Bank related frauds and forgeries have been on the rise in recent times with over N23billion losses recorded in the last one year. Ibrahim Apekhade Yusuf in this report examines the issues
Report of thefts in banks is no longer news as the media is continuously inundated with stories of malfeasance in banks and other related institutions.
Perhaps aware that as in all human endeavours, there are criminal elements within who try to compromise the system for their selfish ends, financial institutions worldwide have continuously try to strengthen the system to curb the incidence of fraud through the deployment of the right security measures including cyber security and other hi-tech support.
Thankfully, Nigeria, which is also a part of the global community, has naturally keyed into this by investing in appropriate technology.
But whether these measures have had much of an impact remains to be seen judging by the rapidity of frauds and forgeries in banks these days.
Spate of bank frauds
The regularity of bank related frauds has been rather unprecedented in recent times compared to years past.
For analysts who have monitored the ugly trend, the spate of bank thefts is a serious course for concern.
According to the latest report on Frauds and Forgeries in Banks by the Financial Institutions Training Centre (FITC), Deposit Money Banks recorded a total of 8,502 fraud cases between January and September 2014, amounting to N23.34billion.
The FITC is Lagos, a foremost Nigerian institution, where Dr. (Mrs.) Lucy Newman sits atop as the Chief Executive.
The report is based on 66 returns received from 22DMBs.
The Managing Director/Chief Executive Officer, Unity Bank, Mr. Henry Semenitari, said that much at the 30th quarterly meeting of the Committee of Chief Internal Auditors of Banks in Nigeria hosted by the bank in Lagos.
He said the N23.34bn fraud cases were committed through Automated Teller Machine withdrawals, computer manipulation, over-the-counter withdrawals, suppression of entries, and opening/operating of accounts.
He said, “Fraud is an epidemic that has eaten deep into the banking sector and the Nigerian economy. Its devastating effect manifests itself in the deteriorating balance sheet of banks as well as economic backwardness of third world countries, including Nigeria.
“Over the years, it has been established that substantial part of banks’ revenue is lost to fraud with no single bank spared.
“From the FITC Report on Frauds and Forgeries in Banks (January – September 2014), a total of 8,502 cases were reported.
“The total amount of money involved was N23.34bn out of which N3.01bn was actually lost. N20.33bn of the total amount involved was recovered through the collective efforts of banks’ internal and external control techniques as well as intervention of the law enforcement and anti-graft agencies.”
Semenitari told chief auditors of banks present at the meeting to make fraud prevention their main focus.
He noted that fraud had succeeded in killing organisations and “sending home everybody right from the gateman to the Managing Director/Chief Executive Officer; the case of Enron Corporation is a popular case study.”
He argued that banks were spending fortunes trying to recover money lost to fraud.
He said, “The recoveries (of part of the money lost in fraud cases) could not be achieved without costs direct and indirect, thus impacting negatively on the performances of our organisations. This implies that it could have been better for us to prevent the fraud than pursuing recoveries after it has been perpetrated.”
Semenitari described operational efficiency as banks’ ability to operate profitably by matching or exceeding every customer’s satisfaction while adopting good cost control strategies across all balance sheet indices.
He said, in the past, banks had built their business model and revenue strategies around deposit mobilisation, creation of risk assets, treasury activities and traditional front-end business coverage.
Modus operandi deployed
by bank fraudsters
No doubt since e-banking commenced some years ago, banking operations and services to customers have been made easier. But there are also setbacks and risks the banks and customers face from time to time.
The Nation can authoritatively report that there is a rise in bank frauds as fraudsters cash in on modern technology to fleece unsuspecting depositors.
A banker in one of the leading commercial banks in Nigeria, who craved anonymity, confirmed the rise of insider collaborators in fraud.
He noted that the network of criminals is so strong that it is extremely difficult to pin down the culprits.
The source said the most elementary aspect of the fraud is due in part to dereliction of duty on the part of bank staff who neglect the all-important task of checking and confirmation of personal data and addresses of fresh bank customers who want to open new accounts.
“In a situation where there is no confirmation, the accomplice goes ahead to open such accounts, which are used in defrauding people. In effect, when fraud happens, the suspects cannot be located with the addresses in personal data forms. He stands a better chance of evading prosecution at this point,” the source said.
Expatiating, he said, fraudsters usually connive with insiders to compromise account numbers and other details of persons they know have sizeable cash deposits.
“They come and pretend that they have forgotten the signature they signed for the account in question. They request that the manifest be opened for them to see their signature and remember. Once the insider opens the manifest, the fraudster could also request to snap the signature with his phone, under the pretext that he doesn’t want to forget it again. These are questionable demands, but the insider grants it because they are in collaboration. Of course, we know there are expert forgers,” he explained.
The man, who pleaded anonymity, said he had over N3.2 million in his account and went to withdraw N200,000. He had not withdrawn cash for a while, noting that the transaction was done. But since his GSM number which receives SMS alerts was inoperative, he requested for written balance, only to discover that N2.1 million had been withdrawn.
“I raised alarm and upon investigation by the management of the bank, it was discovered that someone forged my bank documents, impersonated me with an identity card and also cloned my GSM line. The money was transferred into an account in Abuja, but I couldn’t get the alert. The bank later discovered I never made the transfer or withdrawals and refunded my money, but it suspended the cashier who authorised the payment,” the victim said.
Fraud within the banking sector manifests at different levels and it is systemic in nature.
A source said a bank staff would not ordinarily open doors for a thief to come in and steal money from the vault.
He said what obtains is that corrupt bank staff carefully arrange for a lapse to occur, so they can explore that window.
A staff of one of the old generation banks who asked not to be named because of the sensitive nature of the issue said experience has shown that it is almost impossible to hit any bank without internal assistance.
