A Dissertation Submitted in Partial Fulfillment of the Requirements for Award of the Degree of Master of Science in Accounting and Finance (Msc A&F) of Mzumbe University
The study was conducted at the CRDB Bank and NMB Bank Public Limited Companies at headquarters and branches located in Dar es Salaam. The study was on assessment of fraud and its management in commercial banks in Tanzania. The specific objectives of the study were to analyze the nature/ types of frauds in banks and establish why fraud occurs. It was also aimed to establish adequacy and effectiveness of internal controls in managing frauds in banks and was sought also to evaluate impacts of frauds in banks business and suggest measures on how to manage and reduces the impacts in banks. Following the definition of the problem, literature study was done in order to get insights of the problem.
The research methodology used was the survey study, which took six months. The design used enabled the researcher to collect data to the targeted organization and questionnaires, interviews and documentary sources were used as tools of data collection.
Data collected were analyzed careful by using both quantitative and qualitative techniques, in quantitative technique percentages were used for analysis of data and the results showed that Cheque Fraud, computer frauds, card frauds, theft of assets, misappropriation of customers money from their account, cheque kitting, financial statement fraud, fund diversion frauds, frauds related to accounts fraudulently opened, and frauds resulted by delaying clearing instruments are types of frauds occurring in Tanzania commercial banks.
Other classes of frauds in Tanzania commercial banks revealed were frauds related to overstatement of collateral value when customers applied for bank loans. Frauds related to manipulation of foreign exchanges and ghost loans- loans issued against forged collaterals.
Internal controls were found adequate in some areas/ processes, however were not effective. In some areas/ processes were controls were adequate were not effective as sometimes management tends to override them to commit fraud. In some instances, the areas highlighted by independent reviewers such as auditors for improvement, management of banks did not implement some of the recommendations provided by independent reviewers.
On impact, it was revealed that banks suffered both financial and non financial impacts. For financial, it was established that trend and magnitude of fraud is increasing yearly and mostly committed by staff non management level, sometimes by colluding with external parties. For the past three years the two big banks suffered losses approximately to TZS 5,002.85 million (2010), TZS 5,474.95 million (2011) and TZS 8,893.25 (2012) respectively due to frauds.
Based on the results of the study, the researcher concluded that fraud still occurs in banks due to weakness in internal controls, management overriding the established controls, low remunerations to employees and lack of fraud threshold for management accountability despite who caused the loss. These factors amount to opportunity, pressure and rationale which are fraud triangles. To address the weakness noted, the researcher recommended that bank management to ensure controls are adhered to, survey on salary should be done in order to commensurate with job responsibilities and fraud threshold to be established by both bank management and regulator. It was also recommended that, bank regulator to initiate formation of special courts for recovery of money fraudulently obtained from banks in order to relieve commercial banks from losses.