White Collar Crime And The Performance Of Banks In Nigeria Ogunbiyi & Akani

Abstract

WHITE COLLAR CRIME AND THE PERFORMANCE OF BANKS IN NIGERIA.

By

Ogunbiyi, Sunday Samuel Ph.D Finance & Banking Department, University of Port Harcourt, Port Harcourt

E-mail: enokelaogunbiyi@gmail.com. &

DR. Fineface Akani Finance & Banking Department, University of Port /larcourt, Port Harcourt

E-mail: akuniport@yahoo.com.

This study investigated white collar crime and the performance of banks in Nigeria for the period 1985 - 2013. The tool used for analysis were the OLS shot run multiple regression model, the study conducted ADF Dickey-Fuller test, Johansen co-integration test; also specified on perceived causal relationship between white collar crime and bank performance in Nigeria. Based on time series data included in the model were those on gross domestic product {GDP), and various components of white col.ipr crime which are clearing fraud, financial forgeries, and financial embeY.:dement. Data were extracted from Central /Jank of Nigeria Statistical Bulletin. Hesults of the analysis showed that, only a two-way causation was accepted between Financial Forgeries (Fl·) and Financial J:'mbe;dement {Fl:), the null hypotheses were rejected, meaning that either one Granger-cause, or give rise to the other, there is.a long run relationship between white collar crime and bank performance. Cons~quently, the study recommended that effective control and adequate reward for good conduct should be used by the management as this will go a long way to reduce the level of fraud in the banking sector.

Key Words: Fraud White Collar Crime, Clearing Fraud, Financial Forgeries, And Financial HmbeY.Y.fement.

Introduction In Nigeria today, white collar crime is almost a culture. It is almost a functional part of ;my establishment, both government and private, that anyone saddled with the responsibility of finance and accounts "must" take care of himself/herself. The society even expects such individuals to grab as much as he can while in office. If he/she refuses to do that. such ones are considered fools and you can be sure that the society will pressure them to commit this crime. The Nigerian nation is the worst hit, and it's gradually moving the nation into financial comatose_ This crime come in different shades and sizes, misappropriation, over valuation, under valuation, under reporting, missuse of funds, window dressing of account statements, etc. worst hit are the political office holders in Nigeria, we hear cases of inability of state governments to pay salaries, developmental projects not completed/abandoned, substandard project completion. The private sector a.Jso have its fair share of white collar crimes, cases of fraudulent practices in banks cum frequent closures of banks led Lo the recapitalization of bank in Nigeria in the recent past. This is not to say that there are no relevant laws to check this menace, (Companies and Allied Matter Act 1990 and Hank and Other Financial Institution Act 1993, the Nigerian Accounting Standards Board Act, 2003, etc.). The problem still continues like a cancer.

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White Collar Crime And The Performance Of Banks Jn Nigeria

Statement of Problem

Ogunbiyi & Akani

While collar crime has manifested its ugly head in Nigerian banks as one of the fastest and smartest way of making profit or gain, by causing others to forfeit willy-nilly, part, if not all, of their hard earned money or asset of value due to a careless, sometimes avoidable mistake made by them or their subordinates. This unethical and unwholesome practice is carried out by both the bank and its customer in order to reap its benefit. The triangular theory of fraud has it that it (this fraud) emanates from pressure of want (needs). According to this theory, the perpetrators see it as a means of enriching themselves without stress. Sutherland (1950) defines "white collar crime" as ,a criminal act committed in corporations by individuals in corporate capacity. Also, Olojido and Oluwaremi (2014) arc of the view that banks are empowered with the responsibility of allocation of financial resources in the country; they channel savers' money to long term investment in Lhc economy yielding a reasonable return which can be plugged back for economic development. The activities that banks engage in are geared toward achieving set goals which we refer to as profit. These activities can be effectively carried out using internet facility for online transactions and clearing cheques. These transactions have their loopholes, which are initiated by an insider, making it easy for perpetrators to carry out their fraudulent activities. In every business endeavor, white collar crime can be seen to appear quite visible, if not much but to a minute extent, this has a way of collapsing, weakening and reducing the efficiency of the business. This keeps increasing as the technological world keeps changing. Fraudsters will always look for loopholes to latch unto and perpetuate their criminal acts. Uchenna and Agbo (2013) are of the opinion that crime causes financial difficulty for both the bank and their customers. Despite the regulatory body's control mechanism, it has been a major cause of concern to bank managers, and has caused both the bank and the financial system of the country embarrassment on several occasions, local and global. The end product of the cost and consequence of fraud carried out is levied on the customers of the bank and the public at large making interest rate at an increasing state, and making it difficult for deficit

,,. spenders to borrow funds effectively from the banks. Ogidefa (2008) in Nipion (2015) ascertained that fraud leads to bankruptcy, inflation, increase in crime rate, reduction in per capita income and unemployment. and concluded that it does not encourage economic development. This consequence also leads to reduction in the value of money which does not\>ncourage development and international trade. It is this position that informs a critical discourse of this paper.

Fraud Fraud is broad in definition but, it will be reviewed in its simplest terms. According to Autumn (2009), fraud is "theft by deception; the dishonest obtaining of property by deception." Fraud is not a victimless crime. It is the act of enriching one's self with the intent of depriving others of something valuable to them. It affects every business organization whether small, medium or big. In another light, business crime was defined fraud as a "trickery or deception to gain a dishonest advantage over another business, individual or organization". Eseoghene (2010) defined fraud as a "conscious and deliberate action by a person or group of persons with the intention of altering the truth or fact for selfish personal gain. Fraud is now by far the single most veritable threat to the entire banking industry". According to the Association of Certified Fraud Examiners (ACFE) in a report to the Nulion on Occupational Fraud and Abuse, the J\CFE defined occupational fraud and abuse as: "The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets" (ACFE, 2006). Fraud is any intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/or the perpetrator achieving a gain. Grace and Peter (2001) defined fraud as "obtaining something of value or avoiding an obligation by means of deception''. In a nutshell, fraud is a traumatic event that disrupts the activity and profit of business and individuals.

