1.0 Introduction
1.0.1 History of Bank
FORMATION OF BANK NEGARA MALAYSIA
The Central Bank of Malaya Ordinance 1958 (CBO) was passed on 23 October 1958, while the Central Bank of Malaysia was set up on 24 January 1959. Meanwhile, the Banking Ordinance, 1958, which provided for the licensing and regulation of the business of banking in the Federation of Malaya, also came into force. The CBO was revised in 1994 and is now the Central Bank of Malaysia Act 1958 (CBA).
Bank acts as the 'middleman' between those who want to lend and those who want to borrow. Bank accepts deposits and uses those deposits into lending activities, either directly or through capital markets. Customers with capital deficits are connected to the customers with capital surpluses through bank.
The banking system, including commercial banks, investment banks, and Islamic banks, is the primary collector of funds and they also act as the main source of financing which supports economic activities in Malaysia. The non-bank financial intermediaries, including development financial institutions, provident and pension funds insurance companies, and takaful operators, bring the banking institutions to perfection in assembling savings and meeting the financial needs of the economy.
Bank Negara Malaysia (the Bank), which also known as the Central Bank of Malaysia, is at the top of the monetary and financial structure of the country. The main objective of the Bank is to promote monetary stability and financial stability beneficial to the sustainable growth of the Malaysian economy. Its key functions as set out in the newly enacted Central Bank of Malaysia Act 2009 are to:
- plan and carry out monetary policy in Malaysia;
- issue currency in Malaysia and keep reserves safeguarding the value of the currency;
- standardize and control the financial institutions which are subject to the laws enforced by the Bank;
- provide supervision over money and foreign exchange markets;
- exercise control over payment systems;
- promote a secure, advanced and general financial system;
- hold and manage the foreign reserves of Malaysia;
- promote an exchange rate system consistent with the fundamentals of the economy;
- Act as financial adviser, banker and financial agent of the Government; and
- influence the credit situation to the benefit of the country.
1.0.2 Banking system fraud
Financial or Bank fraud is an act of cheating to obtain money, assets or other property that owned or held by the financial institution. It is an intentional act of fraud involving financial transactions for purpose of personal gain. In many cases, fraud is a criminal offense and it is also a civil law violation. As the banking fraud law is different than the jurisdictions, the term bank fraud is applies to the actions that make use of a scheme or tricks but not the bank robbery and theft. As for this, bank fraud is sometimes known as the white-collar crime which those who involve in such complicated financial transactions are mostly business professionals with specialized knowledge and criminal intent. (Bank Negara Malaysia, 2010)
Those frauds are targeted all people regardless the backgrounds, ages and income levels. Even though there are on-going awareness programmes that held by the relevant authorities and media reporting about the situation of victims of financial fraud, but there are still a lots of people consciously or unsuspectingly fall into the traps of the of those fraudsters.
1.1 Research problems
There are too many frauds happen in Malaysia banking system nowadays. Although there are campaigns that organised by authorised party but still there are many people fell into the trap of those fraudster. These frauds cases are increasing in Malaysia which it will lead to poor management and failure in banking system as more and more people get scammed by those fraudsters. Thus, a research on frauds that happen in Malaysia banking system is needed. This is to ensure that more people will aware of the frauds and will get rid of it.
1.2 Research Objectives
There are many kinds of banking services that provide by the banks. Through this research, the public can understand more on the functions and the pros and cons of the banking services. This is mainly to identify the fraud cases that usually happen in banking systems of Malaysia. There are many kinds of frauds happen in the banking system. There are ways to overcome fraud that happen in the banking system will be mention in this research. Preventions in those frauds will help the bank to increase their reputation. Those preventions help the banks to reduce the fraud cases. When the fraud cases decreasing, there will be more and more people bank in to the bank and always trust and choose the bank as their priority choice.
1.3 Research Questions
With the above objective, the following question will be used as guidance during the research process: -
1) What are the functions of those banking system?
2) How frauds happen in banking system?
3) How to overcome fraud in banking system?
4) How those preventions help the banks?
