CHAPTER TWO

REVIEW OF LITERATURE

INTRODUCTION

Our focus in this chapter is to critically examine relevant literature that would assist in

explaining the research problem and furthermore recognize the efforts of scholars who had

previously contributed immensely to similar research. The chapter intends to deepen the

understanding of the study and close the perceived gaps.

Precisely, the chapter will be considered in three sub-headings:

 Conceptual Framework

 Theoretical Framework

 Empirical framework

2.1 CONCEPTUAL FRAMEWORK

Accounting

The emerging global economic development that is characterized by rapid changes in

production processes, development in information technology (hereafter IT), fierce market

competition, increased sophistication of consumers and unethical manipulative activities of

businesses in the drive to ensure the complex and unpredictable business dynamics has brought

to the fore the critical role of Accounting Information Systems

(hereafter AIS) in the economic and business discourse, especially as it relates to management

effectiveness (Curtis 1995).

AIS is a tool that uses the IT component to help in controlling the economic-financial activity of

an organization. However, increased advancements in IT have made it possible for organizations

to use this option for a strategic standpoint (Louadi 1998). Therefore, several authors argue in
favor of the importance of AIS for an organization (Wilkinson et al. 2000; Wilkinson 1993;

Rahman et al. 1988; Curtis 1995; Borthick and Clark 1990) and hence the need to maintain it in

every organization, whether profit-oriented or non-profit oriented (Wilkinson et al. 2000). AIS

are not just a component for recording financial data, but a whole component which collects raw

data and then transforms this common data into useful financial information for the policymakers

(Salehi, Vahab & Abdolkarim 2010).

For a better understanding of the AIS, three words of AIS are elaborated separately. The first is

“accounting,” which is a language of business, which records all the financial or monetary

transactions (Wilkinson 1993). Second is “information,” which is the processed form of all

financial transaction data used by decision makers. Lastly, according to Thomas and Kleiner

(1995) and Bhatt (2001), is “system,” which is an integrated entity that focuses on the set of

objectives.

There is an argument in accounting literature that AIS leads to the strategic success of an

organization (Langfield-Smith 1997). A study conducted by Bouwens and Abernethy (2000)

have analyzed the role of AIS in strategic management decisions, and they have also examined

the attributes of AIS about different strategic priorities. It has also been observing the impact of

AIS on the firm’s performance by considering the various designs of AIS on the different

strategies.

According to Chenhall (2003), different designs of AIS support different organizational

strategies, which increase the organizational performance (hereafter OP). Increasing investment

in the AIS makes the corporate culture more flexible and stronger, which enables the

organization to face changing business environmental conditions. Innovation brings the ease to

organizational processes and makes the performance better by reducing the obstacles in these
processes, which also leads to possible access to capital markets. AIS is a system which uses the

financial data of an organization, but it also combines the accounting techniques and controls

along with different methodologies by using IT to track the external and internal reporting data,

financial statements and trend analysis, and thus to impact on the performance of an organization

(Grande, Estebanez & Colomina 2010).

Knowledge of managers in developing high-quality information systems (hereafter IS) is crucial

(Abdipour 2011; McLeod & Schell 2007). Moreover, Laudon and Laudon (2005) argue that the

implementation of AIS is significantly related to the knowledge of managers. Since managers are

the personnel who have a better understanding of the needs of businesses and do consider the

needs of the business, they can better decide on appropriate AIS for the organization (Ismail

2009). Moreover, it is further argued that knowledge of the manager about the IT is very crucial

because managers use this knowledge for the survival and prosperity of a company (Laudon &

Laudon, 2005). Usually, the knowledge of executives is comprised of computer application

programs, the internet, email, database, spreadsheet, word processing, financial and managerial

accounting. This enhances the effectiveness of AIS. As Ismail and King (2007) state, the

knowledge of the manager about more sophisticated software contributes to the increased

efficiency of AIS.

Jarvenpaa and Ives (1991) and Hussein et al. (2005) argue that top management support (TMS)

is also considered as imperative in determining the quality of AIS and implementation of AIS in

the organization, as top management support increases the quality of AIS (Lerwongsatien &

Wongpinunwatana 2003; Thong & Yap 1995). This support could be in different forms, e.g., it

could be in the form of commitment to align organizational strategies (Jarvenpaa & Ives 1991).

Moreover, it can also be in the form of participation in supporting the employees for building a
constructive attitude towards the usefulness of IS. Furthermore, it could be the administrative

authority’s surety on the availability and the appropriateness of the resources for implementation

of AIS (Guinea et al. 2005).

The above discussion shows that the role of AIS is imperative in managing an organization.

