BANKING MALPRACTICE AND CONTROL; A CRITICAL ANALYSIS OF COMPUTER USAGE IN SELECTED BANKS

ATTENTION:

BEFORE YOU READ THE ABSTRACT OR CHAPTER ONE OF THE PROJECT TOPIC BELOW, PLEASE READ THE INFORMATION BELOW.THANK YOU!

INFORMATION:

YOU CAN GET THE COMPLETE PROJECT OF THE TOPIC BELOW. THE FULL PROJECT COSTS N5,000 ONLY. THE FULL INFORMATION ON HOW TO PAY AND GET THE COMPLETE PROJECT IS AT THE BOTTOM OF THIS PAGE. OR YOU CAN CALL: 08068231953, 08168759420

WHATSAPP US ON 08137701720

BANKING MALPRACTICE AND CONTROL; A CRITICAL ANALYSIS OF COMPUTER USAGE IN SELECTED BANKS

CHAPTER ONE

INTRODUCTION

Background of the study

Are greed and dangling carrots too alluring to resist? The Bernard Madoff investment fraud reinforces the Short Memory Syndrome that causes continual suffering. We need to resist the lure of scammers. No one makes huge investment returns every year, especially when the economic markets are in a downward cycle. Our society tends to forget about bad experiences in the past quickly. This is known as short memory syndrome. It has in no small measure exacerbated the incidence of fraud in our financial institutions.

Financial crimes in the Nigerian banking industry are real. There are various means through which they are perpetrated. The list is in exhaustive as new methods are devised overtime. The most essential and standard methods, according to Benson and Edwards (2006), Nwaze (2009) and Adebisi (2009) are:

1) Mail Fraud:

This is a process whereby the content of a duly authorized mail originated in a bank is converted to the benefit of the illegitimate recipient. Once the mail is altered, the benefit from there is switched to the fraudulent person.

2) Cashiering Fraud:

a) Pilfering: This is the act of stealing from counted cash by removing some units from the wrapper, bundle, etc. It is widespread in high denomination currencies

b) Teaming and lading:

This is also known as “carry-over fraud”. It commences with suppression of cash or cheque lodgment’s’ by cash handling officers and using other subsequent deposits to cover the already misappropriated fund.

c) Deposit Suppression:

Deposit instruments are destroyed to avoid any trace. Proper registration of deposits and treatment of control copy of deposit slips has reduced this type of fraud

d) Unauthorized Withdrawal:

This is an act of passing arbitrary debits into the account of customers. It is commonly perpetrated on large volume, dormant or illiterate customers account.

e) Vault / Till Cash Manipulations:

This is the act of presenting non-existing balances in the vault or tills as if they are real balances. Vault/ till manipulation could also be achieved vide replacement of actual cash with unauthorized paper or an IOU.

d) Foreign Exchange Manipulation:

Foreign currency in tellers till or vault can also be tampered with by a fraudulent staff because of the value if converted.

e) Stealing of valuable items in the Vault:

With the growing number of branches dealing with foreign currency notes and the advent of late depositing of cash, some fraudulent staff can easily make do with these items in the vault if improperly watched.

f) Fake Confirmation:

This can be in the form of confirmation of non-existing deposits to another branch (in most cases, orally via telephone) to utterly deny such confirmation later if issues arise.

3) Clearing related frauds:

This manifests mainly in the fraudulent use of cheques to obtain cash. The major types of frauds committed with cheques are Presentation of forged cheques, Cheque substitution, Suppression of clearing cheques, cheque cloning, cheque kiting, Issuance of ‘rubber’ cheques. Forgery of signatories and re-representation of already paid cheques through insider assistance.

4) Fund transfer frauds

Fund transfer can be local or international, e.g. Money gram, Western union etc. Fraudulent activities through this channel could come by way of identity fraud.

Identity Fraud:

This involves an impersonation of the real beneficiary of the transferred fund. This may be done by staff that have access to information about the transferor by an external fraudster who somehow got information about the shared fund

5) Manipulation of Fixed Deposit transactions:

This could come by way of inputting fixed deposits above approved rates, Back value dating of fixed deposit transactions, seeking for undeserved rate for customers, to the detriment of the bank to get benefits from the customer and improper classification of fixed deposit transactions for tax avoidance.

