SOCIOLOGICAL ANALYSIS OF FRAUD AND
CRIMINAL MOTIVATION, FRAUD MANAGEMENT AND CONTROL.
1.0 Introduction
By the traditional nature of the Banking industry as the curator of the most valuable
element in the human production
equation or function, (money) fraud is an integral part of the industry anywhere in the World. Fraud is evident in
the Banking industry whether in the U.S.A, Europe, Japan with highly developed economies, or even in South American
Banana’ States or African ‘Beggar’
nation economies. The degree of
prevalence varies any way. Fraud
is a dysfunctional aspect of the
banking industry. It is not desirable.
It is a retrogressive virus. The cumulative
desire is to exterminate it,
prevent it, or conciliatorily, to reduce it to the barest minimum.
In this presentation therefore, we shall be looking at Fraud from a sociological perspective with
regards to its origin, its source
of life, the spread and its future.
After which deterrent measures can be proffered and discussed. Thus,
this paper addresses the subject
in the following order:
a)
What is
Fraud?
b)
The players
in Fraud?
c)
The
objectives of Fraud i.e. Motivation.
d)
Causes of
Fraud and
e)
Fraud
Management and Control Measures
2.0 What is Fraud?
The Oxford Dictionary of Current English (1996) defines Fraud as “Criminal deception,
dishonest artifice or trick, Person or thing that is not what it claims to be.” The Encyclopedia Britannica (1958)
describes Fraud as a human.
behavioral tendency, that
employs tactics of deception,
distortion, manipulation and facial
camouflage towards obtaining set goal for which otherwise would have been impossible
or delayed or at a lesser value
or quantum. A combination of
these two explanations
fundamentally places fraud as a human behavior, exercised by bank executives
(insiders), Board members,
clients and ‘smart’ ‘con-men (outsiders). Every sociological analysis on fraud in the banks will therefore imply a
review of the roles of each of
these participants in fraud, and to what extent the existing organizational structure and operating machineries enhance or nurture
such behaviors. From his paper, “Fraud Detection and Control: Role of Branch management”, Shangotola (FCIB) has summed up the fraud issue in Nigeria when he states that:
(i)
The very
nature of banking business which
involves human beings (clients
and staff) of diverse
backgrounds and interests in a
relationship of trust.
(ii)
The convertible
(i.e. cash or near-cash) nature of most bank assets.
(iii)
Wide
spread application of automated systems which leave no finger-print or
hand-writing evidence.
(iv)
Wide
network of branches, some remotely
located, poorly staffed,
ill-equipped and without
adequate communication facilities.
(v)
Common
social misconception e.g. that banks have limitless funds, or that bank monies are institutional loot or booty to be
plundered by the able.
Fraud therefore has to do with the bank workers how they do their jobs, how they are organized
to do the jobs; The clients, their mindset towards what bank money is; and of course, the society’s definition of what ownership of money represents.
3.0 The Players in Fraud.
Most frauds take place in banks with the connivance of
an insider, a bank staff. It could even
be a sole business initiative of the
staff. For example, a bank executive
with a greedy intent produces and
manipulates documents to raise
facilities for himself, with no declared security. Everything looks right
except that they do not exist. An outside smart Alec, who desires to get
rich-quick as in the prevailing ‘fashion’ in Nigeria would of course either package himself with fake papers and ‘invade’ the bank, or solicit the support
of an insider and set the ‘scheme’ to drain bank money. Then of course is
the society at large. The society that accepts commends, and encourages
such shady nuveau-rich bank executives
and ‘4l9ers of the society, certainly
provide fertile grounds for fraudsters and prospective fraudsters, and the exercise of fraud in banks. Just as fraud become most rampant in our banks within the last 5 -8
years, such times also witnessed the
growth of big bank staff
millionaires, big bank friends,
relations and fronts super
millionaires
Table
I
|
RANK
|
1992
|
1993
|
1994
|
1995
|
1996
|
1997
|
||||||
|
No
|
%
|
No
|
%
|
No
|
%
|
No
|
%
|
No
|
%
|
No
|
%
|
|
|
Supervisors
Managers |
132
|
30.3
|
127
|
24.6
|
211
|
286
|
151
|
24.2
|
218
|
39.49
|
203
|
35.9
|
|
Officers,
Accts, Exec. |
66
|
15.1
|
56
|
10.9
|
144
|
19.5
|
142
|
22.7
|
96
|
17.39
|
154
|
27.2
|
|
Clerks
&Cashiers |
156
|
35.8
|
192
|
37.2
|
220
|
29.9
|
172
|
27.5
|
145
|
26.27
|
124
|
21.9
|
|
Typists,
Technicians & Stenography |
9
|
2.1
|
34
|
6.6
|
24
|
3.3
|
18
|
2.88
|
19
|
3.44
|
20
|
3.5
|
|
Messengers
drivers Cleans, Guards etc. |
54
|
12.4
|
61
|
11.8
|
108
|
14.7
|
123
|
19.7
|
66
|
11,96
|
57
|
10.1
|
|
Temporary
Staff |
-
|
-
|
6
|
1.2
|
2
|
0.3
|
16
|
2.56
|
5
|
0.91
|
5
|
0.9
|
|
Uncategorized
|
19
|
4.3
|
40
|
7.8
|
28
|
3.7
|
3
|
0.48
|
3
|
0.54
|
3
|
0.5
|
|
TOTAL
|
436
|
100.0
|
516
|
100
|
737
|
100
|
625
|
100
|
552
|
100
|
566
|
100.0
|
Table 1 indicates a steady
rise in bank staff involvement
in frauds and forgeries from 436
(1992) to 737 (1994).The slight decline, but sure increase in 1996-1997 may
not be too removed from the NDIC
and NDLEA joint crack down on banks and
4l9ners in the country. Let it be mentioned that the same period
witnessed the astronomical growth of banks
and the near total collapse of the banking
industry. So many factors have been attributed, but it is
obvious fraud was one major of such reasons.
