- BACKGROUND TO THE STUDY
The Nigerian banking sector is one of the most controlled and regulated sectors. In spite of this, fraud has continued to rear its ugly head in the sector. Fraudulent financial activities are illicit activities committed with the purpose of acquiring riches either individually, in group or organised manner thereby violating existing legislation or accounting policies governing the economic activities and administration of the organisation (Yio and Cheng, 2004).
Over the past decade, the internet has experienced an explosive growth with the number of hosts connected to the internet increasing daily at an exponential rate. As the internet grows to become more accessible and more services become reliant on it for their daily operation, so does the threat landscape.
The issue of frauds in the Banking Industry in Nigeria and indeed, all over the world is receiving special attention now than ever before because of its effects in eroding customer’s confidence and the frequency and the of amount involved which have serious impact on the profitability of most deposit money banks in Nigeria. Although the incidence of fraud is neither limited to the banking industry nor peculiar to Nigeria economy, however the high rate of fraud within the banking industry, calls for urgent attention with a view to finding solutions. Fraud in its effect reduces organizational assets and increases its liabilities. With regards to banking industry, it may engender crises of confidence among the banking public; impede the going concern status of the bank and ultimately lead to bank failure.
Globally, the occurrence of fraud in corporate organizations is becoming rampant and this can be shown in the large number of reported cases of bribery, corruption, embezzlement, money laundering, racketeering, fraudulent financial reporting, tax evasion, forgery and other means through which both financial and economic dishonesty are being perpetrated (Ofiafoh and Otalor, 2013).
Presumably, fraud which has been a major problem in Nigeria financial market today is endemic to the business system in general. But many financial and non-financial institution in particular being part of the financial system which is the fulcrum on which any economy revolves need to be given adequate attention terms of ‘Towards controlling this unending menace known as Fraud’, hence the introduction of the initiative called Bank Verification Number.
Worried by the increasing incidence of bank frauds due to the emergence of revolutionized and technology based payments system in the country, which also opened new windows for fraudulent manipulations, the Central Bank of Nigeria (CBN) initiated the Bank Verification Number (BVN) scheme last year. It is a system whereby individual banks collect their customers’ biometric data that is then collated to serve as a centralised biometric identification system for the entire industry.
BVN as member of the society has been made to believe serves as a great initiative that would reduce illegal banking transactions and improve national financial intelligence gathering. The interests of account holders should be accorded importance so that their increased confidence in the banking system would improve the financial standing of banks. Customers will use banks more when they know that their transactions are safe. BVN offers vast opportunities to protect customers, banks and the entire financial system.
Nowhere in the national order were these socio economic setbacks has been more pronounced than in the banking sector, a sector that was initially considered as the palladium of the “new lease of life” expectedly to be ushered in by the new economic regime postulated in the doctrine of the structural Adjustment Programme and its mechanisms of the market place. In its wake, there arose a completely misguided perception of initiative, wealth, productivity, and corporate economic performance, – standards and value system. Consequently, situation as it obtains today in the banking system is as a result of compounding effect of the proceeding attitudes; government policies, actions and inactions.
Furthermore, as commercial banks security level in becomes stronger, the strength and tactics of these fraudsters increases. Various lucrative attacks have been launched and unfortunately, many have succeeded. In general, fraudulent individuals or groups execute fraudulent activities with the ultimate goal of accessing a user’s bank account to either steal or/and transfer funds to another bank account without rightful authorisation. However, in some rare cases in Nigeria, their intention is to cause damage to the reputation of the bank by denying service to users (Parthiban, 2014) and sabotaging data in computer networks of organizations.
The Bank Verification Number, BVN, is a unique identification number for all Bank Customers within the Nigerian banking industry. BVN is a biometric authentication of Each Bank Customer, especially those who make electronic and cashless transfers through a unique set of digits (Daily Trust Newspaper, March 8 2016).
Bank Verification Number addresses issues of identity theft and ensures that your bank accounts are protected from unauthorised access, thus reducing your exposure to fraud. It also promotes a safe and sound financial system in the country, especially as it will keep records of suspected fraudulent individuals in the banking system.
Consequently, the continued existence of commercial banks rest delicately on the maintenance of public confidence. This calls for the establishment of an effective system of fraud control, such as Bank Verification Number which among other things, will help to ensure that the organizations accounting activities are in accordance with the laid down procedures, standards and statutory requirements.
- STATEMENT OF PROBLEM
The introduction of the initiative has divided opinion in the Nigerian banking sector. Supporters of the initiative say that the added security features will lead to increased consumer lending and will boost the economy, irrespective of customers’ status and class.