6) Manipulation/ Conversion of Assets:

a) Stealing / Conversion of Bank Property: Some bank assets, i.e. consumables, e.g., photocopying papers, staplers, biros, pencils, fuel, etc.

b) Income leakage:

In some instances, charges expected to be taken are deliberately ignored or particular concession, e.g. COT concession.

c) Over invoicing / ‘Expense Padding:

This has to do with the purchase of items such as assets, consumables or negotiating repairs etc., on behalf of the bank at inflated values for the personal benefit of the negotiating staff.

7) Credit Fraud or Risk Asset Manipulation:

Much of the distress experienced in the banking industry in Nigeria has to do with the management of credit facilities. Loans are the most typical type of credits granted by banks and experience shows that their vulnerability into fraudulent manipulation begins as soon as the first requests are made.

8) Advance Fee Fraud (419):

In advanced fee frauds, an agent approaches an individual, company or bank with very favorable terms and offers access to large pools of funds at below-market interest rates. It is based on the ability of the fraudster to convince the potential victim to pay a certain amount of money as a fee or commission in advance. Once the money is paid, the perpetrator would stop all further communication with the victim.

9) Counterfeit Securities Fraud

Daily, vast sums of money are lost by banks, governments and even private establishments through fraudulent use of counterfeit financial documents. With the advent of modern photographic and printing equipment, it has become easy for fraudsters to obtain either complete counterfeits or entirely forged genuine documents after relevant alterations such as for amount, dates, names etc.

10) Letters of Credit Fraud

In international trade, the overriding consideration of both parties is ‘’PROTECTION’’. While the importer wants to ensure that he receives goods that conform to his specification, the exporter wants to ensure that he receives payments for goods supplied. This coupled with the problem of distance and different exchange control regulations from country to the country brought the need for a standardized code for international trade. Even with these regulations, frauds are still being perpetrated via letters of credit.

11) Account Opening Fraud:

Fraudsters open accounts in banks with fake and incomplete documentation. Their strategies are so perfected that once a bank is defrauded, they go underground and may not be traced with the fake address and documentation provided at the point of account opening.

12) Money Laundering Fraud:

Money laundering is a means to conceal the existence source, or use of illegally – obtained money – by converting the cash into untraceable transactions in banks. The cash is disguised to make the income appear legal by reinvesting it into other businesses.

13) Executive management’s fraud: This comes by way of

Balance sheet restructuring and window dressing of accounts

Lending to self, cronies and other executive colleagues.

Lending to friends and family members

Unauthorized use of bank assets

Vendor of stationery or other operating materials such as ‘’Supply of diesel ‘’ to bank branches.

14) Computer fraud:

Computer fraud is more sophisticated than the manually processed fraudulent activities. It is any fraud accomplished by tampering with computer programs; data files, operations, equipment or media, resulting in losses to the bank whose computer system is manipulated.

15) Electronic Banking Fraud:

While the development of e-banking has brought with it new products and ways of doing business, it has also spurned a wide variety of frauds and ways of perpetrating them. The nature of perpetration is often the internet or electronic card products-hence the term e-banking frauds or cyber-frauds.

Of all the fraud types enumerated above, computer and electronic banking frauds are now on the rampage within the Nigerian banking industry. This explains why we may need to go further to highlight how such frauds are perpetrated.

Listed below are the different types of electronic fraud within the Nigerian banking industry:

Triangulation/Site cloning: Customers enter their card details on fraudulent bank sites and these details are then misused.

Hacking:

Hackers/fraudsters obtain unauthorized access to the card management platform of the banking system. Counterfeit cards are then issued for money laundering.

Online fraud:

Card information is stolen at the time of an online transaction. Fraudsters then use the card information to make online purchases or assume an individual’s identity.

Lost/Stolen Card:

This refers to the use of a card lost by a legitimate account holder for unauthorized/illegal purposes.

Account takeover fraud:

An individual illegally obtains personal information of valid customers and takes control of the card account.

Money laundering:

Transfer of money into and out of a mobile wallet from or to a bank account is now possible. Cash-in from the bank account of an individual and cash-out to a different bank account of another individual can be used as a platform for laundering unaccounted money.