Thus, it is vital to set up an internal control system in the organization. Nicolaou (2000) says that

the fit of AIS regarding information control and information communication as per the

organization’s requirement is very much related to accounting and management decision-

making. Sajady, Dastgir, and Hashem (2008) argue about the benefits of AIS by studying its

impact on facilitating the company’s transactions, internal controls, performance evaluation,

quality of accounting information and improvement in the decision-making process. Considering

these five dimensions, AIS gains importance in increasing OP since performance management

(hereafter PM) is a maturing business discipline (Downes & Barclay 2008). Therefore, it is also

vital in improving OP. Yang, Lin, and Koo (2011) also conclude from their study that control

efficacy of financial information reliability has an effect on the operating performance of

companies.

Previously, many research studies conducted in Iran, Pakistan, Finland, Malaysia and Spain have

shown that increased firm profitability and increased operations efficiency are the results of AIS

adoption (Sajady, Dastgir & Nejad 2008; Kouser, Awan, Rana & Shahzad 2011; Gullkvist 2002;

Grande, Estebanez & Colomina 2010; Kharuddin, Ashhari & Nassir 2010). In the UAE, new

computer tools and information society have made it possible for the firms to make better use of

AIS concerning their dealings with customers and suppliers. Moreover, electronic banking and

the development of AIS have also helped the companies in saving time while making

transactions.
Accounting information is a crucial ingredient for most of the managerial and financial

decisions. Each year, these decisions are worth billions of dollars in developed economies.

Sometimes, these decisions are deficient in quality. It is necessary to conduct studies that could

incite managers about the importance of the quality of information available in the organization,

which could lead to better decision-making in the organization of a developing country. If

research studies could influence the managers by giving them insights into the use of AIS for

making their decision process better, stakeholders will benefit.

Several authors, e.g., Jarvenpaa and Ives (1991), Hussein et al. (2005), Lerwongsatien and

Wongpinunwatana (2003), Thong and Yap (1995) analyzed the impact of top management

support and accounting manager’s knowledge on the AIS in developed countries about two

decades before. Ang et al. (2001) conducted a study on SMEs but compared the role of

accounting managers’ knowledge of the alignment and non- alignment of AIS. There is a lack of

research studying the impact of accounting managers’ knowledge and top management support

on AIS implementation in the developing country context, where SMEs started adopting

technology recently. Thus, it is important to analyze the impact of top management support and

accounting managers’ knowledge on the AIS in a developing country along with the further

impact of AIS on the OP and PM of SMEs. Based on the above discussion, it is observed that top

management support and accounting managers’ knowledge have a relation with AIS, and AIS

leads to OP and PM.

Overview Of The Financial Accounting System

The financial accounting system is one that is well designed to facilitate the smooth, efficient and

uninterrupted flow of data from the point where a transaction occurs through the various stages
of data processing to the final stage, thereby culminating in a report. A financial accounting

system is made up of three distinct stages which are:

a. Data recording.

b. Information summarization and interpretation.

c. Information reporting

Accounting Standards

A standard is agreed upon criteria of what is proper practice in a given situation, a basis

for comparison and judgment, a point of departure when variation is justifiable by the

circumstance and reported as such. Standards are not designed to confine practice within rigid

post to truth, honest and fair dealing. They are not accidental but intentional in origin and direct a

high, but attainable level of performance. Without precluding justifiable departures and

variations in the procedures and process. The financial accounting reporting in Nigeria is guided

by the standards issued by the Nigeria Accounting Standard Board (NASB).

The Nigeria Accounting Standard Board came into being in September, 1982 but was formally

established by the National Assembly via the Nigeria Accounting Standard Board Act l003

which became effective on 10th July, 2003.

Functions:

The functions of the NASB among others are to:

- Develop and publish Statements of Accounting Standards (SAS) which is to be observed in the

preparation of the financial statement.

- Promotes the general acceptance and adoption of such standard by then preparers of financial

statements, external authors and user of financial statements.

economic and political environment.

As at August 008, the NASB has issued (30) operational standards in Nigeria which have been

adopted by the shareholders in the accounting professional practice. International Federation of

Accounting Bodies ( 1FAB) the internal federation of accountancy bodies is an international

organization to which each country’s accounting body is affiliated to and an organization that

promotes uniformity of principles adopted by accountants throughout the world. IFAB has a

standing committee known as the international accounting standard committee (IASC) which is

responsible for the issuing of accounting standards known as international accounting standards

(IAS). As present, the IASC of IFAB has issued forty one (41) operational standards adopted by

member countries and is being practiced worldwide.

