EFFECTIVE CORPORATE GOVERNANCE AS A TOOL FOR REDUCING FRAUD IN NIGERIA BANK INDUSTRY, PROBLEM AND PROSPECT (A CASE STUDY OF FIDELITY BANK PLC AND DIAMOND BANK PLC., LAGOS BRANCH)
ABSTRACT
Today’s banking especially in Nigeria post consolidation era has been identified to be facing with a lot of challenges is the problem of fraud and its detection and control. The outbreak of this problem (fraud) the Nigeria banking industry has been as a result of lack of weak corporate governance measures. In other to reduce or better still eliminate these bedevils that befall Nigeria banking industry hence the need to build up good corporate governance. The objective of this research is to identify how corporate governance as a tool can help in reducing the incidence of fraud in the banking system, with special focus on two banks fidelity bank Plc and Diamond bank Plc both in Lagos branch. Some questionnaires were distributed to the staff of the two named banks and the data obtained were analyzed. The information generated from the data show that lack of effective corporate governs had led to the existence of fraud in the system. Secondly, the information show that the inexperienced stated of banks staff has been identified as the cause of weak corporate governance in the Nigeria banking industry. In recommendation the bank industry need to apply or build corporate governance as a tool to improved its operations by reducing or eliminating fraud through its effective detection and control.
CHAPTER ONE
1.0 INTRODUCTION
This chapter briefly explains the background of the study. Statement of the problem, objective of the study, research questions, statement of hypothesis, significance of the study, scope of the study, limitation of the study, definition of terms.
1.1 BACKGROUND OF THE STUDY
In Nigeria notwithstanding the existence of legislations like the companies and allied matters act and banks and other financial institutions act which aimed at ensuring responsible corporate behaviors companies (banks) and their directors often engage in actions that challenge the basic principle of corporate governance. Moreover, this subject corporate governance in spite of so many legislators fostering its application does not exist in the running of Nigerian organization until recent time.
Prior to the coming into effect of BOFID and prudential guideline in early 2000 ownership, directorship, control and especially administration of risk assets were largely dedicated by whims and caprices of a few at politicians and bank managers in fact, financial reporting as it relates to risk assets arbitrarily contrived, decision making process suffered deficit of intergirty, openness and disclosure just as the rights of minority shareholders and other stake holders are meant at expenses of others. These are because the provision of existing legislation is extremely weak until the extent legislation was enacted.
However, in 2003 the securities and exchange commission s (SEC) came up with the first ever dedicated code of conduct for government and public companies (corporation). this was followed in 2006 by the central bank of Nigeria (CBN) with the corporate governance guidelines of post consolidations. In these code a specific issues on board membership, board / management leadership among other were addressed. inherently the international finance corporations (IFC) in 2006 developed guidelines around these and other performance variables for use in the assessment of low bank rate in practice of corporate governance. It is a well-known fact that fraud and corruption are the worst enemies of both growth and development in our society though gross mismanagement is also responsible for Nigeria present economic down turn build in all frauds has played the greater role in that direction.
This calls for objective focus on the appropriate measures, the banking act of 1969 and the central bank of Nigeria act of 1958 have been seen to contain provisions aimed at preventing the perpetration of fraud in the Nigerian banking sytsem. the same provision were also made available in the current banks and other financial institutions decree (BOFIID) and the central bank on Nigeria (CBN) decree NO 24 of 1991 that repealed the 1969 banking act and CBN act of 1958 respectively. other legislations dealing wholly or partly with fraud include dishonored cheques (offences) act No 14 of 1977 the criminal code 1959 and penal code 1960 and others. despite the legislativbe effort in of governments, frauds in banks have continued to persist unabated. It now demands radical and realistic solution to cope with the management of fraud in the Nigerian banking industry. It is on this background that this research topic came into mind with two (2) banks serving as point of inference, they are fidelity bank Plc and diamond bank Plc. therefore,since is clear that in a fraud ridden banking sector the performance of the industry cannot but be insufficient and ineffective federal government has severally in the past adopted corporate governance and at the same time reducing fraud in the Nigerian banking industry.
1.2 STATEMENT OF THE PROBLEM
This research work corporate governance as a tools for reducing fraud in Nigeria banking industry is set to utilized the full benefit and opportunities provided by the application of this tools corporate governance in banking sectors of rest of the world to Nigeria banking industry. Banks especially commercial banks had been characterized with so many functions among which are acceptance and safe keeping of deposits and other variables, however if these banks are both cases of fraud perpetration the confidence vested on them will be greatly affected and this bank ability to attack deposits will be greatly affected.
Secondly, in spite the existence of legislations like companies and called matter act and banks and other financial institution act which were enacted to ensuring responsible corporate behaviours banks on that effects often engage in some actions that distorts the basic principles of corporate governance.
