EFFECTIVE INTERNAL CONTROL OF FRAUDS IN BANKS A CASE STUDY OF COMMERCIAL AND MERCHANT BANKS IN NIGERIA

EFFECTIVE INTERNAL CONTROL OF FRAUDS IN BANKS A CASE STUDY OF COMMERCIAL AND MERCHANT BANKS IN NIGERIA

ABSTRACT

Ever since banking evolved, banks have come to be seen as one of the few places where one’s treasures can be kept without fear of theft. As a result bankers all over the world were and still are seen as repositories of trust and fidelity. However, in the recent past, the integrity  of bankers and the banking industry in Nigeria have come into question. An epidemic called fraud has hit the banking industry. This fraud has led to the loss of confidence by the public in banking institutions. The incidence of fraud is universal and permeates the society as a whole.  However, for this study, we have narrowed down our scope to the commercial and merchant banks in order to take a meaningful study. Though not specifically stated, yet the researcher conducted the study for the period between 1985 to 1994, within which period cases of fraud were much in the news. The research was based on a number of postulations which include

1. The clerical category of bank employee is more likely to engage in fraudulent activities than 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 are more able to combat frauds than their counter parts with less effective internal control system. However, the research work was inadvertently limited by a number of factors, such as the secrecy of banks and the sceptical attitudes of respondents in answering questions in the questionnaire. Yaro Yamen’s formular was used in determining the sample size for then study. Hence of a total of 66 commercial and 54 merchant banks operating in Nigeria as at 1994, about 110 of the two combined were chosen as the sample. Of this 10 of the possible respondents could not return their own questionnaires, hence the Researcher had to use 100 for the study. Furthermore, Bowleys, proportion allocation formular was used to determine the exact number of banks in each category that would be contained in the sample.

It is also worthy to note that the researcher deliberately administered the questionnaires to the accountants of the banks in the sample as he felt that this will ensure validity of the measuring instrument. A number of findings were made in the course of the study. A few of them include:

1. Commercial banks had more incidence of fraud than other categories of banks.
2. All the banks have internal control system.
3. Majority of the internal control system in the banks are only fairly effective.

Finally, some far-reaching recommendations were made by the Researcher. A few of them can be stated to include:

1. Ensure effective internal control system. As was determined in the study, the problem was not with the installation of internal control system as all the banks in the sample had it. However, the problem is with its effectiveness. Management of these banks should strive to ensure the effectiveness of the system. There should be periodic reviews in this direction.
2. Banks should review their employment and motivation practices. The commercial bank should endavour to borrows a leaf from the merchant banks by employing qualitative staff to man positions in the banks. This is because highly qualified staff are usually paid higher salaries and such may deter the staff from engaging in fraud.
3. Banks should acquire for use, the standardized computer cheque book that can encode characters on documents, read encoded characters, sort documents by various codes, and list documents that are sorted or unsorted. This computer will help in reducing the incidence of frauds in banks.
4. In addition to the standardized computer cheque books, the banks should strive to get computerized. Computerization reduces the amount of delay of customer-time, as well as ensuring that records are stored both in the magnetic disc, fleadiskettes, as well as the printouts. Similarly, this would help in reducing the incidence of fraud.