Accounting Record

Record keeping cycle involves a process that is followed by Accountants and book

keeping staff in processing raw financial data into output information inform of financial

statements. The process ranges from creation of business transactions, analyze and record the

transactions in the journals by account name, post information from journals to ledgers, prepare a

trial balance, journalize adjusting entries, post adjustments from the journal to the ledger, prepare

an adjusted trial balance, journalize closing entries, post closing entries from the journal to the

ledger, prepare a post closing trial balance, and prepare the financial statements (William

et al 2008).They specifies further that objectives of record keeping include the following: To

provide an accurate, thorough picture of operating results.  To permit a quick comparison of

current data with prior years’ operating results and budgetary goals. To offer financial

statement for use by management, bankers and prospective creditors.  To facilitate the prompt
filing or reports and tax returns to regulatory and tax collecting government agencies.  To

reveal employees fraud, theft, waste and record keeping errors. To allow for fast, accurate,

and reliable access to records, ensuring the timely destructions of redundant information

and the identification and protection of vital and historically important records. It is necessary

when a firm is seeking fund from a bank for expansion. The benefits of record keeping cannot be

over emphasized. Record keeping has become the foundation on which the totality of modern

business depends. This is because without it, it will be impossible to ascertain the level of

profitability and the level of business susceptibility to fraud. Record keeping and good

record management is also essential for any corporate body to function effectively

(Ademola 2012). According to Covin and Selvin, (2008), if the records are kept over a period

of time, they give background picture which can help organizational change. Continuing, they

said it is not only accounting records that must be kept. In fact personal records enable

an accurate evaluation of personnel to aid administration of job selection. According

Ademola 2012, the specific benefits of record keeping include the following: It helps to avoid

business failure.  It is useful for financial management planning and control. It helps to make

sound decisions. It gives background picture which helps organizational change. It is critical to

business survival.

Accounting Record Storage and Retrieval

Accounting records are important as they are sources of information and thus they must be

numbered and stored properly for the purpose of record retrieval. Crane (1997) defined record

storage as the housing of records when whether semi-active or inactive, must still be retained. He

also pointed out that records should be stored in a well built records center, the archives,

commercial storage and the basement. Reed (2010) defined record retrieval as a system of
removing records from their storage places. He stated that file arrangement should

support the retrieval of records by either arranging them numerically or alphabetically so as to

ease retrieval. Crane (1997) further explained that retrieval should be done by authorized

personnel in a record centre. He explained that accounting record documents should be

arranged to ensure that files containing restricted information are accessible only to

authorized personnel and officials. Best practices for successful record retention program

should include; training and education, check lists to ensure inclusions of all required

documentation prior to closing a file, paying attention to detail, documenting pertinent

information relative to the transaction providing and obtaining instructions in writing, records

maintained in an organized manner and stored in a designed area and written standard operating

procedures addressing record retention (Reed 2010).

Fraud and Fraudulent Practices

Fraud can be defined as deliberate deceit or an act of deception aimed at causing a person or

organization to give up property or some lawful right. The Association of Certified Fraud

Examiners (1999) further defines fraud as the use of one’s occupation for personal enrichment

through the deliberate misuse, misapplication or employment of organizational resources or

assets. Fraud can be further described as the fraudulent conversion and acquisition of money or

property by false pretense (FBI, 1984). In legal terms, fraud is seen as the act of depriving a

person dishonestly of something, which such an individual would or might be entitled to, but for

the perpetration of fraud. Nevertheless, in its lexical meaning, fraud is an act of deception which

is deliberately practiced in order to gain unlawful advantage. Therefore, for any action to

constitute a fraud there must be dishonest intention to benefit (on the part of the perpetrator) at

the detriment of another person or organization. Fraud usually requires theft and manipulation of
records, often accompanied by concealment of the theft. It also involves the conversion of the

stolen assets or resources into personal assets or resources. There is a general consensus among

criminologists that fraud is caused by three elements called “WOE” (Onibudo, 2007). For any

fraud to occur there must be a will, an opportunity and exit (escape route). A fraud will only

occur if the perpetrators have the will to commit the fraud, if the opportunity to commit the fraud

is available and if there is an exit or escape route from relevant sections or institutions that are

against fraud or related deviant behaviour and with the crash of major multinational corporations

like Enron (in the United States of America) coupled with high level allegations and actual cases

of corporate fraud, many organizations in their attempt to improve their image have resorted to

developing ethical guidelines and codes of ethics. The whole essence of these is to ensure that all

organizational members irrespective of rank or status, complies with the minimum standard of

ethical responsibility in order to promote the reputation of such firms in their chosen industry,

earn the goodwill of customers and thus improve their competitive advantage (Unugbro and

Idolor, 2007). It is noteworthy that in the present Nigerian epoch, many youths and elder citizens

alike indulge in sharp practices in order to get financially rich as quickly as possible and because

banks deal with money, and money related businesses, the banking sector have become the

targets of persistent fraudsters. Akinyomi (2010) view fraud as the act of depriving a person

underhandedly of something, which such a person would or might be entitled to but for the

perpetration of fraud in its lexical meaning, fraud is an act of trickery which is intentionally

practiced in order to gain illegitimate advantage. Therefore, for any action to constitute a 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. In view of the gravity of fraud in banks

coupled with the different mechanisms put in place by banks, such as establishment of internal

control unit, fraud alerts, security measures etc.., yet fraud detection and prevention has

continued to be a serious challenge in Nigeria and this has questioned the effectiveness of these

measures (Okubena, 1998). Employees as well as firms in all industries and banking activities

engage in fraudulent practices all over the world. Furthermore, Adeoti (2011) said that fraud is a

global occurrence; it is not peculiar to the banking industry or for that matter, peculiar to only

Nigeria. Ogidefa (2008) reported that the problem of fraud in our banking system may have

some attachments which are:

i. Bank malpractices

ii. Failure to appoint trusted and honest official as the representative in the clearing house

iii. Failure to change representative on regular basis

iv. Failure to provide locked boxes or bags for carrying cheques to and from the central banks

v. Inadequate training facilities for clearing staff both in the offices and central bank

vi. Negligence in checking clearing cheques from the banks to avoid a case of possible short

vii. change of cheque.

