COINS OF THE ANCIENT MEDITERRANEAN WORLD
AN WHERE WE ARE HEADING TO
When bartering, it is a laborious process to establish the values of various goods in relation to each other. How many visits to the cinema are worth one car? How many apples will it cost the farmer to settle his dentist’s bill? And what happens if the doctor does not like the apples? What is really needed is a conversion table setting out the value of goods in terms of other goods. We would always need to carry in our heads a complicated conversion table giving the value of every item in terms of every other item. This is another case where money has an advantage: since everything is exchanged for one and the same unit of measurement- money-people can better compare prices and work them out easily. When all goods are bought and sold against the same medium of exchange, namely money, it becomes easier to set prices and to compare them.
WHAT EXACTLY IS MONEY?
An odd question at first glance. Of course, we all know what money is. Money is a generally accepted medium of exchange. In addition it can be put aside for later, i.e. used for saving: money is also a store of value. But as so often in life, it is all a bit more complicated. Let us put it to the test and ask: how much money do you have right now? Do not just count the cash in your pockets or your purse. Money also includes credit balances on postal, wage and other accounts that you can use to make payments. The money on these accounts is called deposit money because payment is effected simply by transferring a deposit from one account to another.
MONEY MAKES LIFE SIMPLER
When people still provide for themselves, they did not need money. Things for everyday use they made themselves. If people made more than they needed, they swapped the surplus for other goods. In small, close-knit communities that worked quite well, and there was still no need for money. But bartering has one disadvantage: many things are perishable and soon become impossible to trade. People engaging in bartering therefore came to prefer commodities that could survive the passage of time undamaged and were much sought-after. We need money to buy what we want and to pay for what we buy. We buy physical goods ranging from bread-rolls to our dream house. We also pay for services, like the calls we make on our mobile phone or holiday bookings. Thus did money come into being.
In the course of history many commodities have served as generally accepted medium of exchange- or money: shells, salt, tea, blankets, cigarettes, precious stones, silver, and gold.
WHY NOT USE COMODITIES
Seashells, animals’ teeth, rare stones or even bricks of dried tea have all been used as money in different cultures. Theoretically, any material can serve as money as long as it fulfils three conditions. Firstly, it must be accepted as a means of payment by everyone doing business together. Secondly, people must have confidence in the value of the chosen material. And finally, the material must be scarce since only a scarce good has any value. That is why sand is hardly suitable as money, whereas gold and silver, for example are. Money must be scarce, but not excessively so. In an efficiently functioning economy there must always be enough money available to ensure that the goods on offer can be bought and sold in unhindered trading.
About the cover: the one and e eagle, reminiscent of the American symbol, is from the tetra drachma of ptolomy l of Egypt, one of Alexander the Great’s generals. The head shown is that of Hercules, from the tetra drachma of Alexander the Great, though some have suggested it may be a portrait of Alexander himself. This booklet was researched and written by John p. Mulcahy.
The coins we use as money today have a history that goes back 2,700years. Ancient peoples used metals, especially gold and silver, to mint coins. Rulers soon learned to standardize their coins and define them in terms to fixed quantities of gold and silver, thus establishing a rate of exchange between the two metals.
The usefulness of early forms of money was often restricted by its inconvenient size, limited geographic fluctuations in the supply and demand for metals. In ancient times, the greatest stimulus to trade came when rulers such as Alexander the Great and the Roman emperor Augustus established uniform coinage systems that were widely recognized and accepted. Today, most currency is paper money, and coins are passed as small change. Still, coins have many of the same features that they had in ancient times. For example, modern coins have a government-approved design and value stamped on them, like the earliest coins did. Many nations still follow the Greek and Roman custom of recognizing famous people by placing their portraits on coins. Even the eagle, which appear on the back of the U.S. quarter, can trace its use as a symbol back to the coins of the ancient Mediterranean.
Most historians think the city-states of Greece and kingdoms of Asia Minor invented the first coins in the 7th century B.C. The kingdom of Lydia, in present-day Turkey, stamped lumps of precious metals with an official seal to guarantee their weight and purity. Lydian metal, stamped with King Croesus’ seal, become something everyone accepted. Pubic confidence in the king’s money gave trade a great boost.
These Lydia coins called STATERS, were first made of electrum, an alloy of gold and silver. About the size of a finger nail, these first coins were valuable. But, the mix of gold and silver was unpredictable, making some electrum staters worth more than others. Eventually, the Lydians stabilized the stater by minting two versions, one gold and one silver. This change produced the world’s first bimetallic standard.
The front of Croesus’ coin is stamped with a growling lion’s head facing the head of a horned bull. In ancient Mediterranean cultures, the bull was a symbol of strength and heroism. The lion may have been Croesus’ tribute to an ancient symbol of a maternal divinity.
The Greeks Catch on
By 630 B.C., the Greeks city-state of Aegina was stamping coins. Like the Lydian stater, the Aeginetan STATER carried the image of an animal, but instead of the loin and bull, Aegina used the sea turtle. The choice of the turtle may have been based on Greek myth or on the obvious facts that turtle abounded in the sea surrounding Aegina, and still do today. The back of the silver turtle starter had a simple design, making it one of the first coins to have a design on both sides.
The Athenian Tetradrachma
In the early 6th century B.C., Athens began making silver coins in small denominations that were convenient in everyday trade. One of the of the best know coins of this period is the Athenian TETRADRACHMA “Drachma” “meant handful” and came from the Greeks practices of using small copper and iron splits, measured by the handful, as money. A tetradrachma was worth “four handfuls.” These Athenian coins were also among the first coins in the region to have a design on both sides. The designs usually represented important religious, political or commercial matter.
The front of the tetradrachma shows the goddess Athena, for whom the Athens was named. Greek mythology said Athena gave the city its chief source of wealth, the olive tree, and Athenians remembered that when they designed their coins. The image of the goddess of wisdom and strength appears on the front, the first prominent representation of the human from on a coin. On the back, branches of the olive tree hang above the wing of the owl, Athena’s symbol.
The Athenian tetradrachma was the first coin to become “international” money. It was used widely in the trade among the Greeks and other peoples of the region.
Athenians Commemorate victory at marathon
The Athenians were one of the first to commemorate a military victory on their coins. Following the victory over the Persians at marathon in 490 B.C., the Athenians modified their tetradrachma to include a crescent moon between the owl and olive branches. The moon reminded Athenians that Darius, king of Persia, withdrew his forces under a waning moon.
The “Ponies” of Corinth Gallop Into Coinage History
Although the Athenian tetradrachma was the region’s first international money, it was inconvenient for everyday use because it could not be exchanged for fractional coins. The city-state of Corinth was the first to issue coins in denominations and was also one of the earliest to have designs on both sides. The winged horse Pegasus was on all Corinthian coins, which is why they were called “ponies.”
The New Coin Economy
By the mid-6th century B.C., the economies of the Greeks city-states had become quite sophisticated. Lydia, Aegina, Athens, Corinth and others were all making coins and improving them. Designs became more refined, their implicit guarantees made them acceptable in a widening geographical area, and the issuance of different denominations made them more useful.
Croesus had introduced bimetallism and his small silver coins were commonplace in market throughout Asia Minor. Cyrus the Great, the Persian conqueror of Lydia, minted coins based on the Lydian example and spread them through out his empire.
By the time of the Persian wars, coins had become the most common of money in the Mediterranean world. In the 5th century B.C., silver Greeks coins were the principal medium of exchange used by trading states, occasionally supplemented by Persian gold. In the 4th century B.C., Corinthian silver “ponies” were as widely accepted as the Athenian tetradrachma. Once bronze coins were introduced, they quickly became the preferred money for small denominations and everyday trade.
The result was a thriving world of trade in the Mediterranean. But it was still a small world, and there were still limits to both the geographic acceptance and commercial utility of coins. Trade was also disrupted by political disorders and wars.
THE ADVENT OF A NEW ORDER
The Macedonian Empire
In the mid-4th century B.C., the Greek city-states were brought under the rule of Macedonia, whose influence eventually spread to the rest of the Mediterranean world. The tetradrachma and staters of two Macedonian kings – Philip 11 and his famous son, Alexander 111 (the Great) – became the top international money of its time. The coins of Philip and Alexander were so popular that they were copied and counterfeited for centuries.
Philip worked to stabilize his Macedonian coinage system at a ratio of ten-to-one for gold and silver, a standard that set the exchange rate between gold silver for many year.
Alexander the Great was a military genius and more. He also standardized the money system for Macedonia and most of the countries from the Indus River to Naples. The stimulus to trade was astonishing.
Alexander kept the gold coins of his father but issued many more of them with the backing of captured Persian metal. He redesigned them, however, to reflect his unique preferences. The front of Alexander’s silver tetradrachma bears the head of the head of the young Hercules (some suggest it is a portrait of Alexander), while the back bears the image of Zeus holding a scepter and an Eagle. The scepter has long been a symbol of the ruler, while the early Greeks believed that the soul of a dead king took the form of an eagle to watch over his kingdom. Others regard the eagle as Zeus in the animal.
