CORPORATE FRAUD AND PERFORMANCE OF MICROFINANCE BANKS IN NIGERIA

CORPORATE FRAUD AND PERFORMANCE OF MICROFINANCE BANKS IN NIGERIA

ABSTRACT

The study examines the impact of corporate fraud on the performance of micro finance banks in Nigeria. This is premised on the increasing fraudulent activities and practices in the banking sector which translate into the inability of microfinance banks to meet the expectations of various stakeholders. The population of the study comprised fifty staff of Nasarawa Microfinance Bank. The findings of the study revealed that corporate fraud has significant effects on microfinance bank performance in Nigeria. Consequent upon this study, it was recommended that there should be improvement in internal control systems to enable staff detect and prevent fraudulent activities, the regulatory and supervisory bodies of banks in Nigeria should improve their supervision on microfinance banks using all tools including ICT banking software at their disposal to appropriately check and curtail the incidence of fraud in the banking industry.

CHAPTER ONE

INTRODUCTION

1. Background to the study

Fraud is a global occurrence even though, it is not peculiar to banking industry. This is because the collapse of foremost international corporations like Enron in the United States of America, collapse of NITEL, Nigeria airways, and some distressed bank in Nigeria such as Savannah bank, Africa International Bank (AIB) were all product of fraud. Also, the recent financial mismanagement in Nigeria banking sector which made the Central Bank to inject 620 Billion naira tax payers fund and take over some commercial banks (known as troubled banks) namely Oceanic Bank Plc, Fin Bank Plc, Afri bank Plc, Bank PHB, Spring Bank and Intercontinental Bank can also be traced to fraud. The occurrence of the fraudulent practices in the most commercial bank in Nigeria have negatively affected the mindset of most shareholders and investors, and may take a long time before it can be corrected (Obafemi, 2016).

Frauds and corruption usually result in huge financial losses to banks and may affect the confidence of most investors and shareholders, infact, the frequent occurrence of frauds could, in extreme cases, could lead to the closure of some banks, which was the case of most of the closed commercial banks in Nigeria. Furthermore, fraud and corruption in today’s banks certainly constitutes one of the most serious threats to the practices and spread of bank in Nigeria. It has assumed such an alarming proportion that there is no visible sign that the tread will be reversed. In legal terms, fraud is seen as the act of depriving a person of something, which such a person would or might be entitled to, it can also be seen as an act of trickery which is intentionally practiced in order to gain illegitimate advantage. Therefore, for any action to constitute fraud there must be deceitful objective to benefit (on the part of the perpetrator) at the disadvantage of another person or group. Fraud typically requires stealing and manipulation of accounts, frequently accompanied by cover up of the theft. It also involves the translation of the stolen resources or property into own resources or property.

Cases of fraud are on the increase in the Nigerian banking sector today, despite the clamp down on fraudulent bank executives by the Central Bank of Nigeria in 2010 CBN, (2010). Till date no effective measure can be said to have been put in place to prevent fraud in its entirety anywhere in the World Wikipedia, (2017). Many Nigerian commercial banks continue to accumulate high financial deposit base without actually effectively lending in a commensurate way to investors and business organizations in the real sector. Many a times the rules for lending are very stringent making the lending process very cumbersome for private businesses genuinely in need of access to capital for further production purposes. In the last quarter of the last decade bank regulation in Nigeria became so lapse that bank officials were able to accumulate private wealth of unthinkable proportions and commercial banks often found it difficult to distinguish between its assets and those of major shareholders who incidentally became the CEO of such banks leading to a high spate of banking irregularities particularly at the management levels in banks Paul, Ikpefan & Deborah, (2014). The banking sector has become one of the most critical sectors and commanding heights of the economy with wide implications on the level and direction of economic growth and transformation and on such sensitive issues as the rate of unemployment and inflation which directly affect the lives of our people CBN, (2010).

Today, the very integrity and survivability of these laudable functions of Nigerian banks have been called into question in view of incessant frauds and accounting scandals. The incessant frauds in the banking industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry Oseni, (2006). Owing to the fact that fraud affects the performance and reputations of banking institutions, to minimize or control the alarming rate of fraud in the banking industry. It is against this background, that this study seeks to examine the corporate fraud and performance of Microfinance Banks in Nigeria.

