A Theoretical Review of the Internal Control Measures in Preventing E-Banking Frauds in the Nigerian Banking Sector

Abstract:

The developments in the field of information technology have changed banking business and the manner in which its customers transact significantly, bringing about more reliance on electronic banking transactions fondly referred to as “e-banking transactions”. This has also changed the kind of risk both the banks and its customers are faced with, resulting in some significant losses reported; and calling for the need for sound internal control systems that can be applied on e-banking activities to reduce losses and inherent risk. This paper is a theoretical review of the expected characteristics of the internal control system required to combat e-banking fraud in the Nigerian Banking Sector. Related concepts, theories and studies around internal control and electronic banking and fraud were reviewed. To reduce the losses attributed to e-banking frauds, the internal control system over e-banking transactions and activities should not be postmortem like the traditional banking services, but among others, be online real-time, generating alerts as transactions occur, having a combination of proactive and reactive techniques and should automatically generate audit trails. The paper recommends that the Central Bank of Nigeria (CBN) as the apex regulator of the sector should biannually review the controls put in place by the banks to check e-banking transactions for adequacy, and apply appropriate sanctions where necessary. Technology is constantly evolving, hence, the need for consistent review of processes and procedures by the banks, who should continuously sensitize its customers on safeguarding access credentials, while creating avenues for immediate reporting and account restriction in the event of suspicious activities.