Images of Mortal Men Placed On Coins
After Alexander the Great’s death in 323 B.C., his generals divided his empire among themselves despite the break up of Macedonian Empire, Alexander’s currency was still the standard everywhere, except in Egypt, where Phoenician coinage was the standard.
Lysimachus, the general who took Thrace (in modern-day Turkey and Greece) risked the wrath of the gods by being the first to authorize coins bearing the image of a mortal – Alexander the great. His head, adorned with a ram’s horn, the symbol of his strength, appears on the front, while the back carries the goodness Athena. She is seated and in her right hand is a tiny image of Nike, the winged goddess of victory.
Ptolemy of Egypt, another former general, also broke with tradition and became the first to mint coins with the image of a living mortal, himself. Assured of his power, he adopted the title king and placed his portrait on the front of his silver tetradrachmas. The eagle on the back is a symbol of his leader ship.
The Roman Republic
The first metallic money of the Romans was the AS, a copper rod one Roman foot long and ½ inch in diameter. By customs, one hundred cooper rods were valued at one cow. Eventually, the As evolved into the shape of a coin and it bore simple designs, such as the head of a Roman god on the front and the prow of a ship on the reverse, a symbol of Rome’s reliance on maritime power.
About the time of Alexander’s death, Rome began making silver coins. The as was reduced in size and value to a convenient half ounce. By the end of the 3rd century B.C., the Romans issued the silver DENARIUS, which became their principal coin.
Similar in both size and value to the Greeks drachma, the silver denarius accompanied the roman legions as they conquered the Italian peninsula and invaded Spain and Gaul. Though Alexander and his successors had tolerated the continuing existence of many local coins, the Romans melted down those symbols of competing power and turned them into Roman coins.
In the 1st century B.C., Rome accumulated a large gold reverse and Julius Caesar authorized minting of gold AUREUS, which became the principal monetary standard for the Roman Empire from Augustus to Constantine. Initially, the weight of the aureus was established at 40 to the pound
Caesar Augustus Brings In the Roman Empire
The story of Roman coinage at its heights begins with one of the greatest leaders of antiquity. His name was Gaius Octavius, but he is better known as Augustus, the name given him by the Roman senate in 27 B.C. He ruled from 31 B.C. to 14 A.D.
Under Augustus, the aureus became popular as far away as India and was supported everywhere by the prestige of Romans armies. He took the authority to mint the denarius away from the senate and stabilized its exchange rate with the aureus at 25-to-1. In Augustus’ time, the denarius’s was apparently the usual pay for a day’s labor, probably a twelve-hour day.
The Augustan coinage system also included other lesser denominations. The smaller denominations were minted under the authority of the Roman senate and stamped with the letters SC (senatus consulto) which assured the pubic of the coin’s quality. This official authorization also gave value to these coins –the metal itself was virtually worthless. The seal of the Roman senate is similar to the official message on the dollar bill: THIS NOTE IS LEGAL TENDER FOR ALL DEBTS PUBLIC AND PRIVATE.
Coin Used as a Political Tool an Idea Uniquely Roman
The aristocratic head of Augustus dominates his entire coinage, while the reverse depicted important events. Roman portrait coins acquainted the people with a ruler’s image and showed who was in power at a given moment. These coins also served as mini- newspapers, carrying information about wars, architectural triumphs and other achievements to the far corners of the Empire.
The “cistophoric” tetradrachma of Augustus illustrate how Roman coins were used to sway public opinion. Struck around 28 B.C. this coin bears the figure of pax,
the Roman goddess of peace, and the caduceus she holds is a symbol of free commerce and the modern symbol of medicine. Next to the goddess is a Middle Eastern symbol, the cista mystica (magic box). Roman coins frequently carried symbols with special significance to a region to promote their acceptance among the local people. The cistophoric tetradrachma championed Augustus’ role as the leader who freed Asia minor from the yoke of arbitrary government.
Jewish coins
Roman rulers departed from their usual practice when they permitted the Jewish high priest in Jerusalem to mint small bronze coins, apparently for local circulation only.
However, the most famous Jewish coin, the silver SHEKEL, was made during the Jews’ first revolt against Roman rule. The coins, which were used for temple dues, bear inscription such as “Jerusalem the Holy” and “Shekel of Israel.” From their earliest appearance to the present day, Jewish coins have carried images of inanimate objects of religious significance. In design, Jews have adhered strictly to the commandment that “thou shalt not make unto thee any graven images.”
The Collapse of the Roman Coinage System
The Augustan coinage system restored price stability and stimulated trade in the Mediterranean. However, neither Augustus nor his successors could provide enough acceptable gold and silver coins to the farthest parts of the Empire. Deflationary trouble began. That was followed by excessive spending by several emperors and catastrophic inflation that helped undermine Roman coinage.
By the 3rd century A.D., even the craftsmanship and design of Roman coins had deteriorated. Finally, all confidence was lost in Roman coinage. Many people in the Western Roman Empire now reverted to a system of barter and the primitive weighing of metals which had existed a millennium before.
SPERM WHALES’ TEETH IN FIJI ISLAND
There was a time when sperm whales’ teeth, because of their relative rarity, were used as currency in the Fiji Islands. When the Islands became a British colony, new money was introduced in the form of notes and coins. Since the authorities wanted the new unfamiliar currency to be accepted and to circulate among the population as quickly as possible, they looked around for something to portray on the notes and coins that would convince the Fijians of their value as a means of exchange. What they chose were sperm whales’ teeth.
WHERE WAS PAPER MONEY INVENTED?
The Chinese are considered to be the inventors of paper money. The first forms of paper money emerged in China in the 7th century. In Europe paper money was at first used only as temporary makeshifts – when there were not enough official coins in a besieged city. The first proper banknotes in Europe were issued in the 17th century.
CAN BANK NOTES BE REDEEMED IN GOLD
In the early days this was actually possible: although the banknotes that were in circulation alongside gold coins were practical, they were ultimately only proxy for the precious metal. Central banks were under obligation to redeem banknotes in gold upon request and to back its banknotes by gold. But since then the role of gold has changed considerably. Banknotes have been declared legal tender, the obligation to redeem banknotes in gold and the gold backing requirement have been abolished and coins that no longer contain any precious metal have been put into circulation.
HOW WILL THE VALUE OF MONEY BE PRESERVED WITHOUT
IT BEING BACKED BY GOLD
In the days when paper money had to be backed by gold, gold was its anchor. Since the gold output rose only slowly, there was hardly any danger that there would suddenly be too much gold and thus too much paper money in circulation. Today central banks undertake to increase the amount of money in circulation in carefully measured quantities. In this way they can ensure that the value of money is maintained. This undertaking on the part of central banks plays the anchor role. The transition from gold to paper representing a deposit of gold also marks the change from material value to exchange value. A gold or silver coin has a value even if no amount is stamped on it, whereas a banknote is only made of paper. The amount printed on a note, its exchange value, is much greater than the material value of the paper. The exchange determines what that piece of paper is worth when exchanged for goods. Nowadays most money no longer has any material value whatever, as it exists only as deposit money held on account at banks or post office.
WHERE WE ARE HEADING TO → ∙∙∙
GOODBYE TO CASH?
Gold and silver coins still had a material value. This is no longer the case with present-day notes and coins. Their value is set by the issuer; they are therefore merely a medium for conveying information about this value. Such information is independent of its medium. It can also be conveyed electronically. At present a number of forms of electronic money are being developed in direct competition with central bank cash. Will such money supersede cash? Whether and how quickly new forms of money catch on will depend on how much confidence those who subscribe to the systems that are being offered have in them and the number of people who use them. Nowadays, most goods and services can be paid without cash. But for small purchases coins and notes are still important because they are practical. In a number of business transactions it is traditional to pay in cash, e.g. for second-hand cars or on the livestock market. Although a cashless society would be technically feasible at the present time, cash still plays an important part in our everyday life. In fact, the use of cash in developed economies is continuing to decrease while the developing and third world countries are still making use of cash but there is strong indication that the reverse may be the case as development continues.
REFERENCES
John P. M. (2004) Coins of the Mediterranean world. Federal Reserve Bank
Information Department Philadelphia.
Swiss National Bank (2002) what is Money Really About? A Brief Introduction To The Swiss National Bank Swiss National Bank Publications Department.
Swiss National Bank (2002) The Swiss National Bank and The Vital
Commodity: Money. Swiss National Bank Publications Department.
Tuesday, February 17, 2009
DISTINCTION BETWEEN CONTROLLER & TREASURER
DISTINCTION BETWEEN CONTROLLER & TREASURER
Many people confuse the offices of controller & treasurer. The chief financial officer, vice president, typically oversees both the controllership & treasurership functions. The financial executives institute, an association of corporate treasurers & controllers, distinguishes their functions as fellows:
CONTROLLERSHIP TREASURERSHIP
a. Planning & Control a. Provision of capital
b. Reporting & interpreting b. Investor relations
c. Evaluating & Consulting c. Banking & custody
d. Government reporting d. Credit & collections
e. Protection of assets e. Investments
f. Economic appraisal f. Insurance
g.Tax administration g. Short-term financing.
