AHAM NZENWATA
ABSTRACT
The past
several decades have brought a vast increase in the availability of electronic
resources. With this increased availability has come a new form of criminal
activity that takes advantage of electronic resources, namely computer crime
and computer fraud. Computer fraud, closely linked to internet fraud. we
undertook to study the effect of computer related fraud on the economy of
Nigeria. The findings of the study indicate that poor management and security
arrangements lapses by organizations and individuals can cause computer related
and internet fraud. We further find that computer related fraud can be detected
and controlled through adequate internal control systems. Beyond identifying
the causes of computer related fraud, we also show that putting in place
adequate control systems helps to detect these frauds as well as reducing its occurrence
to the barest minimum. Finally, we find that fraud in general and computer
related fraud in particular has implications for the economy of the country.
This is because computer fraud causes loss of jobs which exercerbates the
problem of unemployment currently being faced by the country. Computer fraud
also causes financial loss for businesses as well as loss of manhours that
could be better utilized in other activities. Finally, computer related fraud
causes loss of confidence in computer related business processes. Based on the
findings, we recommend that individuals and organizations invest in authentic
computer components and softwares that have the capability to protect their
personal information from fraudsters and other cybercriminals. This can take
the form of installing high-end computer security systems that employ rigorous
authentication processes. We also recommend that the government set up special
units within security agencies to tackle the menace of computer related frauds.
Finally, we recommend that business organizations employ and adequately train
internal control personnel and equip them with the right tools to proactively
detect and protect the organization against computer related frauds and types
of cybercrimes.
INTRODUCTION
The past several decades have
brought a vast increase in the availability of electronic resources. With this
increased availability has come a new form of criminal activity that takes
advantage of electronic resources, namely computer crime and computer fraud.
Computer fraud, closely linked to internet fraud, is defined as the use of a
computer or computer system to help execute a scheme or illegal activity and
the targeting of a computer with the intent to alter, damage, or disable it.
Computer fraud breaks down roughly into three categories: Theft of information,
Theft of or denial of service and Hacking into or damaging a computer’s
hardware system.
Theft of information refers to
the theft of information from a secure or private computer system, as when a
hacker illegally breaks into a government system to obtain top secret
information. The theft of trade secrets and the computer-aided duplication of
copyrighted materials—such as video games, movies, and music—also fall into
this category.
Theft of service is when a hacker
uses a computer to access websites or Internet connections for which he did not
pay. It may also include using a computer to break into long distance systems
to “steal” service for free calls. Usually, theft of service is classified as
Internet fraud, Often lumped together with computer fraud, Internet fraud
includes any scheme that uses a Web site, chat room, email account, or all
three to defraud a company or individual.
Examples of crimes include
offering nonexistent goods to a buyer (such as with an online auction),
stealing someone’s funds by hacking into his bank or credit card account, or
illegally using access devices, such as those of a paid news subscription
service. Conversely, denial of service includes “mailbombing,”which is when
someone purposely attempts to disable an email account by sending massive
amounts of emails to its address.
Hacking refers to illegal entry
into a computer’s hardware system. Hackers obtain passwords and delete
information, create programs to steal passwords, or even rummage through
company garbage to find secret information. Such criminals might pose as
computer repairmen in order to gain easy access to computer systems, or they
might create and send out dangerous computer viruses. Online sex crimes such as
stalking and child pornography are also classified as computer fraud.
Despite the problems associated
with using computer for business activities, they remain an irrplacable in
today's world. Thus, any business which wants to survive and relevant and
competitive cannot avoid or shy away from the use of computers. To this end,
this paper has the objective of investigating computer frauds and other related
crimes with a view to proffer solutions to such problems. The paper will also
try to determine the effect of computer frauds on economic growth in Nigeria.
CONCEPT OF FRAUD
According to Adewole, (1990), any
minor mistakes by an individual which is not detected in time or at all makes
such an individual to think that the success of such mistakes may be taken
advantage of and may proceed to enact more mistakes, this time, deliberately so
as to test the system’s check and balance. He stresses that where a deliberate
mistake is made and is successful, the individual takes benefit of it for
selfish end.
He refers to this behaviour as
fraud, since it is now a deliberate action aimed at dishonestly enriching the
individual. The next logical step for such an individual is definitely to
continue with such errors until he eventually graduates to a hardened
fraudster. It can therefore be deduced that the genesis of fraud is traceable
to the committal of minor, undetected mistakes, which are consequently
capitalized upon by individual intending to defraud (Adewole, 1990).
Fraud has been variously defined
in the literature. Most developing countries of the world regard fraud as
criminal act. In Nigeria, it is equally recognized as a crime too, this
promoted the promulgation of decree on fraud and other fraud related
matters/structures namely “the failed Banks and recovery of public debts decree
18 of (1994), Banks and other financial institution decree (BOFID) 1991, money
laundering Act No 3 of 1995 Federal Intelligence Investigation Bureau (FIIB),
Independence Corrupt Practices Commission (ICPC) and Economic and Financial
Crime Commission (EFCC).