According to Eseoghene (2010) there are various types of frauds perpetrated in banks which

embezzlement is a form of fraud which involves the unlawful collection of monetary items such

as cash traveler‟s cheque and foreign currencies. It could also involve the deceitful collection of

banks assets such as motor vehicles, computers, stationary, equipment and different types of

electronics owned by the bank. While defalcation, involves the embezzlement of money held in

trust by bankers on behalf of their customers. Defalcation of customers deposits either by

conversion or fraudulent alteration of deposit vouchers by either the bank teller or customer is
the common form of bank fraud. Where the bank teller and customer collude to defalcate, such

fraud is usually neatly perpetrated and takes longer time to discover. They can only, easily be

discovered during reconciliation of customers bank account. Given the conceptual clarifications

espouse, the next section of this discourse will focus on the causes and salient categories of

frauds in the banking industry. This is necessary for the purpose of policy formulation and

guidelines to guide against frauds and to assist in the early detection of frauds perpetration.

Causes, Dimensions and Categories of Fraud

The various factors that underline the incidence of bank fraud can be classified into Institutional

and Environmental factors which are further elucidated below.

1) . Institutional factors.

Institutional factor are factors that can be traced to the internal working environment of the

organization. They are, to a great extent, factors within the control of the management of the

bank. The following are the notable institutional factors which when poorly provided or visible

could lead to incidence of frauds perpetration;

 Poor information technology and data base management. 

 Weak accounting and internal control system. 

 Inadequate supervision of subordinates and nonchalance. 

 General frustration occasioned by management

 unfulfilled promise

 poor welfare policy of the organization. 

 Disregards for “know your customer (KNC) rule. 

 Failure to engage in regular call over. 

staff with little experience and knowledge in financial praxis.

The more experience and knowledgeable a staff is, the less probability that frauds would pass

such staff undetected unless with active support of staff / personnel/ professional competence. 

 Poor book keeping and data management (both in storage and retrieval forms).

 Inadequate infrastructure: poor communication system and power failure, result to a build-

up of unbalance postings, overcrowded office space etc, these encourage the committal of fraud

in banks.

2) . Environmental factors.

Environmental factors can be traced to the immediate location and remote (social, economic,

political) environment of the bank. Several social issues encourage people to fall into temptation

and thus join fraudulent individuals in the society which include but not limited to the following;

 Honesty in offices or public places are no longer encouraged, on the contrary, such people

are often despised and regarded as slow, foolish or stupid and not knowing how to utilize the

opportunities at their disposal to make quick wealth. 

 Much premium is placed on the accumulation of wealth in the society without sparing any

thought about the source of wealth. 

 At social gatherings, launching or similar social events, the cynosure of all eyes are usually

on those who are in a position to dole out cash or make mouth watering pledges or promises of

what to do. These are the ones that are instantly recognized and respected. However, nobody

cares to ask how the money is made. 

favor of the rich and further even among this category of people, the highest bidders are also the

front runners. Stiff competition in the banking industry which saw many banks engaging in fraud

and unethical means so as to meet up in terms of liquidity and profitability. Other environment

factors include, Job insecurity, increase in the financial burden of individuals, poverty and the

widening gap between the rich and the poor. Apart from the conventional, institutional and

environmental factors in the perpetration of frauds in Bank, Asukwo (1999) and Idowu(2009),

indentified some other causes which they described as immediate and remote causes of frauds.

These include

 poor internal control; inadequate internal control and checks mechanisms usually create a

loophole for fraudulent staff, customers and non-customers to perpetrate frauds. Therefore to

reduce or eliminate frauds, there is need to always have effective audits, security systems and

ever observant surveillance of staff at all times during and after bank official operating hours.

Reliable internal control and checks mechanisms are probably the hallmark of containing and

curtailing incidence of frauds in banks.

 Poor book keeping;

inability to maintain proper books of accounts coupled with failure to reconcile the various

accounts of the bank on daily, weekly or monthly basis usually will attract fraud. This loophole

can very easily be exploited by bank employees who are fraudulent. Information and data

management, regular applications of monitoring and control mechanisms, when not properly

synchronized with the banking operations often leads to the manipulation of records and eventual

perpetration of frauds.

