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CHAPTER ONE INTRODUCTION 1.1 Background of the Study In recent years, most of the countries across the globe are in a sweeping mood to promote micro finance institutions not only as a positive rural development intervention but also as a rural development panacea. Allured by the success of micro credit institutions in developed countries, the developmental economists in under developed and developing economies have increasingly become enthusiastic in the promotion of micro credit as a rural development intervention, by tying it neatly with post-liberal development ideology. It must be pointed out that, although the basic philosophy behind the micro credit movement is to eradicate poverty as it stimulates the growth of micro enterprises by developing new markets and by promoting a culture of entrepreneurship, it involves minimal state intervention, thereby shifting the focus of attention away from the society towards individuals. As it has been asserted, the economic giants of the world developed their economies by relying on formal credit institutions through the development of their capital markets. But these formal credit institutions have on the whole failed to provide credit to the poor in the underdeveloped countries for many obvious reasons, Von Pischke (1991) Micro-finance is generally an umbrella term that refers to the provision of a broad range of services such as deposits, loans, payment services, money transfers and insurance to poor and low-income households and their micro-enterprises (Khawari, 2004). In a much narrower sense though, micro-finance is often referred to as micro-credit for tiny informal businesses of micro-entrepreneurs. An outstanding feature of micro-finance programmes is that the end users of the services are by definition the poor, the ones who benefit.

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SettingsThe Impact of Micro Credit on Small Businesses In Nigerian Businesses. removeINTERNAL CORPORATE SYSTEM AS A TOOL FRAUD CONTROL AND PREVENTION NIGERIA FINANCIAL INSTITUTION (STUDY OF FIRST BANK, ABUJA) removeASSESSMENT OF WORKING CAPITAL MANAGEMENT PRACTICES AT ORANGE GROUP LIMITED, LAGOS. removeExamination of the effect of credit management on bank’s profitability in Nigeria removeINTERNAL CONTROL SYSTEM AS A TOOL FOR FRAUD PREVENTION IN NIGERIA FINANCIAL INSTITUTION. ( STUDY OF FIRST BANK, ABUJA) removeEFFECTS OF OPTIMAL LOAN PORTFOLIO(CASE STUDY: SKY BANK LTD AND FIRST CITY MONUMENT BANK) remove
NameThe Impact of Micro Credit on Small Businesses In Nigerian Businesses. removeINTERNAL CORPORATE SYSTEM AS A TOOL FRAUD CONTROL AND PREVENTION NIGERIA FINANCIAL INSTITUTION (STUDY OF FIRST BANK, ABUJA) removeASSESSMENT OF WORKING CAPITAL MANAGEMENT PRACTICES AT ORANGE GROUP LIMITED, LAGOS. removeExamination of the effect of credit management on bank’s profitability in Nigeria removeINTERNAL CONTROL SYSTEM AS A TOOL FOR FRAUD PREVENTION IN NIGERIA FINANCIAL INSTITUTION. ( STUDY OF FIRST BANK, ABUJA) removeEFFECTS OF OPTIMAL LOAN PORTFOLIO(CASE STUDY: SKY BANK LTD AND FIRST CITY MONUMENT BANK) remove
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Description                                                        Abstract This research is on Internal corporate system as a tool fraud control and prevention Nigeria financial Institution (Study of First Bank, Abuja). The major purpose of the study was to determine the corporate fraud control and prevention systems in commercial banks in Abuja (F.C.T) of Nigeria. The study adopted a survey research design. Eight research questions were answered while five hypotheses were tested at 0.05 level of significance. The population of the study comprised 288 working staff of First bank branch operating in Abuja (F.C.T). The entire population was studied. Structured questionnaire containing 97 items was used for the study. The questionnaire was subjected to face validation by experts. Kuder-Richardson (K-R20) Reliability Coefficient of 0.selected and 0.99 were obtained for questionnaire items in sections B and C of the questionnaire respectively while Cronbach Alpha Reliability Coefficient of 0.99, 0.98, 0.98, 0.99, 0.99 and 0.98 were obtained respectively for the other six clusters in sections D to I. The questionnaire was administered personally by the researcher with the help of two trained research assistants. The research questions were answered using frequencies and percentages for research question one and two while mean and standard deviations were used for answering research question three to eight. The five null hypotheses were tested at 0.05 level of significance using t–test statistic. The problem of the study was that the corporate fraud control and prevention systems might not be adequately available, utilized and effective in controlling and preventing fraudulent activities in the commercial banks. However, it was found and concluded that most of the corporate fraud control and prevention systems were available and utilized most times in the commercial banks and they were effective in controlling and preventing fraudulent activities in the banks. The commercial banks encountered many problems in the utilization of the corporate fraud control and prevention systems but many strategies for enhancing the effective utilization of the systems were identified. The result of the study would be used by Accounting Educators for guiding and counseling the working of commercial banks, bank customers, investors and other stakeholders of commercial banks especially for fraud control and prevention. It was recommended that the working of the commercial banks should regularly review and update the systems to ensure that they are relevant, adequate and effectively utilized. The working of commercial banks should also endeavor to ameliorate the identified problems encountered in the utilization of the corporate fraud control and prevention systems with the necessary strategies.
ContentCHAPTER ONE INTRODUCTION 1.1 Background of the Study In recent years, most of the countries across the globe are in a sweeping mood to promote micro finance institutions not only as a positive rural development intervention but also as a rural development panacea. Allured by the success of micro credit institutions in developed countries, the developmental economists in under developed and developing economies have increasingly become enthusiastic in the promotion of micro credit as a rural development intervention, by tying it neatly with post-liberal development ideology. It must be pointed out that, although the basic philosophy behind the micro credit movement is to eradicate poverty as it stimulates the growth of micro enterprises by developing new markets and by promoting a culture of entrepreneurship, it involves minimal state intervention, thereby shifting the focus of attention away from the society towards individuals. As it has been asserted, the economic giants of the world developed their economies by relying on formal credit institutions through the development of their capital markets. But these formal credit institutions have on the whole failed to provide credit to the poor in the underdeveloped countries for many obvious reasons, Von Pischke (1991) Micro-finance is generally an umbrella term that refers to the provision of a broad range of services such as deposits, loans, payment services, money transfers and insurance to poor and low-income households and their micro-enterprises (Khawari, 2004). In a much narrower sense though, micro-finance is often referred to as micro-credit for tiny informal businesses of micro-entrepreneurs. An outstanding feature of micro-finance programmes is that the end users of the services are by definition the poor, the ones who benefit.CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