1.4 Scope of study
In this research, it discusses on the functions of using the banking system and frauds. Generally, we have to know more about the banking system. Hence, it is necessary to analyse the functions and pros and cons of the banking system. With more knowledge that we gain from the understanding about the system, it is easier for us to avoid being the frauds' victims. Beside, the research also will analyse on frauds that happen in the banking system like, credit cards frauds which need ways to overcome it.
1.5 Significant of study
Under this research, the important things is that this will benefits the public as this can treat as a kind of knowledge so that they will not fall into the fraudster's traps in future.
Chapter 2: Literature review
2.0 Introduction
Banks offer many different channels to access their banking and other services. They enable customers to access to their system easily. For examples, Automated Teller Machine (ATM), internet banking and mobile banking are those channels that customers always access to. Fake lotteries, advance-fee frauds, get-rich-quick schemes and internet investment schemes are also some of the favourite ways that fraudster used to set their traps to attract public to fall into with their hard-earned savings easily. New varieties of these scams appear all the time. (Bank Negara Malaysia, 2010)
As fraudster might be some specialist in Information Technology (IT), therefore they have many ways to contact their potential victims that which include face-to-face interaction, by post, phone calls, Short Message Service (SMS) and emails.
2.1 Insider fraud
Bank fraud that happened may be involved either insiders or outsiders to a bank. Insider bank fraud happened is because of someone who works inside the bank has access to the restricted areas or information inside of the financial institution. Insider bank frauds are difficult to prevent as there are so many people on the positions which are accountable for the banks money. The collapse of the international bank, the Bank of Credit and Commerce International (BCCI), highlighted the problem of insider fraud. Insider fraud has highlighted in the collapse of banking institutions around the world. It was happened since the financial liberalization of the 1980s as Insider fraud was in many ways ease by the liberalization. (Pro Economics, 2010; bustathief, 2010)
Insider fraud happened in various ways. Bank employee steals customers' personal information in order to sell the information to third party or to make fraudulent purchases by using a stolen identity is one of the frauds that usually happened inside the banks. For example, a car park attendant who works at KL Sentral with monthly salary of RM1100 has been declared bankrupt by the High Court due to she failed to settle a bank loan for a RM167,000 Toyota Estima which she claims that she never bought. (L. Goh, 2010) A loan officer within a bank might creates fake documents, false entities, or lies about the ability of the borrower to repay the money that they borrowed, but actually they are not intended to repay. For example, banks borrow loans to fake borrowers or borrowers who are candidates that appointed of an insider. Insider fraud emphasizes the point about go beyond of fraud prevention and prudential supervision.
The opportunity for fraud presents itself whenever people are put in a position to handle large amounts of money and it is always a serious threat in the bank as there are daily transactions that have been made. Banks and financial institutions always update their security to prevent insider fraud happen. Although the there is a decline in the documented cases and the computer tracking and improved the banking security have prevent the fraudulent practices, the threat still exists and the insider fraud still happen.
According to Bingham LJ on BCCI, it has been identified that bank's auditors could voluntarily disclose wrong doing to the regulators as one of the weakness of UK bank's regulation. Actually, they have no rights to do so. When a bank's auditors found anything which gives the auditor reasonable cause to believe that the minimum criteria for authorization are not being fulfilled, the auditor are required to report to the regulators since 1994. It is likely to be material to exercise of the regulators' function.
