Tag: fraud

Nigeria Deposit Insurance Corporation (NDIC) has, in the past few years, featured prominently in annual awards in appreciation of its contributions to the growth of the Nigerian economy. This has largely been due to the zeal with which the leadership of the corporation has run, and continues to run, its affairs in the last couple of years, which has won it several achievements, awards and recognitions.

NDIC prides itself on its core mandate of protecting bank deposits reflected in its motto: “Protecting your bank deposits.” The organisers of the latest award by BusinessDay, which took place on October 14 in Lagos, broadly reviewed the pragmatic and tangible transformations, which the corporation has brought into management and execution of its mandate including mitigation of corruption, insider abuse as well as containing non-performing loans in the nation’s financial system. Specifically they noted that   cases of fraud, forgeries and outright theft involving bank staff significantly declined by 48.12 percent (from N18.02 billion in 2015 to N8.68 billion) in 2016, while the actual losses to the nation’s banking industry dropped by 24.29 percent (from N3.17 billion in 2015 to N2.40 billion in 2016).

NDIC’s managing director Alhaji Umaru Ibrahim, who personally received the award on behalf of the corporation, attributed the recent success of the regulatory body to its re-branding project in 2013 which entailed the overhaul of the its processes, procedures, systems and methods of operation in line with global best practices in deposit insurance.

Banking fraud costs the banking industry $67 billion per annum globally as revealed by the Association of Certified Fraud Examiners. For example, in 2014, the US State of Cyber Crime Survey showed a year-on-year increase of 141 per cent in the number of financial institutions reporting losses of between $10 million and $19.9 million.

This underlines the determination of NDIC to target regulations that will plug loopholes that usually allow for fraudsters — particularly insider abusers — to strike. It is doing so in response to the growing complexity of the systems that banks nowadays depend on to deliver their services. This complexity in bank systems is evident in the growing number of channels through which banks now deliver their services, including websites and online banking platforms, mobile apps and social networks. All these channels represent a new set of opportunities for fraudsters to gain access to bank’s information system.

The oversight functions of NDIC lie at the heart of the effective fraud detention and deterrence. The NDIC carries out its supervisory activities of insured institutions in collaboration with the Central Bank of Nigeria (CBN). In 2009, for example, the NDIC commenced the adoption of Risk-Based Supervisory (RBS) approach. The joint special examination conducted by the NDIC and CBN in 2009 revealed systemic distress in the sector, which necessitated the introduction of various banking reforms.

Apart from the NDIC’s oversight, banks need to buckle up on oversight too, especially about internal control mechanisms. Because it is the ability to detect activities that are at variance with internal controls that will raise in “red flag” indicating possibility of fraudulent activity occurring. In this age of the IT, NDIC is encouraging banks to strengthen the skills of their internal auditors. The legacy system provides that auditors are drawn from the operational side of the bank operations and may therefore lack detailed knowledge of how the bank’s IT systems work and their potential vulnerabilities. Therefore, it is has become pertinent that banks have specialist IT auditors who can provide essential support for the work of the internal audit team. Such changes will build depositors’ confidence in the banks. Indeed, it is part of the NDIC mandate to guarantee the payment of deposits up to the maximum limit in the Act. As recently as 2016, the NDIC provided deposit insurance coverage to 26 Deposit Money Banks (DMBs), one non-interest bank, 974 Micro Finance Banks (MFBs) and 42 Primary Mortgage Banks (PMBs) in operation. In 2016, the NDIC continued to play its role as deposit insurer by ensuring the prompt payment of insured sums and dividends to insured/uninsured depositors and other eligible creditors of the closed DMBs, MFBs and PMBs.

While the regulatory bodies like the NDIC are bringing forth policies that will help protect deposits in our bank, banks need to do more in understanding the pattern of internal fraud and the motivation that pushes staff to commit fraud. This is essential because fraud experts believe internal fraud is the most common way for banks to suffer loses and can take place at any level of an organization. It is a well-known fact that staff in positions that give them a high degree of access to IT systems, such as database administrators, pose a greater risk.

Banks management will do well to factor criminologist Donald Cressey’s theory on how workplace fraud evolves. His “fraud triangle” consists of three elements: pressure, opportunity and rationalization. Working on the first two elements is essential in stemming fraud. Pressure on staff to out-perform colleagues or take revenge needs to be discouraged. Giving marketing staff crazy targets is a source of pressure. Element of opportunism comes with poor internal controls or where the individual occupies a position of trust meaning oversight is always key in bank operations.

The age-old principle of “Four Eyes” need to be strengthened, i.e. when someone initiates an operation others persons need to validate it to ensure it is in line with the bank’s internal control.

Working in harmony with banks, NDIC is committed to putting in place policies and internal controls that deepen the mechanisms designed to protect deposits.

• Hassan, a business and financial analyst, contributed this piece from Abuja.