Unauthorized emails/Text messages:

Asking for account information for updating bank records are sent by fraudsters. The customer information is then misused for misappropriating funds.

Unauthorized Access:

This type of fraud may arise when access rights for making entries are given to unauthorized people.

Debit card skimming:

A machine or camera is installed at an ATM to pick up card information and PINs when customers use their cards.

ATM Fraud:

Fraudsters acquire a customer’s card and/or PIN and withdraw money from the machine.

Mobile banking application against an incorrect mobile number:

For bank customers who do not use mobile banking, an employee of the bank could attach an associate’s mobile number to the bank account and install a mobile application on his mobile device. The customer’s account is compromised by the associate and he or she does not get any notification about the same.

Creating fake and non-existent users on the mobile platform:

Most of the banks appoint a third-party vendor to develop a mobile application to be integrated with their core banking system. The vendor may create two unauthorized users with rights to initiate and verify transactions, and transfer funds from the organization to his associates’ wallets, effectively stealing money from the bank.

SIM Swap:

This has to do with replacing the old SIM with a new one, when the old gets lost or damaged, or when one needs a differently sized SIM card. If a fraudster manages such a swap, he can carry out numerous fraudulent transactions using the mobile number of the victim.

Unauthorized deduction from Mobile wallet:

Employees of the mobile wallet service provider may misuse the balance stored in the wallet of a customer, especially a dormant or infrequent customer account, by making unauthorized deductions.

16) Major channels for electronic fraud in Nigeria

The influence of sophisticated machines like electronic fund transfer, computer manipulation on bank fraud is very significant. The majority of frauds committed in the banking sector are usually committed through electronics transfer and computer manipulation. Most of the fraud cases that are ICT and computer-related come through the following ways:

Smart Card:

A card issued to a customer by a member bank of SMART CARD Nigeria Limited to aid them in their transactions. The card issued to the customer is usually PIN-protected (Personal Identification Number), and each cardholder has access/pass code or password different from any other persons. Such a passcode must be kept secret and must be changed any time it becomes known to someone else.

Electronic Fund Transfer (EFT):

This is an electronic oriented payment mechanism. It allows customers accounts to be credited electronically within 24 hours (Ugwu et al., 1999). Mark (1975) classified the basic elements of the ETF system into three: Clearing network characteristics, remote service or points of sales characteristics and pre-authorized debit and/or credit characteristics.

Mobile Telephone Banking:

Mobile phones are increasingly being used for financial services in Nigeria. Banks are enabling the customers to conduct some banking services such as account inquiry and funds transfer through the mobile telephone. The Mobile telephone banking notifies the customer of any transaction on his/her account. This too is often put to improperuse by a third party that has physical access to the phone and the sign on the profile of the bonafide owner.

Personal Computer (PC) Banking:

PC banking refers to the use of computer hardware, software and telecommunications to enable retail customers’ access to both specific account and general information on bank’s products and services through a personal computer.

Automated Teller Machine (ATM):

This is an electronics device which allows a bank’s customers to make cash withdrawals and check their account balances at any time without the need for a human teller. Many ATMs also allow people to deposit cash or cheques, transfer money between their bank accounts or even buy Mobile phone recharge cards. To withdraw cash, make deposits, or transfer funds between accounts, you generally insert an ATM card and enter your Identification Number (PIN).

Internet Banking Channel:

Internet is a global network of computers. It is a collection of computers networks, computers and millions of users, who share a compatible means for interacting with one another to exchange information (Olaleye and fashina; 2019).

The Social Disorganization Theory

Bank management must exercise caution when ignoring the root causes of crime and placing potentially excessive faith in criminal justice solutions to control crime. This theory is an essential predictor of youth violence and crime. In attempting to attenuate youth violence, many policy implications are suggested. For example, banks must be socially responsible. It will help to douse tension and incidence of fraud in bank locations. Developmental projects should be cited in underclass neighborhoods, run by people with ties to the communities they intend to serve. This policy has the effect of targeting programs for the underclass while also strengthening minority agencies or creating new agencies within impoverished neighborhoods. This idea will not only provide services but can also provide jobs for neighborhood residents. Such an approach will also simultaneously strengthen residential ties and interconnections within neighborhoods and bank branches

The Labeling Theory

Society’s dominant groups create and apply deviant labels to subordinate groups, in other to keep them under check. This ought not to be so. Bank management should provide a level playing field for all categories of staff. Situations, where only a group of staff call it shot and others are to follow, should not suffice. Everyone should be encouraged to contribute their quota towards the progress of the bank.

