FORENSIC ACCOUNTING AS TOOLS FOR FRAUD DETECTION AND PREVENTION IN NIGERIA

ABSTRACT

This study examines forensic accounting as tools for fraud detection and prevention in Nigeria. The study focused on five audit firs in Ogun State.  The study adopted a survey research design. The data for the study were collected through the use of structured questionnaire. The data collected were analyzed using descriptive statistics of mean and standard deviation and inferential statistics of correlation with the aid of SPSS. The result of the analysis reveals among others that there is positive and significant relationship between awareness of forensic accounting audit and fraud prevention. The study also reveals that the forensic accounting face problems such as lack of expert in forensic accounting, lack of transparent organization, lack of wider coverage of forensic accounting nationally which still makes the awareness of forensic accounting low and not demanding. The study recommends among others that Audit firms should ensure that their staff/employees especially those in the aspect of forensic accounting are highly trained as this will help in delivering quality service to their clients thereby increasing fraud prevention and detention.

 

 

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

Forensic accounting according to Crumbley (2001) is the action of identifying, recording, settling, extracting, sorting, reporting and verifying past financial data or other accounting activities, for settling current or prospective legal disputes, or using such past financial data for projecting future financial data to settle legal disputes. It utilizes accounting, auditing and investigative skills when conducting any kind of investigation. This study therefore examines the role of the Forensic accounting in the prevention and detection of fraud in Nigeria. In spite of this, financial crimes such as embezzlement, bribery, bankruptcy, security fraud, among others, have taken the centre stage in the scheme of things in most Nigerian sectors (Adeniyi, 2016). The consequences and the effects of financial crimes in corporate organizations in Nigeria are very grave and it is against this background that forensic accounting emerged. It is a response to the growing sophistication and awareness of financial crimes. Forensic accounting encompasses three major areas of investigation, dispute resolution and litigation support.

Forensic accounting according to Hopwood, Leiner, and Young (2008) is a mechanism in which findings are made for the resolution of crimes in financial terms in such way that addresses the country’s fundamental rules and regulations. It is an accounting integration, auditing and investigative skills (Dada, Owolabi and Okwu, 2013). As Curtis (2008) put it, forensic accountants are essential to the legal system, providing expert services such as fake invoicing valuations, suspicious bankruptcy valuations and analysis of financial documents in fraud schemes. This made Onodi, Okafor and Onyali (2015) opine that forensic investigative skills are required to uncover and establish the occurrence of financial crimes due to the incidence of fraud and misappropriation of funds in recent time that is posing a threat to traditional auditing as a branch of accounting profession.

Forensic accounting is a specialized field of accounting that describes engagements that result from actual or anticipated disputes or litigation. Forensic auditing can, therefore, be seen as an aspect of accounting that is suitable for legal review and offering the highest level of assurance (Apostolou, Hassell, and Webber, 2000).  Consequently, the incorporation of modern forensic auditing techniques in audit in Nigeria is seen as timely in order to prepare the accounting profession to deal effectively with the problem of unearthing ingenious fraud schemes arising from audit failure to detect frauds in Nigeria. Centre for Forensic Studies (2010) report in Nigeria states that if well applied, forensic auditing could be used to reverse the leakages that cause corporate failures. This can be attributed to the fact that proactive forensic accounting practice seeks out errors, operational vagaries and deviant transactions before they crystallize into fraud. Therefore, the focus of this study is to examine the effect of forensic auditing on financial crimes in Nigeria.

1.2       Statement of the Problem

The place of forensic accounting towards the quality assurance of financial statement cannot be overemphasized. Cressey (1953) stated that “Motivation” which includes financial needs, addiction, and pressure; “Opportunity” which involves access to sensitive information that has takers, and confidence of not getting caught; “Rationalisation” which includes sense of revenge and disloyalty towards and organization or colleague are the reasons for fraudulent practices by people in general. According to a recent ranking by Transparency International (2007), Nigeria is perceived as a very corrupt nation. This ranking emanated from the avalanche of cases of frauds, corruptions and financial scandals in which many Nigerians are suspected to be involved. The incidence of fraud has caused the system of Nigeria to be devastated in such a manner that it is at moment a norm among every citizen of the country. Gerald and Hill (2002) defined fraud as “a deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud is also a purposeful intention by persons to act in a deceptive way to take in what belongs to another individual for his or her own benefit. In spite of the rapidly growing rate of forensic accounting globally, the concept is still confined mainly to the economies of developed countries with simplified application in emerging areas (Somoye and Osho, 2017). Forensic audit is a social phenomenon that has been in existence for a long time. Scholars believed that forensic accounting collaborate with courses in the field of Accounting for fraud detection and prevention. There has been continuous increase in financial crime, mismanagement and misappropriation of public funds in the Nigerian business organisations. Many arrests have been made, however, the number of prosecution cannot be viewed in the same manner. Perhaps this is due to the lack of application of forensic accounting skills in the investigation process or the awareness of the use and application of forensic accounting in litigation process is limited. In order to justify the above assertion, this study tends to create more awareness of forensic accounting in fraud detection and to add to knowledge of existing studies and research. In the light of this, this study seeks to examine forensic accounting as a tool for fraud detection and prevention in Nigeria.

1.3       Objective of the study

The general objective of this study is to examine forensic accounting as a tool for fraud detection and prevention in Nigeria.

The specific objectives are to;

  1. Ascertain the level of awareness of forensic accounting for fraud detection and prevention among accountants in Nigeria.
  2. Determine how fraudulent acts can be minimized in Nigeria through forensic accounting.
  3. Determine the problems facing forensic accounting as to detecting fraud in Nigeria.

1.4       Research Questions

  1. Does the level of awareness of forensic accounting affect its implementation as a tool for fraud detection and prevention in Nigeria?
  2. How can fraudulent acts be minimized in Nigeria through forensic accounting?
  3. What are the problems of forensic accounting in detecting fraud in Nigeria?

1.5       Research Hypotheses  

  1. H0: There is no significant relationship between forensic accounting and fraud prevention in Nigeria.

H1: There is significant relationship between forensic between forensic accounting and fraud prevention in Nigeria.

  1. H0: There is no significant relationship between the awareness of forensic accounting and fraud prevention in Nigeria.

H1: There is significant relationship between the awareness of forensic accounting auditing and fraud prevention.

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 centers on forensic accounting as a tool for fraud detection and prevention in Nigeria. However, this study would be limited to Achebe Professional Services LLP, UHY Maaji and the Economic and Financial Crime Commission (EFCC). The study would be limited to auditors and those who use and compile financial data from the above stated organizations through which information about how forensic accounting as a tool for fraud detection and prevention in Nigeria would be drawn.

1.8       Operationalization of variables

The independent variable (i.e. forensic accounting) is operationalized into 3 variables which are fraud investigation, expert consultancy and litigation support.

y = f(x)

Y = Fraud Detection and Prevention (FDP)

X = Forensic Accounting (FA)

The independent variable is classified into X = (x1, x2, x3), therefore;

x1= Fraud Investigation (FI)

x2= Expert Consultancy (EC)

x3= Litigation Support (LS)

Functional Relationship

y1 = f (x1) ……………………………...Hyp 1

FDP1 = f (FI)

y2 = f (x2) …………………………. …. Hyp 2

FDP2 = f (EC)

y3 = f (x3) ………………………………Hyp 3

FDP3 = f (LS)

 

1.9       Definition 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”.

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