Fraud by outsiders may be at the expense of the bank cheque, credit card, and mortgage fraud are simple examples or may involve fraudsters using banks and the banking system to facilitate their schemes or to secret their gains. As regards the first, England has yet to emulate some other common law jurisdictions by enacting a general offence of fraud, i.e. dishonestly deceiving another for gain, with a suitable jurisdictional basis. It is necessary to draw on a range of disparate provisions such as theft, deception, false accounting, forgery, and conspiracy. (Pro Economics, 2010; bustathief, 2010)
According to French bank Society Generale, due to the stock market was unstable during that time, it has help the bank discovered a $7.14 billion fraud which can say that it is one of the history's biggest fraud which is committed by a 31 years old futures trader, J. Kerviel, whose plan of the fake transactions. When the European equity markets brought losses, he hides them by changing the data in the bank's computer systems. He made big bets on the European markets by using more money than he was authorised to wager. As he worked in the security control department which monitors transaction before, so he managed to escape detection by using the knowledge gained because he knew that when the security checks were coming, and he managed to covered his tracks by creating fake transaction. At the beginning of January 2008, Kerviel bet that the European equity markets would rise. But, instead of rise, the European equity markets were dropped and this increasing his losses to the maximum point that he could no longer cover them. ( E. Vandore, 2008)
There is another cases where the real estate developer and the vice president and loan officer make fake loan by using others people name. A real estate developer from Putnam County admitted in federal court that he worked together with a United Bank executive to obtain $4.4 million in borrowing fake loans. Donald R. Carter II, 38 years old, of Poca, was pleaded guilty to one count of bank fraud and one count of tax avoidance. Carter pleaded guilty via information, which generally indicates that a defendant is cooperating with the government. As part of his appeal deal, Carter acknowledged that he bought 23 undeveloped lots in the Lamplighter Valley subdivision in Lewisburg in November 2005 for approximately $18,600 per lot. Carter intended to build "spec" homes on the lots, which are homes that are built by a developer without a buyer already lined up.
"These type of loans represent an increased risk to the lender, which is generally offset with stricter underwriting requirements and a higher interest rate on the mortgage," Carter's specification states. Together with Roy Leon Cooper, a vice president and loan officer at United Bank's Fayetteville branch, Carter developed a scheme to use his friends and family members as straw buyers to obtain mortgages on the properties. United's individual lending limits and his own financial situation prohibited him getting the loans on his own behalf, according to the condition. Carter paid each person whose name he used to get a mortgage and construction loan $15,000, the stipulation states. "Although it would appear to United Bank that the straw buyers were building 'second' homes in Lamplighter for their own use and enjoyment, none of the straw buyers ever intended to move to the Lamplighter subdivision or treat the new construction as a second home," the stipulation states. Further, none of the straw buyers intended to pay the mortgage payments or participate in the construction of the home. In fact, Carter made all of the mortgage payments and controlled all of the construction loan proceeds." Carter provided Cooper with trips to Las Vegas and use of a 2005 Toyota Sequoia as a reward, prosecutors said. Eventually, Carter received loans worth more than $4.4 million, and he had drawn down and took more than $1.9 million for personal use, which included paying gambling debts. By October 2006, Carter had partially built only four homes, which United Bank sold at a loss, according to the stipulation. The bank is still underwater on mortgages for 11 undeveloped lots. Carter also admitted that he owed more than $400,000 in back taxes. He faces up to 35 years in prison when sentenced by Berger on May 5. "These are the types of cases which inspired the creation of the President's Financial Fraud Enforcement Task Force," said U.S. Attorney Booth Goodwin in a prepared statement. "This type of fraudulent conduct can be devastating to communities. It threatens the dreams of homebuyers and ultimately undermines the security of our financial system." (Andrew Clevenger, 2011)
2.2 Automatic Teller Machine (ATM) Fraud
ATM is a machine that dispenses cash and sometimes takes deposits without the need for human bank teller. Some ATMs provide additional services. ATM allows customer to do their banking transactions from almost every other ATM machine in the world. (Automatic teller machine, C. Robat, 2006)