Brazilian Research journal of Humanities, Social and Management Sciences, Vol 10, No 3, Sept, 2016 3~;

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\Vhile [ol/ar Crime '1nd The Performance O/Banks In Nigeria Ogunbiyi & Akani

Factors that lead to people committing White Collar Crime Social Strata: This is an easier way of meeting up a social class; peer pressure influence causes white collar crime. Greed: Discontentment has led to people embezzling funds from others of which a practical example is our politicians. Self Esteem: Inferiority complex drives one to defrauding others in other to meet up with the social class. Habit/Passion: Some persons have actually made defrauding others their habit and they derive pleasure in making others uncomfortable, claiming they are smart and wise. Self-Actualization: This makes it easier for the executor to be able to acquire material things on time and in a speedy manner. Unemployment: lcick uf jub oppurtu11ily has led lo people making quick pay at a very risky way just to earn a living.

·No Reward: to some extent when there is no reward attached to sound and ethical banking . practice, the workers tend to use fraud as a means to reward themselves, instead of waiting for a reward that may never come. Punishment by pass: This is when parties involved in punishment can made do with what the criminal act they have perpetrated prescribes, and when caught they know their way out of the problem without stress - maybe through the proverbial 'long legs'! .

Albrecht et al (2008) on the other hand concluded that fraud is motivated by nine (9) situations: (1). living beyond ones means, (2). the desire for personal gain, (3). volume of personal de1't, ( 4). close association with customers, (5). when salaries are not commensurate with jobs, (6). wheeler-dealer, (7). strong challenge to beat the system. (8). excessive gambling habit, and (9). family peer pressure. Ile went on to scale the situation that motivated fraud: situational pressures, immediate problems with environment, usual debt/losses. perceived opportunities, poor control, personal integrity, and individual code of behaviour. f

Theoretical Underpinning

The Fraud Triangle Theory (The POR Factor) According to the Association of Classified Fraud Examiner (ACFE). daereare three factors that must he prl'sent hefo1·c in individual decides to execute his unethical aicL First. there must be pressure (P), then there must be opportunity (0) and lastly there must be rationalization (R), at the P level the individual actually recognizes that there is a need he is meant to solve (addiction to drug, unable to pay debt, hunger, social need) but using legitimate means to.solve this need is actually not working out, so he decides to explore some other means which definitely lead to fraud. The 0 factor is relatively the abuse/misuse of information and office by the perpetrator in order to carry out shadow dealings. I !ere, he must make sure he is nol caught. The R factor here, represents the doer of the act, who attaches tangible reasons for committing the crime. The reasons emanating from these could be, "it's the condition I found myself in," "I had no choice", "they owe me", "I deserve this raise and it was the wisest thing to do". The theory went on to coadude that crime is learned, no one is born a criminal and this habit is picked up from groups to which individuals belong. The cognitive theory is of the opinion that fraud is committed by staff in the firm and there should be a close watch on staff that are named "smart". This leads to the Iceberg Theory which states that whenever fraud is discovered it should be investigated to its maximum, while the Theory of Low Hanging Fruit postulates that there should not be any over sights of any crime; for if not checked, it might have a devastating effect on the Jong run. The Subtraction Theory is of the view that judgment should be placed on whoever that is responsible for the act, which is termination of appointment immediately if found guilty of any charge. Differential Opportunity Theory posits that employees have the chance of committing fraud against their employers and customers of theirs, and against third party and government department. This theory also states that fraud is

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White Collar Crime !Ind The Performance Of Banks In Nigeria Ogunbiyi & Akani propelled by the doer having access to vital information about the employer and customers makes it possible for this illegal and unethical act to take place.

The Rotten Apple Theory explains that activities in the business environment is transferable, the nature and conduct of top managers will lay a foundation for others to emulate. If the managers give room for corrupt practices in the dispensation of their duty of any kind, others might follow suit. This theory also posits that managers should take due action when a "fraudulent apple" is, identified; it should be plucked out immediately. Theory of Concealment: This theory is of the opinion that fraud is motivated by greed Lo exploit any available means necessary, including the act of hiding, disguising or altering of account or inventory discrepancy, the perpclrJtor often deliberately introduces chaos before or after the act of manipulation. This helps in obscuring the truth from the outsider, avoiding location of blame. The Theory of Work Place supports the opinion that management's irresponsive nature to the employee's plight is an enthusiastic factor that leads to high rate of fraud in work places. Diamond Theory of Fraud states that opportunity, personality and capability are a major factor in propelling fraud to occur; the perpetrator has to effectively recognize that there is an opportunity for him to be able to maximize undue advantage and illegally harness its wants.

The Social Learning Theory advances its opinion that an unusual and unacceptable behavior of a person is a motivator and a propeller of crime where fraud occurs. The American Dream Theory postulates that fraud is committed by top managers. They arc faced with difficult situations about achievement in a short period of time, so they are pressurized to explore available means to show momentous and equitable level of success in the business environment. The Potato Chips Theory

- propounds that fraud emanates from the angle of craving. Here, fraud is viewed from the angle of insatiable demand, and it is likened to a person that is no.t satisfied with potato chips, always yearning for more. If the criminal is not entangled in the act, his insatiable nature will eventually tempt him again and he will get caught there and then after. The Social Ecology Theory opined that fraud is committed because of high rate of unemployment and the va~aries of socialization or "urban life style".

