Challenges of Internal Bank Fraud Policy. A Case Study of Commercial Banks In Harare Central Business District

Abstract

In the intermediation, banks mobilize savings from the surplus units of the economy and channel these to the deficit units, particularly private business enterprises for the purpose of expanding their productive capacity (Adeyemo 2012). Levi (2001), asserts that corporate financial scandals in the USA such as Enron and Tyco debacles send shockwaves in the corporate world, regulatory authorities, audit fraternity and the economic world society at large. These have led to the erosion of investor confidence in the financial markets. The Zimbabwe banking sector has had its fair share of financial scandals. The Reserve Bank of Zimbabwe Report (RBZ, 2006) examines the 2003-2004 financial turmoil that was caused by many fraud related factors such as the shocking inadequacy of the risk management system, diversion from the core business of the banks to speculative activities contrary to the dictates of the Banking Act Chapter 24:20 and its regulations, creative accounting which increased the audit risk and overstatement of the banks‟ financial statement (window dressing), high level of non performing insider loans and rapid expansion and chronic liquidity challenges. Oseni (2006) argues that the incessant frauds in the banking industry have resulted in the banking public losing their trust and confidence in the industry. Wells (2004) opined that most accountants and auditors think internal controls are an answer to fraud yet many organizations with these controls still experience fraud. Wells (ibid) further state that fraud prevention and internal control is not the same thing. The Central Bank of Nigeria (2000) reported that by half way mark more cases of fraud and attempted fraud worth N5.4 trillion (USD34.8) million were reported more than that reported in the whole of 2006 which was USD 30.97 million (Adeyemo 2012). The Zimbabwe National Statistics Agency Quarterly Report (2013) reveals that in 2010 Zimbabwe Republic Police (ZRP) received 2624 fraud reports and in 2011 ZRP received 8027 fraud reports, a 205.9% increase. It is indeed worrisome that while banks are constantly trying to grapple with the demand of monetary authorities to recapitalize up to the stipulated minimum standards, fraudsters are always at work threatening and decimating their financial base.