FORENSIC ACCOUNTING AS A TOOL FOR FRAUD DETECTION AND PREVENTION IN NIGERIA (A CASE STUDY OF SURULERE LOCAL GOVERNMENT COUNCIL,LAGOS STATE)
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FORENSIC ACCOUNTING AS A TOOL FOR
FRAUD DETECTION AND PREVENTION IN NIGERIA (A CASE STUDY OF SURULERE LOCAL GOVERNMENT
COUNCIL,LAGOS STATE)
CHAPTER ONE
INTRODUCTION
1.1.
BACKGROUND OF THE STUDY
The issue of
fraud, money laundering and other corrupt practices in business and government
organizations has necessitated the application and practice of forensic or
investigative accounting. Forensic or investigative accounting is that branch
of accounting that deals with recovering proceeds of fraud, money laundering
and other related corrupt practices that may occur in an organization. Once
fraud is perceived or detected, a professional set of people-the forensic
accountants are called upon to help detect the fraud and furnish management
with substantial evidence to be presented in the court of law, when prosecuting
the suspects involved in the fraud. ‘Forensic’ which means evidence or
material(s) to be used in court has been incorporated into accounting and
finance as a result of increase in white collar crimes (Mazunder, 2011).
Mazunder also remarked that law enforcement personnels in recent years have
become more aware of white collar crimes, but lacked expertise and training in
combating such crimes.
According to Zysman (2004), forensic
accounting utilizes accounting, auditing and investigative skills. Enyi (2012)
also asserted that it takes an accountant to catch a corrupt of fraudulent
accountant, as man is expected to know the trick of a monkey in order to catch
it. Strict ethical conducts must be applied by an auditor in-order to carry out
forensic accounting successfully. An auditor must be fully independent and must
be aware of the tricks of management staff and employees in perpetrating fraud
in an organization.
Joshi (2003)
traced the history of forensic accounting to Kutilya, the first economist to
openly recognize the need for the forensic accountants. The first form of
forensic accounting can be traced to an 1817 court decision. The phase
‘Forensic Accounting’ was first coined by Puloubet in 1946. Publoubet was the
first man to publish in his book the phase ‘Forensic Accounting’.
Since Nigeria gained her independence in 1960,
forensic accounting has existed due to increase in fraud, money laundering and
other forms of economic and financial crimes in the country (Enyi, 2012). The
term ‘forensic accounting’ is not new in Nigeria as auditors, police and
intelligence units apply it every day in the discharge of their duties.
The growing
demand for forensic accounting is a known characteristic of most companies in
the world. Forensic accounting arises from the effect and cause of fraud and
technical error made by human. Forensic accounting is quite new in Nigeria as
companies have realized that the service of a forensic accountant is needed as
fraud cases have substantially increased in number. Forensic accounting is the
application of financial skills and investigative mentality to unsettled
issues, conducted within the context of the rules of evidence (Arokiasamy and
Cristal, 2009).
Bologna and
Lindquistn (1987) assert that forensic accounting as a discipline encompasses
fraud knowledge, financial expertise, and a sound knowledge and understanding
of business reality and the working of the legal system. Forensic accounting
may be one of the most effective and efficient way to decrease and check
accounting fraud. Presently, forensic accounting is gaining popularity
worldwide. It is been taught as a major course in many educational institutions
in various countries, Howard, and Sheetz, (2006).
It has been noted that “Government spending
has always been a big business, but it has become so massive today that the
public through its legislators is demanding to know whether the huge outlays of
money are being spent wisely or whether they should be spent at all.” Officials
and employees who manage public sector activities are by virtue of that duty,
required to render adequate accounts of their activities to the public (Ribadu,
2005).
The incidence
of fraud continues to increase across private and public sector organizations
and across nations. Fraud is a universal problem as no nations is immuned,
although developing countries and their various states suffer the most pain.
Forensic
accounting is said to bring significant improvement in the quality of fraud
detection and prevention. This study meant to help and remind the public sector
organization of Kogi State, in the affected ministries to design an integrated
approach to preventing and controlling fraud and corruption within the
workplace through an establish service of Professional Forensic Accountants.