Empirical Works Olaoye and Adckola (2014) used both primary data and secondary data obtained from the NigeriJ Deposit Insurance Corporation (NDIC) relating to frauds and forgeries to investigate fraud in Nigerian Banks and found out that ten banks with fraud and forgeries cases at different point in time concluded that offenders should be prosecuted legally with control mechanisms put into place to mitigate the level of its occurrence. Uchenna and Agbo (2013) used evaluative research design to investigate the impact of fraud and fraudulent practices on the performance of banks in Nigeria. They employed multiple regression analysis within the period 2001-2011. They discovered that the incidence of fr<llld was high for the first five years of investigation whereas, towards the last five years the incidence of fraud was at a reducing rate because of the control mechanism put in place by the regulatory <1gent. They recommended that bank regulatory bodies need to be abreast with the dynamics in the banking sector and make provision to address the curtail issues in bank fraud, and enforce adequate control mechanism in the banking sector to checkmate the operations of bankers and its customers. Okorafor et al (2013) employed both primary and secondary data to investigate the nature, extent and economic impact of fraud on bank deposits in Nigeria, from (1993-2010). They found out that fraudulent withdrawals correlate with fraud to a great extent than clearing fraud. They concluded by highlighting measures that can be taken to reduce the rate of fraud in the banking sector, of which a few are "whistle blowing, conducive working environment

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-· ..... White Collar Crime And The Performance Of Banks Jn Nigeria Ogunbiyi & Akani

and beefing up of physical Security". Nwankwo (2013) studied fraud and bank performance in Nigeria, using multiple regression analysis, found out that ATM bank fraud showed a negative but significant relationship with bank performance while clearing fraud has a positive and significant relationship with clearance fraud. He concluded by recommending that regulation of the banks is of upmost importance, and clearance fraud needs to be properly managed for effective contribution on bank performance in Nigeria. According to Owolabi (2010) an examination of various causes of fraud, types of fraud, theories of fraud and employee involvement in fraud, found out that of the top ten banks involved in fraudulent practices, the number one on the list recorded 11 billion Naira loss owing to fraud cases. lie concluded that the level of risk is at a reducing rate from 2006, showing that there have been diversification of risk by banks. Ile then recommends that banks in this category should be closely monitored by regulatory bodies in the banking sector. Aburimc (2009) anchored his investigation on conventional corruption theory which he used to investigate profitability and corruption in Nigerian banks, using backward step regression model, from 1996-2006. He discovered that as corruption perception index increases bank profitability decreases, and vice versa. He also discovered that effective utilization of bank portfolio will lead to increase in profitability of banks. lie recommends that evaluation of credit risk that the bank is about to undertake is necessary.

Eseoghcne (2010) pointed out certain factors that necessitated the occurrence of fraud in the ban'=ing sector, using primary data as well as administering qucstionaires, explain why people arc motivated to commit fraud of which a few are "greed, infidelity and poverty; inadequate staffing, poor internal controls, inadequate training and poor working conditions". Idowu and Obasan (2012) in their investigation on money laundering and its effect on the performance.ll>f banks in Nigeria used a sample size of three banks, and concluded that money laundering endangers development in the country, and that the banks should alert immediate suspicious activity to the respective agents in charge. Meanwhile, the transparency of government will be encouraged to

. reduce the activities of money launderers. Onwujiuba (2013) used both descriptive and non­

. descriptive statistics to investigate bank fraud and its effect on bank performance in Nigeria. · Findings from the study showed that bank directors and managers are the major cause of fraud in . Lhc banking sector and not motivation. He recommends that such nefarious activity can be reduced

by properly checking and making sure the qualified persons arc selected and effective control system should instituted. In the same manner, Ibrahim el al (2011) employed chi-square in investigating the economic implication of fraud and forgery in the economic development of the country. They found out from their survey investigation that a good number of persons arc supporting the opinion that using stiff penalties and effective control mechanism can help to mitigate the level of fraud incidence, they concluded that bankers should not be in full possession of

. valuable account details of their customers. Akinyomi (2012) in his investigation used primary data to investigate fraud and its prevention in Nigerian banks, making use of ten deposit money banks. lie discovered that at all the stages in the commitment of fraud bank staff are involved right from the top manager to the low level workers. He also pointed out that greed is the major cause of people committing fraud. He thus pointed out the consequence of fraud to be the loss of customer's confidence. Akinyomi concluded by saying that the particulars of intending customers should be

.properly scrutinized before granting them account. Studies carried out by Abdul Raheem el al :(2012) on the implications of fraud on bank performance, revealed that as at 2008, the banking

tor experienced a persistent increase in the rate of fraud in the country. They concluded that ud can be curbed to a reasonable extent if the banks comply with government policy. Ajala et al 13) in their investigation on internal control system, focusing on five deposit money banks, d out that where internal control is weak employee fraud is likely to erupt. They also

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White Collar Crime And The Performance OJBanks Jn Nigeria Ogunbiyi & Akani

discovered that the internal control system has been able to reduce the level of fraud in the banks under investigation. Onwujiuba (2013) investigated the effect of bank performance in Nigeria, employeing both primary and secondary data in his investigation. From his findings he concluded that managers looting of fund have contributed in oiling the vicious and unethical wheel of fraud in Nigerian bank. lie also discovered that motivation is not a cause of bank fraud. He recommends therefore that before recruitment the employees should be effectively scrutinized before and after employment, control system should be put in place to checkmate the activities of the staff. This is in line with Olaoyc's discovery as earlier mentioned.

Methodology

Secondary data was used for this study, all data used in this research work arc obtained from the Nigeria Deposit Insurance Commission. Data sourced covers a 28 year period (1985 to 2013). In order to analyse the white collar crime and the performance of banks in Nigeria, the equation estimated white collar crime as a function of clearing fraud, financial forgeries and financial embezzlement. Similarly, the choice of measurement of performance of banks will emanate from the various theories used which we arrived at to use Net Profit (NP). To achieve our objective, the Ordinary Least Square (OLS), Augmented Dickey and Fulle test (ADF), Johansen Co-integration and the Granger causality technique were used.

