Few weeks ago, the Nigeria Deposit Insurance Corporation (NDIC) the body in charge of protecting depositors funds in Nigerian banks released a mind-boggling statistics about the rise in the number of insider fraud cases in the banking sector in Nigeria, BABAJIDE OKEOWO in this report takes a look at this phenomenon, which is fast eroding customers’ confidence, why it is on the rise and measures that can be deployed in curbing the menace.
A Lagos State High court a few days ago sent a former Managing Director of New Prudential Mortgage Bank Limited, Adetunji Abudu, to two years imprisonment for N195 million fraud. In a statement signed by Nigeria’s anti-graft agency, Economic and Financial Crimes Commission, EFCC, Abudu was arraigned on a four-count charge before Justice I.N. Buba. EFCC said his offence is contrary to the Banks and Other Financial Institutions Act (BOFIA) 2004, Section 18(8) and punishable under Section 18 (11) of the BOFIA LFN 2004.
According to the commission, Abudu obtained a N35 million loan and another N110 million loan without authorisation while being the Managing Director of the bank. It added that the former New Prudential Mortgage Bank boss also approved the setting off of a N50 million loan granted to Total Access Concept Limited by Addoser Micro-finance Bank, which was also not authorised per the bank’s policy and in contravention of BOFIA 2004. Delivering his judgment, Justice Buba found the defendant guilty on counts one, two, three and four, as charged.
“The court will be lenient, given that the convict is a first offender. But this will also send the right signal that it is this type of attitude that has led our financial institutions into trouble,” the judge said.
He is not alone, Marilyn-Joan Obiora, a senior staff of one of Nigeria’s leading banks was recently prosecuted by EFCC at the Federal High Court in Umuahia, Abia State. Stephen Inegbu, the bank’s zonal security supervisor in Port Harcourt, exposed her stunts in a petition. His petition was inspired by the bank’s inspection unit, which discovered that Obiora, abetted by four other staff of the bank, made fraudulent withdrawals, totaling N125.6 million. In three installments, Obiora and colleagues withdrew N26 million, N91.6 million and N8 million.
Like Obiora, the duo of Ebele Okoh and Charles Amadi, also of another top bank are facing similar allegations before the Karu Chief Magistrate’s Court, Abuja. Okoh and Amadi have been accused of withdrawing N250, 000 from a customer’s account. The duo scanned the signatures of some customers, to use them for withdrawals. The suspects did not go far in their scheme before they ran out of luck. By then, they had withdrawn N250, 000 from the account of one L. A. Mittee.
The above are instances of insider fraud issues that are currently on the rise in the banking industry in Nigeria.
Nigerians lost N15.5bn to frauds in 2018 as insider fraud rise – NDIC
The severity of this issue was underscored a few weeks ago when the Nigeria Deposit Insurance Corporation (NDIC) in its 2018 report disclosed that a total of 899 bank staff were involved in frauds and forgery cases in the year under review, this figure was almost thrice the 320 figure reported in 2017. The number of temporary staff involved in frauds was 394, accounting for 43.83 per cent of the total number of staff involved in frauds. This was followed by Officers & Executive Assistants’ cadre with 206 or 22.91 per cent.
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Supervisors and Managers accounted for 119 or 13.24 per cent of the total fraud cases. The number of temporary staff involved in fraud and forgery cases had consistently been on the increase. One of Nigeria’s leading Deposit Money Banks, DMBs, Zenith Bank Plc posted a loss of N429 million to fraud and forgeries in 2018. More worrisome, N305 million of that amount was lost to staff perpetrated fraud, that figure has since been surpassed by more than double in the first half of 2019.
Similarly, the Corporation reported that an astronomical rise in fraud cases was recorded in 2018. A total of 37,817 fraud cases were reported in 2018 against 26,182 in 2017. The amount involved stood at ₦38.93 billion in 2018 compared to ₦12.01 billion in 2017.
The actual amount lost to fraud incidences in 2018 stood at ₦15.15 billion as against ₦2.37 billion and ₦2.40 billion in 2017 and 2016, respectively. The rising fraud incidences could be attributed to the increase in the sophistication of fraud-related techniques such as hacking, cybercrime as well as the increase in I.T related products and usage, fraudulent withdrawals and unauthorised credit.
