE
INTERNAL CONTROL AS THE BASIS FOR PREVENTION AND DEDUCTION OF FRAUD IN BANK IN
NIGERIA (A CASE STUDY OF ZENITH PLC ENUGU)
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Even since
the inception of the first three successful indigenous banks in Nigeria, the
National Bank of Nigeria established on February 11th 1933, the Agbommagbe Bank
(now wema Bank Nig Plc) in 1945, The ZENITHcan continental Bank Plc in 1947 and
others subsequently established in the country
during the period from 1952 when
the first banking ordinance was enacted to regulate and control the activities of commercial
banks in the country till present day, prand have remarried a permanent feature
in our banking industry.
During the
free banking era (between 1892 and 1952) there was no form of banking act or
ordinance to regulate the stabilities shipment and operation of commercial
bank. There are as it is presently supervised. Many bank were registered. Some
of did not open their doors for business
ever for a day while some simply collected customers deposits and varnished.
This had resulted to the deprivation of our economy an as a whole the much
needs fund for development and depriving
individual the hard earned funds, this also brought about loss of faith trust
on the commercial banks by Nigeria and the subsequent under developed banking
habit in the country
However,
with the introduction of the first banking ordinance in 1952 and the central
bank of Nigeria (CBN) ordinance in 1958 to regulate and control the activities
of commercial banking in the country fraud in commercial banks have rather
increased in size, and method used by fraudster acquires greater sophistication day by day. Presently with the
introduction or modern banking procedures ie improved communication system,
automatic electronic gadgets and computers networks into our banking system
coupled with various precautionary measures taken by banks. To prevent fraud in
the banks fraud have rather taken unclear dimension and the six and form involved
increase in a geometric progression. Other Amptiam in his articles obstacle o
growth of baking industry saw that it was discovered during investigation that
bank now take extra precaution before clearing a cheque because of rampant
incident of fraud and forgeries the form of fraud has placed banks loss on the
average of # 1m per each working day of the year in Nigeria Asimi kola in his
own article “The cash economy phenomenon” also observed that fraud has become
sophisticated as to make forget cheque book good the owner to confirm it as his
own signature recently in the bid curb the grand fraud, CBN issued a directive
to bank to increase it capital base to # 25 billion. Previously section a of
the decree 1990 state that, the minimum paid up capital for bank is #50 million
for commercial bank. This directive come up after several bank has been
discovered to have defrauded it is customers mostly foreign investors. In this
required .
Bankers in a
bid to reduce the size and rapid occurrence of fraud in their bank now take
adequate precautionary measure before clearing cheques drawn their customers
accounts. These precautionary measures bring into focus another problem facing commercial
banks,. The problem of time wastage in the banking hall. Ashimi Kola in his
article also said that customer waits a minimum of about two hours in banking
hall of Nigeria banks to cash their
money. This is one of the most
legitimate criticisms of the quality of
bank services. The checking process is long and by the time a cheque is
released to cashier for payment, the customer is frustrated and perhaps Rast
asleep among feering crowd. This calls for an overhaul of the checking and
control system. E above being the general situation of things in commercial
banking fraud is there fore number one enemy to all concerned with growth and
development of banks., the intention of this research work therefore aimed at
identification of the fraud on Nigerian economy in general and on ZENITH
Nigeria plc Enugu in particular and
recommend more functional measure that will help in the prevention and to
reduction of fraud in commercial bank in Nigeria.
1.2 STATEMENT OF PROBLEM
The focus of
this study is to provide evidence bearing on the nature and factors leading to
ineffective management in bank, also it actually evaluates the uneremental
effect of FRUAD and finally shows INTERNAL CONTROL as a basis to prevention and
detection of fraud.
1.2.1 INADEQUATE INTERNAL CONTROL SYSTEM
Owing to
perculias nature of banks in trading on financial asset and liabilities, there
is high propensity towards fraudulent
manipulation by both employees and those outside the bank to install internal
control system that will help to eliminate stop and arrest fraudulent
tendencies and ensure effectiveness in performance of its functions. It is
the function of the internal control
Unlit to assist management in achieving
effective. The consequences of lack of
adequate internal control system in direct and financial term can not be over
whelmed. Thus banking subsector has
been witnessing as phenomenal
increase in reported bank fraud ruing in hundreds of million of naira annually.