Model specification Thus consider;

NP= f(CF, FF, FE) ................................................................................... (1) That is, for our variable we have;

Y = b"Xlb1+X2h:i+X3b3 ............................................................................... (2) For purpose of estimation, we expand equ.2 as; Y = ~O + ~i Xl + ~2 X2+ fJ3 X3+ Ut ................................................................ (3) Apriori : b1<0, b~<O, b1<0, From 3 we have;

NP= bo + b1CF + b+F + bJFE +; µ; ................................................................ (4) ' Where, NP= CF= FF= FE=

Net Profit Clearing fraud Financial Forgeries Financial Embezzlement.

bo = constant or intercept Granger Causality

For establishment of direction Granger causality test will be used.

II II 11 II

!\In XI~ = u ~- L 0 1 ;\In .\'/~ 1 + L 81 1\ In CJ•;_, L 01 ;\In FF

1 + L 0

1 ;\In FH

1 1 + E,

1 ••••••••••• 5

1-I 1- I I I

II II 11 II

!\In CJ·; =u+ L01 i\l11CJ~ 1 + 2:B1i\lnNF:_1I01i\lnFF;_ 1 +L0

1i\lnFH

11 +E

71 ...•••..•.. 6

i· I 1~1 1~1 r=I

II !7 II II

/\In FF; =u + LO/dnFF,, + 2:01 i\lnCF1 1L:B

1i\l11NP 1 + 2:0

1L\l11FH

1 1 +E,1

••••••••••• 7" i=I r=I 1---=I 11

n1-:at.f1FUJ;;/;;~7i-~chi, «p.t,~tn & .... ::-:-. --~ I I I I ~- I I

-· ..... White Collar Crime And The Performance Of Banks In Nigeria Ogunbiyi & Akoni

Data Analysis, Results and Discussion

Mean Median Maximum

Table 1 Descri tive Statistics

4594217. 2730.060 3399.330 261222.8 - ~---~=~--N=i-~=~~- ---~-~-fa~~ : ~~if~~-~ -[--~£~~~ -------- -- -------~-- - - - - -- --- -- -

Minimum 'Std. Dev. l Ske_\Vness I Kl!_rtosis

l@_rql!_e-Be!a

I Probability

Sum Sulll_~q. Dev.

Observations

19556.55 _ _1_1_2.2700 1021.080 ! 9500.530 1302249. 670.2927 615.8322 62583.21 1.088608 2.468604 o.8577os-- 1 -1j53138

-- - ----· ------ - - --

3.092058 8.416661 2.941149 5.665364

5.738063 ------

0.056754 64.90711 0.000000

35244626 14555.63 4.75E+13 12580185

29 29

---

3.559890 23.44450 0.168647 0.000008

53428.97 1876250. 10618980 1.10E+11

29 29 Source: Authors compilation from E views 8.0 •

Results from our descriptive statistics are as shown above, Net profit presents a mean of about (1215332.) for the period under investigation. Correspondingly, the independent variable in this study (CF, FF and FE) maintains an average mean distribution value of about (501.9183, 1842.378 and 64698.29) respectively within the period. The higher the standard deviation (Std.Dev.) of the independent variables (CF, FF, and FE) in relation to the standard deviation of the dependent variable (NP), Lile higher the 1·isk exposure of the performance of banks. Overall, the NP has the highest standard deviation with about 1302249 and FE has the lowest standard deviation, accounting for only 615.8322. In order to avoid the error of spuriosity, unit root test is employed,

·using E-views 8.0 Lo compute the Augmented Dickey and Fuller (ADF) unit root test for all the variables in this study, this shows if the data used for the investigation is statutory or not and the results are presented below in table below:

Table 2 Unit Root Test

Ir Variables H -- --T -p(NP) - __ D(QJ~ ~ - -D(Fif .• ADF I 14 85978 -8.874674 : -5.068666

' . 1 % critical level - -1.339330 -4.339330 . -4.440739

l= 5°;0 critical level -~, -3.587527 ----=3.5875271---=3~632896

- ___ lQYo cr!tlc!i_! lev~l ______ -L-3.229230 _:_1229210 _

1

! -3.i546?_1 ______ ________ P_ro~:i'__ _ __ o.o_g_g_Q l ___ o.oq_go 0.00~7

, __ OrdeI_of Int~rati()_n __ _ 1(1_J_ _ _L__ I(l) 1(1)_ 'Source: Author's computation from E-View 8

_____ I?_ff~) -4.772635 -4.356068 -3.595026 -3.233456

0.0039 1(1)

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'*

While Collar Crime And The Performance OJBanks In Nigeria Ogunbiyi & Akani Above is the result of unit root test presented in the table, using 5% level of significance to accept or reject the hypothesis based on the Dickey-Fuller distribution (Harris, 1995). The variable D(NP, CF, FF and FE) are i ntcgrated of order one and it is written 1 (1) using the Augmented Dickey and Fuller (ADF) test shows the absolute value of the computed ADF is greater than the critical at 5°/ri therefore the null hypothesis is rejected, meaning that the variable is stationary at first difference. Since all the variables under investigation are all integrated of order 1(1 ), therefore we can conduct

Johansen co-integration test.