This project is on Internal corporate system as a tool fraud control and prevention Nigeria financial Institution (Study of First Bank, Abuja). Commercial banks are corporate financial institutions that accept monetary deposits from customers and effect withdrawals upon demand by the depositors. Commercial banks like every corporate institution are registered under the company and Allied Matters Act (CAMA) of 1959 and 1990 as amended. Commercial banks play a central role in the domestic and international financial system of an economy. One of the intermediate roles of commercial banks is to ensure that capital is allocated in an efficient manner to facilitate growth and development in the economy through savings, investments and lending of credits to customers. Commercial banks provide the mechanism for settling personal and business transactions including fund transfers for both domestic and international trade. Commercial banks, therefore, represent an important nerve centre of an economy, which controls and lubricates its operation via an effective implementation of the monetary policies initiated by the Central Bank of Nigeria.  Commercial bank activities in Nigeria, according to Aigbokhaevbolo (2001), started in 1892 with the establishment of the African Banking Corporation by the British West Africa. The bank was later known as the Standard Bank Ltd, which is now called First Bank of Nigeria PLC. This was followed by the establishment of the Barclays Bank Ltd. (now Union Bank of Nigeria PLC) in 1917. Since then, the number of commercial banks in Nigeria has increased. According to the Central Bank of Nigeria Report (2006), 89 Commercial banks operated in Nigeria prior to the conclusion of the banking industry consolidation exercise in December, 2005. However, only 25 of them survived the consolidation exercise, although some of the banks have merged since then e.g. IBTC and Stanbic banks, most recently Diamond and Access banks. The consolidation exercise was the recent regulation on the capitalization of commercial banks to a minimum of N25 billion in Nigeria. Commercial banks operating in Nigeria fall into two categories: the old and new generation banks. According to Ekine (2008), Nigerian commercial banks are mainly classified into old and new generation banks. He stated that the old generation banks are distinguished from the new generation banks by age, rural banking activities and their general method of operations.  Ekine further stated that the old generation commercial banks are more conservative in their operations than the new generation banks, even though all the banks have adopted computerization and the use of electronic on-line banking services.  The above assertion is in line with Agu (2008) that old generation commercial banks of the Nigerian banking sector are still greater labour intensive in their operations despite the current age of computerization and Internet banking.  Stanbic IBTC Bank in a special Report (2008) stated that the old generation banks were those few highly regulated banks mostly controlled by government before the introduction of the Structural Adjustment Programme (SAP) in 1986. It was also stated in the Report that with the reduction and privatization of government shareholding in banks which arose from the Structural Adjustment Programme new commercial banks categorized as the new generation banks were established. The old generation commercial banks, according to the Report, are those commercial banks that have fully embraced the rural banking operation policy of the federal government introduced in 1976.The old generation commercial banks have many of their branch in rural towns and communities all over the country; a practice which is still strange to the new generation banks in Nigeria. The StanbicIBTC Bank Special Report also stated that the old generation banks are the likes of First Bank, Union Bank, UBA and Afribank. The development in information and communication technology (ICT) has changed the profile of commercial banks in Nigeria. The huge investments in information and communication technology by the banks show their desire to function on a comprehensive electronic platform. The banks have adopted many electronic and on–line banking products for their services. Some of the products are Automated Teller Machine (ATM),  Electronic Point-of-Sale (POS) Terminal services, Internet-banking (i-banking) and mobile banking services which are SMS-Based. These products make use of various forms of electronic cards. According to Ogbulie (2007), the application of information and communication technology products has become the dominant issue in commercial banking in Nigeria. The introduction of the on-line and electronic real-time banking services has resulted in new payment systems and fund transfers that give the banking customers the needed satisfaction in modern banking. However, he stated that those products are often threatened by frauds.  Achaka (2004) defined fraud as an action of dishonesty, deceit, false claims, unlawful possession and dispossession of money, goods and services thereby causing the other party to be at disadvantage. Frauds can occur to individuals and also to business organizations including commercial banks. Fraudulent activities that occur in business environments are called corporate frauds. Corporate frauds are criminal activities in business organizations targeted to diminish by misappropriation, misrepresentation and manipulation the assets, revenues and profits of the organization. Ochejele (2004) defined corporate frauds as a deliberate step taken by one or more individuals who may be internal or external to a business organization, to deceive or mislead the organization with the objective of taking an unfair advantage of money, goods and services. Common corporate frauds are embezzlement, payment against uncleared cheques and unauthorized lending. Corporate frauds can be committed by the persons in working, the employees of a business organization and people external to the organization. Sometimes it is committed by a collaboration of the employees with external parties. Corporate frauds most times portray a betrayal of trust and a breach of the core fabric of the working and personal relationships in a business environment. Corporate frauds have become more advanced, complex and devastating in recent years with the emergence of sophisticated systems associated with the great advances in Information and Communication Technology (ICT). Ochejele (2004) stated that the incidence of corporate frauds in the Nigerian banking system has become even more pronounced in this era of increasing globalization of the financial markets and other economic institutions. Aderinokun (2007) stated that Nigerian commercial banks lose billions of naira every year because of various forms of fraudulent activities. He stated that commercial banks in Nigeria lost more than N48 billion between 2001 and 2006 because of the increasing incidence of fraudulent activities in banks. Nigeria Deposit Insurance Corporation (NDIC) Report (2007) in support stated that the number of fraud cases in Nigerian banks grew from 1193 in 2006 to 1553 in 2007 involving N4.83 billion and N10.05 billion respectively. The Report listed the causes of bank frauds as follows: poor accounting system, weak internal control, and inefficient supervision of subordinates, uncompetitive remuneration and perceived inequality in reward as well as disregard of know-your-customer (KYC) policies. Commercial banks are adversely affected by frauds because of the huge financial assets handled by them. The computerization of banking and the use of electronic banking services also aid fraudulent activities in banking environment by making perpetration easy and fast. Ovuakporie (1998) identified different forms of bank frauds, which include payment against uncleared cheques, unauthorized lending and borrowing, impersonation, cloning of cheques and money laundering. Ovuakprie stated that the banks are affected by many electronic frauds owing to the use of the Internet and other computerized devices. According to the author, newer forms of fraud that use