Furthermore, banks serve as custodian of money to their customers as well as financial intermediates between surplus and deficit unit of the economy. Huge financial losses resulting from banks frauds in most cases have drastically reduced funds available for lending (investment fund). This leads to reduction in the nations ingestible capital which has direct negative impact on the gross domestic products and gross national products of the country.
Finally, the problems of this study lies on how to identify and enforce corporate governance as a tool for reducing fraud in the Nigerian banking industry.
1.3 OBJECTIVE OF THE STUDY
The objective of this study includes the creation of strong awareness and equally the encouragement of concerned banks management with the desire to exhibit corporate governance as a measure of detecting and reducing fraud in Nigerian banking industry.
The study will also bring to limelight and identify more effective and efficient way through which the problems of fraud could managed by Nigerian banks. Other objectives of the study are:
to find out the amount of fraudulent practices really occurs in the banking industry, particularly of commercial banks.
to find out the causes of fraud in the Nigerian banking industry.
To ascertain the effectiveness of corporate govern as a means of reducing fraud.
To analyze the effect of fraud in the Nigerian banking system.
To recommend for improved or improvement so as to create a good effective system or corporate governance.
1.4 STATEMENT OF HYPOTHESIS
The following hypothesis have been formulated in the cause of this research
HI: corporate governance as not been effective in reducing and controlling fraud in the Nigerian banking industry.
H2: corporate governance has been effective in reducing and controlling fraud in the Nigerian bank industry.
1.6 SIGNIFICANCE OF THE STUDY
Corporate governance can do much in protecting against fraud and at the same time ensure the flexibity of accounting data.
Therefore, this study is aimed at providing an academic tested while print which will serve as yard stick for decision making in the banking industry and other corporate organizations if property and critically analyzed.
Secondly, this research work will be of significant important to other people who are willing to carry on research work and also the general public.
Thirdly, management could as well as gain some insight in some important aspects of corporate governance which will help in appreciating the complex nature of effective corporate governance behaviors (system) further more, this work will serve as useful suggestions on how to maintain effective and efficient corporate governance which would enhance efficiency in the management of the Nigerian banking industry and also reduce the threat of loss which emanates from beak internal control and fraud.
Finally, this research work will be of great help to the banking industry and other related organizations. it will, point out the best and most effective means of restoring the rate of the services rendered by the Nigerian banking industry.
1.7 SCOPE OF THE STUDY
This study due to its nature and significant will cover all the important aspects of corporate governance as it affects the Nigeria banking industry and also will present to the readers adnf other researcher with the most recent accounting and administrative procedures in the management of the banking industry with special reference to fidelity bank Plc and diamond bank Plc.
1.8 LIMITATION OF THE STUDY
In this cause of carrying out this research the researcher encountered the following limitations.
TIME CONSTRAINT: due to the limited time available for the researcher could not gather all the information needed for the study.
FINANCE: as a result of high cost of transportation and insufficient found at the disposal of the researcher visiting places where the necessary information could be gather was greatly hampered.
ATTITUDE OF RESPONDENTS: some of the correspondents were not willing to corporate with the researcher because they felt they had nothing to gain from the study.
1.9 DEFINITIONS OF TERMS
The main aim of having these terms defined is to enable researchers understand the meanings of these words they have read or come across in the study of this research work. these words among all are:
ADMINISTRATION: this involved with the activities that are done in order to plain, organize, direct control and effectively run a business organization.
BANK FAILURE: this means the inability of a bank to meet its obligations to customers, owners and the economy.
CHEQUE: this a printed form which bank current account holders (customers ) use as means of withdrawing cash as well as a means for goods or service instead of using cash.
COMPETITION: this is a situation in which people or organization compete with each other for something like market share, good will etc.
CONFIDENCE: a feeling of sure about trust and believe in the abilities or good qualities of an organization mostly from customer of a banks.
CORPORATE GOVERNANCE: this is a set of process, customs policies, laws and institutions affecting the way in which a corporation is directed or controlled.
CORRUPTION: this is act of dishonesting or illegal behaviour especially of people in authority.
CRIME: this means activities that involved breaking of rules or laws or act of going contrary to lay down regulations.
DISTRESS: this means in a state of financial difficulty mostly in banks.
EFFECTIVENESS: The ability to actualize the intended results in business.
FORGERY: this is an act of copying money documents in order to deceive peoples.
FRAUD: this is an act of deceiving somebody (people) in order to get money or goods illegally.
MISMANAGEMENT: this means ineffective way of dealing with something or to manage something badly mostly in terms of fraud.
EFFECTIVE CORPORATE GOVERNANCE AS A TOOL FOR REDUCING FRAUD IN NIGERIA BANK INDUSTRY, PROBLEM AND PROSPECT (A CASE STUDY OF FIDELITY BANK PLC AND DIAMOND BANK PLC., LAGOS BRANCH)