According to Oxford Advance
Learners Dictionary of Current English “Fraud” is defined as “a criminal act/
deception. According to
Udok (1992)
Fraud is concerned with the activities of those who seek to divert to their
pockets the fruits of others hard work. Adeniyi (2004) sees Fraud as an
intentional act by one or more individuals, among management, employees or
third parties which results in a misrepresentation, of financial statements
which involve.
· Manipulation
falsification or alteration of records or documents.
· Misappropriation
of Assets.
· Suppression
or omission of the effect of transactions from records or documents.
· Recording of
transaction without substance.
· Misapplication
of accounting policies.
According to Adekanye (1983)
“Fraud” is an act of falsifying or altering of a writing document for the
purpose of doing injury to another person. He therefore, continued by saying
any alteration of a writing document made with intention to defraud is
therefore forgery”. According to Wiki pedia (2007) fraud is any insidious,
sneaky crime that ruins individuals and families, causes corporation to go
under. Eze (2004) refers to fraud as irregularities involving the use of
criminal deception to obtain an unjust or illegal advantage. Another definition
of fraud put it that, it is an act by which one person intends to gain a
dishonest advantage over another person.
THEORIES OF FRAUD
The relevant
theories on fraud are briefly reviewed below:
According to Wolfe and Hermerson (2004),
in the theory of fraud diamond, an individual's capability, personality traits
and abilities can play a major role in determining whether fraud may occur. While opportunities can open the doorways to
fraud, incentive and rationalization will attract people to it, but such an
individual must have the capability to recognize the open doorway as an
opportunity and should be able to take an undue advantage of the identified loopholes.
Social
learning theory on fraud postulates that if deviant behaviors are reinforced and
alternative behaviors are not reinforced as strongly, then an individual is
likely to engage in fraudulent / deviant behaviors. The theory of work place
deviance reiterates that employees steal primarily as a result of workplace
conditions, and that a lowered rate of employee theft is a by-product of a
management team that is responsive to employee's plights.
The theory
of hyper motivation opines that' Given a sufficiently powerful motivation to commit
an act of fraud, people are generally more than capable of rationalizing why it
does not in fact conflict with their own ethical precepts. And once they have
taken the first step towards unethical behavior, subsequent steps into abyss of
immorality gets progressively easier. The basic condition was that of a
visceral state, that can lead an individual into an action that one would
normally have deemed unacceptable.
According to the Anomie theory on fraud, in every competitive capitalist
society, the other members of the society who are excluded from access to
legitimate means to success and stardom will experience a sense of relative
deprivation which they try to relieve by way of social vices like (1) aggressive
criminal behaviors, like bank frauds, and armed robbery attacks, ( 2)
Aggressive revolutionary behaviors like Coup de tat in the military and (3) A
retreat into psychosomatic illnesses like drug addiction, alcoholism ,etc
The Potato
Chips theory explains that fraud can be additive. If the perpetrator is not
caught in the act, he gets bolder to commit more fraud and eventually makes a
mistake that will expose him. Fraud has therefore been likened to a person that
eats a potato chip, but may never be satisfied The Rotten Apple theory opines
that good and bad conducts within corporate organizations are infectious.
Fraudulent actions by supervisors and top management can easily be emulated by
their subordinates.
Similarly, good conducts
exemplified by top management will be emulated. This poses a challenge to
management that whenever a 'rotten and
fraudulent apple' is identified in the organization, it must be quickly plucked
off to ensure it does not contaminate the other good fruits on the tree.
COMPUTER RELATED FRAUD
Essentially, computer fraud
involves computer fraud which is also referred to as internet fraud is any type
of fraud scheme that uses one or more components of the Internet-such as chat
rooms, e-mail, message boards, or Web sites to present fraudulent transactions,
or to transmit the proceeds of fraud to financial institutions or to others
connected with the scheme.
According to Kunz and Wilson
(2004) the following are some of the types of computer/internet fraud
activities
Advance Fee
Fraud Schemes - The victim is required to pay significant fees in advance of
receiving a substantial amount of money or merchandise. The fees are usually
passed off as taxes, or processing fees, or charges for notarized documents.
The victim pays these fees and receives nothing in return. Perhaps the most
common example of this type of fraud occurs when a victim is expecting a large
payoff for helping to move millions of dollars out of a foreign country. The
victim may also believe he has won a large award in a nonexistent foreign
lottery.