the advantage of technological progress have also developed. These include: Unauthorized Automated Clearing House (ACH) draft, multiple electronic deposits of the same cheque and electronic intra bank transfer. Commercial banks are usually equipped with corporate fraud control and prevention systems to reduce the prevalence of fraudulent activities. Corporate fraud control and prevention systems are established to ensure that bank assets and transactions are secured. Corporate fraud control in particular is the restraint, authority, command, regulation and a check on the activities of an organization. It is to ensure that the objectives of the organization are met. It is the means of operating, regulating, directing and testing the activities of the organization that establishes them. Onah (2003) stated that control defines the power and authority of an organization to direct, order or restrain the activities and conduct of people, internal and external, with a view to ensuring their conformity with organizational plans and objectives. The author further stated that control focuses on the ability of the organization to determine and effectuate its intentions using its human resources. Control describes all the organizational efforts to ensure that employees, customers, investors and other parties’ behaviours are in line with the organizational plans and standards. After the organizational standards and plans have been set, control represents the organizational efforts to ensure the people’s compliance with those standards. Fraud control, therefore, means the measurement and correction of performance activities in order to ensure that enterprise objectives and plans devised to attain them are being accomplished. It consists of verifying, checking and regulating to ensure that everything occurs in conformity with the plans adopted, the instructions issued and the principles established. Corporate fraud prevention systems are the series of physical, logical and procedural barriers established by an organization to discourage the incidence of fraudulent activities in the organization. The aim of a fraud prevention system is to hinder, to stop or to make impossible the occurrence of fraudulent activities in an organization. The Chambers Dictionary (2006) described prevention as an action of stopping someone from doing something or stopping something from happening. It stated that prevention is the strategy established for the avoidance or preclusion of something by care, forethought or obstruction. Fraud prevention systems are, therefore, installed to stop people from committing fraud or to stop fraud from occurring in the first place. According to the bank of Netherlands (2006), fraud prevention systems are designed to ensure that events, which threaten operations in an organisation, for example a commercial bank, do not occur or occur infrequently. The bank stated that careful designing and locating of computer centers and other security devices to stop unauthorized access to assets and systems in the organisation are aspects of fraud prevention. Adequate investment in fraud control and prevention systems strengthens commercial banks’ defences against any form of fraudulent activity. Regularly maintained fraud control and prevention systems also ensure that most corporate frauds are minimized. According to Usman (2004), frauds may not be totally eliminated though there are control and preventive measures that can drastically reduce the amount of frauds in a business. Such measures, according to him, include adequate physical and electronic security, pre– employment screening, installation of surveillance equipment, etc. The author further stated that organizations that seek those measures are successful while those that ignore them lose heavily. Most commercial banks, according to Vital (1999) have control facilities and measures designed to assist in the prevention of fraudulent activities. However, Vital regretted that some of them are not utilized extensively to curb fraud menace. The extent to which they are utilized determines their success in fraud control and prevention. The extent of utilization of the systems available, therefore, needs to be ascertained for effective fraud control and prevention. Akwaja (2007) supporting the view stated that the utilization of the fraud prevention measures in banks is still low. He stated that Nigerian commercial banks have lost heavily in the past few years to fraud prevention measures that were not properly implemented. The fraud control and prevention systems utilized in commercial banks should be effective. Onah (2003) defined effectiveness as the degree of success expected from a chosen procedure or method. He stated that effectiveness is a function of the adequacy of the methods and procedures. According to Osuala (2004), effectiveness is the ability to do the right thing to achieve the goal of a business. Effective fraud control and prevention systems can reduce fraudulent activities with minimum expense, waste and effort. They should be costeffective to the organisations that establish and utilize them. The degree to which the available fraud control and prevention systems minimize the incidence of fraudulent activities is based on their effectiveness. However, Charlton and Taylor (2004) stated that the effectiveness of the fraud prevention systems in financial institutions including commercial banks has not yet been ascertained. Most commercial banks encounter some problems in the establishment and implementation of fraud control and prevention systems. These problems emanate from poor infrastructure, lack of finance, unskilled manpower and complexity of operations. Ojuri (2007) stated that the banks encounter the problems of high costs of acquisition and maintenance of systems. They also suffer from the problems of complex programme application, network and power disruption, and shortage of skilled personnel to operate the complex systems. Commercial banks have always strived to improve their fraud control and prevention strategies. However, Shackell (2000) stated that as the responses of the commercial banks become more successful so the fraudsters have become more creative by evolving new and more deadly methods of frauds. Shackell (2000) stated that corporate fraud is an undeniable fact of business life, affecting businesses, large or small. Shackell further stated that as the systems and technologies are further developed, the perpetrators of corporate frauds tend to become bolder and more advanced in their crimes, thus forcing organizations to evolve new techniques for averting the newer forms of fraudulent activities. It is therefore imperative on commercial banks to seek ways of improving their fraud defences and to counteract any problems they experience in the establishment and utilization of the systems. Current firewall technologies like data encryption, passwords, personal identification, etc are, therefore, the imperatives for banks. KPMG (2006) stated that corporate organisations continuously strive to achieve compliance with an array of new anti-fraud laws and regulations that are prescriptive on the design of controls and prevention strategies against corporate fraud and misconduct. KPMG also stated that it is the responsibility of the working of an organisation to understand the fraud and misconduct risks that can undermine the business objectives. KPMG further stated that it is also the responsibility of working to determine the anti-fraud programmes utilized against fraud and misconduct in the organisation. The focus of working, according to KPMG, is also to gain insight on better ways to design or evaluate controls to prevent, detect and respond appropriately to fraud and misconduct. Other responsibilities of working as it concerns corporate frauds and misconducts are to create sustainable processes and structures for managing fraud risks and for improving performance in the organisation.  Furthermore, KPMG stated that it is also the duty of working of any organisation to strive to achieve the highest levels of business integrity through sound corporate governance, internal control and transparency.