Table 3 Johansen Co-Intcgrati(Jn Test D~tc:_08/10j15 Till1e:_li:p ____ _ Sa111ple (adjustcc!): 1_982__?0_1_1___ ~- __ Included ob~ervations_:__~7 after a9juS!ment~--- _ Trend assumption: Linea!' deter111iniS!ic trend _ Series: NP CF FF FE Lags interval (~ n first differences): 1 to_ 1

I __ ___ I_ _ ___ _ Unrestricted Co integration Rank Test (TraccJ

I lypothcsized 1

- : 1--:_ Tr~cc -F::~~.05-No. ofCE(s) i Eigenvalue Statistic j~~i~cal Val~e I Prob.**

None * 0.685150 69.14977 47.85613 \ 0.0002 At most 1 * 0.536642 37.94702 29.79707 0.0046

----- -------- 1-At most 2 * 0.3_95?40 --~7.17711 --~5.49471 j 0.0277

Atmost3_H. - 0.1-~4333_ - -~-.5~1]70 j--~-~414~_6 r _0.0583

Trace test indicates 3 cointegrating ecin(s) at !_he 0.05 level __ *denotes rejection ofthebypothesis at the 0.05_level **MacKinnon-l laug-MichC'.lis (1999)_Q:valucs ; - - I - - r

Source: Author's computation from E-Vicw 8.0

\-

The test above shows the presence of 3 co-integrating equations, which means there co-integration exist among the variables, we therefore rejection of the null hypothesis (Ho1) hence, accept (I la1 ).

Table 4 Pairwise Granger Causality Tests I -

Pairwise Granger Ciusality Tests

Date: 08/05/15 Time: 14:29

Sample: 1985201 :-i Lags: 2

Null Ilypothe~s:

. CF docs notGi--anger Cause NP

I NP docs not Granger Cause CF

-- -- ----4'--- 1-------~-- -- -

-- --~--- --- ·---

Obs F-Statistic

--~=-~ =~=~ -__ -- I~ 27 0.18288

--- -------

1.59307

Prob. I ---- r---

+ 0.8341J __ 0.2259,

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44 ""'- .

Status

Accept

Accept

I·

White Collar Crime And The Performance Of Banks In Nigeria Ogunbiyi & Akani ----- ----- -----] - - i---27 1.58258

---- ---~

0.2280 ------- ---

8.09438 0.0023

- -~~I 27- ~o 15011- o:s6il 3.36929 0.0529

~--=-~=±----=--=--+----~ ·---_L 27 i.10382 0.2668 ---- -- - - --- - ---- -~-- ----F_F does not Gr:_C}ngcr C~u_se_CF ____ _

CF docs not Granger Cause FF 0.71139 0.5019

Accept

Reject

Accept

Reject

Accept

Accept

------_1 27 ------------ ---- - --

FE docs not Granger Cause CF

CF does !!Ot G_r:_C}ng_cr CC}u?e __ [<'I~ --:__=r=:-_ = FE doc? n_()~_Gra11_g_c1 Cause FF _____ ____1__27 __

FF does_11_~t Grang~r Cause_!~ __ _ -- ----~----- ------3 --:=---= -

~--- --­Source: Authors compilation from E views output 8.0

0.03299 -

0.34642

1.24537

5.99127

0.9676 Accept -- -~----

0.7110 Accept ---

---- --

0.0276 Reject

0.0084 Reject --- --

The Granger Causality Test reveals a satisfactory situation. The observed or empirical F - statistic was checked against the 5% tabulated values of 2.46 to ascertain cases of two-way qµsality. This shows that using the Granger causality test, from the first equation there is no causal effect running both ways between the Clearing fraud (CF) and Net Profit (NP) and from NP-CF in the banking sector, implying that neither causality is running form both direction. The existence of a bi­directional relationship between (FF- CF and CF-FF) is not upheld, because neither of them causes a change in the other, this also applies to (FE -CF and CF-FE). Only in a single case do we have a two­way causation, in which case both null hypotheses are rejected, which is the case of the last hypothesis which is (FE-FF) (FF-FE), while the reported case between Financial Forgeries (FF) and Financial Embezzlement (FE), tile null hypotheses were rcicctcd, meaning that either one Grangcr­causc, or give rise to the other. In other paired results the null hypotheses were accepted for each pair or for an item in the pair. Here there is a uni- directional relationship (or one way causality) exciting between the two variable That is FF does not granger cause NP but NP granger cause FF, while FE does not granger cause NP but NP granger cause FE.

The multiple regression analysis shows which one of the independent variable brings about change in the dependent variable, also to know ifthe change has a positive relationship or not.

Table 5 Shot Multiple Rcgre~si_onf\_nalysisR(!~ult_

Dependent Variable: N_f_ __

M~thod: Least Squares ____ _

QC}_te: Q8_j10j15 Time: 14:47 --t-- _____ _ ~af!lplc: 198_5 ~()13__ _ ______ __ _ _ t--Included observations: 29

1~ c_·· , ar~•ble -~I ~o.,rr',:"' ··· .-_ s-:~.~of ,:s~i:ic .~-J'>ob_ Brazilian Research journal of Humanities, Social and Management Sciences, Vol 10, No 3, Se pl, 2016

45

~

_l

White Collar Crime And The Performance Of Banks In Nigeria Ogunbiyi & Akoni - ----·- -- - --

------- -- _ ______, -------- ---- ---4.4?6233\ ·-o~ooml c -910007.0 202844.4 i.048331. o.3o45

1 -- --- -

CF I 103.0725 98.32062

FF

FE

R.-~quared ____ _

~l1slcd R-s~a!_ed

S.E. of rcgr.e_:;~~l'l- .

Sum squar.ec.! r~~id

L_Qg_likelihood i1:-..~at1~tic -·_---. -

[Prob(F-statistic)

--- -----

4.13_499.Q, 134.1063 ·- - ----- --·

554.52B2 -+---

16.25938 1.243567 13.07479 --------~I---- -- -------- -

0.945322 t1_e_<i.!1~e12enQ.e!!t va.i-__ _

_ _.Q_.:9_3_~7611 S.D._ d~2ef1~ep_t yar

322261.41 Akaike info criterion

0.0004

0.0000

1215332. - --- ---- ------

1302249.

