CHAPTER ONE

INTRODUCTION

1.1 Background Of The Study

The issue of fraud in the Banking Industry in Cameroon in particular and the world, in general, is receiving more attention now than ever before. This is due to its effects in eroding customer’s confidence. Also, it is because of the frequency and the amount involved which have a serious impact on the profitability of banks in question.

Indeed, fraud which has been a feature of Cameroon society today is endemic to the business system in general. Commercial banks being part of the financial system which is the fulcrum on which any economy revolves need to be given adequate attention in terms of identifying and curbing fraud.

The trend of commercial bank fraud started on a small scale and has since increased in geometric progression. Generally, fraud is practiced in every organization in the country coupled with a lot of bribery and corruption but however, there is nowhere in the national order where these socio-economic symptoms are more pronounced and all-pervading than in the banking sector, a sector that was initially considered as the palladium of the “new lease of life”.

This hydra-headed phenomenon -fraud, is of infinite variety and the definitions are as well many. According to the Oxford English Dictionary, Fraud is criminal deception; the using of false representation to obtain an unjust advantage or to injure the rights and interests of another. From a legal perspective, Fraud is defined as “an intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right.

In spite of the numerous definitions of fraud, the researcher is inclined to believe that the foregoing definitions are appropriate, adequate, and reinforcing for the purpose of this study as they contain the rudiments of fraud, namely that: There must be deceit or deception directed to the detriment of another; A false representation has been made knowingly without belief in its truth or recklessly careless whether it is true or false;

Fraud takes place in various forms, degrees, techniques,s, and sophistication. The action usually takes the form of forgery which is the falsification of documents and authorizing signatures and out-rights theft. It has to be noted that a fraudulent act without damage or damage without a fraudulent act is not actionable. But fraud is actionable if it leads to any form of damage, which entails one gaining at the expense of another.

Given the above scenario, it is the desire of the Government, regulatory authorities, stakeholders, management, and other operators in the economy to see that fraud is checked if not totally curbed from the banking system. It can be seen that a well-designed, meticulously installed, and resolutely operated management control system (or internal control system) will inevitably check, if not eliminate the occurrence of fraud from our commercial banking system.

According to the Auditing Standards and Guidelines, internal control system is the whole system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible, the completeness and accuracy of the records. The individual components of an internal control system are known as ‘controls’ or ‘internal controls’. These controls include; establishment of dual systems, the limit of authority, and monitoring activities in certain areas among others.

However, there are several weaknesses of the internal control system which include; inefficient entering of payroll time data, division of payroll processes, and lack of payroll preview, and lack of systematic internal audits. The continued existence of commercial banks rests delicately on the maintenance of public confidence.

This calls for the establishment of an effective system of internal control, which among other things, will help to ensure that the organization’s accounting activities are in accordance with the laid down procedures, standards, and statutory requirements.

In conclusion, therefore, fraud as a common phenomenon in our commercial banking system has perpetrated an agonizing influence resulting in bad faith, loss of confidence, and trust in our commercial banks by customers. It should be noted that banks as custodians of public/people’s funds should be built on trust and not on fraud.

1.2 Statement Of The Problem

There are many statutory laws dealing with frauds and financial malpractices in banks. It is within the limits of these statutory laws and other policy measures that banks have operated, and frauds ought to be checked, or curbed from the banking system.

But the big question that arises is, “how effective and to what extent have this myriad of legislation, of other prevention and detection measures gone in checking the incidence of fraud in commercial banks?” In this regard, various views have been expressed by different interest groups and individuals. These include lack of willpower on the part of the Government to effectively implement the various laws and policy measures, poor supervision by the regulatory Authorities occasioned by ill-equipped and inadequate manpower resulting in a prolonged process of litigation; none complacent attitude on the part of the police and other law enforcement agencies to undertake quick, in-depth and adequate investigation due to lack of motivation, equipment and to some degree, expertise.

The aforementioned could be seen as control weaknesses and it can be seen that due to these weaknesses, the above-stated statutory laws and policy measures cannot be said to have absolutely eliminated frauds in the commercial banks in Buea. Fraud, therefore, is obviously not good for any commercial bank. It has several causes but this study intends to show how weaknesses in the cash and payroll internal control system can perpetrate fraud in these commercial banks

1.3 Research Questions

1. What are the internal control weaknesses in cash management in commercial banks in Buea?
2. How do such weaknesses perpetuate bank fraud?

1.4 Objectives Of The Study

The main objective of this study is to analyze how internal control weaknesses can perpetrate fraud in commercial banks in Buea. The specific objectives are;

1. To analyze internal control weaknesses in cash management
2. To examine how such weaknesses, perpetrate fraud

1.5 Statement Of Hypothesis

H1: A strong internal control system substantially averts bank fraud in commercial banks in Buea.