FRAUD MANAGEMENT AND FORENSIC ACCOUNTING; BENEFITS, CHALLENGES AND PROSPECTS (A CASE STUDY OF FIRST BANK OF NIGERIA PLC.OKPARA AVENUE, ENUGU STATE)

ABSTRACT

With an upsurge in financial accounting fraud in the global economy, forensic accounting has become an emerging topic of great importance for academics and industries. The study was conducted to determine and examine the fraud management and Forensic Accounting: its benefits, challenges and prospects in first bank of Nigeria plc.  The objectives of the study are to examine if there is significant agreement on the effectiveness of Forensic Accounting in Financial fraud control, financial reporting quality and internal control.  It also examines if there is available opportunity to officials on the detection and management of fraud.  To solve the problems in the research, both primary and secondary data were collected.  The research instrument used in collecting the data was questionnaires. The respondents were the senior staff of First Bank of Nigeria plc, okpara Avenue, Enugu.  In organizing and presenting the data collected, tables and percentages were used.  Five hypotheses were tested using T-Distribution method.  The populations covered were also tested using T-Distribution method.  The population covered was 60, while the sample size was 40.  Data presented and analyzed were also treated. It was found that since fraud is an aged threat to the smooth operation of every business especially banks, there is a pivotal need for forensic accountant is every organization. Conclusion were drawn and recommendations was thus given, that the institute of management of Chartered Accountants of Nigeria(ICAN), Association of National Accountants of Nigeria(ANAN), and National Universities commissions(NUC), should encourage the study and specialization of forensic Accounting.

TABLE OF CONTENT

Title Page                                                              ii

Approval Page                                                        iii

Dedication                                                             iv

Acknowledgement                                                   v

Abstract                                                                vi

Table of Content                                                     vii

CHAPTER ONE: INTRODUCTION                           

• Background of the study 1
• Statement of the problem                                   8
• Objectives of the study 9
• Research Hypothesis 10
• Research Questions 11
• Significant of the study 12
• Scope of the Study 13
• Limitations of the Study        14
• Definition of Terms 15

CHAPTER TWO: LITERATURE REVIEW

2.1   Conceptual overview of Forensic Accounting                 17

2.2  Financial Fraud                                                   20

2.3  Fraud Management                                             23

2.4  Fraud Triangle                                                     27

2.5   Forensic Accountant                                            28

2.6  Personal qualities and skills of a forensic Accountant29

2.7  Benefits of Forensic Accounting                            35

2.8   Challenges of Forensic Accounting                         37

2.9   Prospects of Forensic Accounting                           41

CHAPTER THREE: METHODOLOGY

3.1  Research Design                                               43

3.2  Area of the study                                             43

3.3  Population of the study                                       43

3.4  Sample                                                          44

3.5  Sources of Data                                                46

3.6  Analytical Technique                                          47

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA

4.1  Data Presentation                                            49

4.2  Data Analysis                                                  55

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS.

5.1   Summary of Findings                                        74

5.2   Conclusion                                                      75

5.3   Recommendations                                             75

References

Appendix I

Appendix II

CHAPTER ONE: INTRODUCTION

• BACKGROUND OF THE STUDY

Fraud has been variously defined in literature of scholars and experts. It is defined as the criminal deception by the oxford Advanced Learners Dictionary.

According to the insight on the scripture (1999), fraud is the intentional use of deception, Trickery, or perversion of truth for the purpose of including another to part with some valuable things belonging to him or to give up a legal right.

According to the Wikipedia fraud is an intentional deception made for personal gain or to damage another individual. It also mentioned that fraud is a crime and a civil law violation.

Onovo (2001), describes it as a type of irregularity involving the use of criminal deception to obtain unjust or illegal advantages.  From the above definitions, we can defined a clearing fraud as an act of stealing from, depriving of, duping or exploring through criminal manipulations of clearing instruments like computers.

However, to minimize and control fraud, the need for forensic accounting has to be put in place.

Maurice E. Peloubet is credited with developing the term forensic Accounting in his 1946 essay “Forensic Accounting: its place in today’s Economy”.  By the late 1940s, forensic accounting had proven it worth during World War II. However, formalized procedures were not put in place until the 1980s when major academic studies in the field were published (Rasey 2009).

The integration of accounting, auditing and investigation skills yields the specialty known as forensic accounting. “Forensic”, according to the Webster’s Dictionary means, “Belonging to, used in or suitable to courts or judicature or to public discussion and debate.  It provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately disputes resolution.  And it encompasses both litigation support and investigation Accounting.

Forensic Accounting has existed for many years. With the growing complexity of the business environment and the growing number of business related investigation, forensic Accounting professional are increasingly asked to assist in the investigation of financial and business related issues.

Forensic Accounting is perceived to have evolved in response to certain emerging fraud related cases.  The scandals that recently rocked the corporate world with classified examples being the often cited Enron and WorldCom cases have also brought the field of forensic accounting to the forefront.  Forensic accounting is seen as encapsulating all other investigation related areas in uncovering financial fraud.  The increasing sophistication of financial fraud requires that forensic accounting be added to the tools necessary to bring about the successful investigation and prosecution of those individuals involved in criminal activities.

Forensic accounting is the tripartite practice of utilizing accounting, auditing and investigation skills to assist in legal matters.  It is a specialized field of accounting that describes engagements that result from actual or anticipated disputes or litigation.  Forensic accounting can therefore, be seen as an aspect of accounting that is suitable for legal review and offering the highest level of assurance.  Apostolu, Hassell, and Webber, (2000).

