Forensic Accounting Tools And Techniques For Financial Fraud In Ministries, Departments And Agencies Of Nigeria

Introduction

1.1 Background to the Study

Fraud is a severe problem of concern globally. It is a major concern in developing nations. It is so endemic that fraud are gradually becoming a normal way of life in both public and private sectors, from the presidential cabinets, down to the political officer, to the ward councilors, from managing directors of companies, through middle management cadre and to lower managers. Individuals perpetrate fraud according to the capacity of their offices. Although fraud affects the whole world, the magnitude of fraud in Nigeria and the extent to which the economy is affected is a call for alarm (Abiola, 2009). Fraud has been associated with human organization from recorded history. The eradication of which has remained elusive in most parts of human society and civilization. It is an act of deception intended for personal gain or to cause a loss to another party. Seetharaman, Sentivelmurugan and Periyanagam (2004) observed that an analysis of the characteristics of perpetrators showed that the fraud influencing factors include age, gender, position education background and existence of motive for collusion. The growth of digital computer technology procreates fraud and generates additional risks of swindling and illicit activities.
There has been an increased concern about fraud in Nigeria and beyond. For instance the oil subsidy probes in Nigeria which reveals that between 2007 and 2009, the Nigerian National Petroleum Corporation (NNPC) over deducted funds in subsidy claim to the tune of N28.5billion naira calls for concern (Oboh, 2012).

However, the Auditor-General of the Federation admitted some anomalies in the operations of Federal Inland Revenue Services (FIRS). According to him, the audit examination of the accounting records maintained for the Federation Account of FIRS revealed that the collecting banks were in the habit of late remittance of actual collection to the CBN thereby contravening the agreement between FIRS and collecting banks. Also, there was no documentary evidence to authenticate the payment of the penalties and interests amounted to N172, 655 million to the Federation account in 2009. The Auditor-General added that some money generated from over recovery was not remitted to the Federation (Oboh, 2012).

In the case of Nigeria Custom Services (NCS), the report states “audit examination of the records maintained for the Federation Account as the NCS revealed discrepancies between the figures of revenue obtained from the customs, and the figures of revenue remitted to the federation account by NCS” (Orkura, 2009). The discrepancies arose from figures of nine months, which indicated that NCS remitted less than the revenue collected during the period to the government. While the figures for the three months March, October and November indicated that NCS remitted more than the revenues collected during the period to the Federation Account, which gave a total net difference of N11.122 billion, the report stated (Orkura, 2009).

The fraud cases mentioned above and some other corporate financial accounting scandals such as Enron, WorldCom, Global Crossing, Tyco, Cadbury and financial scams by some Nigerian Government officials as reported by Economic and Financial Crimes Commission (EFCC) have continued to increased concerns about fraud, wiped out billions of dollars of shareholders value and led to the erosion of investors’ confidence in financial markets and reduced public trust in government.

Fraud has had severe negative consequences on Nigeria, ranging from negative economic impact to negative national image (Ribadu, 2003). Looking at the recent frauds in Nigeria, in each case the perpetrators are the people at the helm of affairs, for example the aviation scam of N5.6 billion in 2009 was perpetrated by the then Minister of Aviation(Ojeme, 2010). The N2 billion Bayelsa State frauds in 2010 were perpetrated by the then Bayelsa state Commissioner of Finance, the state accountant general, the state’s Director of Treasury, and the Director of Finance (Ojeme, 2010). The Kogi State’s N1.9 billion scam was committed by commissioners for Local Government and Chieftaincy Matters and Agriculture respectively, and Local Government Chairman (Ojeme, 2010). The capital market fraud (share cloning) which started in 2002 was perpetrated by the executives of Bankolans investment limited and so on (Ojeme, 2010).

From 2009-2010, Nigeria lost N13.8 billion to various financial scams (Onyeje, 2009; EFCC media report, 2010 adopted from Oboh, 2012). What all these tend to expose is that there is a management or operational problem in the Nigeria public sector in the area of financial or accounting control. Thus, one needs not wonder much to see how devastatingly frauds have compromised the administrative competence, performance capacity and general credibility of the public sector. Initial estimates of major projects become little fractions of ultimate costs paid; original cash projections produce less than half of the benefits expected and projects which seemed technically feasible and economically viable, turned out “while elephant” if not abandoned, with serious implications for growth and development.

Literature reviewed that forensic accounting has helped to uncovered and reduced fraud in countries such as Britain, Canada, Germany and United State where it is in use but no research has been done in Nigerian public sector. It has become pertinent that the forensic accounting skills and techniques could help to investigate fraud occurrence since the external auditors do not or may not have the required training to be able to tackle modern frauds like white collar crimes such as security fraud, embezzlement, bankruptcy, contract disputes, and possible criminal financial transactions; including money laundering by organized criminals. It is against this background that this study seeks to examine forensic accounting tools and techniques for financial fraud in ministries, departments and agencies of Nigeria.

1.2 Statement of the Problem

Recently, series of fraud have been committed both in the public sector and private sector of the economy. These in no doubt are perpetrated under the supervision of the internal auditors of the organization. It suffices to say that the independent of the internal auditor is not guaranteed because he works as an employee of the government or organization. Then come the idea of external auditors, yet frauds are still being committed on a daily basis.