NOTE: How managerial cost accounting is the controller’s primary means of implementing the first three functions of controllership.
The treasurer is the financial executive who is primarily responsible for obtaing investment capital and managing cash. We will not dwell at length on the treasurer’s functions. As the seven points indicate, treasurers are concerned mainly with financial, as distinguished from operating, problems. The exact division of various accounting and financial duties obviously varies from company to company.
The controller is the financial executive who is primarily responsible for both management accounting & financial accounting. The controller has been compared to the ship navigator. The navigator with the help of specialized training assists the captain. Without the navigator, the ship may founder on reefs or miss its destination entirely, but the captain exerts the right to command. The navigator guides and informs the captain as to how well the ship is being steered. This navigator role is especially evident in point 1 through 3 of the controller’s functions.
The word controller is applied to various accounting positions. The stature & duties of the controller vary from company to company. In some firms the controller is little more than a glorified bookkeeper who compiles data primarily for conventional balance sheets and Income statements. In other firms for e.g. General Electric-Controllers are key executives who aid management planning and control in about two hundred subdivisions. In most firms the controller’s status is somewhere between these two extremes. For example, controller’s opinions on the tax implications of certain management decisions may carefully weighed, yet their opinions on the other aspects of these decisions may not be sought.
Whatever the title, the controller the controller is viewed in this article as the chief management accounting executive .The point of terminology here is that the modern controller dose not do any controlling in terms of line authority except over this or her own department. Yet the modern concept of controllership maintains that the controller dose control in a special sense. That is, by reporting and interpreting relevant data, the controller exerts a force or influence that impels management toward logical decisions consistent with objectives.
In sum, the modern controller plays a “two-count” role in organizations. The first count is responsibility to top management for the integrity (reliability) of the financial reports of the subunits. The second count is responsibility for helping the subunit managers in planning and controlling operations.
Therefore controllers must balance their independence and objectivity against their necessary Involvement in assisting line managers. Thus, finance functions tend to start where accounting one ends. In the United States of America, for instance, the accounting function in an organization is usually performed by someone called the controller. The person is usually an accounting graduate who has qualified professionally as Certified Public Accountant (CPA). He works under a Vice president (finance) or Director of Finance, who may or may not have been a controller. Similarly, the finance function is performed by someone with a title of “Treasurer”. The person is usually a graduate of finance with many years of experience and has professionally qualified as Chartered Financial Analyst (CFA). Like the controller, the treasurer reports to the vice president (finance) or Director of Finance who may or may not have been a treasurer. This is to say that the vice president (Finance) would once have been a controller or a Treasurer.
Moreover, this arrangement is not common in Nigeria. What obtains here is that the post of Director of Finance tends to be occupied only by Chartered Accountants. This convention was borrowed from Britain where university degree programs in finance and accounting are relatively new compared to American experience. Though in Nigeria today, a graduate of finance and economics has as much chance as an accounting graduate to qualify as Chartered Accountant and consequently to perform as a director of finance.
It should be noted here that the title of “Treasurer” has not found support in Nigeria to the extent the controller has. The rationale for this could be the level of Nigeria’s economic development and indeed our British orientation. We borrowed a lot of from our colonial masters especially in the area of our organizational and educational arrangement. Fundamentally, the division of these functions as the Americans does would be essential in our fight against corruption and job effectiveness and efficiency. The management of money a valuable resource requires the separation of power and extra-ordinary skill on the part of the finance. I am of the opinion that who keeps record of money should not be in possession of money.
REFERENCES
Aham Ikwumezie (2002) Introduction to Finance. Vee-Pee
Associates Owerri, Imo.
Pandy I.M. (1991) Financial Management, 8th edition.Vikas
Publishing House. PVT Ltd. New Delhi, India.
Weston, J.F. and Brigham, E. (1975) Managerial Finance,
5th edition. Dryhen Press, Hindale Illinois U.S.A.
Many people confuse the offices of controller & treasurer. The chief financial officer, vice president, typically oversees both the controllership & treasurership functions. The financial executives institute, an association of corporate treasurers & controllers, distinguishes their functions as fellows:
CONTROLLERSHIP TREASURERSHIP
a. Planning & Control a. Provision of capital
b. Reporting & interpreting b. Investor relations
c. Evaluating & Consulting c. Banking & custody
d. Government reporting d. Credit & collections
e. Protection of assets e. Investments
f. Economic appraisal f. Insurance
g.Tax administration g. Short-term financing.
NOTE: How managerial cost accounting is the controller’s primary means of implementing the first three functions of controllership.
The treasurer is the financial executive who is primarily responsible for obtaing investment capital and managing cash. We will not dwell at length on the treasurer’s functions. As the seven points indicate, treasurers are concerned mainly with financial, as distinguished from operating, problems. The exact division of various accounting and financial duties obviously varies from company to company.
The controller is the financial executive who is primarily responsible for both management accounting & financial accounting. The controller has been compared to the ship navigator. The navigator with the help of specialized training assists the captain. Without the navigator, the ship may founder on reefs or miss its destination entirely, but the captain exerts the right to command. The navigator guides and informs the captain as to how well the ship is being steered. This navigator role is especially evident in point 1 through 3 of the controller’s functions.
The word controller is applied to various accounting positions. The stature & duties of the controller vary from company to company. In some firms the controller is little more than a glorified bookkeeper who compiles data primarily for conventional balance sheets and Income statements. In other firms for e.g. General Electric-Controllers are key executives who aid management planning and control in about two hundred subdivisions. In most firms the controller’s status is somewhere between these two extremes. For example, controller’s opinions on the tax implications of certain management decisions may carefully weighed, yet their opinions on the other aspects of these decisions may not be sought.
Whatever the title, the controller the controller is viewed in this article as the chief management accounting executive .The point of terminology here is that the modern controller dose not do any controlling in terms of line authority except over this or her own department. Yet the modern concept of controllership maintains that the controller dose control in a special sense. That is, by reporting and interpreting relevant data, the controller exerts a force or influence that impels management toward logical decisions consistent with objectives.
In sum, the modern controller plays a “two-count” role in organizations. The first count is responsibility to top management for the integrity (reliability) of the financial reports of the subunits. The second count is responsibility for helping the subunit managers in planning and controlling operations.
Therefore controllers must balance their independence and objectivity against their necessary Involvement in assisting line managers. Thus, finance functions tend to start where accounting one ends. In the United States of America, for instance, the accounting function in an organization is usually performed by someone called the controller. The person is usually an accounting graduate who has qualified professionally as Certified Public Accountant (CPA). He works under a Vice president (finance) or Director of Finance, who may or may not have been a controller. Similarly, the finance function is performed by someone with a title of “Treasurer”. The person is usually a graduate of finance with many years of experience and has professionally qualified as Chartered Financial Analyst (CFA). Like the controller, the treasurer reports to the vice president (finance) or Director of Finance who may or may not have been a treasurer. This is to say that the vice president (Finance) would once have been a controller or a Treasurer.
Moreover, this arrangement is not common in Nigeria. What obtains here is that the post of Director of Finance tends to be occupied only by Chartered Accountants. This convention was borrowed from Britain where university degree programs in finance and accounting are relatively new compared to American experience. Though in Nigeria today, a graduate of finance and economics has as much chance as an accounting graduate to qualify as Chartered Accountant and consequently to perform as a director of finance.
It should be noted here that the title of “Treasurer” has not found support in Nigeria to the extent the controller has. The rationale for this could be the level of Nigeria’s economic development and indeed our British orientation. We borrowed a lot of from our colonial masters especially in the area of our organizational and educational arrangement. Fundamentally, the division of these functions as the Americans does would be essential in our fight against corruption and job effectiveness and efficiency. The management of money a valuable resource requires the separation of power and extra-ordinary skill on the part of the finance. I am of the opinion that who keeps record of money should not be in possession of money.
REFERENCES
Aham Ikwumezie (2002) Introduction to Finance. Vee-Pee
Associates Owerri, Imo.
Pandy I.M. (1991) Financial Management, 8th edition.Vikas
Publishing House. PVT Ltd. New Delhi, India.
Weston, J.F. and Brigham, E. (1975) Managerial Finance,
5th edition. Dryhen Press, Hindale Illinois U.S.A.
Tuesday, January 27, 2009
FRAUD IN NIGERIAN BANKS AND ITS IMPACT ON BANKS AND THE NIGERIAN ECONOMY.VOLUME 2
VOLUME TWO
FRAUD DETECTION, PREVENTION AND CONTROL
It should be obvious from the catalogue of causes, nature and types of fraud that have been given that their identification, prevention and control should be a collaborative effort involving government and its agencies; the operators, i.e. financial institutions management and staff; and the general pubic. While the major task here is to articulate the role of government and its agencies in this respect, it should be emphasized that the classic rule of banking. “Know your customer’’ is the key to identifying, preventing and controlling frauds. It is pertinent to submit that the role of government and its agencies is more of curative whereas the financial institutions and members of the public have dual role of preventing and curing frauds.
2.1 ROLE OF GOVERNMENT
The role of government in the prevention and control of frauds in banks and other financial institutions is a Herculean task. It boarded mainly on ensuring a disciplined society, promulgation of appropriate statutes, establishing relevant institutions and ensuring enforcement of various legal provisions.