“One of the common examples of fraud amongst the top officers of banks is in approving fraudulent loans for their proxies. They register companies in the name of their friends or families, put documents together and approve huge sums to these companies which largely exist only on paper.”
Pressed further, the source said: “Working in cohort with proxies, they go ahead to approve all manner of concessions and waivers, practically giving themselves these monies, robbing the bank of legitimate income. Billions of naira are stolen this way, accumulatively.”
Investigation further revealed that in most cases even where these companies truly exist with verifiable business on ground, they cannot access bank loans on record time without reaching a compromise with the bank officials on what percentage they will get as kick-backs.
“In doing so, even where there are danger signals to warrant reconsideration, they will be overlooked and approval will be given,” another source added.
According to him, these monies are not captured in the books of the banks because they could raise suspicion by the Economic and Financial Crimes Commission (EFCC), saying it denies the bank of income.
“With the cooperation and understanding of the bank management, they move these sums around from time to time to avoid CBN’s unscheduled inspection. You will rarely see the real owners of these monies in the banking hall, as they have their agents who are well-known by the banks and can access these monies at any time of the day,” he added.
CBN onslaught against
bank fraud
Worried by the increasing cases of fraud, the CBN on January 19 through a circular issued a directive urging banks to take steps to curb the trend. The directive, signed by Mr. Dipo Fatokun, Director, Banking and Payment System Department, also stated that the abuses center on identity theft and abuse of authorization. The apex bank therefore announced measures to check such and gave a December 31, 2015 time limit for compliance by all banks or a N50,000 fine daily after the expiration of the deadline.
Experts argue that what you get with the lower ranks of bank officials is not frequent and they also come in various forms because the opening is not always there. They insist that in some cases, double deductions occur on same amount on an account where the customer has made same type of deductions, by not crediting the customer’s account with deposits, yet issuing a teller to the customer.
They could also connive with robbers to hit the banks premises or bullion vans if they notice that guards are loose on certain days or times. There are also cases of signature forgery and altered cheques.
But he however cautioned that whereas banks keep updating their fraud counter-mechanisms, a lot more depend on the integrity and prudence of the staff to succeed. The banks may need to also reconsider the current practice of contract workers who handle transactions far above their pay grades. “You cannot employ a graduate, place him on contract and pay him less than 50 percent of what a similar graduate in the same system earns, who is not on contract. Temptation will be there.”
In furtherance of its efforts at combating fraud within the banking industry, the CBN has directed all deposit money banks (DMBs), mobile money operators (MMOs), switches and all payment service providers to establish and maintain a dedicated Fraud Desk in their respective organisations.
The apex regulator said the Fraud Desk shall be appropriately staffed with personnel that have requisite training on emerging fraud trends on various electronic payment channels.
The policy, according to the banking sector regulator, takes effect from July 1, 2015, and failure to comply shall attract appropriate sanctions.
The CBN stated this in a circular titled: “Establishment of Industry Fraud Desks,” addressed to all DMBs, switches and payment service providers obtained by our correspondent.
The circular signed by the Director, Banking and Payment System Department, CBN, Mr. Dipo Fatokun, was dated June 11, 2015.
The desk is expected to provide support to customers on electronic frauds with a minimum of 10 dedicated phone lines, manned and available to customers at all times; make available the option for calls to contact centre, in respect of fraud alerts or complaints, to be redirected to fraud desk.
Block and/or place no debit restrictions on account upon receipt of fraud complaint; and receive customers’ stop-transaction instructions to block their accounts through short codes service provided to customers by the banks.
In addition, the dedicated bank officials are expected to log all customers’ fraud alert and/or complain and escalate in line with internally predefined escalation path; submit reports to the Nigeria Interbank Settlement System (NIBSS) Plc on fraud information logged by the fraud desk; honour ‘hold’ instructions from NIBSS with respect to fraud matters and grant NIBSS permissions to view details on logged transactions and sensitise customers on e-fraud and the Fraud Desk Services.
In the circular which reads in part, the CBN said: “In furtherance of its efforts at combating fraud within the banking industry, established the Nigeria Electronic Fraud Forum (NeFF) to proffer solutions towards addressing frauds arising from the increased adoption of electronic payments.”
The NIBSS was also mandated to have responsibility as industry coordinator of the fraud desk across all banks, mobile money operators, switches and payments service providers and was expected to among other things, provide electronic platform for fraud desks in banks, MMOs, switches and payment service providers to log frauds; and maintain direct and dedicated phone lines and e-mail contacts to all banks, mobile money operators, switches and payment service providers’ fraud desks for the purpose of exchange of information and coordination of industry response to fraud attempts/incidents.
Measures against cyber crime
The Information Security Society of Africa-Nigeria is optimistic that with the signing of the bill on cybercrime into law, its urgent implementation would help sanitise the country’s cyberspace already riddled with a web of frauds and malpractices.
The ISSAN President and General Manager, Union Bank, Dr. David Isiavwe, said that with the law now in place, it would no longer be business as usual for criminals whose business was to defraud innocent people of their hard-earned money and resources through the Internet and other electronic means.
“We are delighted that Nigeria has joined the few countries in Africa and indeed the world at large, to have a law which provides effective, unified and comprehensive legal, regulatory and institutional framework for the prohibition, detection, prosecution and punishment of cybercrime in the country.
“It will also ensure the protection of computer systems and networks, electronic communications, data and computer programmes, intellectual property and piracy rights,” Isiavwe said.
“For sure, it is no longer business as usual for cyber criminals. From the petty criminals operating in cybercafés to the major hackers, email scammers and other computer-based fraudsters, the law stipulates heavy penalties, which the criminals should be made aware of before they embark on their ‘suicide’ mission,” he said.