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
objective of the study is to find out the following:
To examine
the role of Forensic Accountant in an organization.
To examine
the possibility of reducing the occurrence of fraud cases using Forensic
Accounting.
To find out
whether Forensic Accountant can help in detecting and preventing fraud in the
Public Sector
To examine
if there is significance difference between Forensic Accountants and External
Auditors.
1.4.
RESEARCH QUESTIONS
What is the
role of Forensic Accountant play in an organization?
Is there any
possibility of reducing the occurrence of fraud cases using Forensic
Accounting?
Can Forensic
Accountant help in detecting and preventing fraud in the Public Sector?
Is there any
significance difference between Forensic Accountants and External Auditors?
1.5.
RESEARCH HYPOTHESES
HYPOTHESIS 1
H0:
Forensic Accountant does not play role in an organization.
H1:
Forensic Accountant plays a significant role in an organization
HYPOTHESIS 11
H0:
The uses of Forensic Accounting do not significantly reduce the
occurrence of Fraud cases in the public sector.
H1:
The uses of Forensic Accounting do significantly reduce the occurrence
of fraud cases in the public sector.
HYPOTHESIS
111
H0:
There is no significant difference between Professional Forensic
Accountants and Traditional External Auditor.
H1:
There is a significant difference between Professional Forensic
Accountants and Traditional External Auditor.
1.6.
SIGNIFICANCE OF THE STUDY
The study
will aid in laying a solid framework for the design and implementation of
forensic accounting practices in Nigeria. Since forensic accounting is still
new in developing countries such as Nigeria, this study will aid policy makers
and other stake holders to draft adequate policies to guide the practice of
forensic accounting in Nigeria.
The study will also serve as a guide to
student and independent researchers who may have interest in the subject matter.
Findings and recommendations from this study will serve as a guide in carrying
out other research studies in forensic accounting and fraud detection in
organizations.
1.7. SCOPE
OF THE STUDY
The study
concerns about forensic accounting as a tool for fraud detection and prevention in Nigeria with a particular
reference to Eti Osa local government council, Lagos State.
1.8.
LIMITATION OF THE STUDY
The study
limitation was inability of management to divulge certain information which
they consider sensitive and fear of publication which might be detrimental to
their operation.
Distance and its attendant cost of travel in
order to obtain information which to write this study was also a major limitation.
Another limitation to the study is short time factor which did not give time
for thorough research work, hence gathering adequate information becomes very
difficult.
Finally, lack of materials on the topic. This
is new in the area of forensic accounting for detection and preventive of fraud
in Nigeria. Therefore, the researcher resolved to seek friendly approach in
order to obtain the needed materials or information from the organization under
study through the administration of questionnaire.
1.9.
DEFINITION OF TERMS AND ACRONYMS
FORENSIC
ACCOUNTING: According to Manning (2002) defined forensic accounting as the
application of financial accounting and investigative skills at a standard
acceptable by the courts, to address issues in dispute in the context of civil
and criminal litigation.
ACCOUNTING:
This is defined as the process of identifying, measuring, and communicating
economic information to permit informed judgements and decisions by users of
the information (Frank Wood & A. Sangster, 2005).
ACCOUNTING
FRAUD: Accounting fraud is an act of knowingly falsifying accounting records,
such as sales or cost records, in order to boost the net income or sales
figures; accounting fraud is illegal and subjects the company and the
executives involved to civil lawsuits (Arokiasamy and Cristal, 2009).
FRAUD: fraud
is an act or course of deception, deliberately practiced to gain unlawful or
unfair advantage; such deception directed to the detriment of another (Anyanwu,
1993).
DETECTIVE
CONTROLS: These controls are designed to detect and report the occurrence of an
omission, an error or a malicious act (Adeniji, A. 2004).
PREVENTIVE
CONTROLS: These are controls that predict potentials problems before they occur
and make adjustments (Adeniji, A. 2004).
CORPERATE
FRAUD: These are the activities undertaken by an individual or company that are
done in an dishonest or illegal manner, and are designed to give an advantage
to the perpetrating individual or company (Investopedia, 2015.
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