Forensic Auditing And Financial Fraud In Nigerian Deposit Money Banks (DMBS)

Introduction

1.1 Background of the Study

Corporate organisations like banks are essentially social-technical devices made up of people and physical actors who process inputs and at the same time execute some functions and / or tasks that lead to the accomplishment of certain goals and these stakeholders who are probably within and / or outside the organisations may for various reasons have engaged in fraudulent financial activities (Akenbor and Oghoghomeh, 2013). The Nigerian banking sector is one of the most controlled and regulated sectors. In spite of this, fraud has continued to rear its ugly head in the sector. Fraudulent financial activities are illicit activities committed with the purpose of acquiring riches either individually, in group or organised manner thereby violating existing legislation or accounting policies governing the economic activities and administration of the organisation (Yio and Cheng, 2004).

Globally, the occurrence of fraud in corporate organisations is becoming rampant and this can be shown in the large number of reported cases of bribery, corruption, embezzlement, money laundering, racketeering, fraudulent financial reporting, tax evasion, forgery and other means through which both financial and economic dishonesty are being perpetrated (Ofiafoh and Otalor, 2013). The accounting profession had already undergone radical changes as a result of the Enron and WorldCom debacles as well as other accounting scandals (Cotton, 2000). Hence, with the spotlight on the accounting profession, a new market with a new breed of accountants (forensic accountants) has emerged. Today, the occurrence of fraud and other financial crimes have gone sophisticated and even the advent of computerisation together with the introduction of internet facilities have enhanced the problem of financial crimes. The detection and / or reduction of these fraudulent activities are made more difficult and committing these crimes much easier. Hence, Onodi, Okafor and Onyali (2015) are of the opinion that forensic investigative skills are required to uncover and establish the occurrence of financial crimes.

The Centre for Forensic Studies (2010) states that if well applied, forensic auditing could be utilised to reverse the leakages that cause corporate failures. This can be attributed to the fact that proactive forensic auditing practice seeks out errors, operational vagaries and deviant transactions before they crystallise into fraud. This study focused on both management and employees frauds. The management fraud include fraudulent disbursements, window dressing, creative accounting and soon while employees fraud include asset / cash theft, teeming and lading (roll over fraud) and soon. The problem of fraud in banking industry is not limited to any economy, nation, continent or an environment; it is a general phenomenon. The origin of bank failure in Nigeria can be traced to the 1930s bank failure and crises (Owolabi, 2010). Nwankwo (1992) writes that “the crises of confidence in Nigerian banking industry is not a new one, it has been with us for quite a long time. In Nigeria now, the level of fraud in Deposit Money Banks has reached an alarming peak. The Nigerian Deposit Insurance Corporation (NDIC) annual report for the year 2014 revealed that the increase in expected/actual loss in fraud and forgeries was mainly due to the astronomical increase in the occurrence of web-based (online banking)/ATM and fraudulent transfer/withdrawal of deposit frauds.

The incidence of fraud and misappropriation of funds in recent time pose a threat to traditional auditing as a branch of accounting profession because of its perennial nature and this has resulted to the question as to whether the statutory auditing actually play a significant role towards the attainment of accountability and prevention of fraud especially that which was recently witnessed in our commercial banks. Statutory audit appears to have shown a lack of concern and reflective attitude towards fraud fighting, thereby failing to offer the public desirable assurance to handle corruption and fraud (Akhidime and Ugbale-Ekatah, 2014) cited in (Okolie and Taiwo, 2014).

The gap identified by this present study is the failure of traditional auditing to combat the occurrence of fraud and other financial crimes in the Nigerian banking industry. Hence, this study examined the effect of forensic auditing on financial fraud in Nigerian Deposit Money Banks (DMBs) using logistic regression analysis and with particular focus on DMBs, audit firms and the Abeokuta zonal branch of the Central Bank of Nigeria (CBN) all in Abeokuta, Ogun State, Nigeria.

1.3 Objectives of the Study

The core objective of this study is to ascertain the effect of forensic auditing on financial fraud in Nigerian DMBs. Hence, from the study’s main objective, the following specific objectives are addressed;

To ascertain the effect of forensic audit on financial fraud in Nigerian DMBs.

To find out whether forensic audit report can enhance court adjudication on financial fraud in Nigeria.

1.4 Research Questions

What is the effect of forensic audit on financial fraud in Nigerian DMBs?

What is the effect of forensic audit report on the enhancement of court adjudication on financial fraud in Nigeria?

1.5 Statement of the Hypotheses

The following hypotheses were tested in the course of the study;

HO1: Forensic audit has no significant effect on financial fraud control in Nigerian Deposit Money Banks.

HO2: Forensic audit report has no significant effect on the enhancement of court adjudication on financial fraud in Nigeria.

1.6 Significance of the Study

With an upsurge in financial and economic fraud in the global economy, forensic auditing has become an emerging topic of great importance for academic, research and industries. Over the past decades financial and non-financial institutions suffered from the menace of frauds which resulted to distresses and liquidations which hamper the roles of banks in the economy. The external auditors also failed to detect the frauds in the course of carrying out their work. Regulatory evidences have shown that bank frauds increase on daily basis. This study of forensic auditing will be helpful to the following categories of users.

Management and Institutions: It will serve as a reference document for management to use asa guide for investigating and controlling fraud. It will also give them positive insight on how to fight this evil menace called fraud in the country. Also it will help the institution like CBN and other related institution that oversea the affairs in the banking sector of Nigeria economy to revisit some of the rules and regulations that may need to.

Investors/Depositor: the investors and depositors to know the financial position of the institution they are investing in. Also to bridge the expectation gap that exist between the statutory responsibility of external auditor and the investor perception of their responsibility.

General Public: It will add to existing knowledge by exposing the public on thematter of fraud, making them to know that even if fraud cannot be completely eradicated, it can be controlled. Stemming the tide of fraud by forensic auditors will go a long way in alleviating the economic hardship being experienced currently by the general public, as this would help to reassure the stakeholder’s confidence level in the financial institution which they have controllable interest in.

For Researchers/Analyst: Finally this study will be of great significance to schools and students, it will serve as a reference point for future researchers who will engage in further research.

1.7 Scope of the Study

This study focuses to examine the forensic auditing and financial fraud in nigerian deposit money banks (DMBS). Specifically the study will ascertain the effect of forensic audit on financial fraud in Nigerian DMBs, and to find out whether forensic audit report can enhance court adjudication on financial fraud in Nigeria.

1.8 Limitation of the Study

Like in every human endeavour, the researcher encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. More so, the researcher simultaneously engaged in this study with other academic work. As a result, the amount of time spent on research will be reduced.

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 Definition of Terms.

Auditing:

Auditing is the act of recording, collecting, analyzing, classifying, summarizing transactions which are in part at least financial character and interpreting the result thereof.

Fraud:

Fraud is an act or course of deception, deliberately practiced to gain unlawful or unfair advantage; at the detriment of another, it is also defined as a conscious premeditated action of a person or group of persons with the intention of altering the truth and or fact for selfish personal monetary gain

Forensic:

Forensic” means “suitable for use in a court of law”, and it is to that standard and potential outcome that forensic accountants generally have to work.

Forensic Auditing:

As the utilization of specialized investigative skills in carrying out an enquiry conducted in such a manner that the outcome will have application to the court of law.

Fraud Investigations:

This involves a forensic accountant work in determining funds tracing, asset identifications and recovery which is most commonly performed with employee fraud cases.

Investigative Accounting:

This is the reviews of the factual situation of a company and suggest possible course of action.

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.