Frauds in the Nigerian Banking Sector: A Factor-Analytic Investigation

Abstract

The study examines banking sector frauds in Nigeria, from 1994 – 2013, their causative factors and suggested mitigating measures. The secondary data for the period were analyzed using two models, with bank deposits (BD) mobilized as the dependent variable, while the model was based on the ordinary least squares (OLS) method after pre-testing for stationarity using the Augmented Dickey-Fuller (ADF) and the Philips-Peron (PP) tests. Regression analysis and the derived related descriptive statistics were used to explain the behaviour of the variables. The study showed that the number of fraud cases and the amount of fraud loses are significant (F_0.05=45.49) in explaining the variation in the banks deposit levels (R²=0.92; DW=1.78). However, the number of staff involved was found to have no significant relationship with the level of bank deposits. The reports concludes that the battle against Nigerian banking sector frauds require strong interagency collaboration, public education and cross border cooperation to accomplish sustainable success. Based on the findings, it is recommended, among others, that existing regulatory guidelines on deterrence and prevention of banking sector frauds, which are currently inadequately addressing detection and mitigation activities, should be strengthened and broadened to include forensic accounting/auditing to aid recovery of losses. Also, that the internal control mechanisms, particularly, the monitoring and sustenance of effective system of dual control in banking operations should be strengthened by enforcing strict compliance and a regime of sanctions for breaches.