Automated Forensic Auditing And Fraud Control
(A Case study of the economic and financial crimes commission, portharcourt, Nigerian)
Automated forensic auditing and fraud control represent a pivotal evolution in the realm of financial oversight and risk mitigation. Leveraging advanced technologies such as artificial intelligence, machine learning, and data analytics, these systems can swiftly analyze vast amounts of financial data to identify irregularities, anomalies, and potential instances of fraud. By automating tedious manual processes, such as transaction monitoring and pattern recognition, these tools not only enhance the efficiency of auditing procedures but also enable organizations to proactively detect and prevent fraudulent activities. Furthermore, the continuous monitoring capabilities of automated systems facilitate real-time detection, allowing for timely intervention and mitigation of risks. Overall, the integration of automation in forensic auditing and fraud control significantly strengthens organizations’ ability to safeguard their assets and uphold integrity in financial operations.
The topic “Automated forensic auditing and fraud control in Nigeria” is a critical concept in modern days accounting, and our country Nigeria is not left out in its practice. This research aims at pointing out the rationale behind fraudulent practices as well as examining the role of automated forensic auditing on fraud control. A survey research design was adopted for this research study and the sample size was selected using Taro Yamane sampling technique as data used were obtained from both primary and secondary sources. Four research questions were formulated out of which three hypotheses were tested using the (ANOVA) statistical technique. From the analysis, the major findings derived were that; Automated forensic auditing has significant relationship with fraud control as it helps in the detection and prevention of fraud; There are measures employed to solve the problems of insufficient documented materials necessary for investigating suspects as it helps to foster investigative process; There are standards set for improving on techniques used for obtaining evidence. Conclusively, it can be said that fraud control in Nigeria cannot do without forensic accounting; fraud detection may not be possible in Nigeria if management of different levels are not committed to do an indebt study of a financial statement i.e. having a physical check of assets and liabilities. It was recommended that; The internal control system of every organizations should be strengthened through regular audit; training of forensic auditors should be done regularly, and also seminars should be organized to encourage the use of automated tools.
Title page i
Certification ii
Dedication iii
Acknowledgments iv
Abstract v
Table of contents vi
CHAPTER ONE:
INTRODUCTION 1.0
Introduction 1.1
Background of the study 1.2
Statement of the problem 1.3
Statement of the objectives 1.4
Research question 1.5
Research hypotheses 1.6
Significance of the study 1.7
Scope of the study 1.8
Limitations of the study 1.9
Definitions of terms
CHAPTER TWO:
REVIEW OF RELATED LITERATURE 2.0
Introduction 2.1
Academic review 2.2
Fraud deterrence and detection 2.3
Elements of fraud 2.4
Types of fraud 2.5
Fraud theories 2.6
Antidotes to fraud 2.7
Fraud risk management 2.8
The fraud teams 2.9
Forensic auditing 2.10
Application of forensic audit 2.11
Investigative audits 2.12
Automated forensic tools 2.13
The significant of automated tools 2.14
Differences between forensic and financial audit 2.15
Advantages of forensic auditing to fraud control 2.16
Disadvantages 2.17
References
CHAPTER THREE:
RESEARCH METHODOLOGY 3.0
Introduction 3.1
Research design 3.2
Sources of data collection 3.3
Area of the study 3.4
population of the study 3.5
Determination of sample size 3.6
Reliability test 3.7
Validity test 3.8
Method of data analysis 3.9
References
CHAPTER FOUR:
DATA PRESENTATION, ANALYSIS AND IMPLEMENTATION 4.1
Presentation of data 4.2
Test of hypotheses 4.3
References
CHAPTER FIVE:
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION 5.1
Summary of findings 5.2
Conclusion 5.3
Recommendation 5.4
References
Appendix 1
Appendix 11
Bibliography
INTRODUCTION
Mobile wise geek (2011) defined fraud as a deliberate
misrepresentation that causes a form of monetary losses. All of these are usually
required for an act to be considered fraud, if someone lied about his name.
United states legal (2011), defined fraud an international misrepresentation
of material existing facts made by one person to another with the knowledge of its
falsity and for the purpose of inducing the other person to act, and upon which the
other person relies with resulting injuries or damages.
Fraud has been in existence from the beginning of creation, and the
increase of fraud on daily basis brought about forensic auditing.
Forensic auditing is defined as the activity that consist of gathering,
verifying, processing, analyzing of and reporting of data in order to obtain facts
and /or evidence in the area of legal of financial disputes and or irregularities
including fraud and giving preventative advice. IFA (2011).