Greed;
this refers to an inner drive by individuals (staff and personnel of the bank) to acquire financial

gains far beyond their income and immediate or long-term needs. It is usually driven by a morbid

desire to get rich quick in order to live a life of opulence and extravagance. Greed has in many

cases been regarded as the single most important cause of fraud in the banking sector.

Inadequate / poor staffing;

a poorly staffed bank will usually have a problem of work planning and in the assignment of

duties and responsibilities. The bank that is flooded with unqualified and inexperienced staff will

of a necessity have to grapple with the problem of training and supervision of its officers. This

situation can very easily be capitalized upon by the teeming fraudsters that the bank has to

contend with in its day to day transactions. Inadequate staffing can be in the form of quality,

quantity and the psychological state of staff / personnel.

Inadequate training and re-training;

lack of adequate training and retraining of employees both on the technical and theoretical

aspects of banking activities and operations usually leads to poor performance. Such inefficient

performance creates a loophole which can very easily be exploited by fraudsters. Apart, it is

worthy to note that the banking industry is technologically dynamic and also easily affected by

global economic equations and advancement. Hence, staff / personnel must be frequently trained

and exposed frequently to these dynamics so as to keep the ethics and practice of banking in the

right track.

Genetic Traits (Background Checks);

this has something to do with heredity: a situation whereby characteristics are passed on from

parents to offspring. For instance a kleptomaniac who has a pathological desire to steal just for

the sake of stealing would naturally not do well as a banker. It is therefore imperative for banks
to trace such symptoms quickly among members of their staff in order to reduce the possibility

of fraud among employees. Besides, the following factors suggested by Aderibigbe (1999) and

Onibudo (2007), also contributes immensely to fraud.

Theft and embezzlement;

this is a form of fraud which involves the unlawful collection of monetary items such as cash,

travellers’ cheque and foreign currencies. It also involves the deceitful collection of bank assets

such as motor vehicles, computers, stationeries, equipment’s, and different types of electronics

owned by the bank.

Defalcation;

this involves the embezzlement of money that is held in trust by bankers on behalf of their

customers. Defalcation of customers deposits either by conversion or fraudulent alteration of

deposit vouchers by either the bank teller or customer is a common form of bank fraud. Where

the bank teller and customer collude to defalcate, such fraud is usually neatly perpetrated and

takes longer time to uncover. They can only easily be discovered during reconciliation of

customers’ bank account. Other forms of defalcation involves colluding with a customer’s agent

when he/she pays into the customers account and when tellers steal some notes from the money

which are billed to be paid to unsuspecting customers/ clients.

Forgeries;

forgeries involve the fraudulent copying and use of customer’s signature to draw huge amounts

of money from the customer’s account without prior consent of the customer. Such forgeries

may be targeted at savings accounts, deposit accounts, current accounts or transfer instruments

such as drafts. Experience has shown that most of such forgeries are perpetrated by internal staff
or by outsiders who act in collusion with employees of the bank who usually are the ones who

release the specimen signatures being forged (Onibudo, 2007).

Unofficial borrowing;

in some instances, bank employees borrow from the vaults and teller tills informally. Such

unofficial borrowings are done in exchange of the staff post dated cheque or I.O.U. or even

nothing. These borrowings are more prevalent on weekends and during the end of the month

when salaries have not been paid. Some of the unofficial borrowings from the vault, which could

run into thousands of naira, are used for quick businesses lasting a few hours or days after which

the funds are replaced without any evidence in place that they were taken in the first place. Such

a practice when done frequently and without official records, soon very easily becomes prone to

manipulations, whereby they resort to other means of balancing the cash in the bank’s vault

without ever having to replace the sums of money collected.

Foreign exchange malpractices;

this involves the falsification of foreign exchange documents and diversion of foreign exchange

that has been officially allocated to the bank, to meet customers’ needs and demand, to the black

market using some “ghost customers” as fronts. Other foreign exchange malpractices include

selling to unsuspecting and naïve customers at exchange rates that are higher than the official

rate and thus claiming the balance once the unsuspecting customer has departed. This practice

usually find fertile grounds to grow in banks which have weak control, recording and accounting

systems and corrupt top management staff.

Impersonation;

impersonation involves assuming the role of another person with the intent of deceitfully

committing fraud. Impersonation by third parties to fraudulently obtain new cheque books which
are consequently utilized to commit fraud is another popular dimension of bank fraud. Cases of

impersonation have been known to be particularly successful when done with conniving bank

employees, who can readily make available, the specimen signatures and passport photograph of

the unsuspecting customers.

Manipulation/ falsification of vouchers;

this type of fraud involves the substitution or conversion of entries of one account to another

account being used to commit the fraud. This account would naturally be a fictitious account into

which the funds of unsuspecting clients of the banks are transferred. The amounts taken are

usually in small sums so that it will not easily be noticed by top management or other

unsuspecting staff of the bank. Manipulation of vouchers can thrive in a banking system saddled

with inadequate checks and balances such as poor job segregation and lack of detailed daily

examination of vouchers and all bank records.

