The Autoethnography Project

The basic motivations for bank fraud can be traced to:

(a) Unmet financial needs.

(b) An opportunity to commit fraud.

(c) Economic justification or rationalization for fraudulent behaviour.

These factors can be presented in a triangular form as follows:

Financial Need

Opportunity Rationalization/Justification

Ability to identify these components and when they occur is key to detection and prevention of fraudulent practices in banks. Having identified the timing of their occurrence, the next step is to establish an effective system of internal controls.

It may not be easy to prevent employees from having financial needs but emphasis should be to control them through value re-orientation. Opportunities for fraudulent practices should be prevented or minimized while a corporate culture strongly centered on ethical behaviour should be encouraged to reduce rationalization for corrupt practices.

4.0 CONCLUSION

Corporate governance connotes the processes involved in the discharge of the mandate of governance in corporate entities. Corporate governance promotes accountability, integrity, transparency and profitability of corporate entities, including banks. Absence of or inadequacy of corporate governance structures is often blamed for the woeful performance of business entities.

A highlight of the guidelines on the core elements of the corporate governance dealt with equity ownership, organisational structure, quality of board membership, board performance appraisal, quality management and reporting relationship.

Insider abuse refers to the practice whereby insiders, notably senior bank officials, directors, Board Chairmen, abused their privileged position to obtain loans without due process and requisite collateral back-up. Such loans dubiously and illegally procured are usually irrecoverable due, largely, to the amount involved and the waivers attached to them. These senior officers often approve such loans for themselves and on their own terms.

Bank fraud refers to the criminal act of illegally obtaining or attempting to obtain money or other assets from a bank or other financial institution. The types of bank fraud are listed in a section in this unit.

Basic motivation for bank fraud was also discussed with graphic representation of what leads to this act.

5.0 SUMMARY

In this unit, we defined and discussed the concept ‘corporate governance’; discussed CBN code of corporate governance for Banks, 2006; explained what we mean by insider abuse; stated and explained the concept bank fraud; listed the types of bank fraud; and discussed the basic motivation for bank fraud.

In the next unit, we shall consider another important unit i.e. Sources of Instability in the Banking Sector.

6.0 TUTOR-MARKED ASSIGNMENT (TMA)

1. Briefly explain the concept of corporate governance. Highlight its importance to the performance of the banking sector.

2. Insider abuse has often been blamed for incessant case of bank distress in Nigeria. You have just received an invitation from the Chartered Institute of Bankers of Nigeria to speak on this topical issue as part of a training programme for newly recruited bank employees. Briefly

explain what is meant by insider abuse, highlighting its implications for the industry and basic motivations for its continued occurrence as well as ways to contain the ugly trend..

Suggested answers:

Corporate governance connotes the processes involved in the discharge of the mandate of governance in corporate entities. It refers to the process through which an organization is governed and controlled. Good corporate governance is of particular importance to the banking industry because the integrity of bank management defines the quality banking services delivery and in the process enhances the overall performance of the banking sector. Corporate governance promotes accountability, integrity, transparency and profitability of corporate entities, including banks. Absence of or inadequacy of corporate governance structures is often blamed for the woeful performance of business entities.

The imperative for good corporate governance in the financial services sector, especially banks, is underscored by the wave of corporate failures particularly in the financial services sector early in this millennium. Also, the failure of corporate governance has been identified in virtually all known cases of banking distress in Nigeria. This is an indication that efficient corporate governance structures in banks is necessary for optimum performance.

Insider abuse refers to the practice whereby bank insiders, notably senior bank officials, directors, Board Chairmen, abuse their privileged positions to obtain loans without due process and requisite collateral back-up. Such loans dubiously and illegally procured are usually irrecoverable due, largely, to the amount involved and the waivers attached to them. These senior officers often approve such loans for themselves and on their own terms. It may also extend to wrong or fraudulent use of information obtained by reason of membership of the banking profession for personal gain.

Insider abuse is a major source of bank fraud. It is an aspect of white collar crime. This type of abuse spins around identity fraud and abuse of authorization. It is aggravated in recent times by the increasing wave of automation in banking payment processes, particularly in banks with weak authentication procedures.

Perpetrators of this unwholesome behaviour often attempt to rationalize their actions by blaming it on harsh economic conditions. It is also the result of weak or inadequate internal control system. To combat this menace, the authorities should first try to understand how, why and when it occurs. Adequate system of internal control should therefore be put in place.

7.0 REFERENCES/FURTHER READINGS

Central Bank of Nigeria (1990 & 2010), Prudential Guidelines, Abuja: Central Bank of Nigeria.

Chartered Institute of Bankers of Nigeria (2014), Code of Conduct in the Nigerian Banking Industry (Professional Code of Ethics and Business Conduct), Lagos: CIBN.

Ikotun, T. (2014), Banking Law, Ethics and Corporate Governance, Oshogbo-Nigeria: Taikot Publications.

Mauritius Bankers Association (2013), Code of Ethics and of Banking Practice, Mauritius:

Mauritius Bankers Association.

Mishkin, F.S. and Eakins, S.G. (2009), Financial Markets and Institutions (6^th Ed), Boston MA:

Pearson Education, Inc.

Okafor, F. O. (2011) Fifty Years of Banking Sector Reforms in Nigeria (1960-2010): -Past Lessons: Future Imperative, First Bank of Nigeria Research Chair Report, Banking and Finance, Nnamdi Azikwe University, Awka, Enugu: Ezu Books Limited.

UNIT 3 SOURCES OF INSTABILITY IN THE BANKING SECTOR