Fraud is an independent criminal offence, and it is the main phenomenon that
gave birth to forensic auditing, especially those related to economic crime. These
economic crimes are known to be an unpleasant fact and a disheartening issue in
the heart of many organizations, and the control of it, is a concern for any
organization that employs employees, accountants or other hired professional that
have access to the organization’s income, receipts or funds.
Therefore, we are faced with the inescapable conclusion that forensic
auditors are charged with the responsibility of controlling and preventing those
fraudulent practices.
1.1 BACKGROUND OF THE STUDY
Brief History of Economic and Financial Crime Commission (EFCC)
The Economic and Financial Crime Commission (EFCC) has grown to a
robust and reputable national institution that now commands respect. They have
gained the admiration of Nigerians and tge international community as a whole as
the most vibrant anti-corruption fighting organization that has fought corruption to
a standstill within the short time of its existence.
Over the years, Nigeria suffered tremendously in her economy in the hands of
corrupt leaders who for selfish reasons reduced a country like Nigeria which is rich
in oil to one of the poorest countries in the world. All these brought about the
establishment of EFCC.
i. Formation of the Economic and Financial Crime Commission (EFCC)
The Economic and Financial Crime Commission (EFCC) was established in
2003 by the Economic and Financial Crimes Commission Act 2002, and re
enacted in 2004 by the Act as a body corporate with perpetual succession and
common seal. It has its headquarter at No 5 Fomella Street, Off Crescent, Wuse 11,
Abuja. With Nuhu Ribadu as the first executive chairman until 2008 he was
replaced by Fomida Waziri, and Mr. Ibrahim Lamorde was appointed the chairman
of the commission on 15th February 2012 and he is still the substantive chairman
till date.
Its establishment was partially in response to pressure from the financial task
force on money laundering (FATF), which named Nigeria as one of the 23
countries non-corporative in international communities’ effort to fight money
laundering.
ii. Vision statement: To make Nigeria a safe and corrupt free business
environment for sound health and positive image of the country.
iii. Mission statement: The mission statement of the commission includes;
a. To curb the menace of corruption that constitutes the cog in the wheel of
progress of Nigerians.
b. To protect national and foreign investments in the country.
c. To imbibe the spirit of hard work in the citizenry and discourage ill-gotten
wealth.
d. To identify illegally acquired wealth and confiscate it.
e. To build an upright workforce in both public and private sector of the economy.
f. To contribute to the global war against financial crimes and terrorism financing
in Nigeria.
1.2 STATEMENT OF THE PROBLEM
In this study, there are certain problems that are related to the application of
forensic auditing and the include;
1. Insufficient skilled manpower for the use of automated tools or software.
2. Insufficient documented materials for investigating suspects.
3. Inadequate techniques for obtaining evidence.
4. High cost of analysis.
1.3 STATEMENT OF OBJECTIVES
The general objectives of the study, is to examine the role of automated
forensic auditing on fraud control, while the specific objectives of the study are as
follows.
1. To determine why there are insufficient skilled manpower needed for operating
automated tools.
2. To investigate the reasons for insufficient documented materials.
3. To examine the cause of not obtaining enough techniques used as evidence.
4. To evaluate the reasons for high cost of analysis.
1.4 RESEARCH QUESTION
Based on the foregoing, the following research questions were formulated:
i. Is there any significant relationship between automated forensic auditing and
fraud control?
ii. Are there methods adopted to adequately train forensic auditors with
investigative skills?
iii. Are these measures employed to solve the problem of insufficient documented
materials necessary for investigating suspects?
iv. Are these standards set for improving on techniques that are meant for
obtaining evidence?
1.5 RESEARCH HYPOTHESES
The following are the hypotheses to be tested.
Ho1: There is no significant relationship between automated forensic auditing and
fraud control.
HA1: There is a significant relationship between automated forensic auditing and
fraud control.
Ho2: There are no methods adopted to adequately train forensic auditors with
investigative skills.
HA2: There are methods adopted to adequately train forensic auditors with
investigative skills.
H03: There are no measures employed to solve the problem of insufficient
documented materials necessary for investigating suspects.
HA3: There are measures employed to solve the problem of insufficient
documented materials necessary for investigating suspects.
1.6 SIGNIFICANCE OF THE STUDY
This study of forensic auditing will be helpful to the following categories of
users.
For Management: It will serve as a reference document for management to use as
a guide for investigating and controlling fraud.