On the flip side, the number of ATM/Card-related fraud cases declined from 16,397 in 2017 to 10,063 in 2018. That may be attributed to improved security features of the card as well as security awareness on the part of users. Web-based fraud cases, however, increased from 7,869 in 2017 to 12,343 in 2018.
Why banking fraud is on the rise -Experts
The rising fraud incidences could be attributed to the increase in the sophistication of fraud-related techniques, such as hacking, cybercrime as well as the increase in I.T related products and usage, fraudulent withdrawals and unauthorised credit, experts have said.
According to OludayoTade, a lecturer of Criminology, Deviance and Social Problems, University of Ibadan, the recent influx of Artificial Intelligence, AI and machine learning is not only making our lives more convenient, but it also makes cyber-attacks much more sophisticated and effective.
“The most common methods cybercriminals use to conduct bank fraud include identity theft, account hijacking and the use of malware that tricks users into revealing their login credentials. Among many trends regarding fraud that exist today, the most common is identity theft. Hackers are often successful in finding creative ways to steal people’s personal information and use it to access their bank accounts” he said.
Similarly, Dr. Oluwatosin Adeniyi, a professor of Economics, University of Ibadan expressed worries in the rise in the incidences of bank-related fraud and what it portends for the Nigerian economy.
“Pervasive electronic banking fraud is affecting Nigeria’s banking system and costing the Nigerian economy dearly. It is also holding back the adoption of cashless technologies and has become an obstacle to financial inclusion in Nigeria. The implications of rampant e-fraud are enormous. People who already have a bank account are reluctant to adopt e-banking. And it’s an obstacle to drawing those who don’t have bank accounts into the formal financial system. In Nigeria, only 53% of the population is in the banking system. This has broader economic implications because e-banking is known to play a developmental role and because it allows poor people to have access to formal financial services. But Nigeria’s high levels of electronic fraud is threatening the creation of a cashless ecosystem” he said.
How this trend can be addressed -Stakeholders
According to Mr. Mike Odusami, CEO/President MAXUT Consulting, an IT-based solution provider, it is very important to make the financial system safer for people to have trust in the system.
“Our solution as a technology company is really about fraud prevention and making sure that the process is not abused by the person the bank authorises to carry out the transactions because most of the transactions are not physical, they are done through electronic channels. Nigerians should also imbibe the culture of ensuring phone lock, sim lock, etc, to prevent unathorised use of their device” he said.
On her part, the President, Chartered Institute of Forensic and Investigative Auditors of Nigeria, Dr. Victoria Enape said it is time that Nigeria embraced the use of science and technology to prevent, detect and investigate financial fraud of all kinds in the country.
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“Government at all levels are losing billions of Naira every day and most of these criminal cases bordering on fraud, corruption, and cyber-crimes are partly because there are no forensic and investigative auditors in Nigeria to prevent fraud from taking place. The place of training of forensic and investigative auditors cannot be overemphasised because the whole world has embraced this current trend years ago which has assisted them in the fight against fraud,” she stated.
For Adeniyi, the solution lies in financial literacy education and improvements in the security features of most of the banking products and services.
“If we are to build confidence in the banking sector as well as e-banking, banking products and services should be designed with security features that take into consideration the peculiar characteristics and vulnerabilities of their customers” he added.
On his part, a Nigerian, Victor Duruji opined that with the rate at which hackers are operating, individuals can only try to safeguard their money from being lost to fraud.
“We can only try. There is no absolute prevention or protection. Even when the cardholder does his or her personal best, banks and businesses are being hacked daily and obtaining the information that is carefully guarded by many cardholders,” he said.
Similarly, NDIC said it is time that Deposit Money Banks (DMBs) and the relevant regulators in the financial sector begin to address the welfare of staff of banks while the issue of contract staff should be looked into. NDIC revealed that Section 35 and 36 of the NDIC Act No. 16 of 2006 (as amended) requires all DMBs to submit monthly information/returns on fraud and forgeries to the corporation and in spite of the Fidelity Insurance Cover taken by banks to address fraud perpetrated by staff, there was still need for the banks to further enhance their internal control and security measures.
“The DMBs and regulators need to address the problem of contract/temporary staff in terms of welfare and permanent employment because of the risk their current status poses to banks operations. Furthermore, banks should strengthen their internal controls and validate their recruitment process,” the Corporation stated.
The rise in the figure
2015: N2.26 billion
2016: N2.40 billion
2017: ₦2.37 billion
2018: ₦15.15 billion