These occur in form of computers frauds, deflation misrepresentation of document
outright disappearance with physical cash by
employees and outsiders and the re occurring problem of banks branch
mangers granting credie over their discretionary as approval by the top management without adequate security
hence resulting to losses and increased bad debt
1.2.2 INNEFFICIENT WAYS OF TRANSACTING BANKING
OPERATION
Most banks
operate business in such inefficient way that their target and budget becomes
always unrealistic thus leading to negative result and poor performance. The
end result is that while efficiently
managed banks are seeking approved to open new branched the mismanaged ones are
busy clamoring to be allowed to close
unlivable branches one even close their door entirely. The problem of lack of
economy and efficiently in operator is more serious than fraud as it is mammals
of procedures. Recording of some transaction of bank by employees are not done
in conformity with established standard hence resulting to back of unbalanced
book and records.
123 LOAD LOSSES AND INCREASING BAND DEBT PORTFOLIO OF BANK
Increasing
bad debt portfolio of banks inherent from high credit default by ,loan users
has been giving bankers sleepless night as a substantial part of their income
is row used as a provision against these debt in view of the requirement of
prude ntital guidelines for licensed bank issued by the central bank of Nigeria in off Nigeria in 1990, in 1991,
financial year, most of the existing
bank will hinge portfolio after report
losses or very minimal profile position ,after making the necessary provision are required by the guidelines.
It is
because the continuous concerns of government and other regulatory bodies about
the problem of banks and the serious need for effectiveness by their management
that various registrations and directive were made in the recent time Recathly
the CBN issued directive to bank for recapitalisation up to N25 billion, in
January 1991 CBN issued circulated to all bank directors an information book
lets (pocked Guide for bank Directors) Equally in 1991, the Bank and other
financial institution decree was promulgated by government.
1.3 PURPOSE OF STUDY
The
principal purpose of lilies study is to identify and explain how internal
control Adit could be used to check fraud and detect fraud. Using ZENITH bank
plc and a case study
However, in
more specific term, lies study scale to
Identify to what extent adequate internal
control is ZENITH Plc
Fund out the extent of ineffective way of
banking operation.
Determine the overall loan losses and
increasing bad debt portfolio
1.4 SIGNIFICANCE OF STUDY
The
usefulness of this study entitled effective internal control as a basis for
prevention detection of fraud can not be over whole the researcher was motive
into embarking on this study because of the positives result accruable from an
adequate internally control organization. Equally the result of this study
would be immense benefit to numerous group of persons such as Auditors,
External Examiners, Managers, the Accounting and Banking professions,
Regulatory bodies of banks and other operators in the banking system. When the
society is corrupt, wealth an groritied irrespective of its sources. The desire
to join the political and the ruling class may compel most bankers to throw
professional ethic to the winds for praudul practices. This therefore makes
study very important.
Acknowledgement
of the possible causes of disease will assist a medical doctor to give4
adequate prescription for the prevention and cure of disease similarly, it will
be pertinent to analyze and recommend directive, preventive and curative
measure to check fraud and distress in banks. Indeed internal control machinery when installed can do this
,Also recruitment not based on sentiments but on personal integrity will
prevent recruitment of weptomanaic, greedy
and ungodly people in bank
It is
believes that for effective management, management by example should be the
watch word of every banker, be he a director, manager officer, supervisor
clerk, or messenger. Everyone should be made to comply with the lay down
policed and procedure in performance of any banking function. He who says
people should not steal should not steal too
1.5 RESEARCH QUESTION
This
study is on appraised of internal
control as a basis for fraud prevention and detection. It intend to cerate
relevant theoretical concepts and relates them
Adri bank plc in Enugu in a way that it would be helpful to those concerned
with the management.
In a nutshell
this theses is based on the following question
To what extent are banking operation
effective in ZENITH bank?
How adequate is the attitude and perception
of banking transaction
What extent are FRAID AND IRRECULARIDES
occures in ZENITH bank
SCOPE AND
LINITATION OF STUDY OF THE STUDY
1.6 The scope of this study is designed
to cover management function of internal control will particular reference to
ZENITH bank plc. This research work met a lot
of difficulties First the bank visited was reluctant to gives out
relevant statistical data on financial frauds occurring in their banks. None of
these banks denied of ever being a victim of fraud this is non compliance
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