It is unsecured to use ATM as the potential for identity theft is a major disadvantage. ATMs do not require the customers performing the transactions to present their picture identification. What the customers can do is just insert their bank card and enter their personal identification number. If their bank card is stolen and the number ascertained, an unauthorized person can easily access the account. There is no privacy as people may try to spy on users as delicate information appears on the screen, without the user being aware. Fraudulent card readers, called skimmers, are placed over the authentic reader to transfer numbers and codes to nearby thieves. Spy cameras are also used by password voyeurs to collect access codes. Lost access cards are another potential for fraud. No doubt that the ATM perform faster than the human teller. However the ATM is cannot provide personalized instruction to the user in a way that a human teller can. This can result in longer wait times if the user currently using the machine is struggling to complete a transaction. (Disadvantages of Automatic Teller Machines, M. Wolfe, 2010; The Disadvantages of Automatic Teller Machines, D.B. Ryan, 2009)
In the 1st half year of 2009, card fraud losses down 23% to £232.8m. There are several factors that have contributed to the fall in the card fraud figures. In UK, the chip and PIN has makes the fraudster more difficult to commit fraud on their bank cards. Since the industry collation of fraud losses began in 1991, the losses at UK retailers are down by 26 per cent from the same period last year; mail non-receipt fraud fell by 33 per cent; and lost and stolen card fraud is down by 6 per cent to its lowest level. (Financial Fraud Action UK announces latest fraud figures, Financial Fraud Action UK, 2009)
The Federal Trade Commission states that people are not accountable for the illegal use of their bank card, if it is reported immediately. Consumer may lose all their funds in an account if the loss is not noticed immediately and notice is not given before money transfers are made. According to the U.S. Federal Trade Commission, if there are any incorrect withdrawals noted on monthly statements, the consumers must report it to the bank, or else consumers are responsible for the amounts, even when removed by fraudulent means. Additionally, the banking industry continues to work closely with the retail community to raise awareness of the ways in which retailers can protect their chip and PIN terminals from criminal attack. (Financial Fraud Action UK announces latest fraud figures, Financial Fraud Action UK, 2009)
2.3 Development in Telecommunication and Information technology
2.3.1 Cyber Crime and telecommunication crime
Since the electronic evolution in the telecommunication and information technology, internet banking has become more and more popular and important to the working people as they can pay their bills much more easily as they do not have to wait for a long queue just to pay for the bills. PC-banking or desktop banking that provided by the banks has become the favourite way for customer to repay their bills or do online transaction on their personal computer. The introduction of internet banking actually did provide more opportunities and new challenges to the banks. Regardless of all these possibilities, the growth of the internet banking have been slow down due to there are a variety of psychological and behavioural issues such as trust, security of Internet transactions, unwillingness to change, and preference for the internet b human boundary. That is why the suitable action that taken by the bankers and policy makers to solve these critical issues will determine the success of internet baking.
Due to there is difficult to check the identities and legality of the individuals and companies, this virtually make the fraudsters can redirect the visitors to those unreal sites and steal the personal financial information easily. By using the international dimensions of web, it is easier for those fraudsters to hide their real location and this will lead to the internet fraud growth faster than others.
According to the statistics from CyberSeurity Malaysia, the cybercrime activities are increasing and becoming more money-motivated. The current threats are exposing of systems through automated tools and online fraud, including identity theft, said by the chief executive officer Lt Col (R) Husin Jazri. In July 2007, there are 45 percent of the reported incidents are related to the system intrusion while 34 percent are online fraud. During 2006, the 2 categories of frauds have made up about 86 percent of all reported incidents. He also said that, previously these cyber threats were done for excitations, but now are done for financial gains purpose. Hackers, fraudster and criminals are working together, across borders. (Izwan Ismail, 2007)
2.3.2 Phishing
Phishing is a technique of trying to acquire sensitive information like usernames, passwords and credit details by pretending as a trustworthy entity in an electronic communication. The telecommunications that usually used by those fraudster are those popular social websites, for examples Facebook, Twitter and Friendster, auction sites, online payment processors or Information Technology (IT) administrators that are commonly used to lure the unsuspecting public. Phishing is normally carried out by e-mail or instant messaging, and it always direct users to enter details at the fake website which looks and feels are almost same as the legitimate one. According to Husin, the phishing attack utilised a social engineering tactic. The hacker will keep sending spam e-mail and messages as like those e-mails and messages were sent by those well-known local bank. The fraudulent e-mail uses convincing words to trick people into clicking on a link that will direct the users to a phishing website or fake e-banking website. As the fake website looks exactly like the original website, the customers are tricked into entering their confidential information like their e-banking usernames and passwords on the fake page. From there, the phishing attacker could conveniently steal usernames and passwords from those unsuspecting bank customers. (The Star, 2009)