The anti-corruption act passes by the senate, if well prosecuted and faithfully implemented, would go a long way in preventing and controlling frauds in our society. The activities of the Economic and Financial Crime Commission should be without fear or favor or witch-hunting of political opponents if really we want to eradicate fraud from our society. Convicts should not be allowed to occupy top position in our banks or outright ban should be the best option. This deduction is based on the realization that indiscipline breeds all sorts of vices including fraud. In recognition of this, the government should put in place relevant status to ensure safe and sound practices in the Nigeria financial system.
They CBN Decree, Banks and other Financial Institutions (BOF1) Decree, NDIC Decree, Community Bank Decree, Micro Finance Bank Decree and Insurance Decree should be upgraded to meet the challenges of the day and to further give effect to its resolve to rid financial institutions of frauds. The government constituted the “National Committees on Malpractices in Banks and Other Financial Institutions” in 1990. This committee should be strengthened with better legislations and the much needed funds.
2.2 ROLE OF CENTRAL BANK OF NIGERIAN (CBN) AND NIGERIA DEPOSIT INSURANCE COMMISSION (NDIC)
The subject of frauds in the financial system is of special concern to the monetary and supervisor authorities, particularly the CBN and NDIC. These government agencies are concerned about the safety of individual institution and the soundness of the banking system. Most especially, the NDIC is specifically charged with the responsibility of protecting debtors. The prudential regulations of the CBN/ NDIC to banks are also aimed at preventing and controlling frauds. For example the conditions in the prudential guidelines for licensed banks that all banks should review their credit portfolio quarterly would help early detection of any acts of fraud, forgeries and financial malpractices relating to loans and advances granted under suspicious circumstances.
In effect, examination recommendations emanating from the CBN or NDIC must be treated with seriousness by banks and must receive the backing of the board of directors, shareholders and management of the effected banks.
There is also the statutory requirement for banks and other financial institutions to employ external auditors to check their books and affairs. For banks not to exercise undue influence on external auditors, their appointment and termination is subject to the approval of the CBN.
2.3 ROLE OF BRANCH MANAGEMENT
The branch’s ability to prevent or detect and control fraud depends essentially on the quality of personnel assigned to it by head office and the effectiveness of internal control in place. The usual measures which ensure timely detection and control of fraud may be categorized as:
A. Personnel control: proper recruitment procedures – (screening, referees, sworn declaration, certificates,
Photographs, permanent home address etc).
B. Administrative control: (a) segregation of duties (b) dual custody (c) security personnel (d) security devices e.g. Test key, Regiscope, cameras (e) franking machines.
C. Accounting control: e.g. (a) Data validation, (b) Prompt posting of transaction ,(c) Balancing, (d) reconciliation, (e) Variance analysis, (f) Review and statistics, (g ) Budgeting , standards and protections, (iv) Financial control :e.g. (a) cash limits (b)signing powers (c) specialized stationer (e.g. certified cheques, bankers payment coupons ).
The control of fraud at branch level must focus on means of payments (i.e. bankers payments, inter branch transfers) and accounts (i.e. bank’s ledger, impersonal accounts, customers account)
REFERENCES
Alashi, S.O (1994) “ fraud prevention and control , the Role of Government
and Agents “Nigeria institute of bankers Lagos Vol .30 no 4 pill -15
Bank Administration Institute (1989) “ fraud prevention and Detection
“(first national bank of Chicago)
Drover, C.B and Bosley R .W.B (1975) Sheldon’s practices * law of banking,
Macdonald & Evans 10th Ed.
Eke chi , A.O (1990) ,“ Frauds And Forgeries in banks : causes
types and prevention ,” seminar paper presented a the national seminar
in bank audit organized by ICAN in Lagos
Leslie, R .h. (1974) “auditing “Macdonald & Evans, forth Ed
N.D.L.C. (1992) Annual Report
Nduka.J. (1993) “internal control system: design and Implementation,”
a paper presented at FITC Course Effective Bank Inspection
Sandra, B.A (1994) “understanding of fraud in Banks, financial And Administrative
System,” Being A paper presented AT A workshop Organized by Michael
Stevens and Associates, Lagos.
CONLUSION
In view of the craze for money in Nigeria, misplaced value judgment and the prevailing harsh economic environment, big time frauds are on the increase and banks are losing amounts running into millions of naira to fraudster everyday. The starting point is remorse and the danger for us is denial and the refusal to admit our weaknesses. Our inordinate quest for wealth and material things. Michael J. Comer lamented that many frauds succeed because some people would rather be fooled than be thought to be distrustful .It is important to stress the need for all financial institutions to comply with statutory requirements of rendering returns for effectiveness of all the policy measures which the government , monetary and supervisory authorities might design to curb the menace . The prevention, detection and control of frauds should be a collaborative effort of banks, their customers, the public and the government including relevant agencies. Frauds in the financial system should as much as possible be minimized as it kills the institutions and destroys the economy of our nation. All hands must therefore be on deck to detect prevent and control frauds in our financial system. We are called here to live a life of dedication and consecration. Our old life and nature have got to die and a new one be birthed after reading through this article.
FRAUD DETECTION, PREVENTION AND CONTROL
It should be obvious from the catalogue of causes, nature and types of fraud that have been given that their identification, prevention and control should be a collaborative effort involving government and its agencies; the operators, i.e. financial institutions management and staff; and the general pubic. While the major task here is to articulate the role of government and its agencies in this respect, it should be emphasized that the classic rule of banking. “Know your customer’’ is the key to identifying, preventing and controlling frauds. It is pertinent to submit that the role of government and its agencies is more of curative whereas the financial institutions and members of the public have dual role of preventing and curing frauds.
2.1 ROLE OF GOVERNMENT
The role of government in the prevention and control of frauds in banks and other financial institutions is a Herculean task. It boarded mainly on ensuring a disciplined society, promulgation of appropriate statutes, establishing relevant institutions and ensuring enforcement of various legal provisions.
The anti-corruption act passes by the senate, if well prosecuted and faithfully implemented, would go a long way in preventing and controlling frauds in our society. The activities of the Economic and Financial Crime Commission should be without fear or favor or witch-hunting of political opponents if really we want to eradicate fraud from our society. Convicts should not be allowed to occupy top position in our banks or outright ban should be the best option. This deduction is based on the realization that indiscipline breeds all sorts of vices including fraud. In recognition of this, the government should put in place relevant status to ensure safe and sound practices in the Nigeria financial system.
They CBN Decree, Banks and other Financial Institutions (BOF1) Decree, NDIC Decree, Community Bank Decree, Micro Finance Bank Decree and Insurance Decree should be upgraded to meet the challenges of the day and to further give effect to its resolve to rid financial institutions of frauds. The government constituted the “National Committees on Malpractices in Banks and Other Financial Institutions” in 1990. This committee should be strengthened with better legislations and the much needed funds.
2.2 ROLE OF CENTRAL BANK OF NIGERIAN (CBN) AND NIGERIA DEPOSIT INSURANCE COMMISSION (NDIC)
The subject of frauds in the financial system is of special concern to the monetary and supervisor authorities, particularly the CBN and NDIC. These government agencies are concerned about the safety of individual institution and the soundness of the banking system. Most especially, the NDIC is specifically charged with the responsibility of protecting debtors. The prudential regulations of the CBN/ NDIC to banks are also aimed at preventing and controlling frauds. For example the conditions in the prudential guidelines for licensed banks that all banks should review their credit portfolio quarterly would help early detection of any acts of fraud, forgeries and financial malpractices relating to loans and advances granted under suspicious circumstances.
In effect, examination recommendations emanating from the CBN or NDIC must be treated with seriousness by banks and must receive the backing of the board of directors, shareholders and management of the effected banks.
There is also the statutory requirement for banks and other financial institutions to employ external auditors to check their books and affairs. For banks not to exercise undue influence on external auditors, their appointment and termination is subject to the approval of the CBN.
2.3 ROLE OF BRANCH MANAGEMENT
The branch’s ability to prevent or detect and control fraud depends essentially on the quality of personnel assigned to it by head office and the effectiveness of internal control in place. The usual measures which ensure timely detection and control of fraud may be categorized as:
A. Personnel control: proper recruitment procedures – (screening, referees, sworn declaration, certificates,
Photographs, permanent home address etc).
B. Administrative control: (a) segregation of duties (b) dual custody (c) security personnel (d) security devices e.g. Test key, Regiscope, cameras (e) franking machines.
C. Accounting control: e.g. (a) Data validation, (b) Prompt posting of transaction ,(c) Balancing, (d) reconciliation, (e) Variance analysis, (f) Review and statistics, (g ) Budgeting , standards and protections, (iv) Financial control :e.g. (a) cash limits (b)signing powers (c) specialized stationer (e.g. certified cheques, bankers payment coupons ).