Business/Employment
Schemes
- Typically incorporate identity theft, freight forwarding, and counterfeit
check schemes. The fraudster posts a help-wanted ad on popular Internet job
search sites. Respondents are required to fill out an application wherein they
divulge sensitive personal information, such as their date of birth and Social
Security number. The fraudster uses that information to purchase merchandise on
credit. The merchandise is sent to another respondent who has been hired as a
freight forwarder by the fraudster. The merchandise is then reshipped out of
the country. The fraudster, who has represented himself as a foreign company,
then pays the freight forwarder with a counterfeit check containing a
significant overage amount. The overage is wired back to the fraudster, usually
in a foreign country, before the fraud is discovered.
Counterfeit
Check Schemes – A counterfeit or fraudulent cashier’s check or corporate check
is utilized to pay for merchandise. Often these checks are made out for a
substantially larger amount than the purchase price. The victims are instructed
to deposit the check and return the overage amount, usually by wire transfer,
to a foreign country. Because banks may release funds from a cashier’s check
before the check actually clears, the victim believes the check has cleared and
wires the money as instructed. One popular variation of this scam involves the
purchase of automobiles listed for sale in various Internet classified
advertisements. The sellers are contacted about purchasing the autos and
shipping them to a foreign country. The buyer, or person acting on behalf of a
buyer then sends the seller a cashier’s check for an amount several thousand
dollars over the price of the vehicle. The seller is directed to deposit the
check and wire the excess back to the buyer so they can pay the shipping
charges. Once the money is sent, the buyer typically comes up with an excuse
for canceling the purchase, and attempts to have the rest of the money returned.
Although the seller does not lose the vehicle, he is typically held responsible
by his bank for depositing a counterfeit check.
Credit/Debit
Card Fraud
- The unauthorized use of a credit/debit card to fraudulently obtain money or
property. Credit/debit card numbers can be stolen from unsecured web sites, or
can be obtained in an identity theft scheme.
Freight
forwarding/Reshipping - The receiving and subsequent reshipping of an on-line ordered
merchandise to locations usually abroad. Individuals are often solicited to
participate in this activity in chat rooms, or through Internet job postings.
Unbeknownst to the reshipper, the merchandise has been paid for with fraudulent
credit cards.
Identity
Theft
– This occurs when someone appropriates another’s personal information without
his or her knowledge to commit theft or fraud. Identity theft is a vehicle for
perpetrating other types of fraud schemes. Typically, the victim is led to
believe they are divulging sensitive personal information to a legitimate business,
sometimes as a response to an e-mail solicitation to update billing or
membership information, or as an application to a fraudulent Internet job
posting.
Investment
Fraud -
An offering that uses fraudulent claims to solicit investments or loans, or that
provides for the purchase, use, or trade of forged or counterfeit securities.
Non-delivery
of Goods/Services-merchandise or services that were purchased or
contracted by individuals on-line are never delivered.
Phony Escrow
Services
- In an effort to persuade a wary Internet auction participant, the fraudster
will propose the use of a third-party escrow service to facilitate the exchange
of money and merchandise. The victim is unaware the fraudster has spoofed a
legitimate escrow service. The victim sends payment or merchandise to the phony
escrow and receives nothing in return.
Ponzi/Pyramid
Schemes -
Investors are enticed to invest in this fraudulent scheme by the promises of
abnormally high profits. However, no investments are actually made by the so
called “investment firm”. Early investors are paid returns with the investment
capital received from subsequent investors. The system eventually collapses and
investors do not receive their promised dividends and lose their initial
investment.
Spoofing/Phishing - A
technique whereby a fraudster pretends to be someone else’s email or web site.
This is typically done by copying the web content of a legitimate web site to
the fraudster’s newly created fraudulent web site. Phishing refers to the
scheme whereby the perpetrators use the spoofed web sites in an attempt to dope
the victim into divulging sensitive information, such as passwords, credit card
and bank account numbers. The victim, usually via email is provided with a
hyperlink that directs hi/her to a fraudster’s web site.
This fraudulent website’s name
closely resembles the true name of the legitimate business. The victim arrives
at the fraudulent web site and is convinced by the sites content that they are
in fact at the company’s legitimate web site and are tricked into divulging
sensitive personal information. Spoofing and phishing are done to further
perpetrate other schemes, including identify theft and auction fraud.
CAUSES OF COMPUTER RELATED FRAUD
According to
Kanu and Okorafor (2013) the underlisted are the causes of computer and
internet related fraud:
i.
Continuous
advancement in technology constitutes a major factor in enhancing fraud. The
easier things become the more it is for fraudsters too.
ii.
The cost of
perpetrating fraud using available technology is very low.
iii.
Technology
facilitates near perfection of documents‟ replication.
iv.
Information and
Communication Technology has turned the world to a global village. It has
removed physical boundaries, hence fraud can be perpetrated along far distances
v.
Proceeds from
fraudulent activities can be obtained with ease, e.g. via electronic money transfers.
vi.
Most of the
technological fraudsters are youths with highly developed minds and are often
influenced by successful peers.
vii.