28.33156

2B.52015 2.60E+1~ Schwarz criterion

-406.8076 Hannan-Quinn criter. 1 2B.39062 ---- ---------------------- ---·-

Durbin-Watson stat 2.7B6442 144.0748

~I -- ·-· - ---·---

0.000000

Source: Authors compilation from E views B.O

Discussion of Findings There is a positive relationship between performances of bank proxied by net profit and clearing fraud having a co-efficient of 103.0725 which implies that, a unit increase in CF will increase bank NP by 103.0725, which is contrary to our apriori expectation it can be inferred that clearance fraud has a positive relationship with the performance has recorded by the result above, this result is in line with that of Nwankwo (2013) in is investigation on "implications of fraud on commercial banks performance in Nigeria" between the period 2001-2011, who is of the opinion that clearance fraud has a positive and significant relationship with bank performance. While financial forgeries and financial embezzlement have a co-efficient of 554.5282 and 16.25938 which will lead to an increase in net profit of banks. Since the F-calculated is greater than F-tabulatc"il, the null hypothesis is rejected while the alternative hypothesis is accepted. This shows the overall significance of the model. F-Tabulated 2.98 and F-Calculated 144.07 48. Since the calculated t-value of clearing fraud is (1.048331) is less than the tabulated t-value (2.06) at 0.05 percent level of significance, we accept the null hypothesis 1 (Ho1). Therefore, we can conclude that there is no statistical significant relationship between clearing fraud and net profit of deposit money bank, Clearing Fraud (CF) from the regression result the CF did not adhere to our a piori expectation, for every one percent inffease in CF. NP increases by 103.0725% unfortunately the result means that clearing fraud actually increases the profit of banks as at the period under investigation, at 5% probability it's insignificantly related to profitability of banks as a result of unreported crimes and inappropriate statement of account by the two parties involved in the crime. Financial Forgeries (FF) did not adhere to our expectation, which states that an increase in FF will lead to an increase in NP for every 1 % increase in financial forgeries, net profit increases by 554.5282% while at 5% probability it's also significantly related to profitability of banks, this is as a result of corruption in the financial sector in the country and greed by the employers, this is linked lo the triangle theory of fraud. FF has a t-value of ( 4.134990) which is greater than the t-value, we reject the null hypothesis 2 (Ila?.). This means there is a statistical significant relationship between financial forgeries and net profit of deposit money bank. Financial Embezzlement (FE) this also contribute to the profit of banks in Nigeria, FE did not adhere to our apiori expectation and logically FE should reduce the bank's profitability but instead it add to the bank's profitability, for evcryl % in the perpctuators engaging

Brazilian Research journal of Humanities, Social and ~ri.agement Sciences, Vol 10, No 3, Sept, 2016

46

-· "'*

While Collar Crime And The Performance Of Banks In Nigeria Ogunbiyi & Akani in this fraudulent activity the profit of the company is increased by approximately 16%, this is as cl

. result of the bank official involving themselves in white-collar crime in other to enrich themselves on time. FE has a calculated t-value of (13.07479) which is greater than the tabulated t-value, this means there is a statistical significant relationship between financial embezzlement and net profit of deposit money bank.

Conclusion and Recommendations Based on the findings it can be inferred that clearance fraud has a positive but insignificant relationship with bank performance as recorded by the result above, while there is no significant relationship between financial forgeries shown above and Net Profit of banks, there was a positive relationship existing between financial embezzlement and profitability of banks in Nigeria. From the regression result CF FF and FE did not adhere to our earlier anticipated a piori expectation. In view of getting dnd amassing quick and sudden wealth in Nigeria, misplaced value judgment and prevailing harsh economic environment, big time frauds are on the increase. Banks and their customers are losing huge amounts running into millions of naira to fraudsters almost every day. Fraudsters are busy devising new methods for their nefarious activities; the bank control system should be dynamic in nature. The result can also be linked to the Greed theory of fraud which states that banks have become persistent targets of men of the underworld mainly because banks are seen a1t the richest organization in the country. The findings support that of Olaoye and Dada (2014) to the effect that in order to prevent bank fraud effective control and adequate reward for good conduct should be used by the management. This will go a long way lo reduce the level of fraud in the banking sector. Also bank workers should diversify in their activities. They jhould not be allowed to have monopoly of work/duty for a long time. This also supports the position ofOlaoye el ,a/ (2014) that managers should not give room for perpetrators. In the same vein, zero tolerance should be given to fraudsters and severe punishment should be meted out to those who are caught in the act. The management should always find time to review and place more emphasis on policies related to (KYC) "know your customer", as this will help to extenuate fraud that might be committed by them.

Reference .AbdulRaheem.A, lsiakJ.S.B, and Muhammed.AY (2012): Fraud and Its Implications for Bank

Performance in Nigeria. International Journal of Asian Social Science Yol.2, No.4, Page.382-387

burime, T.U (2009): Impact of corruption on bank profitability in Nigeria. Published by Budapest Tech Keleti Karoly Faculty of Economics. Page 15-17. H-1084 Budapest, II ungary. http: //kgk.bmf.hu/fikusz retrieved 8th August 2015

lbrecht, W.S., Albrecht, C. & Albrecht, C.C. (2008). "Current Trends in Fraud and its Detection": Information Security Journal: a Global Perspective, vol.17: retrieved from www.ebscohost.com on 8th Oct, 2015

(2006): J\CFE Report to the nation on occupational fraud and abuse. Technical report. Association of Certified Fraud Examiners. Texas.

