Chapter one

Introduction

• Background of the study

Fraud is a `cankerworm’ that has eaten deep into the nation’s fabrics. It is visible in all the sectors of the economy. In the financial sector, fraud is an `offshoot’ of financial crimes which covers offences, which are securities, related and involves the movement, transfer or use of monetary instruments in circumstances, which render such acts unlawful. The above definition can be extended to include any dishonest, unethical or unprofessional conduct which results in financial loss to someone or institution for the benefit of another. Financial fraud include but are not limited to the following, cheque-kiting, loan fraud, advance fee frauds securities frauds, account opening frauds, inconsiderately clearing frauds, computer-frauds, telex fraud and money laundering.

Fraud as stated earlier is not peculiar to the banking industry but cuts across other sectors of the economy. Frauds in banks are not new, in fact, it is as old as the industry itself. But in recent times, the practice has assumed an alarming proportion. Sometimes, the act is carried out by outsiders while in most cases there is a collaborated effort between outsiders and staff to perpetrate this financial crime.

Furthermore, fraud and corruption in today’s banks certainly constitutes one of the most serious threats to the practices and spread of bank in Pakistan. It has assumed such an alarming proportion that there is no visible sign that the tread will be reversed. In legal terms, fraud is seen as the act of depriving a person of something, which such a person would or might be entitled to, it can also be seen as an act of trickery which is intentionally practiced in order to gain illegitimate advantage. Therefore, for any action to constitute fraud there must be deceitful objective to benefit (on the part of the perpetrator) at the disadvantage of another person or group. Fraud typically requires stealing and manipulation of accounts, frequently accompanied by cover up of the theft. It also involves the translation of the stolen resources or property into own resources or property.

Statement of the problem

Fraud in national bank of Pakistan is growing at an alarming rate, mainly because the major perpetrators are internal staff and some corrupt members of the top management, this fact was also supported by the studies of Nwaze (2009), Okpara (2009), CBN report(1995) who emphatically stated that no fraud will be successful without the input of management employees. Therefore, the problem of this study is to consider why, the most trusted member of the management staff, are often the brains behind fraud committed in most financial institution. Furthermore, existing researchers such as Ola(2001),Izedonmi (2000) has amplified the fact, that fraud prevention can be completely prevented and controlled by the management of most commercial bank of Pakistan. It is against this backdrop that this research paper attempt to examine the fraud control and prevention in commercial banks in Pakistan with of aim of determining why management have been unable to grapple with the issue of fraud in most commercial Banks.

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