1.2       Statement of the Problem

Commercial banks in Nigeria including those operating in Abuja (F.C.T) are adversely affected by various forms of corporate frauds because of the recent computerization of bank products and services coupled with the huge financial assets handled by the banks. The recent use of computers, the internet and other electronic devices for banking services in commercial banks in Nigeria has made certain fraudulent activities more efficient, faster and easily concealed. For instance, Ochejele (2004) stated that the incidence of corporate frauds in the Nigerian banking system has become more pronounced in this era of increasing globalization of the financial markets and other economic institutions owing to the use of the internet and the computerization of banking services. Nwude (2006) also stated that the advent of computerization, the use of the internet and other electronic systems in commercial banks in Nigeria have introduced new technology-based frauds which when committed successfully would become difficult to detect. Such frauds, according to him, continue to multiply the financial losses of banks to an unimaginable dimension. The number of commercial banks in Nigeria since 1892 when the first commercial bank in Nigeria was established has not increased steadily because of intermittent bank failures mainly caused by frauds. The statistics of failed banks in Nigeria show that the licenses of about 50 commercial banks were revoked by the Central Bank of Nigeria between 1994 and 2006. Kalu (2009) stated that most of the banks went distress as a result of huge financial losses resulting from insider abuse and other fraudulent means including collaboration of bank officials with third parties. Aderinokun (2007) also stated that Nigerian commercial banks lose billions of naira every year and had lost more than N48 billion between 2001 and 2006 to various forms of fraudulent activities. The prevalence of fraudulent activities in commercial banks has resulted to poor image and low credibility to commercial banks in Nigeria. Consequently, foreign investment inflow into Nigeria is restricted. Corporate frauds greatly deva(F.C.T) the assets and revenues of commercial banks in Nigeria as well as the trust and confidence of the stakeholders of the commercial banks. Udegbunam (2004) stated that corporate frauds heavily undermine the business and profit of commercial banks which most times result in highly risky and volatile financial environments that led to the collapse of many commercial banks in Nigeria. In order to stay afloat in their commercial activities, commercial banks in Nigeria install and utilize corporate fraud control and prevention systems to fight the scourge of corporate frauds. However, there was doubt whether the corporate fraud control and prevention systems were adequately available, extensively utilized, and effective in the control and prevention of fraudulent activities in the commercial banks. It was also suspected that the commercial banks were encountering some problems in the utilization of the corporate fraud control and prevention systems. An identification of the necessary strategies for enhancing the effective utilization of the corporate fraud control and prevention systems in the commercial banks was, therefore, imperative. Based on the foregoing, there was the need to determine the corporate fraud control and prevention systems in commercial banks in Abuja (F.C.T) of Nigeria.

1.3       The Purpose of the Study

The major purpose of the study was to determine the corporate fraud control and prevention systems in commercial banks in Abuja (F.C.T). Specifically, the study was to:
  1. Ascertain the corporate fraud control systems available in commercial banks in Abuja (F.C.T).
  2. Ascertain the corporate fraud prevention systems available in commercial banks in Abuja (F.C.T).
  3. Find out the extent of utilization of corporate fraud control systems in the commercial banks.
  4. Find out the extent of utilization of corporate fraud prevention systems in the commercial banks.
  5. Determine to what extent corporate fraud control systems are effective in the commercial banks.
  6. Determine to what extent corporate fraud prevention systems are effective in the commercial banks.
  7. Identify the problems encountered by the commercial banks in the utilization of the corporate fraud control and prevention systems.
  8. Explore the strategies for enhancing the effective utilization of the corporate fraud control and prevention systems in the commercial banks.
    • Significance of the Study 
The findings of this study would be beneficial to the working of commercial banks, bank customers, investors and the Ministry of Commerce and Industry in Abuja (F.C.T). The result of this study would also be of immense benefit to the teachers and students of Business Education in tertiary institutions in Nigeria. Firstly, the findings of this study would assist the working of commercial banks to establish stronger defences against fraudulent activities. The frequency of fraud occurrence in the banks as well as losses would be drastically reduced by enhancing the utilization and effectiveness of the corporate fraud control and prevention systems in the banks. The findings of this study would also enable commercial bank managers to evolve more sustainable risk working policies against fraudulent activities. The accountants would be able to control corporate risks effectively with improved capacity in fraud risk working. The findings of this study would assist the commercial bank managers to improve their capacity building initiatives for banking services especially for fraud control and prevention. The result of this study would also enable the credit and loan managers of commercial banks to achieve their financial targets and corporate governance goals through extensive and effective utilization of the fraud control and prevention systems in the banks. The awareness of the availability, the extent of utilization and the effectiveness of the corporate fraud control and prevention systems in the commercial banks would enhance the customers’ trust and confidence in the commercial banks. The customers’ patronage of bank products and services would also increase. Fresh customers would also join the present customers of the commercial banks to patronize the banks’ products and services. The general business and profit of the commercial banks would, therefore, increase through improved customer patronage of bank services. Investors in Abuja would also benefit from the findings of this study. An understanding of commercial banks’ capacity in fraud control and prevention would assist the investors in their investment decisions. The present investors of commercial banks would be encouraged to maintain their investments in the banks while prospective investors would be stimulated to make fresh investments in the banks. The outcome of this study would also help to improve the commercial banks’ returns on investments to the investors.   The Ministry of Commerce and Industry in Abuja (F.C.T) would also gain from the findings of this study, especially as it concerns the effectiveness and utilization of the fraud control and prevention systems in commercial banks in Abuja (F.C.T). The findings of this study would assist the ministry in its campaign for efficient banking services and operations in the (F.C.T). The findings of this study would assist the Ministry of Commerce and Industry on making policies that would encourage effective participation of the commercial banks in economic development of the (F.C.T). Better corporate governance practices that would arise from the findings of this study would increase the commercial banks economic, environmental and social responsibilities in Abuja (F.C.T). The outcome of this study would significantly be of immense benefit to both the teachers and students of Business Education in tertiary institutions in Nigeria. The result of this study would assist them in the teaching and learning of the subject. Curriculum experts in Business Education would use the facts of the findings in curriculum planning and review. The graduates of Business Education would be guided by the outcome of this study in the teaching and practice of fraud control and prevention in their different places of work especially as it affects the availability, the extent of utilization and the effectiveness of the corporate fraud control and prevention systems in commercial banks and other corporate organisations in Nigeria. Finally, the results of the study would be a significant addition to the literature base of corporate fraud control and prevention systems in commercial banks in Nigeria. The findings of the study would provide much empirical evidence on the adequacy, extent of utilization and effectiveness of corporate fraud control and prevention systems in the commercial banks. The findings of this study would also provide a better understanding of the theoretical basis of the corporate fraud control and prevention systems utilized in commercial banks and other corporate organisations.

