The increase in internal bank frauds

FOR watchers of the Nigerian banking sector, the recent report by the Nigeria Deposit Insurance Corporation (NDIC) which confirms a rise in cases of internal fraud in the industry must be truly alarming. The report shows that, in 2017, there were 26,182 cases of fraud and forgery, a 56.30 per cent increase on the 16,751 cases reported in 2016. At the same time, there was a significant increase in the amount of money involved—N12 billion, as opposed to N8.68 billion in 2016, a difference of 38 per cent. Not surprisingly, internet/online banking and ATM/card-related cases constituted a majority: 24, 226, or 92.68 per cent of all cases. Finally, a total of 320 bank employees were either summarily dismissed or had their appointments terminated for their involvement in these incidents.

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If there is any silver lining in the otherwise grim report, it is that the total financial losses accruing from the cases decreased from its 2016 peak of N760 million to N682 million 2017, a drop of 11.43 per cent. According to Mr. Mohammed Ibrahim, NDIC’s Head of Communications and Public Affairs, the drop is due in part to additional control measures put in place by banks, complementing the corporation’s other efforts to put the banking industry back on the path of probity. In what must be music to the ears of bank employees and their customers, Mr. Mohammed has vowed to make sure that all Deposit Money Banks (DMBs) comply with Sections 35 and 36 of the NDIC Act No. 16 of 2006 (as amended) which make submission of monthly reports on fraud and forgery to the corporation compulsory.

While the NDIC’s vow to ensure greater compliance with the regulations regarding monthly submission of fraud reports is heartening, that the report itself is disheartening goes without saying. For one thing, and the drop in the number of cases notwithstanding, it seems to suggest that, on balance, fraud and forgery remain pervasive in the country’s banking sector. Second, the report is unlikely to inspire foreign investors who may be monitoring the banking sector as a barometer for broader developments in the Nigerian economy.

There are several conflicting theories as to why fraud has become endemic in the Nigerian banking industry. Some people believe that it is due to the poor pay of bank tellers. This implies that the majority of fraud cases are perpetrated by workers on the lowest rung on the ladder, something for which there is little or no evidence. Others believe that the spike in internal bank frauds is because banks have become too slack in their vetting of prospective workers. A third theory says that as society goes, so goes the financial sector, which makes it unfair to expect the banking industry to remain an oasis of transparency in a Nigerian society otherwise afoul with moral putrefaction.

Whatever the drivers of the increase in fraud cases are, there is no arguing that serious remedial measures are needed. Banks need to be more imaginative in the way they think about fraud so as to remain a step ahead of fraudsters. More resources need to be directed at staffing with a view to making it more rigorous. Existing monitoring mechanisms need to be firmed up. Finally, there is an urgent need to reconsider existing legal penalties for bank frauds and forgeries.