However, critics of the bank verification number scheme state that it is a duplication of efforts due to the introduction of the Nigerian uniform bank account number system (NUBAN) into the Nigerian banking system a few years ago. NUBAN, which was introduced by the CBN in 2010, is a 10-digit bank account numbering system which is easier to use than the traditional longer account numbering structures. It conforms to the requirements of the West African Money Institute, which promotes the financial integration of the Economic Community of West African States countries.
The role of BVN aimed at controlling hazards associated with social security and credit risk cannot be underestimated. In recent times, biometric technologies have been used to analyze human characteristics as an enhanced form of authentication for real-time security processes. In the face of increasing incidents of compromise on our conventional security systems (password and PIN), the need for greater security on access to sensitive or personal information in the Banking system becomes inevitable (Sarah Luo 2014).
Moreover, despite the extent of many statutory laws dealing with frauds and financial malpractices in banks, beginning with the criminal penal code Act; companies and Allied Matters Decree 1, 1990; Banks and other Financial Institution Decree 25,1991; Central Bank of Nigeria Decree 24, 1991; Nigeria Deposit Insurance Corporation Decree 22, 1988′ Special tribunal (miscellaneous Offence) Act, 1990; Bank employees, ETC (Declaration of Assets) Act CAP 27 Laws of the Federation 1990; Foreign Currency Domiciliary Accounts Act CAP 15 1 1990 Laws of the Federation; Natural Drug Law Enforcement Agency Act CAP 253 and Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Decree 18,1994, reported case of financial fraudulent activities in the banking sector still continue to be a major concern.
Although, the Bank Verification Number policy of the Central Bank of Nigeria, is one of the best things to have happened to our financial sector, viewing it from the national point of it relevance to the society in general, but on the other side it may also some up as a waste of scarce resources because of the challenges it thrown up more in terms of data management and storage, majority doubt whether the CBN are prepared to properly store and protect all the data that the various government agencies already have with them. These include the Federal Road Safety Commission that already has the data of all driver license holders; the Independent National Electoral Commission, which holds that of voters in the country, not forgetting the National Identity Management Commission that is currently building a national identity card system not also forgetting the not-too-smooth Nigeria Communications Commission’s attempt to create a database of phone users within the country, after spending billions of Naira, hence this policy pose a great challenges during implementation.
- OBJECTIVES OF THE STUDY
The major objective is to evaluate the effect of Bank Verification Number on fraud control of demand deposit bank in Nigeria.
The study shall also seeks to delve into how BVN Policy can be effectively managed, by determining the following specific objectives:
- To determine the threats and weaknesses of the implementation of Bank Verification Number.
- Determine the efficiency and effectiveness of BVN as a tool for controlling the incidence of fraud in commercial bank.
- Highlight the important role BVN plays in the financial and non-financial sector
- Ascertain the extent to which central bank of Nigeria can sustain the continuous survival of BVN Policy.
- Review existing literature on BVN scheme, and fraud control in Nigeria deposit money bank.
- To ascertain the degree of compliance of the general public with the Bank Verification Number Policy.
- Suggest possible recommendation based on the findings on how best to control the incidence of fraud in commercial banks through BVN.
1.4 Research Question
In the light of the above, some research questions become feasible and were used to guide the research study. They include:
- What are the threats and weaknesses of the implementation of Bank Verification Number?
- To what does do the efficiency and effectiveness of BVN policy can be used as a tool for controlling the incidence of fraud in commercial bank?
- What are the important role BVN plays in the financial and non-financial sector?
- To what extent does the central bank of Nigeria can be able to sustain the continuous survival of BVN Policy?
- What are the existing literature on BVN policy, and fraud control in Nigeria deposit money bank?
- Ascertain the degree of compliance of the general public with the Bank Verification Number Policy?
- Are there any possible recommendation based on the findings on how best to control the incidence of fraud in commercial banks through BVN?
1.5. SIGNIFICANCE OF THE STUDY
It is a general consensus that the financial system of any economy is the fulcrum around which the economy revolves. Within this preview, banks strategically occupy an indispensable position in the economy. This is as a result of their primary function of servicing as channel or intermediary between the surplus economic unit and deficit economic unit, hence, the efficient functioning of the economy.
The introduction of the Bank Verification Number (BVN) in May has started bearing fruits in more than one way as the Central Bank of Nigeria has disclosed that the value of fraud in the financial sector dropped by N4 billion in 2015.
In carrying out this study, the researcher intends to highlight the importance and benefit of BVN, and how it can help prevent and detect fraudulent activities in the banking sector.
