| CBN,
NDIC should minimise bank frauds
By Sun News
Monday, August 2, 2004
While bank managements and the industry regulators failed
respectively to tighten their internal control systems and
perform their supervisory functions efficiently, light-fingered
staff pick the vaults. Consequently, once again, both the
number of cases and value of frauds perpetrated in the banking
industry last year increased compared to the previous year.
According to Nigeria Deposit Insurance Corporation (NDIC),
there were 850 confirmed fraud cases in the industry, 6.8
percent higher than the previous year. In addition, a total
of N9.38 billion was at risk while the actual expected loss
was N857.5 million. Contrastively, the entire industry’s
profit, liquidity ratio, assets and deposits, among other
growth indices, have all decreased.
It is worrisome that the level of frauds increased. But NDIC
Annual Report 2003’s indictment of the foibles of some
banks’ boards of directors and managements is appalling.
As such, the regulatory agencies must sit up to clean up the
rot from the top in such banks.
According to the Report, poor corporate governance, unwholesome
and sharp practices, weak or non-existent boards are significant
contributors to the increasing frauds in the banking industry.
"Some boards abdicated their supervisory roles to their
managements and were not aware of the poor financial condition
of their banks. Some failed to institute appropriate internal
controls and sound management information systems in their
banks. The weak internal controls had facilitated the frauds
and forgeries in some banks," it said.
Could there be any better justification for compelling such
weak banks to merge or be gobbled up by the strong, professionally
managed banks? But that is only half the story. The other
half is the failure of the complementary regulatory agencies
to do their work efficiently and thoroughly. Or, more specifically,
the failure of on-site bank examiners from both the Central
Bank of Nigeria (CBN) and NDIC.
Banks are custodians of depositors’ funds. As such,
they are regulated more than other businesses. But banking
professionals complain that the industry is over-regulated
in the country. One therefore expects that the complementary
supervision by the regulatory agencies would make the increasing
problem of weak internal controls facilitating frauds minimised,
if not eliminated by now.
That frauds increase every year implies the insouciance of
bank managements being complemented by the lassitude of regulators.
The remedy for such cosy relationship of regulators and the
licensed banks is easy: CBN and NDIC must update the competence
and integrity of their on-site examiners to, once again, operate
at the efficiency levels which made them the dreaded best
of yesteryears.
Besides, they need to increase examiners’ numbers. For,
examining 57 out of 91 banks in the industry, selected by
whatever sampling methods - routine, special, target
and special investigation - leaves a wide latitude for
staff inclined to crime to seize any opportunity. We may advise
that between CBN and NDIC, all the banks ought to be visited
at least once a year, not necessarily to detect fraud, but
to test the preventive systems.
Finally, the apex bank may consider sanctioning the managements
of banks in which sloppy internal controls facilitated frauds,
while the police continue investigating the criminals. There
is no foolproof anti-fraud system anywhere. But alert managements
can minimise frauds either by themselves or under the watchful
eyes of the regulatory agencies.
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