2.4 Debit and Credit card Fraud
2.4.1 Debit card
Debit cards are linked directly to our back account. We can use them to buy goods or withdraw cash and the amount is taken from your account right away. The card holder can also use debit cards to get 'cash back' from shops when you buy goods and also ask for money back from the cashier, although not all shops offer this. The total amount is straight away deducted from yours account. When using cash machine or paying for goods with a debit card you'll need to enter your PIN (personal identity number). When buying goods you usually enter it into an electronic hand held device, but in some cases you may have to sign. Most bank accounts offer debit cards. Most debit cards double up as 'cheque guarantee cards', guaranteeing that your cheque will be honoured by your bank up to a stated amount. (Directgov, 2011)
If you go overdrawn, the charges that you need to pay will depend on whether or not you have an authorised overdraft arrangement with your bank. If you do, you will pay the agreed amount of interest at the end of each month. This is usually much lower than interest charged on credit cards. If you do not have an overdraft agreement, or you exceed the agreed limit, your bank may allow the payment to go through but you'll usually pay much higher fees than if you had an agreed overdraft. (Directgov, 2011)
(a) Advantages of using Debit card
In UK, we no need to carry lot cash with us when we are going out. This is because about every merchant or shop also will accept the debit card including the dollar store and some thrift shops. Thus, we do not need to worry about losing cash or misplacing it. If our purse or wallet is stolen, our money is safe since the perpetrator would need out PIN number to access our fund. With debit card, we do not need to make a trip to bank every time we want to withdraw money. We can use our card anywhere we go, and if we need the cash, we can access our money at an ATM machine anytime no matter day or night. (A.Bodine, 2006)
(b) Disadvantages of using debit card
We always have to keep our account up-to-date and accurate. We have to record every transaction that we have made so that we will know what our bank account balance is all the time. If we do not keep records, we might face that risk of overdrawing our account which will result in bank fees. If we just need to buy food or pay for cheaper things, we cannot just hand the debit card to the store or stall as they will not have the machine to do so. Then, we have to drive to the nearest ATM machine to draw the money out and pay for it. Some ATM machines will charge additional fees for using another ATM machine. (A.Bodine, 2006)
2.4.2 Credit card
Credit Card is an Automatic advanced card, when you used it, you can get the goods you bought without paying for it yet. A credit card is a form of borrowing. Firms lending money to customers must be licensed by the Office of Fair Trading (OFT) under The Consumer Credit Act 1974. The Act requires certain credit and hires agreements to be set out in a particular way and to contain relevant information for the person borrowing. Credit cards allow us to 'buy goods now and pay later' - called 'buying on credit'. They aren't linked to our bank account. Like debit cards, they can be used to buy goods in shops over the telephone and internet, with the same details being required. You can also get a 'cash advance' by drawing money at bank cash machines. Credit cards are a widely used source of convenient credit for restaurants, hotels, mail order, on-line shopping, gasoline stations, grocery stores, dental and medical care, church bazaars, as well as telephone and television advertised products. There are many advantages and disadvantages of using credit cards, but the consequences of misuse can be drastic and painful. Your bank may offer you a credit card, or you can apply for one to any institution offering one. The credit card provider will normally run checks to see if you've had problems repaying debts before offering you one (called a 'credit check'). (Directgov, 2011; A. Paulino, 2008)
(a) Advantages of Credit card
By using credit card, we do not need to carry large sums of cash when we are away from home, and when we need money, we can often receive a cash advance or have the option of buying traveler's cheques with a credit card.
-Places that are suspicious of personal checks often take credit cards.
-Credit cards act as a short-term loan if you find something that is a bargain and haven't the cash or balance in your checking account to pay for it.
-If you move to a new place, credit cards give you purchasing power until you establish yourself as a good risk in a new community.
-If you charge an item or service that costs $50 or more in Colorado (or within 100 miles of your home) and later discover it doesn't work or has other problems, you can withhold payment from the credit card company if you have attempted to resolve the problem with the merchant.