Bank management should avoid creating power blocs and alienation of some key staff irrespective of their grade and location. Favoritism should be played down upon in the Nigerian banking industry. Reason being that if a group feels alienated in a decision-making process or are denied their rights, they may resort to negative thoughts and activities.

The Potato Theory of Fraud

This theory accounts for repeated cases of fraud in an organization. Once a fraudster succeeds in cheating, he becomes addicted; it will be difficult for them to stop because they feel that they will not be caught. The fraudster becomes addicted to repeating his actions, even committing other fraud until he gets a more significant profit and is eventually caught.

Whence there are repeated cases of fraud in a bank, the perpetrators are from within. They’ve been gaining from it. There is a need to beef up control measures aimed at catching up with the culprits.

The Rotten Apple Theory

A bank manager should lead by example. If a manager is fraudulent, the employees are bound to copy the fraudulent behavior of their boss. A manager is expected to provide adequate supervision over his workforce. Where this is lacking successful fraud is easier to commit.

A laiesez affairs or nonchalant manager may not have committed fraud, but they have succeeded in promoting it by not being alert and fully engaged. Trust but verify’’ should be an ongoing policy in every bank in Nigeria

Once staff has been identified as dubious or fraudulent, should be shown the way out, lest he pollutes the minds of the younger ones.

A tip of Iceberg Theory on Fraud

What was initially discovered in the books of a bank may be deep-seated than what is seen on the surface as the fraud may have started a long time ago before it is discovered Thus, undermining, how negligible or insignificant a case of fraud appears to be, it must be thoroughly investigated. Behind the façade of an insignificant loss of small amounts of money a stretch of fraudulent practices that may have started a long time ago

The Low-Hanging Fruit Theory of Fraud

In a banking environment, pilfering of cash constitutes a ‘‘low-hanging fraud’’. If it is not checkmated, nor given appropriate attention, the fraudster employees will continue their crimes until discovered. This could be months or years, and by that time, more damage will have been done.

In other words, if the small potentials do not get the proper attention, the frauds will not be revealed anytime soon and the fraudsters will carry on the action for months or even years.

Fraud investigation units should not overlook this. Fraud perpetrators on low hanging fruits must be removed before they commit much more complex and serious frauds.

Lastly, though priority attention should be given to high-risk fraud, bank investigators should not forget the lower risk but high occurrence frauds.

The Addition by Subtraction Theory

A bank is best served when a dishonest employee is removed before he or she moves up the corporate ladder where far more damage can be done.

A bank must have a zero-tolerance and hard-core approach to fraudulent behavior. This must apply to all employees, partners and vendors; be you small or favorably placed. As soon as a high-level executive who commits any kind of fraud is not held accountable, the entire program has lost credibility. Proactive banks are usually the ones that detect the fraud sooner before it gets worse.

Undermining the authorities that brought in a dishonest staff, he should be shown the way out before he wrecks more havoc on the system.

Fraudster as Employee Theory.’

One cannot stock nor cherish a hot pot of coal in his bosom. A fraudster as an employee will always seek for ways to manipulate and undo the system. They need to be shown the way out. Bank executives need to understand this concept when dealing with employees who commit fraud.

An employee that commits fraud against his employer is not legible to be considered an employee. He should be shown the way out of the system.

Rational Choice Theory

This theory lends itself to a range of policy initiatives known as situational crime prevention strategies. It encourages bank management to become proactive in fraud preventive measures. It is, sometimes referred to as designing out crime. This is the umbrella term for a range of strategies that are used to reduce the opportunities to commit a crime. Examples of this strategy include increasing formal surveillance measures such as CCTV and alarms in the banking hall and a general improvement in the lighting of bank premises at night.

Statement of the problem

There may have been previous researches in this subject. This work gives further explanations and analysis in banking malpractice and control; a critical analysis of computer usage in selected banks