Technological
frauds are not easy to detect or prevent. There are so many user
points worldwide where such frauds can be perpetrated.
viii.
Technological
development is a continuous process. While a particular fraudulent act is being
detected and prevented, other methods are being develop
COMPUTER/INTERNET RELATED FRAUD AND THE ECONOMY
The impact of Computer
Crime/Fraud has been, and will be in the future, felt by all governments and
economies that are connected to the Internet. Fraudsters will use the Internet,
computers and other digital devices to facilitate their illegal activities as
long as the financial gains outweigh the consequences when caught.
Knowing about the quantity of
Computer Crime/Fraud as well as the economic impact is vital for both
governments as well as businesses which could be a necessary tool to adjust the
legal and regulatory frameworks as well as institutional capacities.
Prosecutors and law enforcement agencies must have resources, training and
equipment required to address Computer Crime/Fraud in order to keep current on
this newest method of crime fighting.
Lack of reporting this crimes
leads to uncertainty with regard to the extent and impact. This is especially
relevant with regard to the involvement of organized crime. Available
information from the crime statistics in Nigeria, if at all available, does not
reflect the real extent of the crime or damages cause as a result of the crime.
Different motivations of private users and businesses not to report Computer
Crime/Fraud is another concern for the Government (Sackson, 1996).
As a result the fact that the
extent and impact of Computer Crime/Fraud is uncertain if not critically
analyzed. Corporate bodies and individuals spend scarce resources on computer
and internet security. These resources could be better utilized in other more
useful and productive endevours. Organizations and individuals expend huge
amounts of manhours trying to deal with the problems of computer and internet
crime.
Computer fraud re-appropriates
resources away from productive/profitable uses. This is because cyber criminals
steal funds that do not belong to them and they are not likely to put such
funds to better use than the real owners. Computer and internet fraud causes
job losses and closure of businesses. When businesses close down as a result of
sufferung losses through computer fraud, the employees are forced into an
already overbloated employment market (Azeez & Osunade, 2009)
CONCLUSIONS AND RECOMMENDATIONS
Taking cognizance of the nature
and effects of computer related frauds, we contend that there will always be
new and unexpected challenges to stay ahead of cyber criminals but we can only
do this successfully through partnership and collaboration of both individuals
and government.
After an extensive review of
literature on the subject matter, we find that poor management and security
arrangements lapses by organizations and individuals can cause computer related
and internet fraud. We further find that computer related fraud can be detected
and controlled through adequate internal control systems. Beyond identifying
the causes of computer related fraud, we also show that putting in place
adequate control systems helps to detect these frauds as well as reducing its
occurrence to the barest minimum.
Finally, we find that fraud in
general and computer related fraud in particular has implications for the
economy of the country. This is because computer fraud causes loss of jobs
which exacerbates the problem of unemployment currently being faced by the
country. Computer fraud also causes financial loss for businesses as well as
loss of manhours that could be better utilized in other activities. Finally,
computer related fraud causes loss of confidence in computer related business
processes.
Based on the findings, we
recommend that individuals and organizations invest in authentic computer
components and softwares that have the capability to protect their personal
information from fraudsters and other cybercriminals. This can take the form of
installing high-end computer security systems that employ rigorous
authentication processes.
We also recommend that the
government set up special units within security agencies to tackle the menace
of computer related frauds.
Finally, we recommend that
business organizations employ and adequately train internal control personnel
and equip them with the right tools to proactively detect and protect the
organization against computer related frauds and types of cybercrimes
REFERENCES
Adeniyi, A.A
(2004); Auditing and Investigation, Lagos. El-Toda Ventures Limited.
Adewunmi, W.
(1986); Data Processing and Management Information System, Lagos. Macmillan
Nigeria Publisher Limited.
Anyanwu, J.C
(1993); Monetary, Economics Theory, Policy and Institutions. Onitsha, Hybrid
Publishers Ltd.
Azeez, N.A
and Osunade, O. (2009) Towards ameliorating cybercrime and
Cybersecurity(IJCSIS) International Journal of Computer Science and Information
Security, Vol. 3, No. 1.
Eze, J.C
(2004); Principles and Techniques of Auditing, Enugu. Edge Publishers.
Kanu , S.I
and Okorafor, E.O (2013). The Nature, Extent and Economic Impact of Fraud on
Bank Deposits In Nigeria, Interdisciplinary Journal Of Contemporary Research In
Business, Vol 4, No. 9.
Kunz, M.
& Wilson, P. (2004). Computer Crime and Computer Fraud, Report to the
Montgomery County Criminal Justice Coordinating Commission.
Sackson M.
(1996) Computer Ethics: Are Students Concerned. First Annual Ethics Conference,
Available online at http://www.maths.luc.edu/ethics96/papers/sackson.doc
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