4.0 The Objectives of Fraud
The ultimate objective of a bank fraudsters is to get money from the banks. The money on its own makes no
meaning. The final desire thus
is to acquire as much wealth with
the money. Enough to become acceptable in the society. Draw enough money to
acquire and sustain a new high
baseless status in the society. And
of course in a few cases for the near
megalomaniac ambition of storing enough
money and wealth to cover the
next 20-30 future generations of
his life! Thus the stories
have been told of NDIC report tens, hundreds, and in cases thousands (billions)
of millions of Naira siphoned by bank fraudsters in recent years by
individuals and in cases a
clique of between two and five.
Thus, participation in banks frauds have cut across the cross-section of bank
staff, from Managing Directors, Branch
Managers, Senior Manager, to Clerks and
even messengers and security men. (NDIC Report on Fraud 1997)
The Causes of Fraud.
These are those traceable to the internal environment of the financial institution. They could be due to any or
a group of the following:
i.
Faulty
job analysis i.e. job description and definition for staff, in the organizational
setting which results in:
ii.
Overload
of staff responsibilities that could cause staff neglect of fraud when it
happens.
iii.
Overload
of supervisory responsibility of
individual staff resulting in
job fatigue and oversight.
iv.
Faulty
staff recruitment and training designs
that allow for undisciplined or even
unauthorized staff to be exposed to sensitive documents of value and liquid assets. In recruitment, cognate experience, competence, character search
and other good qualities are swept
under due to nepotism and corruption in recruitment.
v.
Poor staff
development programs that make for little experience and knowledge in financial
practice among staff. This explains for the relative high
frequency of frauds occurring among such class of staff. The more the experience and knowledge, the less the likelihood of
fraud passing unnoticed, undetected except with the active connivance of such staff. Please also note that
where professionally qualified staff are
involved in frauds, they are more likely to swindle larger sums of money than
would have the less qualified staff. Poor training of staff could also affect
the morally weak as well as the morally robust in varying ways. While the
former could be due to limited level of comprehension, the latter is due more
to greed.
vi.
Poor organizational and hence management
structures give rise to ineffective and poor control systems, indiscipline
among staff and so creates an environment for frauds to flourish. It is on
record that financial institutions with poor management record higher incidence
of all sort of frauds, than those with effective management. Poor management
could be reflected in staff neglect due to poor supervision, lack of technical
knowledge, apathy, pressure etc. These all-breeding grounds for fraud
perpetuation.
vii.
Poor information management technologies in use
could create fertile grounds for frauds. For examples;
·
Poor security in arrangement of documents.
·
Use of badly introduced sophisticated accounting
machines.
·
Poor communication systems, power failure
resulting in backlog of unbalanced postings, congested office space etc.
·
Lapses in management control system of corporate
customers. Here fraudulent staff of both bank and corporate customers could
collude and take undue advantage of lapses observed in the control systems of
corporate customers.
Environmental/ societal factors.
·
Personality profile of Dramatise Personae.
·
Individuals
with inordinate ambitions are
prone to committing frauds. Such are bound to making money by
hook or crook. They do not care a hoot for morality. The end justifies the means to them.
·
Societal
values - the general dishonesty in the society, morality is thrown overboard,
misplaced societal values, unquestioning attitude towards sources of wealth, and
increasing societal expectation from finance institutions workers and the brazing desire of such to live up to the
expectation.
