CHAPTER ONE INTRODUCTION           Background to the Study

Regardless of the vast amount of resources, time and energy, used by universal banks in developing corporate governance policies, implementing internal control systems, risk management strategies and the training of employees in order to adhere to best practices, some dishonest, intelligent people, commonly referred to as fraudsters, still manage to find ways to override systems to gain access to organizational resources and assets (Rahman & Salim, 2010). This results in operational risk in the form of fraud. Operational risk is therefore the initial type of risk that any institution of any sort takes on. Managing and mitigating the operational risk of an organization is a very significant challenge for managers in top positions. The study examines the effectiveness of fraud risk management practices by both foreign and local universal banks in Ghana.

Fraud in recent times, has evolved from being committed casually to being highly organized and sophisticated (Rahmana & Anwar, 2014). This particular problem is more prevalent in the banking sector where there are more sophisticated compromises as compared to other sectors. It is therefore important for banks to develop comprehensive systems and practices to effectively manage fraud risk (Fadipe-Joseph & Titiloye, 2012). Fraud can be grouped into two main categories. The first category is fraudulent financial reporting, known as management fraud, and the second category is the misappropriation of assets, also a known as employee fraud (Adams, 2015). Both categories of fraud are

particularly harmful to actual and potential users (Hakami, 2011), and may cause materially misleading financial statements. This study will however, emphasise the activities of fraud leading to the issuance of false financial statements.

Additionally, fraud imposes numerous costs to both its financial and non-financial victims (Rahman & Salim, 2010). For the banking financial institutions, they might suffer loss in terms of monetary transactions, reputational risks, and human capital, including the acquaintance to the risks of bankruptcy (Idowu, 2009).

Developing effective preventive measures against fraud, identifying the methods through which fraud is or can be committed, establishing effective control measures and putting in place fraud resolution guidelines not only helps the universal banks to prevent the loss of revenue and assets, but also improve the quality of their business procedures and their overall standing in the financial services environment (Rahman & Anwar, 2014).

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