EFFECT OF FORENSIC ACCOUNTING ON FRAUDULENT PRACTICES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

The integration of accounting, auditing and investigative skills yield the specialty known as Forensic Accounting. Forensic Accounting provides an accounting analysis that is suitable to the court which forms the basis for discussion, debate and ultimately dispute resolution. It encompasses both litigation support and Investigative Accounting. It is a specially practiced area of accounting that describes engagement that result from actual or anticipated disputes or litigation.

Forensic Accounting is sufficiently thorough and complete so that an accountant, in his/her considered independent professional judgment, can deliver a finding as to accounts, inventories or the presentation thereof that is of such quality that it would be sustainable in some adversarial legal proceeding, or within some judicial or administrative reviews. Findings are based on scientific detection and interpretation of the evidences of phenomena introduced into the books and records of an accounting system (expansively defined) and the effects of such phenomenon upon the accounts, inventories or the presentation thereof (Bologna, 1995). Alternatively, if there is no impact on an accounting system, there is no accounting evidence, nor is there any effect upon the accounts, inventories or the presentation thereof, then such situation are not within the realm of forensic accounting.

The primary orientation of forensic accounting is explanatory analysis (cause and effect) of phenomena, including the discovery of deception (if any), and its effects introduced into an accounting system’s domain (Silverstone, 2004). Forensic accountants are called upon to play important pre-emptive roles, offering independent assurance in such diverse areas as audit committee advisory services, merger and underwriting due diligence, investment analyst research and enterprise risk management.

Fraud investigations on the other part involves the training of possibly forensic accountants to ensure the integrity of financial statements by actively investigating for fraud, identifying all areas of risk and fraud symptoms, pursuing each anomaly and aggressively. The term ‘fraud’ is generally used to describe any criminal deception, false representation by means of a statement or conduct, in order to gain a material advantage.

Ideally, fraud detection ought to be recognized as an important responsibility throughout every organization and every employee ought to be familiar with the disciplinary consequences for breach of trust.    

1.   STATEMENT OF THE PROBLEM

According to a recent ranking by the 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. These fraudulent practices are suspected to be perpetrated by highly skilled fraudsters, employing sophisticated methods – thus requiring equally highly skilled and versatile accountants to unravel the fraudulent schemes. This is where the Forensic Accountant comes in, with his/her scientific, evidence-based accounting, auditing and investigations, to assist in the judicial process, to avoid the miscarriage of justice in fraud-related judgments.

From recent development, globally, electronic (e) banking e-business, e-… possibly e-fraud, e-corruption and e-financial scandals, it is almost obvious that the Traditional or Conventional Accountant may not be able to meet up with the level of sophistication of the financial crimes. It calls for equally sophisticated e-techniques to be able to decipher:

1. What are the causes of financial crimes?
2. Who are the perpetrators of these fraudulent practices?
3. When are these financial scandals perpetrated?
4. How are these fraudulent practices executed?

1.  OBJECTIVES OF THE STUDY
2. To examine the effect of financial crimes in financial institutions.
3. To ascertain the reasons of, and solutions to fraudulent practices.
4. To analyze the relevance of forensic accounting in the face of increasing fraudulent practices in Nigeria.
   1. RESEARCH QUESTIONS
5. What are the effects of financial crimes in financial institutions?
6. What are the reasons of, and possible solutions to fraudulent practices?
7. How relevant is forensic accounting in curbing fraudulent practices in Nigeria?

1. RESEARCH HYPOTHESIS

H_o:       Forensic Accounting and Fraud Investigation has no significant impact in curbing financial crimes in corporate organizations.

H₁:       Forensic Accounting and Fraud Investigation has significant impact in curbing financial crimes in corporate organizations.

1. SIGNIFICANCE OF THE STUDY

Today’s sophisticated schemes to defraud the government and the economy at large have led to the demand of financial analytical ability of professionals who will be charged with the responsibility of investigating and documenting financial data in a decisive manner, in order to draw up conclusions and calculate values and identify irregular patterns and suspicious transactions like financial fraud, embezzlement and also providing litigation support to attorneys and law enforcement agencies investigating financial wrongs.

The significance of this study are outlined below:

1. Corporate Governance: Forensic Accounting, with strong background knowledge of legal and institutional requirements of corporate governance will help to formulate and establish a comprehensive governance policy that will ensure an appropriate mix of management and independent directors on the board, have a fair allocation of powers between owners, management and board, and also ensure there is a company code of ethics for employees and management.
2. Fraud Prevention: Forensic Accountants are expected to prevent fraud by establishing an efficient control system that will encompass a good control environment, a superior accounting system and strong procedural controls.
3. Fraud Investigation: Forensic Accounting will ensure the integrity of financial statements by actively investigating for fraud, identifying all areas of risk and fraud symptoms.
4. Establishing Consequences: Fraud deterrence will also include an expectation of punishment. Forensic Accounting will help in creating policies that would clearly state company’s intent to take action against any criminal activity and this would apply to all level of employee.
5. The Study will also be of great significance to the anti-corruption agencies such as the Economic and Financial Crimes Commission (EFCC), regulatory authorities such as the Central Bank of Nigeria (CBN) in their concerted efforts towards combating corruption in organization and the nation at large.
6. Scholars, researchers and students in the field of Accounting will find this research work very educative and a strong reference material.

1. SCOPE AND LIMITATION OF THE STUDY

The emphasis of this research work is to particularize on Forensic Accounting and dwell on its relevance in tackling fraudulent practices. The study limited itself to some selected commercial banks and government parastatals.

However, there are many limitation of this research work which includes:

1. Insufficient funds
2. Limited material resources
3. Time constraints

The unresponsive attitude of certain authorities towards releasing data.

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