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Fraud In Banks – Types, Causes, Effects and Prevention

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Fraud In Banks – Types, Causes, Effects and Prevention 

Fraud is a universal financial word. It’s occurrence or perpetration is not limited to this country as we are popularly known for corruption. It is a criminal act yet highly favoured by a good number of people in this country esp the rich and well placed.

                                  Types of Fraud 

The list is inexhaustible, banking industry is dynamic and so with any thing that happens in it. NDIC annual report in 2008 has fraud volume of N53.5 billion,which is very high as of 2008. Fraud can be classified into the following;

1. Fraud by Flow 

>>Smash and grab – this is small in number with high value over a short period. 
>>Drip –  Large in number, small in value and repetitive over a long period. 

2. Fraud by victim 

>> This is fraud against the bank 
>>  Against parties outside the bank. 

3. Fraud by Act 

>>Fraud by the perpetrators which includes the employee, cooperate fraud and third party fraud. 
>>Fraud by method which includes Electronic transfer fraud, Fraudulent loans, savings account manipulation, cheque fiddling, mortgage fraud, counterfeiting, investment fraud and Theft  embezzlement and bribery. 
>> Fraud by Instruments: This includes Marine fraud, Documentary Fraud, Stock Exchange Fraud, Advance Fee Fraud and Bankruptcy Fraud. 
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Others include – Cheque Fraud, Cheque kiting, Teaming and Lading, Defalcation, Forgery of Bank Rubbers Stamp, clearing fraud, money transfer fraud, money laundering fraud and Manipulation of Dormant account etc. 


                                    Causes of Fraud in Banks 


I will classify the causes of fraud into two factors and they are below 

1. Institutional or Internal Factor – 

This is the type of fraud caused by bank itself and it includes the following; 
>> Poor Accounting 
>> Weak internal control system. 
>> Ineffective suoervision of subordinates. 
>> Recruiting System. 
>> Lack of training staff. 
>> Poor quality management. 
>> Customer Negligence

2. Environmental or Societal Values 

It includes the following;
>> Low moral values. 
>> Slow and tortuous legal process. 
>> Lack of effective deterrent or punishment. 
>> Fear of negative publicity. 

Prevention of Bank Frauds 

Fraud like inflation cannot be stopped, but can be prevented or controlled with the following measures;
1. Observing laid down rules on opening of new accounts. 
2. Banks should strengthen their internal control and security systems. 
3. Screen prospective employees by obtaining status reports from previous employers and relevant agencies. 
4. Avoid deploying causal staff to sensitive positions. 
5. Educate their customers on the use of Automated Teller Machine(ATM) and other e-banking services on the need to safeguard their personal identification numbers(pins). 
6. Close watch or supervision of dormant accounts. 
7. Training and retaining staff. 
8. Effective control of vouchers and computer reports or records. 
9. Frequent re-assignment of staff. 
10. Institutionalization of adequate penalties. 
And there we have it, fraud in banks, types, cause and how to prevent fraud in banks. Please if you have more don’t forget to share thanks. 


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