Falsification of status report;

a common type of fraud is falsification of status report and/or doctoring of status report. This is

usually done with the intent of giving undeserved recommendation and opinion to unsuspecting

clients who deal with the bank customers. Some clients for example will only award contracts to

a bank customer if he/ she providers evidence that he/she can do the work and that they are on a

sound footing financially. Such a fraudulent customer connives with the bank staff to beef up the

account all with the aim of portraying himself not only as being capable but also as a persons

who will not abscond once the proceeds of the contracts has been paid. The inflation of statistical

data of a customer’s account performance to give deceptive impression to unsuspecting third

parties (which is very common in Nigeria), for whatever reasons, is a fraudulent behavior.

Money laundering;
this involves the deceitful act of legitimizing money obtained from criminal activity by saving

them in the bank for the criminals or helping them transfer it to foreign banks, or investing it in

legitimate businesses. In the recent political dispensation (in Nigeria), money laundering by con

men, politicians and fraudulent bank staff have assumed alarming dimension.

Fake payments;

a common type of fraud in the banking sector is fake payments, which involves the teller

introducing a spurious cheque into his/her cage. It is done with or without the collaboration of

other members of staff or bank customers. This type of fraud is however easy to detect if the

bank has a policy of thoroughly examining all vouchers, checks, withdrawal slips and payments

on a daily basis.

Computer/ cyberspace frauds;

this involves the fraudulent manipulation of the bank’s computer either at the data collection

stage, the input processing stage or even the data dissemination stage. Computer frauds could

also occur due to improper input system, virus, program manipulations, transaction

manipulations and cyber thefts. In this epoch of massive utilization of automated teller machines

(ATMs) and online real time e-banking and commerce; computer frauds arising from cyber

thefts and crimes has assumed a very threatening dimension. No bank seems to be immune from

it, and a significant proportion of the billions of naira spent annually in the banking sector to help

reduce fraud usually are channelled towards combating compute frauds and cyber crimes/thefts.

Prevention And Control Of Frauds

Fraud prevention and control involved series of control activities put in place by the management

of the bank to discourage fraud amidst their staffs. There is no gainsaying that the control and

prevention of banks fraud is a collaborating effort that involves management of the banks,
government and its agencies and the society. The ability of the management to prevent and

control frauds in the bank depends deeply on the quality of the staff employed and the soundness

of internal controls system in place. Babatunde (2002) define internal control system thus: This

is the whole system of controls financial or otherwise, established by management in other to

carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to

management policies, safeguard the asset and secure as far as possible the completeness and

accuracy of the records. It is the responsibility of management to install and maintain reasonable

system of internal control to protect the entity from loss through fraud or error. However,

management’s responsibility for internal control does not stop at installation and maintenance

alone. Management should demonstrate a concern for effective control by actions and also

motivate personnel to take responsibility for the control and hold them accountable for their

actions for the best of control can be impair by the actions and the reactions of the management.

The usual measures, which ensure timely prevention and control of bank frauds, are categorized

by Shongotola (1994) as:

1) Personnel controls

2) Administrative controls

3) Accounting controls

4) Financial controls

5) Inventory controls

6) Process controls Under personnel controls, we have proper recruitment and proper

disengagement procedures, posting and placement, job rotations, enforced holidays and annual

vacations, and training programmes.

Cameras, passwords, etc. and franking machine. Under accounting controls, we have data

validation, prompt posting of transactions, balancing of accounts, reconciliation, and proper

identification of authorization and approvals. Under financial controls, we have cash limits,

signing power and specialized stationer. Under inventory controls, we have physical checks and

counts and bin cards, stock receipt notes, stock issued voucher, etc. Under process control, we

have input/output validation and program controls. Although all the controls are used in every

aspect of bank operations as fraud antidotes or prevention techniques, special attention is given

to the accounting controls as their proper application is very vital to the system's efficiency and

effectiveness against bank frauds. Bank's financial operations are reviewed at regular intervals by

means of interim account and report. Shongotola (1994) summarizes how frauds are prevented

and controlled in the following words: … if every voucher is properly checked and due approval

confirmed, if proper postings are made and posted entries promptly called over, if balancing and

reconciliation exercises are regularly performed, if figures are measured against

projections/standards and variances are analyzed, if statistics are monitored and appropriate

returns are sent and received on time, the possibility of fraud occurrence or non-detection would

be quite remote. Bank Managers pay particular attention to means of payment and customer's

accounts. There are rules for cash movement, such as physical checks and balancing of cash,

agreeing the Vault Book with the Bullion Officer's Cash Control Book, paying surprise visit to

Cashiers and daily exchanges of tills and till books. Special attention is also paid to the non-cash

payment instruments such as cheques, bankers' payment, etc. When it comes to clearing, care is

taken to prevent substitution, loss or destruction of clearing documents. Government has

promulgated appropriate statutes and established relevant institutions that will ensure that
incidence of frauds in banks and other financial institutions are eliminated. These statutes include

the CBN Decree, BOFI Decree, NDIC Decree, CAM Decree, SEC Decree, FMBN Decree and

the Money Laundering Decree. The institutions include Securities and Exchange Commission