For Auditors: It will serve as a revision kit for practicing auditors in the field.
For the Public: It will add to existing knowledge by exposing the public on the
matter of fraud, making them know that even if fraud cannot be completely
eradicated, it can be controlled.
For Researchers/Analyst: It will serve for future research study.
1.7. SCOPE OF THE STUDY
This study covers the activities of the Economic and Financial Crime
Commission (EFCC), in Nigeria, especially the branch that is situated in Port
Harcourt.
1.8. LIMITATIONS OF THE STUDY
This research work was faced with certain challenges owing to the fact that
the topic in question is not yet widely known. VI2:
i. Inadequate Materials: This was the major constraint of the research work, for it
was limited to few materials and mainly on internet.
ii. Time Factor: This is another factor that limited the flow of this research work.
Time factor is a constraints limitation the study. Inadequate time to work due to
some school activities that restricts student from going out to research.
iii. Distance: The different location of where the materials are to be gathered from
posed a problem to this work, since it requires going from one accounting firm to
another to gather facts relating to the topic.
iv. School Exeat: Here getting permission to sign out of school is a very big
problem to the researcher. School exeat sometimes limits us student from gathering
enough material for our work.
v. Fund: This serves as a major constraint to the research work. Enough funds are
required in getting materials for this work.
1.9. DEFINITION OF TERMS
AUTOMATION: This is the use of control systems and information technology to
reduce the need for human work in the production of goods and services.
FORENSIC: Belonging to, used in or suitable to courts of judicature.
FRAUD: Irregularities involving the use of criminal detection to obtain unjust or
illegal advantage.
Automated Forensic Auditing And Fraud Control:
Automated forensic auditing and fraud control are essential components of modern financial management and security practices. These processes leverage advanced technology and data analytics to detect and prevent financial fraud, irregularities, and mismanagement. Here’s an overview of each:
- Forensic Auditing:
- Definition: Forensic auditing is a specialized form of auditing that focuses on investigating financial records, transactions, and data to uncover fraud, financial misconduct, or other irregularities.
- Process: Automated forensic auditing employs various techniques and tools to analyze large volumes of financial data. It often includes data mining, statistical analysis, pattern recognition, and anomaly detection.
- Key Components:
- Data Collection: Gathering financial data from various sources, including transaction records, invoices, bank statements, and digital records.
- Data Analysis: Using advanced data analytics to identify unusual patterns, discrepancies, or red flags that may indicate fraudulent activities.
- Evidence Gathering: Collecting and preserving digital evidence to support legal actions, if necessary.
- Reporting: Presenting findings and recommendations to stakeholders or law enforcement agencies.
- Tools: Automated forensic auditing relies on specialized software and tools such as data analytics platforms, forensic accounting software, and digital forensics tools.
- Fraud Control:
- Definition: Fraud control refers to the strategies and measures put in place to prevent, detect, and respond to fraudulent activities within an organization.
- Methods:
- Preventive Measures: Implementing controls and policies to reduce the likelihood of fraud, such as segregation of duties, authorization processes, and employee training.
- Detective Measures: Using automated systems and monitoring to identify potential fraud as early as possible. This may include transaction monitoring, anomaly detection, and audit trails.
- Corrective Measures: Responding to detected fraud incidents, including investigation, disciplinary action, and legal prosecution if necessary.
- Technology: Automated fraud control relies heavily on technology, including:
- Fraud Detection Systems: Software that analyzes transactional data in real-time to identify suspicious activities.
- Machine Learning and AI: Advanced algorithms that can learn from historical data to detect emerging fraud patterns.
- Blockchain: For enhancing transparency and reducing fraud risk in specific industries like finance and supply chain.
The benefits of automating these processes include:
- Efficiency: Automation can analyze vast amounts of data quickly and accurately, reducing the time required for auditing and fraud detection.
- Consistency: Automated systems follow predefined rules consistently, minimizing the risk of human error.
- Timeliness: Real-time monitoring and detection can help prevent ongoing fraud or financial misconduct.
- Scalability: Automation can handle increasing volumes of data and transactions as organizations grow.
- Advanced Analytics: Automated systems can use advanced analytics and machine learning to detect complex fraud patterns that might be missed by manual processes.
However, it’s important to note that while automation can greatly improve fraud control and forensic auditing, it should be used in conjunction with sound internal controls, regular audits, and employee training to create a comprehensive fraud prevention strategy. Additionally, organizations must balance the benefits of automation with privacy and data security considerations to ensure that sensitive financial data is protected.