Causes of Fraud in Banks

The Encyclopedia World Dictionary defines fraud as “a deceit, trickery, sharp practice or breach of confidence” by which the Fraudster seeks to gain some unfair or dishonest advantage, while the legal definition regards it as:  “an act of depriving a person, dishonestly, of something that belongs to him or something that he would have been entitled.”

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The Encyclopedia World Dictionary defines fraud as “a deceit, trickery, sharp practice or breach of confidence” by which the Fraudster seeks to gain some unfair or dishonest advantage, while the legal definition regards it as:  “an act of depriving a person, dishonestly, of something that belongs to him or something that he would have been entitled.”

After reviewing the above definitions and others from Webster, Oxford and Banking dictionaries respectively, we can regard the following “acts” as fraud:

  • Deception – deceiving others to get what does not belong to you.
  • Dishonesty – lying to obtain value or deceive others to mislead them with the intention to obtain their asset or property.
  • Deprivation – the use of “false pretext” to deprive other people of their property or money.
  • Sharp practice – use of skills or knowledge unlawfully to gain undue advantage or take over assets that do not belong to you.
  • Breach of confidence – fraudulent abuse of trust by a staff or a group of people to falsely obtain money or property.
  • Impropriety – fraudulent abuse of power entrusted to an individual for legitimate use e.g. where a CEO uses his position to gain undue advantage beyond what is authorized by the company for him.

 

There are many causes of fraudulent practices in Banks and Financial Institutions.  Let us discuss the critical four.

  1. Social / Misplaced Value System

In Nigeria, honest people are not valued or respected.  Our people place a high value on accumulation of wealth without regard for the source.  Our churches, mosques, musicians, traditional rulers and youths respect and honour the rich whether the source of his or her wealth is lawful or unlawful. Such indirect endorsement of “criminal acts” is enough to cause fraudulent practices.

  1. Law Enforcement

Local and International Fraudsters have perfected the art of escaping the long arms of the law. In Africa, most Fraudsters usually end up in palaces instead of jail houses.  Political Fraudsters usually pretend to be sick when they are caught and very often they engage in legal battle to leave the country to receive “treatment” for a non-existent ailment abroad – very often, this is done to escape justice.  Poor criminals go to prison in Nigeria while rich criminals get National Awards!

  1. Management Causes

Some organizations including banks usually formulate policies and adopt management principles that leave a lot of loopholes for fraud to take place.  Some of these loopholes include but not limited to:

  • Recruitment of staff without character check. They also use inexperienced, untrained and cheap staff in strategic positions to reduced operating expenses.
  • Low remuneration package with the false hope of reducing human resources costs and exploiting ignorant people.
  • Sub-standard or lack of security equipment e.g. dual control equipment.
  • Unrestricted access to computer database, customers’ records and funds transfer codes.
  1. Personal Causes

Notwithstanding the internal checks, controls, generous rewards system or other preventive measures within the organization some people will commit fraud.  It is in their “DNA”.  They are encouraged by the following:

    5.Moral Upbringing

 

Some people are not morally strong and they find it difficult to obey their conscience.  They will take part in fraudulent activities if the opportunities come.  But if the controls are tight they may not attempt to do so.  These people are normally referred to as “borderline fraudsters.”

    6.Weak Character

Some people are weak in mind.  If their superiors plan to manipulate and use them to perpetrate fraud they will reluctantly agree because of their inability to say no or due to real or unreal fear of job losses, promotion, financial problems.  Many corporate leaders have exploited such weaknesses to manipulate the young or inexperienced members of staff to steal and escape being caught.

Fraud is a big criminal industry.  In 2014 the NDIC report stated that more than N25 Billion was the value of frauds that were perpetrated in Banks. It is important to note that Fraudsters exist in all the Industries – bank and non-bank institutions

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