1.4       Research Questions

The following research questions were answered for this study: 
  1. What are the corporate fraud control systems available in commercial banks in Abuja (F.C.T)?
  2. What are the corporate fraud prevention systems available in commercial banks in Abuja (F.C.T)?
  3. To what extent are the corporate fraud control systems utilized in the commercial banks?
  4. To what extent are the corporate fraud prevention systems utilized in the commercial banks?
  5. How effective are the corporate fraud control systems in controlling frauds in the commercial banks?
  6. How effective are the corporate fraud prevention systems in preventing frauds in the commercial banks?
  7. What are the problems encountered by the commercial banks in the utilization of the corporate fraud control and prevention systems?
  8. What are the strategies for enhancing the effective utilization of the corporate fraud control and prevention systems in the commercial banks?
CHAPTER ONE GENERAL INTRODUCTION 1.1 Background of the Study Most studies found in the literature of corporate finance are conventionally dealing with the financial decisions that are long-term oriented. The most of such studies examined structure of the capital, investment decisions, and dividend valuation decisions related to the company. According to Sanger in Bagchi and Kharmrui (2012, p. 1), working capital has always been ignored in financial decision-making because it involves investment and financing in short-term period and also acts as a restrain in financial performance, since it does not contribute to Return on Equity (ROE). Most managers of business organisations are inclined to focus more on long-term investment since those investments take a chunk of the cash resources of their organisations. In as much as long-term goals provide focus and purpose for every business, these goals must be broken down into short-term operational, workable and achievable objectives for the organization to attain its mission. Short term financial decisions relating to current assets and current liabilities should also be equally important and should be analyzed carefully. The success of every long-term investment heavily depends on how effectively that investment is managed in the short-term. Most of the operations of a firm in the short run deal with the management of current assets and current liabilities of the firm. Van Horn (2000) indicates that working capital management involves the administration of current assets and the financing (especially current liabilities) needed to support current assets. Atril (2006. p. 386) also asserts that working capital represents a net investment in short-term assets. These assets are continually flowing into and out of the business, and are essential for day-to-day operations. Working capital is thus seen as the lifeblood of the business, the fuel that funds the daily operations and ability to pursue near-term growth opportunities for the business. Working capital is also defined as money tied up in the business and used to finance its day to day needs, such as buying raw materials.CHAPTER ONE

INTRODUCTION

1.1 Background to the study

This project is on Examination of the effect of credit management on bank’s profitability in Nigeria. Banks and banking activities have evolved significantly through time and with the introduction of money. Financial services like deposit taking, lending money, currency exchange and money transfers became important due to the role being played by money, as no good financial system can do without well-structured and efficient financial institutions, specifically the banking industry. Banks had and still have an important role in the economy, by mediating between supply and demand of securities, and transforming short-term deposits into medium-term and long-term credits through credit creation. Through credit creation, deposit money banks are able to create new money through deposit multiplier effect and formed part of the main income generating activity of banks, though exposing them to credit risk (Kargi, 2011). The Basel Committee on Banking Supervision (2001) defined credit risk as the possibility of losing the outstanding loan partially or totally, due to credit events (default risk) or the likelihood of losses when a borrower fails to repay a debt of any kind. Credit risk is an internal determinant of bank performance and the efficiency of the bank‟s profitability is a function of how they are able to satisfy their customers at a minimum risk level and maximum profitability level. The higher the exposure of a bank to credit risk, the higher the tendency of the bank to experience financial crisis and vice-versa, thus necessitate its management. According to Statement of Accounting Standards, credit management is the process of managing capital assets of banks and loss of loan reserves. These necessitate the appropriate management of the risks and serves as a key issue in reducing the earnings risk of banks and improving its value in the capital market. Nigeria deposit money banks has experienced high non-performing loans, low reserve for loan loss provisions, inadequate secured loans, loans and advances and low capital adequacy. Credit risk is a serious threat to the performance of banks, as some of the reviewed studies showing a negative effect; therefore, necessitate its management. Credit management provides a leading indicator of the quality of banks credit portfolio which is because it greatly influences or prevents the failure of a bank, as the failure of a bank is influenced to a large extent by the quality of credit decisions and thus the quality of the risk assets, which can be deterred as a result of poor corporate governance such as CEO duality etc. The importance of strong credit management for building quality loan portfolio is of paramount important to firm performance of deposit money banks as well as overall economy (Charles & Kenneth, 2013). The growing stock of studies in accounting, finance and economics, underscores the failure in credit management as one of the main source of banking sector crises which possibly led to economic failure experienced in the past, including 2001 global financial crises (Fofack, 2005). Due to increasing spate of non-performing loans and its attendant consequences, the Central Bank authorities through its accords (Basel I and II) emphasized on the importance of capital adequacy for mitigating credit risk. Capital adequacy in banking business provides protection against sudden financial losses and serves as a distress prevention strategy (Greuning, 2003). The level of capital, a cushion to absorb credit and other losses, is matched to the portfolio risk depending on the risk characteristics of individual transactions, their concentration and correlation. All organizations, including banks, need to optimally allocate capital in relation to the selective investments made. Hence, efficient tools and techniques for risk measurement are a key cornerstone of a good credit management. Other measures put in place in managing the risk associated with lending include making provisions to loans in case of loss or default in repayment, which could turn out to improve the firm performance of deposit money banks, most especially when specific assets are set aside for claims in terms of secured loans. In addition, when banks have adequate capital, it not only solves insolvency but also avoid the failure of the financial system. The Nigerian banking industry has been strained by the deteriorating quality of its credit assets as a result of the fall in global oil prices and sudden depreciation and devaluation of the naira against global currencies (BGL Banking Report, 2010). The poor quality of the banks‟ loan assets hindered banks to extend more credit to the domestic economy, thereby adversely affecting the performance of financial institutions. This prompted the Federal Government of Nigeria through the instrumentality of an Act of the National Assembly to establish the Asset Management Corporation of Nigeria (AMCON) in July, 2010 to provide a lasting solution to the recurring problems of credit risk mismanagement that bedeviled Nigerian banks. In 2017, it is said that about 1.5 per cent of the Nigeria population are said to owe banks the sum of N5trilion and that it had been difficult to recover the debts as a result of legal technicalities deployed by debtors‟ layers (AMCON, 2017). This has motivated for this study to be carried out in order to assess the effect of credit management on the bank‟s profitabilityof deposit money banks in Nigeria.