1. Statement of the Problem

Banks generally have been experiencing fraud since its evolution. This affects the performance and the profitability of banks and may possibly lead to distress. The inability to identify the immediate and remote causes of continuous cases of bank frauds in Micro Finance banks in Nigeria is one of the problems brought to bare. Fraud is a major challenge to the entire banking industry; no bank is immune to it and in all facets of life (Olorunsegun, 2010). The banking public expects accountability, fairness, transparency in their day operation for effective intermediation. Though there were known cases of fraud in the sector, one major question still remain unanswered which is what is the nature and different ways through which fraud can be perpetuated in banks. It is asserted by Adeyemo (2012) that fraud in the bank is possible with corroboration of an insider. Banks are expected to ensure that they carry out their responsibilities with sincerity of purpose which is devoid of fraudulent practices; this is relevant if the banking sector is to gain public trust and goodwill. In Nigeria, in spite of the banking regulation and bank examination by the Central Bank of Nigeria (CBN), the supervisory role of the Nigeria Deposit Insurance Corporation (NDIC), and The Chartered Institute of Bankers of Nigeria (CIBN), there is still a growing concern about fraud and other unethical practices in the banking industry. Evidence from the NDIC Report (2008) reveals that the report of the examinations and special investigations showed that some  banks were still bedeviled with problems of fraud, weak board and management oversight; inaccurate financial reporting; poor book-keeping practices; nonperforming insider-related credits; declining asset quality and attendant large provisioning requirements; inadequate debt recovery; non-compliance with banking laws, rules and regulations; and significant exposure to the capital market through share and margin loans. Okpara (2009) found that one of the factors that impacted the most on the performance of the banking system in Nigeria was fraudulent practices. This study thus, examine corporate fraud and performance of Microfinance Banks in Nigeria

1.3       RESEARCH OBJECTIVES

The general objective of this study is to evaluate corporate fraud and performance of Microfinance Banks in Nigeria. However, it is set to achieve the following specific objectives.

1. To determine the extent to which fraud has affected the profitability of micro finance banks.
2. To ascertain the influence of fraud on the capital base of micro finance banks.
3. To determine the extent to which fraud has affected the liquidity position of micro finance banks.

1. RESEARCH QUESTIONS

To guide the conduct of this research, the following questions are raised:

1. To what extent  does fraud affect the profitability of micro finance banks?
2. What are the impacts of corporate fraud on the capital base of micro finance banks?
3. To what extent does fraud affect the liquidity position of micro finance banks?

1.5       Research Hypotheses

A research hypothesis is a generalized and verifiable statement about a state of phenomena which may be true or false. Therefore, these research null hypotheses will be empirically tested in this research work.

H0: Corporate fraud has no significant impact on the performance of Microfinance Banks in Nigeria.

H1: Corporate fraud has significant impact on the performance of Microfinance Banks in Nigeria.

1.       Scope and Limitations of the study

Scope

The scope of this study will be limited to examining the impact corporate fraud on the performance of Microfinance banks in Nigeria. The study will examine the causes of fraud and its impact on the performance of Microfinance Banks in Nigeria.

Limitations

The researcher encountered problems at the time of carrying out this research. The following limitations are inherent in the study:

1. Time: Since there is no time set aside for writing this project, researcher has to combine the writing of the project with her normal academic and other commitment in the academic environment.
2. Finance: Finance hinder the researcher from expanding the scope of this study beyond Nasarawa Microfinance Bank as this will involve more money which is not at the disposal of the researcher.
3. Lack of adequate materials: Arising from inadequate reading materials and uncooperative attitude of a few respondents.

1.       Significance of the Study

The findings of this study would be beneficial to the management of commercial banks, bank customers, investors and the Banking Industry in Nigeria. The result of this study would also be of immense benefit to researchers who may be interested in carrying out further research on similar topics.

Banks / Stakeholders: The study will be of invaluable benefits and useful to all categories of bank managers, financial information users such as existing and potential shareholders, they are the direct beneficiary of companies and they will get bonuses if the companies operate successfully. The use of fraud management will reduce the risk of fraud and increase the bank’s profit which will reflect on the dividends of the shareholders. Also, creditors and fund providers will also benefit from the presence of fraud prevention and control system in the Nigeria banking system as the will guaranteed of the safety of the funds.

Researchers: Besides, researchers and students in the field of accounting, banking and finance who want to know more about frauds, its causes and possible ways of preventing it. They will also find the study beneficial as it will add to the existing stock of knowledge for students and serve as a reference point for subsequent researchers.

Government/Policy Makers:  The findings of this study will be of great importance to the policy makers especially the Central bank of Nigeria in their efforts to deter, prevent and at worst detect fraud timely, as the threat of fraud in Nigeria can be contained by taking the right steps.

1.       Definition of Key Terms

Fraud: Fraud is an act of or course of deception deliberately practiced to gain unlawful or unfair advantage deception directed to the detriment of another.

Financial Services Sectors: This involves all financial institutions such as banks, insurance company etc.

Bank: Is an establishment saddled with keeping money and valuable safely, the money being paid out of the customer order?

Fraud management: This involves the use of various management techniques to control and prevent fraud.

Financial fraud: This involves the financial account transaction such as bank account including a consumer clone or credit card account.

Fraud prevention: This involves taking steps that best protect against identity theft and other external treats targeting company.Fraud ring: A group of individuals who scheme together to execute fraudulently activities.