·ala O.A, Amuda, T and Leye, A (2012): Evaluating Internal Control System as Preventive Measure of Fraud in the Nigerian Banking Sector. International Journal of Management Sciences and Husiness Research, 2013, ISSN (2226-8235) Vol-2, Issue 9 Page 15

-nyomi 0. J.(2012): Examination of fraud in the Nigerian banking sector and its prevention. Asian journal of Management Research Vol. 3 Issue 1, Page 184-192.

llesearch journal of Humanities, Social and Management Sciences, Vol 10, No 3, Sept, 2016

47

_. ""*

White Collar Crime And The Performance Of Banks Jn Nigeria Ogunbiyi & Akani in this fraudulent activity the profit of the company is increased by approximately 16%, this is as ~i

result of the bank official involving themselves in white-collar crime in other to enrich themselves on time. FE has a calculated t-value of (13.07479) which is greater than the tabulated t-value, this means there is a statistical significant relationship between financial embezzlement and net profit of deposit money bank.

Conclusion and Recommendations Based on the findings it can be inferred that clearance fraud has a positive but insignificant relationship with bank performance as recorded by the result above, while there is no significant relationship between financial forgeries shown above and Net Profit of banks, there was a positive relationship existi11g between financial embezzlement and profitability of banks in Nigeria. From the regression result CF FF and FE did not adhere to our earlier anticipated a piori expectation. In view of getting anJ amassing quick and sudden wealth in Nigeria, misplaced value judgment and prevailing harsh economic environment, big time frauds are on the increase. Banks and their customers are losing huge amounts running into millions of naira to fraudsters almost every day. Fraudsters are busy devising new methods for their nefarious activities; the bank control system should be dynamic in nature. The result can also be linked to the Greed theory of fraud which states that banks have become persistent targets of men of the underworld mainly because banks are seen as t~e richest organization in the country. The findings support that of Olaoye and Dada (2014) to the effect that in order to prevent bank fraud effective control and adequate reward for good conduct should be used by the management. This will go a long way to reduce the level of fraud in the banking sector. Also bank workers should diversify in their activities. They shoold not be allowed to have monopoly of work/duty for a long time. This also supports the position of Olaoyc el

al (2014) that managers should not give room for perpetrators. In the same vein, zero tolerance should be given to fraudsters and severe punishment should be meted out to those who arc caught in the act. The management should always find time to review and place more emphasis on policies related to (KYC) "know your customer", as this will help to extenuate fraud that might be committed by them_

Reference AbdulRahecm.i\, h1aka.S.H, and Muhammed.A.Y (2012): Fraud and Its Implications for Bank

PerformanLc in Nigeria. International Journal of Asian Social Science Vol.2, No.4, Page.382-387

Aburime, T.U (2009): Impact of corruption on bank profitability in Nigeria. Published by Budapest Tech Keleti Karoly Faculty of Economics. Page 15-17. H-1084 Budapest, Hungary. http://kgk,bmf.hu/fikusz retrieved 8th August 2015

Albrecht, W.S., Albrecht, C. & Albrecht, C.C. (2008). "Current Trends in Fraud and its Detection": Information Security Journal: a Global Perspective, vol.17: retrieved from www.ebscohost.com on 8th Oct, 2015

ACFE (2006): J\CFE J{eport to the nation on occupational fraud and abuse. Technical report Association of Certified Fraud Examiners. Texas.

Ajala O.A, Amuda, T and Leyc, A (2012): Evaluating Internal Control System as Preventive Measure of Fraud in the Nigerian Banking Sector. International Journal of Management Sciences and Business Research, 2013, ISSN (2226-8235) Vol-2, Issue 9 Page 15

Akinyomi 0. J.(2012): Examination of fraud in the Nigerian banking sector and its prevention. Asian Journal of Management Research Vol. 3 Issue 1, Page 184-192.

Brazilian Research journal of Humanities, Social and Management Sciences, Vol 10, No 3, Sept, 2016

47

l :f

White Collar Crime !lnd The Performance Of Banks In Nigeria Ogunbiyi & Akani Autumn (2009): Fraud Investigation A claims handler's guide/\ practical guide to Lhc key issues and

current law, Retrieved from https: //us.crawfordandcompany.com /. .. /2009-09-23-

kcnnedyscrawfordsf 8/25/2015. Business Scams. Retrieved from www.businesscrimewales.com 8/25/2015. Duffield, G. and Grabosky, P. (2001).The Psychology of Fraud. Trends and Issues in Crime and

Criminal justice series, No 199. Retrieved 6th August, 2015 from http://www.aic.gov.au/publications/tandijtil 99.pdf

Eseoghene j.l (2010): Bank Frauds in Nigeria: Underlying Causes, Effects and Possible Remedies. African journal of Accounting, Economics, Finance and Banking Research Vol. 6. No. 6. Page.

62-80 Grace.D and Peter.G (2001): The Psychology of Fraud. Australian institute of criminology trend and

issues in crime and criminal justice. Retrieved from www.aic.gov.au/publications/ current%20series/tandi /181 ... /tandi 199 .htm.

Ibrahim.A, Moh:Jmmed D. M and Fatima.U (2014): Managing Bank Fraud and Forgeries Through Effectivl' Control Strategics. A Case Study of Central Bank of Nigeria, Combe Branch. lnternat1on;1l journal of Business and Management Invention. Issue 4 Page07-1,Vol. 3

Jdowu. /\ and Obasan K. A (2012): Anti-Money Laundering Policy and Its Effects on Bank Performance in Nigeria. Business Intelligence journal Vol.5 No.2 page 367-373

Little black book of scam Retrieved from www.accc.gov.au/litlleblackbookofscams. 8/25/2015. Managing the Business Risk of Fraud: A Practical Guide Retrieved from

https://www.acfe.com/uploadedFiles/ ACFE ... /managing-business-risk. 8/25/2015 Nipion.S (2015): Bank Fraud and the Nigerian Economy: A Psycho-Economic Analysis. JOSI journal

of Social Science and Humanities Volume 1Issue1; Page No. 30-36 Nwankwo. 0 (2013): Implications of Fraud on Commercial Banks Performance in Nigeria.

lnternal1onal journal of Business and Management; Published by Canadian Center of, Science and Education. ISSN 1833-3850 E-ISSN 1833-8119 Vol. 8, No. 15; 2013 Page 144

