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Full Project – Fraud detection in banks using fingerprint identification

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CHAPTER ONE: Introduction

1.1 Background to the Study

The effectiveness of any banking system depends on how secured the system is (Akano, 2008). One of the most important responsibilities that a bank or financial institution has is to protect the integrity of the institution by working hard to protect the financial assets that it holds. In order to do so, the bank or financial institution must be certain to address the issue of bank fraud (Adewumi, 1986).

Bank fraud is defined as an unethical and/or criminal act by an individual or organization to illegally attempt to possess or receive money from a bank or financial institution (Adeyemi and Ogundele, 2004).

Fraud as defined by Akano (2008), as “an intention deception results in injury to another person”. From federal trade commission fraud is defined as deception deliberately practiced with a view to gaining an unlawful or an unfair advantage.

An efficient fraud detection system is the one which is effective to detect the high-risk frauds which lead to the huge money loss to banking sector and which is also able to deal the changes occurring in fraudulent techniques or patterns used by the fraudsters (Akpoyomare, 1996).

Fraud has evolved from being committed by casual fraudsters to being committed by organized crime and fraud rings that use sophisticated methods to take over control of accounts and commit fraud (Akpoyomare, 1996).

The crave for information technology has a great influence in our banking sectors. Thus a fast and quick development has erupted in many countries of the world in forms of automation advancement and technology. Such advancement includes the design and implementation of an automated fraud detection system which is witnessed in our various banking and financial sectors worldwide (Comer, 2005).

Fagbemi, (2009) opines that in as much as financial sector is concerned, there should be possible way made to avoid fraudulent from gaining access to the banking and all other financial sectors.

With the development of information technology and banking sector, the majority of modern commerce is depending upon the online banking and cashless payments. Online banking services such as telephone bank, mobile bank etc. have provided great convenience to the banking customers. They provide easier, seamless and comfortable option to businesses (Fagbemi, 2009).

Fraud in banking sector is generally looked at as acts that involve the loss of asset a through deceitful and dishonest means. It certainly constitutes one of the most serious threat to the practice and spread of banking in Nigeria fraud and forgeries involved professional crooks that are seek to enlist the support and co-operation of the dishonest members of the bank staff (Nwankwo, 1992).

This study therefore tends to design and implement fraud detection system in banks that can serve as a mechanism for preventing the problems of bank fraud in Banks.

1.2 Statement of the Problem

There are difficulties experienced in the manual system or fraud detection in financial sectors. These factors therefore necessitate the implementation of computer base system in other to overcome the short coming of the manual system of detecting fraud. By automating the system, rate of fraud flow will be eliminated in financial sectors (Adeyemi and Ogundele, 2004). However, security is also one of the major concerns for the online banking customers. Due to rise in online transactions, fraudsters are also inventing new techniques on regular basis.

Whenever any fraudulent transaction occurs, customers suspect the security of online banking system after losing their precious money. To address this problem, a fraud detection system should be built to retain the customers by banking institutions. There is also a crucial need to develop an efficient and dynamic technique to address the security concern of online banking fraud (Comer, 2005). In fraud detection system, the transactions are categorized into two classes i.e. fraudulent and non-fraudulent. Fraud detection systems are designed in a way to verify the transactions by comparing with the past spending history of the customers (Comer, 2005). The above stated problems and many more necessitate for the development of a fraud detection system for banks that can be applicable to any bank or financial institution in Nigeria.

1.3 Aim and Objectives of the Study

The aim of the research is to design and implement a fraud detection system that will manage fraud activities of Banks.

Objectives of the study are to;

Identify and model the requirements specification to develop the system (Fraud Detection System).
Examine some theories of fraud.
Review existing literature with the aim of collecting and collating information on fraud in the banking industry.
Identify types of fraud in the banking sector.
Proffer solutions and recommendations on the strategies for detection, reduction and prevention of fraud in the banking sector by a way of designing and implementing a fraud detection system.

1.3.1 Method of Achieving the Objectives

In achieving the objectives of this study, the researcher adopted two methods: primary and secondary methods. The primary method adopted interview and direct observation, whereas the secondary method adopted was exploitation of the services of the library, related articles, journals, magazines and the use of internet.

1.4 Scope of the Study

This project work focus mainly on the design and implementation of automated fraud detection system in banks that can be applicable to any bank or financial institution in Nigeria and with the aim of adding more fraud detecting techniques to banks.

1.5 Significance of the Study

The design and implementation of automated fraud detection system in banks would lead to an effective and comprehensive fraud control in banking sectors. For example, computerized verification of illegal access of customers account, computerized verification of signatures, in a matter of second the computer system enhanced to do all these tasks, then all criminal and fraud minded people will desist from such acts.

1.6 Limitation of the Study

This study “Fraud Detection System in Banks” has the following limitations:

The fingerprint scanner selectively captures some fingerprints and excludes others, especially those with deformed hands like farmers.
The system is a standalone application not network or web-based to enable the different bank users to use the system concurrently from different remote locations..

1.7 Research Questions

The following research questions will guide the study:

What are the features of the existing fraud detection system used in banks.
What are the strengths and weaknesses of the existing fraud detection system adopted by banks?
What are the alternative solutions to the weaknesses/problems of the existing fraud detection system used in banks?

1.8 Definition of Terms

Fraud: Is defined as deception deliberately practiced with a view of gaining an unlawful or unfair advantage.

Fraud Detection: is a set of activities undertaken to prevent money or property from being obtained through false pretenses.

Bank: An establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers.

Fraud Detection System: is a system which is effective to detect the high-risk frauds which lead to the huge money loss to banking sector and which is also able to deal the changes occurring in fraudulent techniques or patterns used by the fraudsters.

Economic crime: this is the manifestation of criminal act done either solely or in an organized manner or without associates or group with the purpose earning wealth or being rich through all illegal means.

Identity theft: this is an action that proceeds enable a fraud to occur.

False billing fraud: this occurs when a business or an individual receives a bill for a product whereby the representation of the product by the promoter was either false or misleading or whereby the product were either never ordered or received.

Internet fraud: this refers generally to any type of fraud scheme that uses one or more components of the internet such as chartroom, e-mail, message boards or websites to present fraudulent transactions or to transmit the proceed of fraud into in financial institutions or to other connected with the scheme.

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