The control of fraud at branch level must focus on means of payments (i.e. bankers payments, inter branch transfers) and accounts (i.e. bank’s ledger, impersonal accounts, customers account)
REFERENCES
Alashi, S.O (1994) “ fraud prevention and control , the Role of Government
and Agents “Nigeria institute of bankers Lagos Vol .30 no 4 pill -15
Bank Administration Institute (1989) “ fraud prevention and Detection
“(first national bank of Chicago)
Drover, C.B and Bosley R .W.B (1975) Sheldon’s practices * law of banking,
Macdonald & Evans 10th Ed.
Eke chi , A.O (1990) ,“ Frauds And Forgeries in banks : causes
types and prevention ,” seminar paper presented a the national seminar
in bank audit organized by ICAN in Lagos
Leslie, R .h. (1974) “auditing “Macdonald & Evans, forth Ed
N.D.L.C. (1992) Annual Report
Nduka.J. (1993) “internal control system: design and Implementation,”
a paper presented at FITC Course Effective Bank Inspection
Sandra, B.A (1994) “understanding of fraud in Banks, financial And Administrative
System,” Being A paper presented AT A workshop Organized by Michael
Stevens and Associates, Lagos.
CONLUSION
In view of the craze for money in Nigeria, misplaced value judgment and the prevailing harsh economic environment, big time frauds are on the increase and banks are losing amounts running into millions of naira to fraudster everyday. The starting point is remorse and the danger for us is denial and the refusal to admit our weaknesses. Our inordinate quest for wealth and material things. Michael J. Comer lamented that many frauds succeed because some people would rather be fooled than be thought to be distrustful .It is important to stress the need for all financial institutions to comply with statutory requirements of rendering returns for effectiveness of all the policy measures which the government , monetary and supervisory authorities might design to curb the menace . The prevention, detection and control of frauds should be a collaborative effort of banks, their customers, the public and the government including relevant agencies. Frauds in the financial system should as much as possible be minimized as it kills the institutions and destroys the economy of our nation. All hands must therefore be on deck to detect prevent and control frauds in our financial system. We are called here to live a life of dedication and consecration. Our old life and nature have got to die and a new one be birthed after reading through this article.
Monday, January 26, 2009
FRAUD IN NIGERIAN BANKS AND ITS IMPACT ON BANKS AND THE NIGERIAN ECONOMY.VOLUME 1
INTRODUCTION
The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three year old child talks about yahoo mail or 419, newly discovered sobriquet for advanced free fraud that is hunting us as a nation. Nigeria, with all of its natural and human resources, tethers on the brink of destruction because of fraud. Much of what we do is “cutting leaves” instead of dealing with the root problem. Generally, fraud take it roots from the human heart. It is an axiom that the heart is deceitful above all things and is desperately wicked.
Fraud is the number one enemy of the business world, no company is immune to it and it is in all works of life, Nwankwo (1991). The fear is now rife that the increasing wave of fraud in the financial institutions in recent years, if not arrested might pose certain threats to stability and the survival of individual financial institution and the performance of the industry as a whole and no area of the economy is immune from fraudsters and even the banking system. Fraud if not checked might cause run on in the banking sector.
The purpose of this work is to inculcate and instill the spirit of accountability, leadership, responsibility and probity in the reader(s), practicing bankers and potential bankers who will occupy managerial post tomorrow; expose the effect it has on the Nigerian economy and to discuss the effort of government and its agencies in the prevention and control of fraud . To be able to do so, this paper has been divided into volumes: the first volume examines the overall component of fraud, the second volume attempts to highlight the role of government and other agencies in fraud detection, prevention and control and finally the conclusion.
OVERVIEW OF FRAUD
Fraud is a complex universal phenomenon. It is rampant in both developed and developing countries and varies across time and places in its magnitude, its sources, the way it manifests itself and in its effects on administrative performance and development. Political, economic, social, cultural and attitudinal factors combine in contributing to its incidence.
1.1 DEFINITION OF FRAUD
Olufidipe (1994) defined fraud as “Deceit or trickery deliberately practiced in other to gain some advantage dishonesty.’’
Fraud means an act of dishonesty, deceit and imposture Alashi, (1994)
According to Kirkpatrick (1985), “a person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler.
By extension fraud will include embezzlement, theft or any attempt to steal or unlawful obtain, misuse or harm the assets of bank (Bank Administration Institute, 1989).
1.2 DIMENSIONS OF FRAUD
Going by the definitions, frauds in the Nigeria economy cannot be restricted to be banks alone. Frauds do take different dimensions which amongst others include the following:
A. Cheating by market women/men or scale measurements etc
B. Failure to pay correct import/export duties/tax evasion.
C. Over invoicing/inflating contracts.
D. Payment for services not rendered.
E. Stealing and other 419 activities.
F. Political fraud etc.
1.3 CAUSES OF FRAUD
Causes of fraud include the following amongst orders:
A. General Lust for Affluence: it is a matter of fact that the Nigerian society in the last twenty years or there-about has become one where most people want to be rich overnight by whatever means and this has been responsible for the increase in the number of bank fraud and other forms of frauds.
B. Recognition Being Accorded Wealthy People Regardless of the Source(s) of Their Wealth: the manner in which we recognize wealthy people in our various communities, churches and mosques without considering the source(s) of their wealth has even made the matter worse .Young and talented men and women engage in drug trafficking and in committing frauds because our society do not only condone these but also encourage them by singing songs of praise in their honor, making them chairmen at functions, naming halls in universities, street and highway after them even floating non governmental organizations in their names. Our national awards like CON, MFR, GCRN, and MON just to mention but a few are some times wrongly awarded to those who defrauded Nigerian banks.
B. General Belief That the Economy (banks and other financial institutions) Can Sustain Any Amount of loss: the attack on the nation’s treasury and banks by fraudsters is partly due to the belief by many Nigerians that the banking sector is the most profitable sector of the economy and that the nation’s wealth is inexhaustible and sometimes the see it as part of the national cake. Anybody with a little knowledge of Economics or Finance should know that banks are trading on equity which means they are using other peoples’ money to make money and depositors’ monies are not theirs. The can only sustain themselves by making profit after all banking business is all about risk.
1.4 BANK FRAUD AND ITS CAUSES
Frauds in the banks are not new they are as old as the industry itself. Bank fraud can be defined as a conscious or deliberate effort aimed at obtaining unlawful financial advantage at the detriment of another person who is the rightful owner of the fund. Orjih, (1998).
1.5 CAUSES OF BANK FRAUD
Alashi (1994) grouped the major causes of the bank fraud into two. These are institutional factors and environmental factors. Institutional factors are those traceable to the internal environment of the financial institution while the environmental factors are those which result from the influence of the environment on the banking industry.
INSTITUTIONAL CAUSES OF FRAUD
Various authors and professionals in the industry seem to be unanimous in their identification of institutional causes of fraud. These are as follows:
A. Volume of work: the amount of work done by official(s) could be so heavy that frauds could easily pass undetected by such official(s).
B. Nature of Services: fraud may be caused where documents of value and liquid assets are exposed to an undisciplined staff or unauthorized person(s) for example customer(s)
C. Banking Experience of staff: frauds in banks occur with higher frequency among staff with little experience and knowledge in financial practice. The more experience and knowledge of a staff, the less likelihood that frauds would pass such staff undetected unless with active support of that staff.
D. Number of staff: where a senior official supervises quite a large number of staff, there is a high likelihood that fraud could go undetected.
E. Poor Management: banks with poor management record high incidence of all sorts of frauds than those with effective and efficient management team with unsullied character.
F. Poor Security Arrangement: banks where security arrangement for valuable documents are weak, poor and vulnerable, it is easy for fraudsters to have their ways undetected. Nigerian banks use bullion vans for conveying huge sums of money. The heavy reliance on cash has made banking a nightmare for many Nigerians. Efforts should be made to make Nigeria a cashless society.
G. Inadequate Infrastructure: Poor communication systems, and power failure result to backlog of unbalanced postings, congested office space etc, encourage the perpetration of fraud in banks.
H. Delays in procuring Document: Delays create opportunities for hatching in bank and other financial institutions thus making prevention and detection difficult
.
ENVIRONMENTAL/SOCIETAL CAUSES OF FRAUD:
These have been identified as follows:
A. Personality Profile of Dramatize Personae; most individuals with inordinate ambitions without qualm are prone to committing frauds. These kinds of individuals bent on making money by hook or crook and to them the end justifies the means.
B. Societal Value: when the possession of wealth determines the reputation ascribed to a person, that society is bound to witness unnecessary competition for acquisition of wealth.
C. Lack of Effective Deterrent/Punishment: this is a moot point because it is argued in some quarters that lack of effective deterrent such as heavy punishment could be a factor that contributes to the high perpetration of frauds in financial institutions.
D. Fear of Negative Publicity: many financial institutions fail to report fraud cases to the authorities. They believe that doing so will give unnecessary negative publicity to their institutions. This is not only a chance for fraudsters to thrive; it is great challenge to a researcher as regards to data collection.