1.2 Statement of the Problem

Empirical studies that examine the effect of credit management on bank’s profitability in Nigeria centered on traditional measures of performance such as return on equity, return on asset, earnings per share etc. with none to the best of the researchers knowledge on market (valuebased) measures of performance, as the traditional measures of performance do not take into consideration the cost of capital and moreover, they are influenced by accrual based accounting conventions, in addition to overemphasis to achieve and maintain short-term financial results. While market measures of performance are promoted as the measures of a company’s real profitability, in terms of performance. Since value creation has become of primary concern to investors and proponents of value-based measures claim that those measures are the only performance measures tied directly to stock’s intrinsic value (Stewart, 1991; 1999; Grant, 2003). In addition, to examined how credit management affects the profitability of the banks under study as it has caused the liquidation and takeover of many banks that include Intercontinental bank, Oceanic bank, Bank PhB and Afri-Bank just to mention but a few.  When loan are not repaid as at when due (Non-performing) could affect the performance of banks, as loan interest (profit) payment are delayed. Inadequate provisions for loans or collateral (secured loan) can also affect the performance of banks but generally, banks are expected to absorb the losses from the normal earnings. But there may be some unanticipated losses which cannot be absorbed by normal earnings. Capital comes in handy on such abnormal loss situations to cushion off the losses. Above all, combining the above variables in this study differentiated it from previous studies, as they account for few of the variables used. In addition, sample size and period of study are not wide which could possibly be one of the reason of having different findings and as such, this study covered nine (9) years, five (5) credit risk variables and sample size of sixteen (16) firms. However, in Nigeria, literature on this subject is very limited or the issues have not been localized or well treated, like the inclusion of capital adequacy. Little or no attention is paid to this area by academics, financial economist or corporate directors and regulators as evidenced by little of literature and contribution to this discourse.

 1.3 Research Questions

The following research questions will be raised to guide the study;
  1. What is the influence of non-performing loans on the market profitability of listed deposit money banks in Nigeria?
  2. What is the effect of loan loss provisions on the market profitability of listed deposit money banks in Nigeria?
  • What is the effect of secured loans on the market profitability of listed deposit money banks in Nigeria?
  1. To what extent do loans and advances influence the market profitability of listed deposit money banks in Nigeria?
  2. What effect does capital adequacy have on the market profitability of listed deposit money banks in Nigeria?

1.4 Objectives of the Study

The main objective of this study is to examine the effect of credit management on the bank’s profitability of listed deposit money banks in Nigeria. While the specific objectives will be to assess the:
  1. Influence of non-performing loans on the bank’s profitability of listed deposit money banks in Nigeria.
  2. Effect of loan loss provisions on the bank’s profitability of listed deposit money banks in
Nigeria.
  • Effect of secured and unsecured loans on the bank’s profitability of listed deposit money banks in Nigeria.
  1. Effect of loans and advances on the bank’s profitability of listed deposit money banks in
Nigeria.
  1. Effect of capital adequacy on the bank’s profitability of listed deposit money banks in
Nigeria.

1.5 Statement of Hypotheses

In line with the objectives of the study, the following hypotheses have been formulated in null form: H01: Non-performing loans have no significant influence on the bank’s profitability of listed deposit money banks in Nigeria. H02: Loan loss provisions have no significant effect on the bank’s profitability of listed deposit money banks in Nigeria. H03: Secured loans have no significant effect on the bank’s profitability of listed deposit money banks in Nigeria. H04: Loans and advances have no significant influence on the bank’s profitability of listed deposit money banks in Nigeria. H05: Capital adequacy has no significant effect on the bank’s profitability of listed deposit money banks in Nigeria.

1.6 Scope of the Study

The study was limited to the listed deposit money banks in the Nigerian stock exchange as at 31st December, 2017 as the needed data are readily available and are involve in deposit taking and money lending. The study covered a period of nine years (2009-2017). The period was considered because the deposit money banks were strengthening their corporate governance mechanisms and capital base. Bank‟s profitability of listed deposit money banks was the dependent variable of the study, while non-performing loans, loan loss provisions, secured and unsecured loans, loans and advances and capital adequacy served as the independent variable for the study and provision was made to control for firm specific variable (firm size).

