Empirical assessment of frauds on banks’ liquidity: evidence from Nigeria

Abstract

The study examined the effects of frauds on the liquidity position of banks in the Nigerian banking sector using time series data for the period 1994 to 2015. The study used unit root test to determine the stationary state of the variables. It also employed the Johansson co-integration and error correction model (ECM) statistical techniques to establish both short-run and long-run dynamic relationships between the endogenous and exogenous variables. The findings revealed that total number of fraud cases, actual amount involved in the fraud and the loss associated with it negatively affect banks liquidity position in the long- run, though the effect is not as strong as in the short run. The paper concluded that fraud is a key variable that depletes the banks’ ability to meet up with short term obligation as well as impinge on the ability to effectively maximize the wealth of the shareholders. The study therefore suggested that the services of the forensic accountants should be given utmost priority by banks and all concerned stakeholders so as to constantly and effectively monitor the internal control system, report levels of frauds, as well as come up with a model to fight the effect of frauds on banks’ operation. The CBN and other law enforcement agencies should come up with stiffer penalties for any perpetrator of frauds of any nature and categories in the banking sector. This will help to create sanity and serve as deterrent to the other would be perpetrators of frauds. Another peculiar aspect that should be empirically examined is banks’ staff involvement in frauds and forgeries and how they impact on the banking sector operations and liquidity position.

Keywords: Liquidity, number of fraud cases, actual loss, amount involved in fraud cases