E. Unemployment and High level of Poverty in Nigeria: Nigeria is one of the riches economies in the Sub Saharan Africa and indeed the world both in human and natural resources (oil) but 80% of the Nigeria youths especially university graduates are unemployed. Most of the politicians squirrel away the looted funds in foreign banks without been punished. This causes capital flight, unemployment, dearth in infrastructure which is not particularly good for a developing country like Nigeria. Directly or indirectly some Nigeria youths especially those with little ICT knowledge with special reference to those that find themselves in the banking industry with criminal intent engage in one bank fraud or the other in order to eradicate poverty. Most of them have some of their family members that depend on them for what to eat, drink or even put in their pockets.
All these make fraudsters to have the feeling that they are above the law and as such can get away with ill-gotten wealth unpunished.
1.6 NATURE AND TYPES OF BANK FRAUD
Frauds in financial institutions vary widely in nature, character and method of perpetration. In general, it may be classified in two ways: (i) Perpetrators (ii) Methods used.
On the basis of perpetrators, there are three broad categories: internal, external and mixed. Internal perpetrators of frauds are related to those committed by members of staff (insiders). External perpetrators are those committed by non-staff while mixed fraud involved outsiders colluding with staff (insiders).
The most important and common types of fraud highlighted by Bank Administration institute (1989) in fraud prevention and detection series are discussed below:
A. Advance fee fraud (“419’’). This involves an gent approaching a bank, a company or an individual with an offer to access large funds at below market interest rates often for long term. The purported source of such funds is not specifically identified as the only way to have access to it is through the agent who must receive a fee or commission “in advance”.
B. Cheque Kiting: kiting is defined by the US comptroller of the currency’s policy. Guidelines for National Bank Directors as “method whereby a depositor utilizes the time required for cheque to clear to obtain an unauthorized loan without interest charge.”
C. Account-Opening Fraud: this usually starts when a person not known to the bank asks to open a transaction account with false identification but unknown to the bank. Such a person might use the account for illegal transaction and close the account within a short period.
D. Money Transfer Fraud: Fraudulent money transfer may result from a request created solely for the purpose of committing a fraud or the alteration of a genuine funds transfer request. A genuine request can be altered by changing the beneficiary’s name or Account number or changing the amount of the transfer. These day “yahoo boys” the name giving to scammers in Nigeria that send fake e-mails to would be victims asking them to apply for fake contracts or fake lottery thereby winning non-existing money from a dead billionaire’s account in different parts of the world. They connive with fraudulent bankers in the Western Union department to withdraw their ill-gotten hard currencies or without the knowledge of the bank as regards to the authenticity of the beneficiary.
E. Telex Fraud: Transfer of funds from one location to another can be affected through the telex. The message though often coded can be altered to enable diversion of the funds to an account not originally intended.
F. Money laundering Fraud: this is a means to conceal the existence, source or use of illegally-obtained money by converting the cash into untraceable transaction in a bank. The cash is disguised to make the income appear legitimate.
G. Computer Fraud: computer frauds can take the form of corrupting the program(s) and even breaking into the system via a remote sensor by a computer programmer or specialist .Diskettes can also be tampered with to gain access to unauthorized areas or even give credit to an account for which funds where not originally intended.
H. Loans Frauds: Loan fraud occurs when credit is extended to non-borrowing customers or to borrowing customer who had exceeded his credit ceiling. The fraudulent aspect of this class is that there is intent to conceal it from the head office (inspectorate) staff on routine check to deceive them with plausible but falsified statements, documents etc. That is to say a credit facility for a customer “A” yet to be drawn is diverted for the use of customer “B”. Other types of bank frauds include counterfeited securities, clearing fraud, letters of credit fraud, forging of banks Rubber stamps, substitution of names in credit vouchers, over stating interest charges, manipulation of dormant accounts and unauthorized printing of bank stationeries and cheque fraud etc.
1.7 EXTENT OF FRAUD IN BANKS
Bank fraud in Nigeria has increased and will continue to increase because it is a part of everyday life. “The magnitude of fraud is, of course, not known because much of it is undiscovered or undetected and not all that is detected is published” Nwankwo (1991). In Nigeria, where the statistics are non- existent, it is put at about -N-200 Million per annum of which about 15%- 20% would be successful. It is appropriate to have a feel of the extent of loss through bank frauds in Nigeria in order to appreciate the havoc the cankerworm has been wrecking on the economy.
The sum of =N= 2.2 billion Was involved in banks fraud in 3 year, 1991 – 1993 , out of which commercial banks accounted for about 94.1 per cent ( see table) the actual/expected loss to the
banking system within the same period totaled about #0 .3 Billion with commercial banks accounting for about 95.7 per cent thereof .
In 1998, the nation’s banking industry lost #3.196 Billion while in 1999; it lost a whopping sum of #7.404 Billion to fraud. Similarly, the actual/expected loss stood at a higher level of # 2.713 Billion relative to #623 50 Million in 1998 (NDIC Annual report and statement of account 1999).
Nigeria's banks have seen almost $10m disappear through employee fraud in 2002, a rise of more than 40% on the year before, a survey by the country's banking regulator has found. The total amount stolen was 1.29bn naira, up from 906.3m in 2001, the Nigerian Deposit Insurance Corporation reported. Ten times that amount #12.91bn was recorded in attempted fraud, up from 11.24bn for a rise of 15%. Most of the thefts, NDIC said, were the result of either forgeries or illegal withdrawals from customers' accounts.
The figures may well be an understatement, though; as NDIC said it believes financial institutions routinely underreport fraud losses for fear of negative publicity. In May 2003 Nigerian bank fraud moved up to 40%. The banking regulator says theft by bank employees soared last year, but suspects that much more fraud may go unreported.
It is not only Nigerian banks and citizens that are exposed to bank frauds. Such frauds are also focused on foreign banks and their citizens. Just how much has been stolen by such fraud is not clear. But BBC news-business says that US citizens lose in 2004 move than $100m (£63.4m) a year to Nigerian fraudsters. However, Nigerians do indeed involve themselves in genuinely legal businesses apart from the infamous banking scams.
TABLE 1
Fraud in Nigeria Commercial and Merchant Banks
Amount involved Actual / Expected loss
Year commercial Banks merchant banks commercial banks merchant
1991 360.194 28.318 25.498 1.180
1992 351.913 59.82 64.8 8.31
1993 1376.3 41.92 241.01 5.37
Total 2088.424 30.058 331.308 14.86
Source NDIC. Annual Reports (various issues)
TABLE 2
Number of Bank Staff Involved in Frauds
Ranks Number
1991 1992 1993
1. Supervisor and manager 66 132 127
2. Officers , Accountant & Executive Assistant 60 66 58
3. Clerks and Cashiers 236 156 192
4. Typist, Technicians & Stenographers 47 9 34
5. Messenger , Drivers, Cleaners and Stewards 51 54 61
6. Temporary staff 24 - 5
7. Unregistered staff 30 19 40
Total 514 436 517
>Staff whose status were not disclose
Source: NDIC Annual Report (Various issues)
1.8 IMPLICATION S OF FRAUD
A. DOWN TURN IN THE ECONOMY
For the past 18 years or so our economic development has witnessed a serious set-back with graduates roaming the streets in search of employment which are not available. Various government polices to revamp the economy though appear laudable were all frustrated at the implementation stage because some of the people responsible for implementing them are fraudulent. Both the political and economic situation declined from bad to worse with naira witnessing an unprecedented devaluation of 1,300% within five years. As at December 2008 and January 2009 the naira exchange rate with the stood between #149 to #150 per $1.Devil then found job as idle hands were meant to engage in one kind of fraud or the other while “419, cocaine pushing, billion naira bank frauds”, becoming regular features of our newspaper, Television and Radio headlines.
B. TERMINATION / RETIREMENT OF STAFF
As a result of this very serious economic crime, some staff in the industry have either been dismissed, or have their appointment terminated or prematurely retired. This means that some experienced hands in the sectors are lost due to their involvement in frauds and forgeries. During and after the consolidation exercise that took place in the Nigerian banking industry it was revealed by the central bank that some bank directors and senior managers of those banks that couldn’t meet up the #25 billion minimum capital base gave themselves unserviceable loans in hundreds of millions. The Nigerian Deposit Insurance Corporation is still in court with those involved in this unethical behavior. Our problem is that most of those involved these economic crimes are highly placed or senior politicians. We can’t know their names simply because of their positions in the country.
C. GLOBAL PERCEPTION. Nigeria has become synonymous with fraud as some of its citizens use the boom in internet fraud and corruption has become an unfortunate staple in Nigeria's international reputation. The country regularly features at the top of international surveys measuring the part played by graft in different economies. Successive dictatorships have extracted billions from the exchequer, denuding the public purse of revenues from Nigeria's rich oil reserves. Outside the country Nigeria has become synonymous with fraud as some of its citizens use internet and the boom in of cafes to send "spam" e-mails, promising millions in exchange for the gullible recipient's bank details. This makes it difficult for genuine business men from Nigeria to go into international business with foreigners or secure credit overseas.
REFERENCES
Anyanwu, J.C, (1993), Monetary Economics: Theory, Policy And
Institutions. Onitsha, Nigeria. Hybrid publishers ltd.
Bank Administration Institute (1989), “Fraud prevention and Detection
Series” First Chicago (the First National Bank of Chicago).