1.7 Significance of the Study

The research will be relevant to several groups of individuals and organizations. First of all, the result or empirical evidence of the study will enable the management of the listed deposit money banks in Nigeria, on how to assess the viability of loan collector in terms of repayment, in order to avoid default. Also, a standard need to be set on the minimum value of collateral in relation to the amount of money being loaned to a customer. Secondly, regulatory authorities like Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC) to examine whether the listed deposit money banks in Nigeria are complying to relevant provisions, as in the Bank and other Financial Institutions Act (1999) and Prudential Guidelines in terms of capital adequacy, provisions against loan loss etc. with a view to recognizing any deterioration in credit quality.  

CHAPTER ONE: INTRODUCTION

1.1 BACKGROUND OF THE STUDY

An organization’s internal control system is comprised of the control environment, risk assessment, control procedures, monitoring, and information & communication system. It includes all the policies and procedures adopted by the directors and management of an entity to assist in achieving their objectives, ensuring, as far as practicable, the orderly and efficient conduct of their business, including adherence to internal policies, the safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. The control environment is an organization’s overall attitude toward controls. It is the tone at the top. Risk assessment is the process of identifying the risks faced by an organization. Once these risks have been identified then specific control procedures can be designed and implemented to address them. Monitoring is important to ensure that controls are functioning as designed. And Management uses an organization’s information and communication system to maintain the system of internal controls. Every good system of internal control must be able to assist an organization carry on its business in an effective and efficient manner. It must be capable of sustaining credible adherence to management’s policies, safeguard its assets, and be able to guarantee complete recording of all its business transactions. A good system must exist to correlate responsibility with authority regarding the whole process of financial reporting and other spheres of the organization’s activity (Hamid, 2004:6). Internal control systems must be effective, particularly in banking organizations where their stock-in-trade is cash. Ineffective internal control systems can results to high financial losses to banking organizations and their customers, the depletion of shareholders’ fund, as well as loss of confidence by the public. Similarly, fraud, which may result from ineffective internal control system, could in extreme cases lead to closure of banks as had happened in the country (Tanko, 2003:186). Owoh (2003:6) contends that weak internal control system renders an organization very soluble to fraud and corrupt practices. It encourages non-productive pursuits such as embezzlement, falsification of records and accounts, insider dealing, betrayal of fiduciary relationships, etc. The management of an organization has a duty to institute a system of internal control that will be appropriate to the enterprise. This will assist in preventing, or at least, substantially reducing the incidence, not only of mistakes, but also of irregularities and intentional errors, including fraud. A system of effective controls is a critical component of a bank management and a foundation for safe and sound operation of banking organization. A system of strong internal controls can help to ensure that the goals and objectives of a banking organization will be met, that the bank will achieve long-term profitability targets, and maintain reliable financial and managerial reporting. Such a system can also help to ensure that the bank will comply with laws and regulations as well as policies, plans, internal rules and procedures, and decrease the risk of unexpected losses or damage to the bank’s reputation (Hamid, 2004:7). This heightened interest in internal controls is, in part, a result of significant losses incurred by several banking organizations. An analysis of the problems related to these losses indicates that they could probably have been avoided had the banks maintained effective internal control systems. Such systems would have prevented or enabled earlier detection of the problems that led to the losses, thereby limiting damage to the banking organization (Hamid, 2004:6). Sound internal controls are therefore essential to the prudent operation of banks and to promoting stability in the financial system as a whole and ensuring corporate survival of banking organizations. Internal control is a process effected by   the board of directors, senior management and all levels of personnel. It is not solely a procedure or policy that is performed at a certain point in time, but rather it is continually operating at all levels within the bank. The board of directors and senior management are responsible for establishing the appropriate culture to facilitate an effective internal control process and for continuously monitoring its effectiveness: however, each individual within an organization must participate in the system. The exact application of internal control systems depends on the nature, complexity and risks of a bank’s operations. The main objective of internal control in banking organizations is to attain, operational, information and compliance objectives (Hamid, 2004:7). Operational objectives of internal control pertain to the effectiveness and efficiency of the bank in using its assets and other resources in protecting the bank from loss. The internal control process seeks to ensure that personnel throughout the organization are working to achieve its objectives in a straight forward manner, without unintended or excessive cost or placing other interests (such as an employee’s, vendor’s or customer’s interest before those of the bank). Information objective of internal control address the preparation of timely, reliable reports needed for decision making within the banking organization. They also address the need for reliable annual accounts, other financial statements and other financial related disclosures, including those for regulatory reporting and other external uses. The information received by management, the board of directors, shareholders and supervisors should be of sufficient quality and integrity that recipient can rely on it in making decisions. Compliance objectives of internal control ensure that all banking business is conducted in compliance with applicable laws and regulations, supervisory requirements and internal policies and procedures. This objective must be met in order to protect the bank’s franchise and reputation, which are necessary for its survival. In varying degrees, internal control is the responsibility of everyone in a bank. Almost all employees produce information used in the internal control system or take other actions needed to effect control. An essential element of a strong internal control system is the recognition by every employee of the need to carry out his responsibilities effectively and to communicate to the appropriate level of management any problems that may arise in operations, instances of non-compliance with the code of conduct, or other policy violations or illegal actions that are noticed. Many internal control failures that resulted in significant losses for banks could have been substantially lessened or even avoided if the board and senior management of organizations had established strong control culture. Adamu (2004:3) contends that good internal control is necessary in ensuring the healthy survival and growth of any organization especially financial institution. Internal control is being put in place to achieve accountability, prudence and completeness. One common feature of all strong banks in the country is their common passion for controls. They do not compromise on them (Adamu, 2004:3). Adamu (2004:3) reported that available statistics has shown that all banks that have at one time or the other gone under have a weak internal control system in place. He argues that without weak internal control system there is no way that accounts could illegally be overdrawn, or be overdrawn with inadequate collaterals, or even be extended to a sector that is clearly under threat due to socio economic or other factors. Banking is a dynamic, rapidly evolving industry. Banks must continually monitor and evaluate their internal control systems in light of changing internal and external conditions, and must enhance these systems as necessary to maintain their effectiveness and ensue their survival.