(SEC), Nigerian Deposit Insurance Corporation (NDIC), the Central Bank of Nigeria (CBN) and

the National Drug Law Enforcement Agency (NDLEA). All these statutes and infrastructure are

put in place to ensure safe and sound banking operations and good financial system. The altitude

of the general public (Society) toward the preventing and controlling of fraud in the society has

not been encouraging as we continuing to celebrate the fraudsters knowing fully well that their

source is not genuine. The society should tailor their altitude toward discouraging and exposed

the fraudsters. Under SAS No. 82, the auditor has the responsibility to plan and perform an audit

to obtain reasonable assurance about whether financial statements are free of material

misstatement. The auditor is required to consider fortyone risk factors relating to fraudulent

financial reporting and misappropriation of assets when designing an audit plan. Furthermore,

the plan needs to be continuously modified during the audit on the basis of information gathered

concerning these factors. It is also important that the auditor exercise a degree of skill and care in

the performance of his assignment because if it is proved that the auditor failed to exercise

reasonable skill and care as a result of which fraud or other irregularities which should have been

discovered were not discovered and the client sustained financial losses, the auditor may be

liable. The SAS has provided examples of conditions that would require reconsideration of an

initial risk assessment. However, auditors must still use subjective judgment in analyzing the

many risk factors. For example, one risk factor to be assessed by the auditor is "management

displays a significant disregard to regulatory authorities" (SAS 82 1997). However, the auditor

must use "professional judgment" in conducting an audit where risk factors such as this are
present and must document these risk factors in the work papers (SAS 82 1997). Similarly, the

Private Securities Litigation Reform Act of 1995 imposes some of the same requirements on

public company auditors. The requirements are as follows:

1. Audits must include procedures designed to provide reasonable assurance of detecting illegal

acts that would have a direct and material effect on financial statement amounts.

2. Each audit must include procedures to identify related-party transactions that are material.

3. Each audit must include an evaluation of the ability of the issuer of financial statements to

continue as a going concern. As a part of measure to combat and prevent fraud in the banks,

Central Bank of Nigeria as designed “whistle blowing policy”. Whistle blowing process is a

mechanism by which suspected breaches of the bank’s internal policies, processes, procedures

and unethical (like fraud) activities by any stakeholder (staff, customers, suppliers and

applicants) are reported for necessary actions. It ensures a sound, clean and high degree of

integrity and transparencies in order to achieve efficiency and effectiveness in our banks. The

responsibility to protect the bank from any persons or act that might jeopardize its reputation is

rest on both staffs and customers.

Challenges of Fraud Detection

The banking industry in Nigeria has adopted several measures to detect and control the incidence

of fraud. Mahdi and Zhila (2008) argued that measures aimed at fraud detection include checking

of cashiers, callover, reconciliation and balancing of accounts at all the branches, interbank

reconciliation at head office levels, periodic submission of statement of accounts, stock-taking of

security items and cash in the vaults and routine inspection at all branches. In addition, dual

control mechanisms, reporting systems, installation of close circuit television/cameras,

verification of signatures, control of dormant accounts, teleguiding staff lifestyle, as well as

disheartening that in spite of all these measures, fraud within the banking industry has continued

to be on the increase. Banks generally have been experiencing fraud since its evolution. No

doubt, this has affected their performance and profitability and in some cases, may possibly lead

to distress. The inability of the banks in Nigeria to devise a common approach for tackling fraud

has been a major challenge to fraud detection and prevention. 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 and if these goals need to be achieved, the issue of fraud must be tackled

holistically. Even though there were known cases of fraud in the sector, yet the nature and

different ways through which fraud can be perpetuated in banks have not been adequately

demystified. It is asserted by Adeyemo (2012) that fraud in the bank is possible with

corroboration of an insider and this seems to be the greatest risk to fraud detection and control.

The banks are expected to ensure that they carry out their responsibilities with sincerity of

purpose which is devoid of fraudulent practices as this will boost public trust and confidence.