-You often get the best rates of exchange when traveling in foreign countries if you use your credit card for purchases and your ATM card to get cash. Check with your card issuers about surcharges before you leave on your trip. A two to three percent surcharge may eliminate this advantage.
-Credit cards can help coordinate receipts for tax purposes.
-Bookkeeping is reduced to one monthly bill as opposed to checks.
Disadvantages
Some people have been swindled by giving their credit card numbers to dishonest salespeople over the phone.
It becomes a loan when the credit becomes due and you do not pay for it.
Adding monthly interest charges means you pay more for the goods and services.
Consumers often have more than one credit card and each one has a credit limit. When the credit limits for all cards are added up, the total can be in the thousands of dollars. Consumers can fall into the habit of using credit cards to extend their income.
Credit cards are easier to use than applying for loans even when a loan from a credit union, bank or other financial institution may provide the funds at a lower interest rate.
risks of using a credit card
Think carefully before using a credit card. If you don't repay your bill in full by the date shown you're charged interest on the whole amount of the bill for that month. The rates of interest - indicated by the APR (annual percentage rate) - can be very high indeed.
If you take cash out with a credit card you're charged daily interest from the moment you take out the cash until the credit card bill is paid in full. This is an expensive way of borrowing money.
Some credit cards also charge you an annual fee simply for having the card.
If you can't afford to repay your credit card bill you could quickly fall into debt. Find out more about what to look out for with credit cards in our related article below.
Chapter 3 Research Methodology
3.0 Theoretical Framework
Independent Variable
Insider Fraud
ATM Fraud
Cyber Crime and telecommunication crime
Debit and Credit card Fraud
Dependent Variables
Financial Institution Fraud
(Bank Fraud)
3.0.1 Introduction
A theoretical framework is a collection of interrelated concepts, like a theory but the framework is not necessarily worked-out well. It is a foundation for the parameters, or boundaries, of a study. Once these themes are established, researchers can seek answers to the topical questions they have developed on broad subjects. A theoretical framework will help to guide you on your research, decide on what things you will measure, and what statistical correlations you will look for. With a framework, they can resist getting off track by digging into information that has nothing to do with their topic. Often researchers are curious about broad subjects but with a theoretical framework they can stay tightly within the theme or topic. (Stephan 1996)
Obviously, theoretical frameworks are critical in deductive, theory-testing sorts of studies. In those kinds of studies, the theoretical framework must be very specific and well-thought out. Surprisingly, theoretical frameworks are also important in exploratory studies, where you really do not know much what is going on, and are trying to learn more. There are two reasons why theoretical frameworks are important here. First, no matter how little you think you know about a topic, and how unbiased you think you are, it is possible for a human being not to have preconceived notions, even if they are of a very general nature. For example, some people fundamentally believe that people are basically lazy and untrustworthy, and you have to kept your wits about you to avoid being conned. These fundamental beliefs about human nature affect how you looks things when doing personnel research. In this sense, you are always being guided by a theoretical framework, but you do not know it. Not knowing what your real framework is can be a problem. The framework tends to guide what you notice in an organisation, and what you do not notice. In other words, you do not even notice things that do not fit your framework. We can never completely get around this problem, but we can reduce the problem considerably by simply making our implicit framework explicit. Once it is explicit, we can deliberately consider other frameworks, and try to see the organizational situation through different lenses.
3.0.2 Variables
Variables are characteristics of cases. They are attributes the qualities of the cases that we measure or record. For example, if the cases are persons, the variables could be sex, age, height, weight, feeling of empowerment, math ability, etc. Variables are called what they are because it is assumed that the cases will vary in their scores on these attributes. For example, if the variable is age, we obviously recognize that people can be different ages. Of course, sometimes, for a given sample of people, there might not be any variation on some attribute. For example, the variable 'number of children' might be zero for all members of this class. It's still a variable, though, because in principle it could have variation.