Okorafor, E.O, Kanu, and Success. I (2013): The Nature, Extent And Economic Impact Of Fraud On Bank Deposits In Nigeria. Interdisciplinary journal Of Contemporary Research Jn Business Copy Right© 2013 Institute of Interdisciplinary Business Researth VOL 4, page 253-265 No

9. Olaoye C.O, Dada R.A and Adebayo A.I (2014): Analysis of Frauds in Banks: Nigeria's Experience.

International journal of Innovative Research & Development. www.ijird.com Vol. 3 Issue 1

ISSN 2278 - 0211 Olaoye. C.O and /\dekola, D.R (2014): Analysis of Frauds in Banks: Nigeria's Experience. European

journal oi Business and Management www.iiste.\l_[g ISSN 2222-1905 (Paper) ISSN 2222-

2839 (Online) Vol.6, No.31 Page 90. Olojido E.O and Oluwaremi.F (2014): Banks Instability and Macro-Economic Varidbies, Nigerian

Experience between 1996 and 2012 British journal of Economics, Finance and Management · Sciences 1,ISSN 2048-125X. Vol. 9 Page 1-10.

Onwujiuba, ].O (2013): Bank Fraud and Its Effect on Bank Performance in Nigeria Department Of Banking And Finance, Faculty of Management And Social Science Caritas University, Amorji-

Nike, Enugu State Owolabi, S. A. (2010): Fraud and Fraudulent Practices in Nigeria Banking Industry. An International

Multi-Disciplinary journal, Ethiopia ISSN 1994-9057 (Print) ISSN 2070-0083 (Online) Vol. 4

(3b) July, 2010 (Page. 240-256). Sutherland E.11 (1950): White Coller Crime. journal of criminal Law and Criminology.Vol.41 No 1

PP,80-82 (retrived from www.jstor.org.13/08/15).

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White Collar Crime And The Performance Of Banks In Nigeria Ogunbiyi & Akani

Uchenna .C and Agbo J.O (2013): Impact of Fraud and Fraudulent Practices on the Performance of Banks in Nigeria. British Journal of Arts and Social Sciences, ISSN: 2046-9578, Vol.15 Nol ©British journal Publishing, Inc. http://www.bjournal.co.uk/BJASS.aspx

Wilhelm, W. K. (2004). The Fraud Management Lifecycle Theory: A Holistic Approach to Fraud Management. Journal of Economic Crime Management Spring 2004. Vol.2 Page 2.

Appendix I

Year NP (N'm) CF (N'm) FF (N'm) FE (N'm)

1985 19,556.55 112.27 1,485.35 9,500.53

1986 47,406.70 133.8 1,551.40 13,130.68

1987 84,496.15 127.53 1,021.08 11,449.60

1988 101,923.20 135.35 1,217.36 20,065.91

1989 123,041.18 145.9 1,440.40 24,825.63

1990 116,223.70 142.02 1,133.70 22,079.00

1991 200,018.70 187.75 1,441.50 16,483.95

~ 1992 222,849.50 115.67 1,560.16 29,194.00

1993 141,028.30 155.03 1,288.19 18,106.00

1994 330,268.12 240.29 1,430.40 13,926.79

1995 486,584.40 289.09 1,180.29 34,33cf.oo

1996 500,797.40 245.85 2,054.33 30,120.00

1997 220,893.52 413.28 1,677.08 22,467.00

1998 668,768.14 861.68 2,251.14 44,147.00

1999 447,219.69 628.95 1,232.35 56,943.67

2000 728,214.24 364.21 1,545.28 57,627.10

2001 984,413.41 950.65 1,621.05 31,419.91

2002 l,047,650.44 229.13 1,814.74 61,212.31

2003 1,551,039.54 375.24 2,269.91 60,720.17

2004 1,112,625.62 692.25 1,759.90 62,321.25

2005 2,018,155.84 2,637.91 2,632.45 79,224.95 -

2006 1,825,965.l 9 906.3 1,419.07 92,600.61

2007 2,426,255.22 2,730.06 2,607.68 91,213.47

2008 2,122,137.31 l,080.57 2,589.83 97,382.85

2009 2,938,212.51 112.27 2,109.41 118,627.41

2010 2,850,894.08 133.8 3,141.68 160,712.81

2011 3,480,820.0l 127.53 3,399.33 107,883.33

2012 3,852,950.28 135.35 2,469.90 227,311.75

2013 4,594,217.45 145.9 2,083.71 261,222.79

Brazilian Research journal of Humanities, Social and Management Sciences, Vol 10, No 3, Sept, 2016

49

-

White Collar Crime And The Performance Of Banks In Nigeria Ogunbiyi & Akani Source: 1 L1ti1

Graphical Representation of the Data

:.. ()()(} 000

4 000,000

3,000.000

?.000 000

1 000 000

==-===------.::: '.9'8b 1990

3 ~:J{J

3 000

2 500

2,000

; :.i-00

/'

1 000 ----·i;e::, 1990

NI'

--i J/

rf'1 I /Jv I

,,/~v'

'"''~-,,,' I 2000 ?0~---1'"',----J 7010

II

/1 !

;N\/~v~ ' v

'99S 2000 200:.. 7010

Authors compilation 2015

2 800

2,400

2.000

UDO

1,200

800

400

300.000

2SO.OOO

200,000

1 b0,000

100,000

50.000

Cl

!~ L~-- //\v 1 ,-~,~' l ~,,-,I' -- -(

?ODS ' I .,----j 2010 198!> 1990 199b

T 199:..

7000

II

I\ J \j

'V~~ !

i

?DOS -~-----~-,----.---~J

?010 Source: 7000

'

Brazilian Research journal of Humanities, Social and Management Sciences, Vol 10, No 3, Sept, 2016

so ....