The above scenario indicated that as more and more development both in the information Communication Technology (ICT) world and other fields, so fraudsters continue to groom their own tactics towards fraudulent practices.

It now become pertinent that forensic accounting be introduced and practices since the external auditors do not or may not have the required training to be able to tackle modern frauds like white collar crimes such as security fraud, embezzlement, bankruptcies, contract disputes and possibly criminal financial transaction; including money laundering by organized criminals, also is the ability of the forensic accountant to provide litigation support and investigative accounting. These areas have become a complex area of concern for the accounting profession.

1.3 Objectives of the Study

The general objective of this study is to examine on forensic accounting tools and techniques for financial fraud in ministries, departments and agencies of Nigeria.

However, the specific objectives are to:

Ascertain the extent forensic accounting tools and techniques is being adopted in ministries, departments and agencies of Nigeria.

Identify the causes and patterns of financial fraud in ministries, departments and agencies of Nigeria.

Determine whether there is a significant relationship between the adoption of forensic accounting and financial fraud detection in ministries, departments and agencies of Nigeria.

Identify the forensic accounting tools and techniques required for effective detection of financial fraud in ministries, departments and agencies of Nigeria.(Data Analytics, Fraud Risk Assessment, Forensic Audits, Digital Forensics, Asset Tracing and Recovery)

Determine the extent the identified forensic accounting tools and techniques are relatively employed for financial fraud detection in ministries, departments and agencies of Nigeria.

Determine the factors militating against the effectiveness of forensic accounting tools and techniques in ministries, departments and agencies of Nigeria.

1.4 Research Questions

This study shall attempt to provide answers to the following questions.

What is the extent forensic accounting tools and techniques is being adopted in ministries, departments and agencies of Nigeria.

What are the causes and patterns of financial fraud in ministries, departments and agencies of Nigeria.

Is there a significant relationship between the adoption of forensic accounting and financial fraud detection in ministries, departments and agencies of Nigeria.

What are the forensic accounting tools and techniques required for effective detection of financial fraud in ministries, departments and agencies of Nigeria.(Data Analytics, Fraud Risk Assessment, Forensic Audits, Digital Forensics, Asset Tracing and Recovery)

What is the extent the identified forensic accounting tools and techniques are relatively employed for financial fraud detection in ministries, departments and agencies of Nigeria?

What are the factors militating against the effectiveness of forensic accounting tools and techniques in ministries, departments and agencies of Nigeria?

1.5 Research Hypothesis

Ho: There is no significant relationship between the adoption of forensic accounting and financial fraud detection in ministries, departments and agencies of Nigeria.

Ha: There is a significant relationship between the adoption of forensic accounting and financial fraud detection in ministries, departments and agencies of Nigeria.

1.6 Significance of the Study

This study would show the significance of forensic accounting in fraud control, improving financial reporting and internal control. This study would make accountants to be alert to potential fraud and other illegal activities while performing their duties. It would also enable them to provide significant assistance in preventing, investigating and resolving financial crime issues.

This study would also benefit the Institute of Chartered Accountants of Nigeria, Association of National Accountants of Nigeria and the National Universities Commission by encouraging them into the formalization of forensic accounting field and specialization. The study would also benefit the government in developing interest in forensic auditing for monitoring and investigation of suspected corruption cases. It would help the government through the National Assembly in enacting a law to make forensic accounting/audits a statutory requirement for publicly quoted companies. The study would serve as an encourager to accountants towards more acquisition of training in forensics to enable them carry out this investigative aspect of fraud perfectly and be in a position to offer advises that could unravel those issues which has mitigated quality assurance of financial statements. The study would help organizations to employ forensic accountants to fortify the internal control of various organisations while reports are benchmarked against the fundamental and enhancing qualitative attributes in order to appreciate organisations that have adhered to the requirements.

1.7 Scope of the Study

This study is structured to generally examine forensic accounting tools and techniques for financial fraud in ministries, departments and agencies of Nigeria. Geographically , this study would be limited to Imo State.

1.8 Limitation of the Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.

Moreover, the case study method utilized in the study posed some challenges to the investigator including the possibility of biases and poor judgment of issues. However, the investigator relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges.

1.9 Definitions of Terms

Forensic:

According to Mariam Webster’s Dictionary, forensic is “belonging to, used in, or suitable to courts of judicature or to public discussion and debate”.

Forensic Auditing:

The Association of Chartered Certified Accountants (ACCA) defines forensic auditing as “specific procedures carried out in order to produce evidence.

Forensic Accounting:

Investopedia defines forensic accounting as “utilizing accounting, auditing and investigative skills to conduct an examination into a company’s financial statements.

Financial Accounting:

Averkamp (2004) defines financial accounting as “a specialized branch of accounting that keeps track of a company’s financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet.”

Accounting:

According to Smith and Ashburne, “accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are, in part at least, of a financial character and interpreting the result thereof”.

Fraud:

Mariam Webster’s dictionary defines fraud “as an intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right”.

1.10 Organization of the Studies

The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study, sample size determination, sample size, and selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter(chapter five) contains the summary, conclusion and recommendation.