Banks recorded N28bn fraud cases in 2011 –Report

The banking sector recorded N28.4bn cases of fraud and forgeries last year, a report by the Nigerian Deposit Insurance Corporation has revealed.

The amount contained in the 2011 annual report and statements of accounts of the NDIC, represents an increase of 33.4 per cent over the N21.29bn recorded in 2010.

The report signed by the Chairman of the board of the NDIC, Dr. Hassan Adamu, and the Managing Director, Mr. Umaru Ibrahim says a total of 2,352 cases accounted for the N28.4bn fraud, adding that the frequency of occurrence represented an increase of 53.5 per cent over that of 2010.

Of the N28.4bn involved, the corporation said about N4.07bn was lost by the Deposit Money Banks.

The report says, “A total of 2,352 fraud cases involving the sum of N28.4bn with expected/contingent loss of about N4.071bn were reported by DMBs in 2011.

“That was an increase of 53.5 per cent in 2011 over the number of reported fraud cases of 1,532 in 2010.

“The increase of 53.5 per cent in the number of attempted or successful fraud and forgeries cases as reported in 2011 over the preceding year could be attributed to rising fraud cases through Internet banking and suppression of customer deposits.”

The report adds that though frauds and forgeries increased by 33.4 per cent from N21.29bn to N28.4bn, the expected loss decreased by 65 per cent from N11.68bn in 2010 to N4.07bn in 2011.

A quarterly breakdown of the loss showed that a N2.3bn loss or 8.1 per cent was recorded in the first quarter; N3.81bn or 13.41 per cent in the second quarter; N2.21bn or 7.78 per cent in the third quarter; and N20.09bn or 70.74 per cent in the fourth quarter.

On the incidence of fraud, the NDIC said 10 out of the 20 banks that were in operation in 2011 accounted for 87.1 per cent of the banking industry fraud cases compared to 51.08 per cent in 2010.

The report, however, did not disclose the identities of the banks with the highest number of fraud cases.

An analysis of the types of fraud and forgeries committed last year revealed that Automated Teller Machine frauds and fraudulent transfers/withdrawals accounted for the largest number of perpetrations. This was also the case in the preceding year.

“There were also rising fraud cases through internet banking and suppression of customer deposits,” the report adds.

During the period, the NDIC said 738 cases of ATM frauds were recorded; fraudulent transfer had 331 cases; presentation of forged cheques, 280 cases; and outright theft, 240 cases.

Others are suppression of customer deposit 219 cases, non-dispensing of money 112 cases, and Internet fraud 108 cases.

The report says, “Of the 2352 cases reported during the year under review, 498 were attributed to staff participation which showed an increase of 141 from 357 cases reported in 2010.

“Despite the increase; the losses resulting there from declined by 62.3 per cent from N6.43bn in 2010 to N2.42bn in 2011.

“The reduction was as a result of better and improved security and internal control measures put in place by the banks for transactions involving large sums of money.

“The highest number of staff involved in cases of fraud and forgeries was from the clerks and cashier status as had been the case in the preceding years with the lowest being the typists, technician and stenographers.”

The NDIC said the cases of fraud could be categorised into institutional/ endogenous factors and the environmental/exogenous factors.

Institutional causes, it said were “those that are attributed to the internal domain of the organisation such as poor accounting and weak internal control systems, poor management, inexperienced staff and ineffective supervision of subordinates, uncompetitive remuneration, perceived sense of inequity in reward and overstretching of staff.”

The report also says that environmental causes are those that can be directly traced to the bank’s operating environment and they include undue societal demands, low moral values, slow and tortuous legal process, lack of effective deterrent and the reluctance of banks to report fraud cases due to the negative publicity it could attract for their image.

In view of the extent of frauds and forgeries, the NDIC said it was imperative for all banks to employ measures to strengthen their operational risk management frameworks in the areas of internal control and security systems to combat the fraud and forgeries.

“Banks should also endeavour to fully comply with guidelines, rules and regulations on good corporate governance in order to take control of the situation,” it added.

The NDIC report also called on banks to thoroughly screen prospective employees by obtaining status report from previous employers and relevant agencies adding that employees should be made to understand the risks involved in defrauding banks.