The study also aims at treating how a well designed, carefully installed and a resolutely implemented Bank Verification Number system will aid in checking the incidence of fraud. As it is strongly believed that it will be of great importance not only to the regulatory and supervisory authorities (CBN) and the commercial banks management but the banking industry as a whole in their various task of putting in place sound banking system for the country.
The study will at its end to be of importance to the general public whose confidence and trust have been vehemently shaken as a result of the alarming magnitude of fraudulent activities, failure and distress syndrome in our banking system.
It will also assist the investors and depositors to know the financial position of the deposit money banks they are investing in if it is going to be a profitable or not, and for all those in the regulated sector i.e. statutory auditors, a tax advisor, A forensic accountant, external auditor/accountant by providing them with fundamental information on how to manage foreign exchange risk in relation to their profit generation.
Finally it will be of great significance to schools and students, it will serve as a reference point for future researchers who will want to research more on the topic.
1.6. STATEMENT OF HYPOTHESIS
Research hypothesis is a testable statement regarding the relationship between two or more variables that comes from research problems. in fact, research problems cannot be properly address unless it is reduced to hypothesis.
The hypotheses are stated in the null form for testing:
There is no significant relationship between Bank Verification Number registration and fraud prevention in Nigeria Banking industry.
Effective Bank Verification Number system Will Not Ensure Good Performance of Nigeria Commercial Banks
1.7. LIMITATION OF THE STUDY
In as much as the study was that of a research work, it met with a lot of difficulties as efforts that were geared toward obtaining relevant statistical data on fraudulent activities in the chosen banks proved abortive. None of these banks derived of ever being victim of frauds, but they declined to let out such information as they considered them very vital.
Some of these limitations include:
- Financial constraint: in the course of the research study the researcher encountered some hitches and difficulties as a result of lack of adequate finance and capital to effectively carried out the research work and this factor slow down the completion of the project study.
- Lack of relevant and uptodate research/reference materials: most of the libraries where the researcher visited to get information were not adequately equipped with enough/concrete information as related to foreign exchange risk management in deposit money banks, this limitation also pose a setback towards the completion of the project study.
Time Factor: due to the limited time available for the completion of the project, the researcher was unable to generate and carried out extensive research including the indepth knowledge on previous literature of the research topic. This factor also gives the challenges towards the completion of the project.
1.8. SCOPE OF THE STUDY
Conceptually the study hovers around the implicit role of BVN POLICY on the financial control of fraud of demand deposit banks in Nigeria. Extensive investigation is conducted on the techniques or tools used and preference (if any) and why such.
However, the research was limited to deposit money banks operator in Ilorin metropolis due the schedule of the researcher.
This work is restricted to the deposit money banks under study. And no attempt was made to compare findings with what is obtained in banks from other country within the same banking sector.
1.10. DEFINITION OF TERMS
- BVN: Bank Verification Number is a new policy created by Central Bank of Nigeria to control and protect bank account holders from unauthorized access.
- Money Laundering: is the procedure by which the proceeds f illegal acts are converted into apparently legal activities thus concealing their criminal origin.
- CBN: Central Bank of Nigeria, (CBN) is the apex bank in Nigeria, their duty is to regulate financial institution in the country.
- Fraud: Fraud can also be defined as one type of irregularity. It is usually reflect to irregularities involving the use of criminal deception to obtain unjust or illegal advantages (by Okorie Onovo, ACAS, understanding Auditing and Investigation.)
- Control:- Control is the forces that guides activities towards some predetermined goal. It is concerned with the guidance of the internal operations of the business to produce the most satisfactory projects at the lowest cost.
- Errors And Irregularities:- Errors are unintentional actions, example, errors of judgment, etc., while irregularities are intentional errors; and irregularities that result in an immediate loss of asset is referred to as defalcation .
- Phishing: Phishing is simply the theft of an identity. It involves stealing personal information from unsuspecting users and it is also an act of fraud against the authentic, authorised businesses and financial institutions that are victimized (Wada)
- Account Opening Fraud: This involves the deposit and subsequent cashing of fraudulent cheques. It usually starts when a person not known to the bank asks to open a transaction account such as current and savings account with false identification but unknown to the bank.
- Commercial Bank: An institution charged with the primary function of accepting deposits, granting business loans and advances, and offering other related services like issuance of letter of credit, bank drafts and FOREX trading among others.
- Deposits /Savings: A deposit held with a bank in which the deposit is held for a fixed term or which requires notice for withdrawal, and where interest is paid.
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