Another problem is that the government and its agencies have not done enough in the prevention

and control of bank fraud in Nigeria; otherwise the level of bank fraud would have reduced to a

bearable level. The various legislative Acts like Money Laundering Prohibition Act (which helps

to place surveillance on any account through which such excess cash deposits or withdrawals are

made), Bill of Exchange Act which helps to collect the proceeds of trade bills of exchange and

cheques are not putting enough effort in the prevention and control of bank fraud that is the

reason why bank fraud is increasing day by day in Nigeria. However, environmental or social

factors pose a problem in the activities of banking industry as they contribute to bank fraud in
Nigeria. Environmental factors are those that can be trace to the immediate and remote

environment of the bank these factors are manifest in the following manner; the desire to get rich

quick, slow and complex legal process, poverty and the widening gap between the rich and the

poor, competition among bank staff, the desire to belong to any social class, job insecurity, peer

group pressure and societal expectations. Organizational factors which motivate involvement in

bank fraud include inadequate staffing, poor internal control mechanism, lack of proper training

and poor working conditions was revealed by the findings as the significant propellants. In fact,

the high level of delinquent/toxic assets and non performing loans of banks, which greatly distort

the banks’ financial statements is attributable to the activities of top management who in most

cases engage in unethical practices ranging from falsification of accounting statements,

embezzlement of depositors funds, distortion of financial statements and the granting of loans

and other credit facilities to business partners/clients over and above the regulatory obligatory

limits without any significant form of collateral security. These top management officers exerted

little or no effort at recovering such loans.

2.2 THEORETICAL FRAMEWORK

Theory of Fraud Triangle

This theory entails the triangle of different fraud aspects which includes perceived

pressure/motives, perceived opportunities and rationalization. The term perceived is important in

the context because at times pressure, opportunities and rationalization may not be necessarily

real (Chiezey and Onu, 2013). Chiezey and Onu (2013) observed that the first temptations to

commit fraud are financial and non-financial pressure. Through financial pressure is the major

pressure as argued by Ngaluka (2013), that 95% of fraud committed is due to financial pressure.

This pressure can be in form of debts, underpayments, personal family financial challenges of the
employees and those that related to work in terms of pressures to perform more than other

(Ngaluka, 2013). The opportunity to commit fraud in the bank is determined by the undue access

of the employees to some basic information which gives them an advantage to commit an ethical

behavior and conceal it (Chiezey and Onu 2013). Nyakarimi and Karwairwa (2015) argue that

these opportunities are due to weak control measures lack of expectation for punishments which

can serve as deterrence and in adequate infrastructure. The last factor in the fraud triangle is the

perceived rationalization is the justification of an unethical behavior which an organization other

than a criminal activity. Mahinda (2012) opined that individual who cannot rationalize its ethical

behavior might probably not commit fraud. From the argument above, it is gearing that beyond

internal control and corporate governance strict compliance with banking ethics has great

potential for preventing opportunity and rationalization for fraud which in turn break the fraud

triangle.

Agency Theory

Onwujiuba (2014) noted the separation of ownership from management of a business concern

without proper monitoring give an opportunity for unethical behavior. The owner of the business

must ensure that the employees work in the best inters of the shareholders, this can be achieve

through the use of both financial and non-financial incentives to the employees (Onwujiuba,

2014). This incentives will ensure that the employee stayed motivated all times and thereby

reducing the perceived pressure to commit fraud. This incentives can be inform of leave bonuses,

medical insurance schemes, availability of staff loan, quick response to their need etc. (Mutesi,

2010). It is statement of fact that the contemporary materialistic tendencies have rendered

ineffective the incentives packages in reducing agency cost with could be mirrored most of the

times by fraudulent engagements of the agents (i.e. management). Hence, beyond internal control
and corporate governance, compliance with banking ethics becomes imperatives as far as

banking industry is concerned

2.3 EMPIRICAL REVIEW

Aseyi(2017) evaluation of fraud and control measures in Nigerian Banking Sector (a case

study of three selected banks) is to aim at finding practical means of eliminating, reducing the

incidence of fraud in our banking industries and researcher used both primary and secondary

source. Questionnaire and interview were administered on a population sample of 75 person

made up of both staff and management of First Bank Nigerian Plc, Union Bank of Nigerian Plc

and United Bank for African all in Gusau, Zamfara state. The findings derives from respondents

indicates that poor internet system not greed is the main course of fraud in the Nigerian Banking

and recommendation, and solution of fraud is a means of segregation of duties, were officer that

past entry should not be responsible for checking with compulsory annual holiday for all member

of the staffs and organization procedure, development of a good organization structure and career

opportunity for staff so as to have dedicated loyal staff and contented with force and good

training programme is important for staff at all levels.

Onigbaje(2020) assesses the nature, causes, effects, detection and prevention measure for bank
frauds in Nigeria. The methodology employed for data collection is only primary source, which
involved the use of questionnaires, in which 100 questionnaire were administered to the selected
bank staff, out of which only 92 questionnaires were completed and returned. Also this study
make use of Nigerian Deposit Insurance Corporation (NDIC) annual reports for data relating to
total amount involved in frauds and forgeries, ten banks with the highest fraud cases and
categories of bank staff involved in frauds and forgeries. The paper concludes that in the fight for
the prevention of fraud, banks should have in place sound/effective internal control
mechanism/checks and balances and provide adequate remuneration and reward for excellence
and good conduct while the incessant and periodic downsizing of bank staffs should be
discouraged. There should be steadfastness in punishing offenders and adoption of zero tolerance
to corruption. The society should imbibe cultural value system of treating fraudsters with
contempt.