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CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

Fraud is an intentional deception made for personal gain or to damage another individual. Fraud is a crime and a civil law violation. Defrauding people of money is presumably the most common type of fraud. Customers of banks in Nigeria are currently experiencing increase in fraud schemes, Scams to get a customer personal information can occur through many different means such as e-mail and telephone. Bank fraud is the use of deceitful means to obtain money, assets, or other property owned or held by a financial institution.

In its broadest terms, fraud means obtaining of something of value through deception. If fraud were to be described as an industry it would clearly be one of the fastest growing areas of the economy. One hundred criminals who serve several periods of imprisonment for armed robbery offence were recently reported that he wished he had understood earlier in his criminal career how easy it was to commit fraud. He now considers that fraud involves less traumas, the reward are far greater and the penalties substantially fewer than in other form of crime. This study will address those forms of fraud that target the financial service sector and how the industry has responded with some measure successful in controlling this ever increasing problems and other measure that can be geared towards achieving further results. In many instances, bank fraud is a criminal offence, while the specific element of a particular banking fraud law varies between jurisdictions; the term bank fraud applies to actions that employ a scheme as opposed to bank robbery or theft. The banking sector in any country plays a fundamental role in increasing the level of economic activity as intermediaries to both suppliers and users of funds, banks are effectively situated in a continuum that determines the pulse of the economy. Worldwide, the ability or inability of banks to successfully fulfill their role as intermediaries has been a central issue in some of the financial crisis that has been witnessed so far. Diamond (1984) posits that a special feature of banking activities is to act as delegated monitors of borrowers on behalf of the ultimate lenders (depositors).

In this special relationship with depositors and borrowers, banks need to secure the trust and confidence of their numerous clients. Though this requires safe and sound banking practices, it is not always the case as bank failures in different countries have come to prove. Controlling bank fraud in the financial sector is a major task for all the stake holders in the sector. Every year, banks lose billions of naira to fraud which comes in all size and shapes both from external perpetrators and internal employees.

The rise in fraud in the banking industry has lately become an embarrassment to the nation as apparent in the seeming inability of the law enforcement agents to successfully track down culprits. Whereas the activities of armed robbers is given widespread reviews in the pages of newspapers, especially during major thefts, it is an irony that what they cart away from banks is only a slice of what fraudsters remove from banks tills.

Also the number of insiders (staff) who connive with outsiders to perpetuate the act is alarming. According to an NDIC publication, about 1,914 bank staff of various banks was involved in bank frauds between 1994 and 1996. The report also established that frauds contributed immensely to the failure of most banks in the 1990s, the amount involved representing as much as 32.1% of shareholders funds in 1998 (Udegbunam, 1998). Equally worrisome is the rise in the number of top management staff that have either been indicted or accused of engaging in bank fraud. Against these background, the main purpose of this study is to ascertain the nature and causes of bank frauds; as well as proffer solutions that it is hoped, would help reduce the rise in bank frauds in the country.

1.2  Statement of the Problem 

As earlier mentioned, the Nigerian banking industry which is the back bone of Nigeria economy is one of the most profitable of higher performance and could achieved better result in output and obligation to the society. To realize this, the banking industry will have to perform lending role that can reinstate the economy. The larger society expects greater accountability, fairness, transparency and effective intermediation from banks, ensuring that they carry out their responsibilities with sincerity of purpose and devoid of fraud which is an important ingredient for gaining public trust and goodwill. The extent to which fraud is prevalent in the banking sector, the nature and causes of bank frauds and proffering possible solutions to the problem is in essence what this research work is all about.

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