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The main objective of this study is to evaluate the extent to which fraud affects the performance of micro finance institutions in Buea. This research aims to contribute to the knowledge of fraud in banks with a focus on micro finance institutions. This research uses a sample size base on a survey of 30 micro financial institutions. Primary data was obtained through self-administered questionnaires so as to collect the required data.

The descriptive statically method SPSS was used to describe the data and determine the extent used. Descriptive statistics such as frequencies, percentages, means and standard deviation was used to report and present data. The usage of Multiple Regression analysis model was used to determine the effect of the independent variables on the dependent variable and the results (r =0.470) showed a weak positive association between fraud and performance of MFIs.

Thus the study recommends that constant audit checks of the financial statements would aid in avoiding the occurrence of fraud. Internal controllers should be instituted. Again, management should endeavor to provide its staff with all necessary remuneration packages, training and proper background checks that will motivate them to give their best.

But fraud may arise if the employee satisfaction requirements are not met. The government of Cameroon on her part can help the situation of fraud in organizations by strengthening law enforcement Institutions to fight fraud. This will go a long way to reduce the rate of theft, defalcations and forgeries suffered in MFIs in Buea.
Keywords: Fraudulent money transfer, unauthorized withdrawal, theft and embezzlement and performance of MFIs.



1.1 Background of the Study

Fraud is a global problem affecting the society as a whole. Fraud in general poses a great threat to organizations of all sizes in all parts of the world. No person or organization is immune to fraud. Fraud has been in existence for a long period of time. It is a complex problem since fraudulent activities are carried out without a trail. Fraud affects organizations through loss of funds which can lead to low amount of funds available to carryout business transactions, it can also lead to lose of customer confidence and time wasted through investigations.

According to the Association of Certified Fraud Examiners (ACFE) annual fraud report, typical organizations lose 5% of its revenue to fraud each year. It is therefore important that organizations should try to minimize the chances of fraud occurring. This can be done through developing anti-fraud policies, proper internal control among others. Fraudulent activities have robbed the business community and accounting profession of much of its credibility.

If the act of fraud is not arrested, it might delete the resources and performance of institutions in Cameroon because foreign investors might not find it wise to transact business via the micro finance institutions and this will affect the institutions performance drastically. Micro finance in Cameroon constitutes an incentive tool for micro and small enterprises that has little or no access to traditional financial system, as well as a source of credit for people and communities in need that do not have sufficient resources to access the traditional financial system.

Without MFIs, the sources of funds for this portion of the market would be limited to friends, family or loan sharks, which restrict entrepreneurial capacity and affect the quality of life of the population (Soares &Melo Sobrinho, 2008).

Furthermore, for any economy, especially Cameroon to develop and grow, the financial sector must be effectively solid, strong and efficient. The existence of an effective banking industry is a panacea to growing any economy. The pivot of any economic development is the financial sector through funds from surplus units to deficit units. This also stimulates investment, economic growth and employment as well as international trade and payments. Over the years, the Cameroon banking industry has witnessed several reforms in search of an efficient and effective financial system (Owolabi, 2010).

Several causes of fraud have been identified by various researchers. According to Kanu and Okorafor (2013), causes of fraud depend on the environment. They classified the causes as Technological, Legal, Personal, Social and Management. Technological causes are those which have been made possible by the advancement in Technology. For example, frauds committed when processing Electronic Funds Transfers (EFT). Legal causes of fraud are those which enhance fraud as a result of inefficient legal system.

For example, instances where a fraudster has several fraud cases pending before the court of law and still goes ahead to perpetrate other frauds. Management causes of fraud are those actions or omissions by management of organization which lead to fraud. For example, frauds committed due to weak internal control systems. Personal causes of fraud are those perpetrated by individuals who have undeveloped character due to poor upbringing. Social causes of fraud are those enhanced from poor societal values in which the society adores a rich person without checking the source of wealth.

Over the last two decades, there have increase in management fraud. Recent internal reports suggest that employee fraud is persuasive, plaguing both large and small organization alike. According to 1996 report in the Nation on occupation fraud and abuse, which cost US organizations more than $3.9 billion annually (Hillison, 1999). Furthermore, the Association of Certified Fraud Examiners (ACFE) in their survey for 2008 estimated that US companies lose 7% of their annual income to fraud, resulting in approximately $995 billion in losses (ACFE, 2008). Almost daily one can read about organizations that have been exploited in both the private and public sectors relating in embarrassing, fraudulent scheme and the loss of asset (Alleyne. et al, 2010).