·
Slow and
tortuous legal procedures.
·
Lack of
effective deterrent or punitive measures.
·
Fear of
negative corporate publicity. etc.
6.0
Managing and Controlling Fraud.
a) Managing Fraud.
It is best to prevent
fraud than to attempt managing it after it has occurred. Preventing it therefore implies, plugging those institutional inhibiting factors by way of micro redress
control mechanisms, obviously
reflective of their nature and extent
as discussed above in the causes .Then of course is the macro, societal factors that boarder on national reforms of the societal
value system, legal disposition and economic revamping.
These are to a large extent outside the immediate controls of banks
management. One fact
remains though from our discussions
above, a major factor in frauds perpetration in Banks is the human factor.
The quality of the Bank staff;
How can they be improved upon;
How can the mind set of the
average bank staff be made
anti-fraud and pro-integrity and
contentment. Fraud and Control management in this perspective therefore is anything that will
mould the psychological disposition of the bank executive and as well send
warning signals to prospective outside collaborators or adventurers
b) Controlling Fraud.
Our take off point in fraud control
in banks in Nigeria is from Micheal J. Commer (in his remarkable book
“Corporate Fraud”) in which he states, the scale of fraud in an organization is
a reflection of the ability of its managers
to manage” staff Thus from recruitment to final disengagement, staff
must be treated as vital element in
the successful implementation of any corporate policies in banks. Staff must be trained to identify with the
corporate objectives of the banks. A
new wave of deliberate training in contentment and the
virtues of honest living must be woven to the package of in human
resource development Banks. Hard work should be adequately commended and
rewarded, while all dubious tendencies must be stiffly
abhorred and dealt with accordingly
c)
As An Organization.
On the corporate level every efforts to control fraud must be such as to
influence positively, the attitudes of staff whether be it persuasive or compulsive in terms of manpower
development strategies, or set internal control measures. These should
be of course in conjunction with physical infrastructural installments like computerization, electronic
monitory mechanisms etc. On the persuasive
human developmental line, in addition
to good training, a lot of
supervisory and audit skills
must applied. The branch ability to prevent or detect and contain fraud depends essentially on the
quality of personnel assigned to
it by the Head offices and the effectiveness of the internal controls in place. The American
Institute of Certified Public Accountants define internal controls as “The plan
of organization and all the coordinate methods and measures adopted within a business to safeguard its
assets, check the accuracy and reliability of its accounting
data, promote operational efficiency and encourage adherence to prescribed managerial policy”. And the British institute of Chartered Accountant of England and Wales see it as “the whole
system of controls financial and otherwise established by management in order to carry on the business
of the company in an orderly manner, safeguard its assets
and secure as far as possible the accuracy and reliability
of its records”.
Thus, both the human elements and
the internal control systems of a bank are the fulcra on which rest
the efficiency and security of the
organization. An effective frauds
prevention, detection and control
would involve the following:
a)
Personnel control
-
Good and
efficient recruitment processes and
procedures. An effective screening,
referees, sworn declarations, certificates, photographs, etc,
to be administered by an established human resources management
consultant.
-
Smooth and
efficient disengagement procedures that ensures timely notification of relevant departments, cancellation
of rights and privileges, withdrawal of staff identity
cards etc.
-
Organized
job rotation, attendance logs
enforced holidays and annual leaves, and training programs.
b)
Administrative
controls.
-
Efficient
job description and definition for respective staff.
-
Proper
enforcement of dual custody, logs and registers maintenance, clear definition of access rights and
restrictions.
-
Trained and well positioned security personnel.
-
Well,
positioned security devices (Regiscopes and CCTV cameras).
-
Installed franking machine and a development archival systems.
c)
Accounting controls.
-
Good and simple data validation procedure;
Prompt posting of transactions and
balancing and reconciliation. These are made easier and faster with computerization. These and other technical accounting procedures must be brought to bear.
d)
Financial
Controls.
-
Cash limits,
signing powers and specialized transfer (e.g. certified cheques, bankers’ payment coupons) all to be administered to stated policy standards.
e)
Inventory
Controls.
-
By ways
of physical checks and counts
logs and listings, proper
documentation all help to enhance control.
CONCLUSION.
It is therefore
evident that the focus in any
good frauds management and control in banks
must have as a focus the desire to prevent fraud and where
it occurs, which could vary
in extent, the primary concern should help the human inputs, what is the state of staff. And
then of course what control measures
exist and are in practice, in
the Bank. As long as banks keep
money, fraud must always be expected.
Where it cannot be totally exterminated,
it should be reduced to the barest manageable minimum.
the barest manageable minimum.
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