Risk Management Literature Review

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CHAPTER TWO LITERATURE REVIEW 2.1 Introduction Literature is quite diverge on the taxonomy and nature of fraud in organizations and specifically in banks, but quite converge on the occurrence of fraud and its telling repercussions on organizations. Indeed, Smith (2001:1) alludes to the endemic nature of fraud by contending that fraud would have been a major growth area of the economy if it were considered as an industry Olasanmi (2010:8) opined that because many fraud cases are difficult to detect, it encourages many new fraudsters to join in perpetuating the fraud because management finds it very difficult to detect it and deals with it. According to Bolton & Hand (2002:12), the growth in the rate of occurrence of frauds (successful and unsuccessful…show more content…
Aris et al, (2009) cited in Boateng, Boateng & Acquah (2014:43) define risk management as a systematic process of identifying and analyzing risks and exploring the most appropriate method to treat the identified risk to minimize losses while concurrently increasing profitability. Thus risk management essentially is a systematic approach where the risks faced by an organization are identified, measured, monitored and managed. In financial institutions, risk management forms part of their strategic decision-making process aimed at ensuring that corporate objectives are consistent with an appropriate risk return trade-off (Boateng, Boateng & Acquah, 2014:…). The principles for operational risk management must be importantly considered within the context of the statutory, legal and managerial structure that underpins the operations of organizations. Operational risk management principles embody legislative works that shape the objectives, responsibilities and the powers of organizations. It also focuses on managerial framework that covers issues such as management strategies, internal control measures, operational procedures, quality assurance practices, and reporting responsibilities. The governance structure for operational risk management may be quite extensive with an operational risk committee, audit committee, a management committee, and an advisory or decision-making board all required…show more content…
Insider lending occurs when a bank offers loans and other credits facilities to its officials or directors through inappropriate means. Brownbridge (1998:..) reports that insider lending was the biggest contributor to the bad loans of many failed local banks in Kenya. Sadly most of the failed banks involved hugely in insider lending even to politicians. Ribadu (2004:..) explains that financial institutions can be involved in financial crime in three ways: as victims, as perpetrators, and as instruments. As victims, financial institutions can suffer different types of fraud including misrepresentation of financial information, embezzlement, cheque and credit card fraud, securities fraud, insurance fraud and pension fraud. Financial institutions can perpetrate fraud as well. Even though unusual, financial service providers perpetrate fraud when they engage in acts such as the sale of fraudulent financial products, self-dealing and misappropriation of client funds. As an instrument for fraud, financial institutions are particularly central to money laundering. These institutions are either wittingly or unwittingly used to keep or transfer funds that are themselves the profits or proceeds of crime, regardless of whether the crime is itself financial in nature or

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