Not only has the incidence of fraud increased, but the dollar amounts of fraud and the number of companies being victimized have also increased (Humphrey, 1993; Hemraj, 2004). Because of this situation, a number of individuals and groups, shareholders, corporate audit committee and the securities exchange commission (SEC) are feeling the pressure of the responsibility to detect and prevent fraud. Even though auditors have been willing to accept the increased responsibility to uncover fraud, their basic training for this task needed to be developed (Alleyne, 2010, ACFE. 2008).

Organizational performance is the measure of how well the organization has done the job (Stoner, Freeman &Gilberth, 1995). Increasingly, questions are being raised over the cost of funds for this enterprises and their ability to earn margin sufficient to cover their operational cost and still realise profit (Arsyad, 2005). It has been pointed out repeatedly that MFIs need to be economically viable and sustainable in the long run (Srinivasan etal. ,2006).

In fact, studies have found linkages between the financial sustainability of micro finance institutions and achievement of their social objectives. Low income customers are more likely to borrow from institution they see as financially viable (Zeller et al. 2003). Fraud has remained one of micro finance biggest threat to its performance in the past years.

Fraud is a universal financial word. Its occurrence or perpetration is not limited to Cameroon. The incidence of fraud in the Cameroon micro financial institutions (MFIs) has assumed an alarming proportion of late (Uzoka, 2001). With the deregulation of the banking system in the early 1980s, the pace at which MFIs were established increased in an unprecedented manner. Fraud is a global phenomenon that has been in existence for long and increasingevery day. Fraud is a deliberate act that causes a business or economy to suffer damages, often in the form of monetary losses. Fraud according to Adeniji,(2004) and ICAN, (2006) is an intentional act by one or more individuals among management , employees or third parties which results in a misrepresentation of the financial statement. Fraud in the banking system is a global l phenomenon and its growth in Cameroon economy has been outstanding.

Fraud is the number one enemy of every business growth over the world and fraud has a great effect on the performance of every micro financial institution (MFIs). The fear now is that the increase rate of fraud in financial institutions if not arrested pose certain threats to stability and survival of individual financial statements and the performance of the industry as a whole and there is no area in the economy that is immune from fraud and fraudsters (Nwankwo, 2005).

In addition, general poverty amongst the citizenry coupled with high degree of unemployment in the larger society make survival a herculean task. Corruption and other forms of vices became easily identifiable with Cameroonians irrespective of their gender, social status and professional callings. Under this dispensation, frauds have grown in scope, nature, methodology and dimensions as the MFIs advances. The rate, frequency and volume of financial losses have been a major source of concern to the regulatory agencies. Government and public statements have been issued because of this cankerworms, which has eaten the fabrics of the society. Unfortunately, the bane of society is agreed and the philosophy to get rich quick is now the order of the day.

According to Nwaze, (2006), it will almost amount to an understatement to say that fraud has come to stay. It has been around since the beginning of time and would certainly continue to be an issue until the end of time. Fraud occurs in almost all facets of human endeavor. Employee dishonesty is as old as the work place itself. Fraud has assumed dimensions, albeit with increased sophistication. Hence forgeries, deceit and other unwholesome practices have continued to be a way of life and the practitioners have flourished overtime at the expense of the larger society. Incidentally, banks especially MFIs are their major targets in recent times notwithstanding the increase use of technology in banking operations. No bank appears safe from the menacing epidemic.

 Financial institutions fraud generally bringing untold hardship on bank owners, staff, customers, and family members as most MFIs failures is always associated with large scale frauds (okoro, 2003). According to (Oseni, 2006) the incessant fraud in MFIs are getting to a level at which many stakeholders in the institutions are losing their trust and confidence in the institution. Corroborating the view of Oseni and Idolo, (2010) stress that the spate of fraud in Cameroon MFIs has lately become a source of embarrassment to the nation as apparent in the seeming attempt of the law enforcement agencies to successfully tract down culprits.

Although the incidence of fraud is neither limited to the banking industries nor peculiar to Cameroon economy, fraud is everywhere even in the United States of America. However, the high rates of fraud in the micro finance institutions calls for urgent attention with the view to find solutions. Fraud in it effect reduces institutions assets and increases it liabilities. Fraud also has a great effect on management performance in that, it reduces the institution profit, it also leads to unemployment, and also the liquidity of the institution.

Fraud if not checked might cause run on in MFIs. The high turnover of fraud, theft, defalcation and forgeries in the MFIs is capable of underming the performance, growth, development and stability of MFIs which at the moment seems to be doggedly affected the micro financial institution of the economy.

With regards to banking industry, it may endanger crisis of confidence among the financial institutions, impede the going concern status of banks and ultimately lead to bank failures (Adeyemo, 2012). Due to the pivotal roles of MFIs in the growth and economic development of any nation, it has become very necessary to protect this institution from fraudsters. Thus, the purpose of this research is to discuss from practical point of view how fraud can affect MFIs performance.

1.2 Statement of the Problem and Justification of Study


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