Kirkpatrick, E.M, (Ed) (1985) “Chambers Universal Learners’ Dictionary”,
Ibadan Nigeria spectrum book Ltd.
Michael, J C, (1995)”, (Corporate fraud” UK, Mc- Graw Hill Books co.
NDIC, (1992) Annual Report.
, (1998) Annual Report.
Nwankwo, G.O, (19991) Bank management” principles and practice Lagos
Malthouse press Ltd, Lagos Nigeria.
Nzotta, S.M, (1999) Money, banking & Finance: Theory and practice
Owerri Nigeria Intercontinental Educational Books & Publishers 1St Ed.
Olufidipe, E.O, (1994), “Fraud in Nigeria and its Implication for Bank &Financial Institutions”
Nigeria Institute of bankers Lagos July- Decembers Vol. 30 NO. 4pp7-10.
Orjih. J, (1998) Elements of Banking, Enugu Nigeria Communications Publishers.
Shongotla, I.O, (1994) “Fraud Detection and control” Nigeria institute of
Bankers Lagos July- December VOi.30, NO.4 PP16-19.
www.bbcnews.com ⁄business
The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three year old child talks about yahoo mail or 419, newly discovered sobriquet for advanced free fraud that is hunting us as a nation. Nigeria, with all of its natural and human resources, tethers on the brink of destruction because of fraud. Much of what we do is “cutting leaves” instead of dealing with the root problem. Generally, fraud take it roots from the human heart. It is an axiom that the heart is deceitful above all things and is desperately wicked.
Fraud is the number one enemy of the business world, no company is immune to it and it is in all works of life, Nwankwo (1991). The fear is now rife that the increasing wave of fraud in the financial institutions in recent years, if not arrested might pose certain threats to stability and the survival of individual financial institution and the performance of the industry as a whole and no area of the economy is immune from fraudsters and even the banking system. Fraud if not checked might cause run on in the banking sector.
The purpose of this work is to inculcate and instill the spirit of accountability, leadership, responsibility and probity in the reader(s), practicing bankers and potential bankers who will occupy managerial post tomorrow; expose the effect it has on the Nigerian economy and to discuss the effort of government and its agencies in the prevention and control of fraud . To be able to do so, this paper has been divided into volumes: the first volume examines the overall component of fraud, the second volume attempts to highlight the role of government and other agencies in fraud detection, prevention and control and finally the conclusion.
OVERVIEW OF FRAUD
Fraud is a complex universal phenomenon. It is rampant in both developed and developing countries and varies across time and places in its magnitude, its sources, the way it manifests itself and in its effects on administrative performance and development. Political, economic, social, cultural and attitudinal factors combine in contributing to its incidence.
1.1 DEFINITION OF FRAUD
Olufidipe (1994) defined fraud as “Deceit or trickery deliberately practiced in other to gain some advantage dishonesty.’’
Fraud means an act of dishonesty, deceit and imposture Alashi, (1994)
According to Kirkpatrick (1985), “a person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler.
By extension fraud will include embezzlement, theft or any attempt to steal or unlawful obtain, misuse or harm the assets of bank (Bank Administration Institute, 1989).
1.2 DIMENSIONS OF FRAUD
Going by the definitions, frauds in the Nigeria economy cannot be restricted to be banks alone. Frauds do take different dimensions which amongst others include the following:
A. Cheating by market women/men or scale measurements etc
B. Failure to pay correct import/export duties/tax evasion.
C. Over invoicing/inflating contracts.
D. Payment for services not rendered.
E. Stealing and other 419 activities.
F. Political fraud etc.
1.3 CAUSES OF FRAUD
Causes of fraud include the following amongst orders:
A. General Lust for Affluence: it is a matter of fact that the Nigerian society in the last twenty years or there-about has become one where most people want to be rich overnight by whatever means and this has been responsible for the increase in the number of bank fraud and other forms of frauds.
B. Recognition Being Accorded Wealthy People Regardless of the Source(s) of Their Wealth: the manner in which we recognize wealthy people in our various communities, churches and mosques without considering the source(s) of their wealth has even made the matter worse .Young and talented men and women engage in drug trafficking and in committing frauds because our society do not only condone these but also encourage them by singing songs of praise in their honor, making them chairmen at functions, naming halls in universities, street and highway after them even floating non governmental organizations in their names. Our national awards like CON, MFR, GCRN, and MON just to mention but a few are some times wrongly awarded to those who defrauded Nigerian banks.
B. General Belief That the Economy (banks and other financial institutions) Can Sustain Any Amount of loss: the attack on the nation’s treasury and banks by fraudsters is partly due to the belief by many Nigerians that the banking sector is the most profitable sector of the economy and that the nation’s wealth is inexhaustible and sometimes the see it as part of the national cake. Anybody with a little knowledge of Economics or Finance should know that banks are trading on equity which means they are using other peoples’ money to make money and depositors’ monies are not theirs. The can only sustain themselves by making profit after all banking business is all about risk.
1.4 BANK FRAUD AND ITS CAUSES
Frauds in the banks are not new they are as old as the industry itself. Bank fraud can be defined as a conscious or deliberate effort aimed at obtaining unlawful financial advantage at the detriment of another person who is the rightful owner of the fund. Orjih, (1998).
1.5 CAUSES OF BANK FRAUD
Alashi (1994) grouped the major causes of the bank fraud into two. These are institutional factors and environmental factors. Institutional factors are those traceable to the internal environment of the financial institution while the environmental factors are those which result from the influence of the environment on the banking industry.
INSTITUTIONAL CAUSES OF FRAUD
Various authors and professionals in the industry seem to be unanimous in their identification of institutional causes of fraud. These are as follows:
A. Volume of work: the amount of work done by official(s) could be so heavy that frauds could easily pass undetected by such official(s).
B. Nature of Services: fraud may be caused where documents of value and liquid assets are exposed to an undisciplined staff or unauthorized person(s) for example customer(s)
C. Banking Experience of staff: frauds in banks occur with higher frequency among staff with little experience and knowledge in financial practice. The more experience and knowledge of a staff, the less likelihood that frauds would pass such staff undetected unless with active support of that staff.
D. Number of staff: where a senior official supervises quite a large number of staff, there is a high likelihood that fraud could go undetected.
E. Poor Management: banks with poor management record high incidence of all sorts of frauds than those with effective and efficient management team with unsullied character.
F. Poor Security Arrangement: banks where security arrangement for valuable documents are weak, poor and vulnerable, it is easy for fraudsters to have their ways undetected. Nigerian banks use bullion vans for conveying huge sums of money. The heavy reliance on cash has made banking a nightmare for many Nigerians. Efforts should be made to make Nigeria a cashless society.
G. Inadequate Infrastructure: Poor communication systems, and power failure result to backlog of unbalanced postings, congested office space etc, encourage the perpetration of fraud in banks.
H. Delays in procuring Document: Delays create opportunities for hatching in bank and other financial institutions thus making prevention and detection difficult
.
ENVIRONMENTAL/SOCIETAL CAUSES OF FRAUD:
These have been identified as follows:
A. Personality Profile of Dramatize Personae; most individuals with inordinate ambitions without qualm are prone to committing frauds. These kinds of individuals bent on making money by hook or crook and to them the end justifies the means.
B. Societal Value: when the possession of wealth determines the reputation ascribed to a person, that society is bound to witness unnecessary competition for acquisition of wealth.
C. Lack of Effective Deterrent/Punishment: this is a moot point because it is argued in some quarters that lack of effective deterrent such as heavy punishment could be a factor that contributes to the high perpetration of frauds in financial institutions.
D. Fear of Negative Publicity: many financial institutions fail to report fraud cases to the authorities. They believe that doing so will give unnecessary negative publicity to their institutions. This is not only a chance for fraudsters to thrive; it is great challenge to a researcher as regards to data collection.
E. Unemployment and High level of Poverty in Nigeria: Nigeria is one of the riches economies in the Sub Saharan Africa and indeed the world both in human and natural resources (oil) but 80% of the Nigeria youths especially university graduates are unemployed. Most of the politicians squirrel away the looted funds in foreign banks without been punished. This causes capital flight, unemployment, dearth in infrastructure which is not particularly good for a developing country like Nigeria. Directly or indirectly some Nigeria youths especially those with little ICT knowledge with special reference to those that find themselves in the banking industry with criminal intent engage in one bank fraud or the other in order to eradicate poverty. Most of them have some of their family members that depend on them for what to eat, drink or even put in their pockets.
All these make fraudsters to have the feeling that they are above the law and as such can get away with ill-gotten wealth unpunished.
1.6 NATURE AND TYPES OF BANK FRAUD
Frauds in financial institutions vary widely in nature, character and method of perpetration. In general, it may be classified in two ways: (i) Perpetrators (ii) Methods used.
On the basis of perpetrators, there are three broad categories: internal, external and mixed. Internal perpetrators of frauds are related to those committed by members of staff (insiders). External perpetrators are those committed by non-staff while mixed fraud involved outsiders colluding with staff (insiders).
