THE ROLE OF INFORMATION AN]) COMMUNICATION TECHNOLOGY (ICT) IN FRAUD DETECTION IN NIGERIAN BANKS. (A CASE STUDY OF FIRST BANK OF NIGERIA ENUGU)

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ABSTRACT

This research work aims at determining the role of information and communication technology in detecting fraud in the Nigerian banking system. The banking institution which has integrity and trust as its hallmark has been exposed to various forms of fraud and various means employed in defrauding banks. Fraud derails the society’s integrity and value among the committee of nations and in effect, affects the level of trust. The banking sector has been the cornerstone of economic and financial mainstay of any nation, hence the need for study of the role and the effectiveness of information and communication technology in fraud detection in the banking industry. First Bank of Nigeria Pie, Enugu metropolis was used as a case study. The research work treated the causes of fraud in Nigerian banks, forms of bank frauds, Effects and consequences of fraud in first bank of Nigeria plc, the information and communication technology and fraud detection in banks and Fraud control measures in banks.

The methodology adopted in this study is the survey research design%. There were interactions with bank staff of various cadres with structured questionnaire to know their own opinion. 400 questionnaires were administered of which 320 were duly completed and returned. Some of the findings from the research work reveal that lack of staff motivation has an effect on the incidence of fraud in Nigerian banks. It also reveals that the introduction of ICT into the banking industry has reduced the incidence of fraud in Nigerian banks. Further findings reveal that the Nigerian banking laws are not adequate for fraud control in banks.

Based on the findings of this study, recommendations made are the adoption of computer aids as tool for fraud prevention and control; banks should employ highly sophisticated security gadgets in their banks, like surveillance TV systems, on —the-spot photographing of customers etc. Proper reviewing of laws relating to fraud should be encouraged and stern penalties that commensurate with any offence committed should be embarked on.

CONTENTS

Title page                                                                                                    i

Certification                                                                                                ii

Dedication                                                                                                  iii

Acknowledgements                                                                                     iv

Abstract                                                                                                      v

Table of Contents                                                                                       vi

List of Tables                                                                                              ix

TABLE OF CONTENTS

CHAPTER ONE: INTRODUCTION

1.1 Background of Study                                                                           1

1.2 Statement of the Problem                                                                     4

1.3 Research Questions                                                                              6

1.4 Objectives of the Study                                                                        6

1.5 Research Hypothesis                                                                                      7

1.6 Scope of the Study                                                                               7

1.7 Limitations of the Study                                                                       8

1.8 Significance of the Study                                                                      8

1.9 Overview of First Bank of Nigeria Plc                                                  9

1.10 Definition of Terms                                                                                      12

References                                                                                         13

CHAPTER TWO

2.1 Literature Review                                                                                 14

2.2 History of Information and Communication Technology .        15

2.2.1 Information and Communication Technology                                   17

2.3 Organization of the Bank                                                                     19

2.4 Definition of Fraud                                                                               21

2.5 Forms of Fraud                                                                                    26

2.5.1 Other Types of Fraud                                                                        31

2.6 Causes of Fraud                                                                                   32

2.6.1 Causes of Bank Fraud                                                                       33

2.6.2 Methods of Fraud Perpetration                                                                   38

2.7 Extent of Fraud In Banks                                                                     39

2.8 The Effects of Fraud in First Bank Of Nigeria                                               41

2.8.1 Implications of Fraud                                                                        42

2.9 .ICT and Fraud Detection                                                                     44

2.9.1 Achievement of ICT in Fraud Detection In Banks                     46

2.9.2 Shortcomings of ICT in Fraud Detection In Banks                       47

2.10 Fraud Control Measures in Banks                                                      48

2.10.lOther Control Measures                                                                    54

References                                                                                                  55

CHAPTER THREE RESEARCH METHODOLOGY

3.1 Research Design                                                                                   58

3.2 Sources of Data                                                                                    59

3.3 Population of Study                                                                             61

3.4 Sample Size and Its Determination                                                       61

3.5 Method of Data Collection                                                                             63

3.6 Reliability of Data                                                                                63

3.7 Validity of Data Collected                                                                              64

3.8 Method of Data Analysis                                                                     64

References                                                                                                  65

CHAPTER FOUR

4.1 Presentation and Interpretation of Data                                        67

4.2 Hypothesis Testing                                                                               74

CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION

5.1 Summary of Findings                                                                           83

5.2 Recommendations                                                                                84

5.3 Conclusion                                                                                           86

Appendices                                                                                                          88

Bibliography                                                                                              92

LIST OF TABLES

Table 4.2.1: The introduction of ICT into the banking industry had reduced the Incidence of fraud in First Bank of Nigeria Plc.

Table 4.2.2: Lack of staff motivation gives rise to fraud in First Bank of Nigeria

Table 4.2.3: The Nigerian banking laws are not adequate for fraud control in banks

Table 4.2.4: Poor salaries and inadequate working conditions induce bank staff to commit fraud.