1.2STATEMENT OF THE PROBLEM

The prevalence of fraudulent practices in the Nigerian banking industry has affected the franchise and reputation of many banking organizations over the years. During the period, February 1951 and May 1952, 18 indigenous banks were registered.  All of them failed without any exception within a short period.  The failure of these indigenous banks was as a result of lack of banking expertise and non-prudent lending policies (Olalusi, 1997:145). History has it that by 1952, a total of 25 banks closed their doors to depositors in Nigeria with consequent untold hardship for customers. There is a story of a customer of Farmers’ Bank Limited who on finding that his bank had closed it doors indefinitely, suffered a heart attack and dropped dead by the bank premises (Abdullahi, 2002: 10). Abdul Mutallab (2003:14) also reported that the operating licenses of thirty-six (36) banks were withdrawn between 1994 and March 2003, and many banks that were involved in foreign exchange malpractices were sanctioned. Abdullahi (2002:7) explained that in the year 2001, 723 cases of fraud and forgeries were reported in the Nigerian banking industry, out of which 388 were successfully executed representing 53.7%. The amount involved was N2.185 billion, while the actual loss totaled N1.07 billion, mainly through defalcation of customers’ cash lodgments by bank employees, substitution and depression of clearing cheques and manipulation of customers’ accounts. NDIC reported that the banking sector recorded N12.9 billion fraud-related cases in 2002/2003 financial year, and CBN was reported to have said that there were 981 reported cases of fraud and forgery involving N5 billion, $5.25 million and 1,701.17 million Pound sterling respectively in 2002 (The New Age, 2003:29). Out of this number however, CBN said 428 cases resulted in losses of N1.40 billion and $153,000 to the banks while the other cases were nipped in the bud. NDIC reported in its 2002 annual report that 16 out of the 90 licenced banks in operation failed to insure the deposits kept in their banks in violation of section 32 of the NDIC Act. No. 22 of 1988 (as amended) as at December 2002. NDIC also stated in its 2002 annual report that the level of compliance with the requirement of fidelity insurance coverage by the 74 insured banks was 82.2% as against 90% in 2001(The New Age, 2003:29). CBN annual report for 2002 also indicated that the December 2002 deadline fixed for meeting the new minimum paid-up capital for existing banks of N1 billion has expired with only 39 banks representing 43% of the 90 licenced banks meeting the requirement (Abdullahi 2002:8). Pressures to deliver reasonable returns to shareholders has pushed some bank's to take above normal risks, which has resulted in portfolio problems. Between 2001 and 2002, the Nigerian banking industry non-performing loans increased by 57% to N77 billion. Losses from fraud in the banking industry have remained high, and are likely to increase further as merchant banks converting to commercial banks have limited experience in commercial banking and are vulnerable to operational errors and frauds.  These trends and the growth of unsound banks in 2002 were indeed worrisome and made many Nigerians to fear the survival of the industry. Is it that the internal control measures put in place by banks in Nigeria are not effective or the role of managements in ensuring strict compliance to internal control system is below expectation? To what extent does in-effective Internal control systems threatens corporate survival in the Nigerian banking industry? Can corporate survival be ensured by good internal control system? What are the implications of non-compliance by banks with statutory regulations (CAMA’90, BOFIA’ 91, the Money Laundering Act of 1995, the Advance Fee Fraud & other fraud related offences Act 1995) and monetary circulars issued by the CBN on their internal control systems and corporate survival?  

1.3 OBJECTIVES OF THE STUDY

One of the objectives of this research work is to determine the degree of relationship between ineffective internal controls system and fraud/forgeries of banks in Nigeria. Another objective of the research work is to review the control environment in the Nigerian banking industry with a view to ascertain the overall attitude of the top-level management toward controls, the implications  of such attitude on fraud/forgeries and performing and non-performing loans/advances, with a view to make recommendations that will bring about enhanced control and ensure survival of banks in Nigeria. The research work equally intends to examine the relationship between internal control systems and corporate survival in the Nigerian banking industry and the extent to which internal control systems can make or mar corporate survival. It is also an objective of this research to examine the implications of non-compliance by banks with laid down procedures and the extent to which such can affect corporate survival. Lastly, the causes and implications of fraudulent and unethical practices, breach of procedures and legislations, and collapse of banks in the Nigerian banking industry, will be examined. The research also intends to make appropriate recommendations, in an attempt to make a modest contribution to knowledge.
CHAPTER ONE INTRODUCTION The banking sector of Nigeria in the past could be divided into two groups-the elite foreign banks which concentrated on the rich of the society and the local banks mainly owned by the state.The latter served the interest of most working class people. The elite banks were Barclays Bank (formerly called the Colonial Bank) and Standard Chartered Bank (formerly,Bank of British West Africa). The second group of banks with state ownership include Nigeria Commercial bank (GCB), Social Security Bank (now SG-SSB), Agricultural Development Bank (ADB), and the National Investment Bank (NIB). The clients of the localy owned banks found business transations very frustration espercally during salary payments, for example, it was not uncommon observing long winding queus extending serveral meters outside the banking hall. The few foreign banks on the other hand, apply high charges and the initial deposit to open accounts was very high. The average Nigerian could therefore not open accounts with these banks. Choices were very few and competition was virtually absent in the sector. The Bank of Nigeria (BOG) with the support of government undertook a process of financial sector restructuring which transformed the financial sector. Some of the initiatives that led this transformation is the movement to universal banking, the adoption of an open licensing system and the modernization of the payments systems. According to Acquah (2006) the governor of the BOG,?universal banking involves the removal of restrictions on banking activities which allow banks to choose the type of banking services that they would like to offer in line with their capital, risk appetite and their business orientation?(2006). Universal banking creates room f
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