The most important and common types of fraud highlighted by Bank Administration institute (1989) in fraud prevention and detection series are discussed below:
A. Advance fee fraud (“419’’). This involves an gent approaching a bank, a company or an individual with an offer to access large funds at below market interest rates often for long term. The purported source of such funds is not specifically identified as the only way to have access to it is through the agent who must receive a fee or commission “in advance”.
B. Cheque Kiting: kiting is defined by the US comptroller of the currency’s policy. Guidelines for National Bank Directors as “method whereby a depositor utilizes the time required for cheque to clear to obtain an unauthorized loan without interest charge.”
C. Account-Opening Fraud: this usually starts when a person not known to the bank asks to open a transaction account with false identification but unknown to the bank. Such a person might use the account for illegal transaction and close the account within a short period.
D. Money Transfer Fraud: Fraudulent money transfer may result from a request created solely for the purpose of committing a fraud or the alteration of a genuine funds transfer request. A genuine request can be altered by changing the beneficiary’s name or Account number or changing the amount of the transfer. These day “yahoo boys” the name giving to scammers in Nigeria that send fake e-mails to would be victims asking them to apply for fake contracts or fake lottery thereby winning non-existing money from a dead billionaire’s account in different parts of the world. They connive with fraudulent bankers in the Western Union department to withdraw their ill-gotten hard currencies or without the knowledge of the bank as regards to the authenticity of the beneficiary.
E. Telex Fraud: Transfer of funds from one location to another can be affected through the telex. The message though often coded can be altered to enable diversion of the funds to an account not originally intended.
F. Money laundering Fraud: this is a means to conceal the existence, source or use of illegally-obtained money by converting the cash into untraceable transaction in a bank. The cash is disguised to make the income appear legitimate.
G. Computer Fraud: computer frauds can take the form of corrupting the program(s) and even breaking into the system via a remote sensor by a computer programmer or specialist .Diskettes can also be tampered with to gain access to unauthorized areas or even give credit to an account for which funds where not originally intended.
H. Loans Frauds: Loan fraud occurs when credit is extended to non-borrowing customers or to borrowing customer who had exceeded his credit ceiling. The fraudulent aspect of this class is that there is intent to conceal it from the head office (inspectorate) staff on routine check to deceive them with plausible but falsified statements, documents etc. That is to say a credit facility for a customer “A” yet to be drawn is diverted for the use of customer “B”. Other types of bank frauds include counterfeited securities, clearing fraud, letters of credit fraud, forging of banks Rubber stamps, substitution of names in credit vouchers, over stating interest charges, manipulation of dormant accounts and unauthorized printing of bank stationeries and cheque fraud etc.
1.7 EXTENT OF FRAUD IN BANKS
Bank fraud in Nigeria has increased and will continue to increase because it is a part of everyday life. “The magnitude of fraud is, of course, not known because much of it is undiscovered or undetected and not all that is detected is published” Nwankwo (1991). In Nigeria, where the statistics are non- existent, it is put at about -N-200 Million per annum of which about 15%- 20% would be successful. It is appropriate to have a feel of the extent of loss through bank frauds in Nigeria in order to appreciate the havoc the cankerworm has been wrecking on the economy.
The sum of =N= 2.2 billion Was involved in banks fraud in 3 year, 1991 – 1993 , out of which commercial banks accounted for about 94.1 per cent ( see table) the actual/expected loss to the
banking system within the same period totaled about #0 .3 Billion with commercial banks accounting for about 95.7 per cent thereof .
In 1998, the nation’s banking industry lost #3.196 Billion while in 1999; it lost a whopping sum of #7.404 Billion to fraud. Similarly, the actual/expected loss stood at a higher level of # 2.713 Billion relative to #623 50 Million in 1998 (NDIC Annual report and statement of account 1999).
Nigeria's banks have seen almost $10m disappear through employee fraud in 2002, a rise of more than 40% on the year before, a survey by the country's banking regulator has found. The total amount stolen was 1.29bn naira, up from 906.3m in 2001, the Nigerian Deposit Insurance Corporation reported. Ten times that amount #12.91bn was recorded in attempted fraud, up from 11.24bn for a rise of 15%. Most of the thefts, NDIC said, were the result of either forgeries or illegal withdrawals from customers' accounts.
The figures may well be an understatement, though; as NDIC said it believes financial institutions routinely underreport fraud losses for fear of negative publicity. In May 2003 Nigerian bank fraud moved up to 40%. The banking regulator says theft by bank employees soared last year, but suspects that much more fraud may go unreported.
It is not only Nigerian banks and citizens that are exposed to bank frauds. Such frauds are also focused on foreign banks and their citizens. Just how much has been stolen by such fraud is not clear. But BBC news-business says that US citizens lose in 2004 move than $100m (£63.4m) a year to Nigerian fraudsters. However, Nigerians do indeed involve themselves in genuinely legal businesses apart from the infamous banking scams.
TABLE 1
Fraud in Nigeria Commercial and Merchant Banks
Amount involved Actual / Expected loss
Year commercial Banks merchant banks commercial banks merchant
1991 360.194 28.318 25.498 1.180
1992 351.913 59.82 64.8 8.31
1993 1376.3 41.92 241.01 5.37
Total 2088.424 30.058 331.308 14.86
Source NDIC. Annual Reports (various issues)
TABLE 2
Number of Bank Staff Involved in Frauds
Ranks Number
1991 1992 1993
1. Supervisor and manager 66 132 127
2. Officers , Accountant & Executive Assistant 60 66 58
3. Clerks and Cashiers 236 156 192
4. Typist, Technicians & Stenographers 47 9 34
5. Messenger , Drivers, Cleaners and Stewards 51 54 61
6. Temporary staff 24 - 5
7. Unregistered staff 30 19 40
Total 514 436 517
>Staff whose status were not disclose
Source: NDIC Annual Report (Various issues)
1.8 IMPLICATION S OF FRAUD
A. DOWN TURN IN THE ECONOMY
For the past 18 years or so our economic development has witnessed a serious set-back with graduates roaming the streets in search of employment which are not available. Various government polices to revamp the economy though appear laudable were all frustrated at the implementation stage because some of the people responsible for implementing them are fraudulent. Both the political and economic situation declined from bad to worse with naira witnessing an unprecedented devaluation of 1,300% within five years. As at December 2008 and January 2009 the naira exchange rate with the stood between #149 to #150 per $1.Devil then found job as idle hands were meant to engage in one kind of fraud or the other while “419, cocaine pushing, billion naira bank frauds”, becoming regular features of our newspaper, Television and Radio headlines.
B. TERMINATION / RETIREMENT OF STAFF
As a result of this very serious economic crime, some staff in the industry have either been dismissed, or have their appointment terminated or prematurely retired. This means that some experienced hands in the sectors are lost due to their involvement in frauds and forgeries. During and after the consolidation exercise that took place in the Nigerian banking industry it was revealed by the central bank that some bank directors and senior managers of those banks that couldn’t meet up the #25 billion minimum capital base gave themselves unserviceable loans in hundreds of millions. The Nigerian Deposit Insurance Corporation is still in court with those involved in this unethical behavior. Our problem is that most of those involved these economic crimes are highly placed or senior politicians. We can’t know their names simply because of their positions in the country.
C. GLOBAL PERCEPTION. Nigeria has become synonymous with fraud as some of its citizens use the boom in internet fraud and corruption has become an unfortunate staple in Nigeria's international reputation. The country regularly features at the top of international surveys measuring the part played by graft in different economies. Successive dictatorships have extracted billions from the exchequer, denuding the public purse of revenues from Nigeria's rich oil reserves. Outside the country Nigeria has become synonymous with fraud as some of its citizens use internet and the boom in of cafes to send "spam" e-mails, promising millions in exchange for the gullible recipient's bank details. This makes it difficult for genuine business men from Nigeria to go into international business with foreigners or secure credit overseas.
REFERENCES
Anyanwu, J.C, (1993), Monetary Economics: Theory, Policy And
Institutions. Onitsha, Nigeria. Hybrid publishers ltd.
Bank Administration Institute (1989), “Fraud prevention and Detection
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Kirkpatrick, E.M, (Ed) (1985) “Chambers Universal Learners’ Dictionary”,
Ibadan Nigeria spectrum book Ltd.
Michael, J C, (1995)”, (Corporate fraud” UK, Mc- Graw Hill Books co.
NDIC, (1992) Annual Report.
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Nwankwo, G.O, (19991) Bank management” principles and practice Lagos
Malthouse press Ltd, Lagos Nigeria.
Nzotta, S.M, (1999) Money, banking & Finance: Theory and practice
Owerri Nigeria Intercontinental Educational Books & Publishers 1St Ed.
Olufidipe, E.O, (1994), “Fraud in Nigeria and its Implication for Bank &Financial Institutions”
Nigeria Institute of bankers Lagos July- Decembers Vol. 30 NO. 4pp7-10.
Orjih. J, (1998) Elements of Banking, Enugu Nigeria Communications Publishers.
Shongotla, I.O, (1994) “Fraud Detection and control” Nigeria institute of
Bankers Lagos July- December VOi.30, NO.4 PP16-19.
www.bbcnews.com ⁄business
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