3.0.2.1 Dependent Variable
In any particular study, variables can play different roles. Two key roles are independent variables and dependent variables. Usually there is only one dependent variable, and it is the outcome variable, the one you are trying to predict. Variation in the dependent variable is what you are trying to explain. For example, if we do a study to determine how frauds happen in banking services, frauds is the dependent variable.
3.0.2.2 Independent Variable
The independent variables, also known as the predictor or explanatory variables, are the factors that you think explain variation in the dependent variable. In other words, these are the causes. For example, people will think that most of the frauds happen because the bank staffs sell their customers' information to others. So, Insider frauds are the independent variables and the fraud is the dependent variable.
There are actually two other kinds of variables, which are basically independent variables, but work a little differently. These are moderator and intervening variables. A moderator variable is one that modifies the relationship between two other variables.
3.1 Research Approach
3.1.1 Secondary data
Secondary data is information that already collected for general needs such as census data and it is readily available in published form. (M. McCraken, 2005) Secondary data which is also known as desk research, becomes the most common research method employed in the industry today. It involves processing data that has already been collected by another party. With this form, researchers will consult previous studies and findings such as reports, press articles and previous market research projects in order to come to a conclusion. The relatively low expense in comparison to primary research is the main advantage of this research as no new research needs to be commissioned. However, its main disadvantage is that the data used in the analysis may be out-dated and therefore return inaccurate results. Furthermore, previous studies may not have targeted the exact issue that the current research requires. (DJS Research, 2011)
3.1.1.1 Advantages of Secondary data
(1) Time saving and Cost saving
The time used for researching using the secondary data collection techniques is far less if compared with the primary data collection technique because it allows the researchers to analyze the information directly cited from the sources without any data collection process to be carried out. It is comparative cheaper by collecting secondary data than primary data as it avoids high costing, which is usually needed in primary data collection technique such as printing, labour and postage cost. Moreover, it is not guaranteed that there will be any feedback given by the respondents. It consumes a lot of labour and expenses to carry out the primary data as after the data collection, the company have to hired people to analyse the data that have been collected and make it into report and all this is time and cost consuming if compared to the secondary data.
(2) Convenience
It is more convenient as compared with primary data collection techniques because it is possible to avoid unnecessary complexity and complicated procedures such as constructing questionnaires and follow up actions. It provides easier ways to obtain data through internet search engine and library.
However, it is necessary o evaluate the quality sources and data available as the existence of disadvantages in the secondary data collection technique must not be overlooked. The main disadvantages are categorized as below.
b) Disadvantages of secondary data
(1) Reliability
The reliability of published statistics may vary over time. It is not uncommon, for example, for the systems of collecting data to have changed over time but without any indication of this to the reader of published statistics. Geographical or administrative boundaries may be changed by government, or the basis for stratifying a sample may have altered. Other aspects of research methodology that affect the reliability of secondary data is the sample size, response rate, questionnaire design and modes of analysis. (FAO Corporate Documentary, 2011)
(2) Bias resources
Researchers have to be aware of vested interests when they consult secondary sources. Those responsible for their compilation may have reasons for wishing to present a more optimistic or pessimistic set of results for their organisation. It is not unknown, for example, for officials responsible for estimating food shortages to exaggerate figures before sending aid requests to potential donors. Similarly, and with equal frequency, commercial organisations have been known to inflate estimates of their market shares. (FAO Corporate Documentary, 2011)
(3) Time scale
Most censuses take place at 10 year intervals, so data from this and other published sources maybe out-of-date at the time the researcher wants to make use of the statistics. The time period during which secondary data was first compiled may have a substantial effect upon the nature of the data. For instance, the significant increase in the price obtained for Ugandan coffee in the mid-90's could be interpreted as evidence of the effectiveness of the rehabilitation programme that set out to restore coffee estates which had fallen into a state of disrepair. However, more knowledgeable coffee market experts would interpret the rise in Ugandan coffee prices in the context of large scale destruction of the Brazilian coffee crop, due to heavy frosts, in 1994, Brazil being the largest coffee producer in the world. (FAO Corporate Documentary, 2011)