Table 4.2.5: Inadequate fraud detection system in operation in banks causes frequent Fraud.

Table 4.2.6: Information and communication technology is effective in the detection of fraud in Nigerian banks.

Table 4.2.7: Information and communication technology ensures that proper book of account are maintained in Nigerian banks.

Table 4.2.8: Information and communication technology minimizes financial anomalies in Nigerian banks.

Table 4.3.1 : Contingency table 1

Table 4.3.2 : Contingency table 2

Table 4.3.3 : Contingency table 3

CHAPTER ONE

1.1 BACKGROUND OF STUDY

Historically, fraud has always existed with the nature and life of mankind. There is a general consensus amongst criminologist that fraud is caused by the elements called “WOE”- Will, Opportunity and Exit. i.e., the will to commit the fraud by the individual the opportunity to execute the fraud and the exit which is the escape from the sanctions against successful or attempted fraud.

Fraud is a global phenomenon. It is not unique in any sector of the economy or peculiar to Nigeria. The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three year old child talks about yahoo mail or 419, newly discovered sobriquet for advanced free fraud that is hunting us as a nation. Nigeria, with all of its natural and human resources, tethers on the brink of destruction because of fraud. Much of what we do is “cutting leaves” instead of dealing with the root problem. Generally, fraud takes its root from the human heart. It is an axiom that the heart is deceitful above all things and is desperately wicked.

Fraud is the number one enemy of the business world, no company is immune to it and it is in all works of life, it is becoming predominant in the banking industry, as banks are now persistent targets of frauds. Nwankwo (1991) said that there is no where fraud is more serious than in banking. It is the biggest cause of bank failure. The fear is now rife that the increasing wave of fraud in the financial institutions in recent years, if not arrested might pose certain threats to stability and the survival of individual financial institution and the performance of the industry as a whole and no area of the economy is immune from fraudsters and even the banking system. Fraud if not checked might cause run on in the banking sector.

Fraud together with its sister white-collar crimes which came into being later in the 19th and 20th century inter alia corruption, money laundering, tax evasion, externalization of foreign currency to itemize just a few have stood as potent weapons capable of hemorrhaging the entire world economies particularly the banking sector because of its high risk factor.

Since fraud is carried out over a period of time, a minor one at the initial stage snowballs into a sizeable one over a period of time. However, the incidence of fraud has become a nightmare to the bankers who are particularly concerned, not only because it is on the increase, but also it acquires sophistication and tries outwitting every new technology. In the past years, cases of frauds in banks have been on the increase with each year recording staggering figures, even though most of the reported cases are essentially different types of fraud, An example is defrauding a bank using a genuine account of an employee who is the defrauder. Another one is through the use of fictitious account; also, fraud is carried out with the aid of an employee’s friend. Similarly this unhoiy act is sometimes done using an account of a third party that depends on an employee-insider to perpetrate the cnrne.

Fraud is a universal phenomenon which has been in existence for so long. Its magnitude cannot the security team designed to prevent it. Its management has become a central point in banking like the management of risk because of the above fadts. Fraud and its management have been the precipitating factor in the distress of banks, and as much as various measures have been taken to minimize the incidence of fraud, it still rises by the day because fraudsters always device tactical ways of committing fraud. This has become a point of great attention in the banking sector as well as every organization in Nigeria.

Technology is invented by man to manipulate his social and physical environments. The sociology of science and technology made us to understand that, technology came with both manifest and latent intents. The manipulation of computer and other information and communication technology (ICT) to detect fraud in banks gives more insight into the manifest function of technological revolution. When computer was invented, the intention of its inventors is to hasten data processing with effortless ease. That it has been doing efficiently by giving timely and accurate information. The ability of computer to control manipulations,

frauds, and forgeries continue to give the banking system the urge to upgrade their information communication technology (ICT) department. If not for the introduction of information communication technology system in Nigeria, fraud could have defeated the Nigeria banking industry. In this view, despite the introduction of the first banking ordinance in 1952 and central bank act in 1958 including acts and ordinance with the amendments over the years to control and regulate the activities of the banks, fraud rather increased in size and the techniques gained more sophistication.

The introductions of modern banking methods like automatic electronic gadgets; communication systems and computers; fraud has a watchdog to check its excesses. Due to forgery in cheques, bankers are extremely carefully when clearing them, and most times the forged cheques look authentic and the owner will have to confirm the signature on the cheque as his own. It is against this backdrop that this study seeks to evaluate the role of information and communication technology in Nigerian banks with special reference to First Bank of Nigeria plc.

THE ROLE OF INFORMATION AN]) COMMUNICATION TECHNOLOGY (ICT) IN FRAUD DETECTION IN NIGERIAN BANKS. (A CASE STUDY OF FIRST BANK OF NIGERIA ENUGU)