Ojaide (2000) , notes that there is an alarming increase In the number of fraud and fraudulent activities in Nigeria, requiring the visibility of forensic accounting services.  According to the report by the centre for forensic studies (2010), the increasing need for forensic and investigation accounting in the banking sector results from the complexities of modern day banking with large volume of complex data.  This makes it difficult to monitor transactions by applying manual audit process. This, in turn makes the control utility of auditing ineffective.  Virtually all the weaknesses and challenges identified in the banking industry in Nigeria’s post-consolidation and criminal investigation and prosecutions arising from them are issues for forensic Accounting.

The general expectation is that forensic accounting may offer some respite to the seeming vulnerability of conventional accounting and audit systems of financial fraud.

Consequently, the incorporation of modern forensic Auditing techniques is audit in Nigeria is seen as timely in order to prepare the accounting profession to deal effectively with the problems 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 accounting could be used to reserve the leakage 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 crystallized into fraud.  The focus of this study therefore is to examine the role and prospect of forensic accounting as well as the benefits and challenges in curbing financial crimes in Nigeria Banks to be precise.

Additionally, this work also encompasses fraud management.  Fraud losses continue to impact virtually every business enterprises.  Caveat Emptor “let the buyer beware”, tells only half of the story.  The other half is told by caveat venditor. “Let the seller beware”.  The cost of fraud are passed on to society in the form of increased customers inconveniencies, opportunity costs, unnecessary high prices for goods and services, and criminal activities funded by the fraudulent gains.  But what if there existed a fraud management lifecycle that when managed effectively, with successfully balanced components, would significantly reduce the losses and societal costs associated with fraud?.  This study developed a theoretical framework for the fraud management lifecycle and tested it with empirical research.

• STATEMENT OF THE PROBLEMS

Over the years, the most disturbing problems facing banks and other organization or industries in Nigeria are:

1. The perpetuations of financial irregularities are becoming the specialty of both public and private sector in Nigeria that the quality of reporting is diminishing.
2. The loss of public confidence as a result of fraud and theft.
3. An alarming increase in the number of fraud and fraudulent activities.
4. Inadequate training opportunities to the banks and other organization officials’ on fraud detection and management.
5. Inability of banks and organizations officials to consistently follow appropriate procedures in the course of their operations.
   • OBJECTIVES OF THE STUDY

The main objectives that made the researcher choose this topic are as follows:

1. To find solutions to the perpetuated irregularities in both private and public sector using forensic accounting to improve the quality of reporting.
2. To restore the badly needed public confidence through the use of forensic accounting to improve internal control.
3. To find out the effective way of controlling an increasing number of financial fraud and the challenges attached to it.
4. To review and suggest the opportunities available to officials on fraud detection and management.
5. To proffer standard procedure using biometrics which the organization or banks will consistently follow through in the course of their operations.
   • RESEARCH HYPOTHESIS

H₀:  Forensic Accounting cannot proffer solutions to the irregularities experienced in both private and public sector organizations.

H₁:  Forensic Accounting can proffer solutions to the irregularities experienced in both private and public sector organizations.

H₀:  Forensic Accounting procedures does not disclose areas of weaknesses in the internal control system of an organization.

H₂: Forensic Accounting procedures discloses areas of weaknesses in the internal control system of an organization.

H₀:  Forensic Accounting procedures does not reveal fraudulent practices within an organization.

H₃:  Forensic Accounting procedures reveals fraudulent practices within an organization.

H₀:  Forensic Accounting procedures does not create awareness and opportunities for officials and management to detect fraud.

H₄:  Forensic Accounting procedures creates awareness and opportunities for officials and management to detect fraud.

H₀:  There is no standard procedure that organization could employ in their course of operation.

H₅;  There is a standard procedure that organization could employ in their course of operation.

• RESEARCH QUESTIONS

The following questions are relevant in the course of this study.

1. Can Forensic accounting proffer solutions to the irregularities experienced in both private and public sector organizations?
2. Does Forensic accounting procedure disclose areas of weaknesses in the internal control system of an organization?
3. Does Forensic accounting procedure reveal fraudulent practices within an organization?
4. Does Forensic accounting procedure create awareness and opportunities for officials and management to detect fraud?
5. Is there a standard procedure that organizations could employ in their course of operations?
   • SIGNIFICANCE OF THE STUDY

The study will be of immense benefit to Accounting firms, government entities such as the IRS (Internal Revenue Service), Federal Bureaus of Investigation and state and local police department. It will also be of help to large corporation, law firms and industries and many others as well as banks.

The study will help accounting firms to be able to utilize her financial skills, to help analyze, interpret, summarize and present financial issues in an understandable format.  It will also help or assist attorneys in identifying a cases key issue.  As for the federal Bureau of investigation and state and local police departments it will help or assist in addressing law-enforcement needs.  Then large corporations will need it to address legal and fraud related issues internally.

However, this study will in addition serve as a guide and a reference materials to other students conducting similar research work on the same or related topic.

• SCOPE OF THE STUDY

The research work would direct itself on fraud management and forensic accounting and their effects on banking industries with respect to First Bank of Nigeria plc, Okpara Avenue, Enugu State.

It would help the bank and other banks to understand the effect of fraud and how deep it has eaten the banking industry as a whole.  Then consider managing fraud and using forensic accounting to control the existing fraud and prevention of future occurrences.

• LIMITATIONS OF THE STUDY

In the course of accomplishing this study, the researcher was faced with the following problems:

• Finance: There was no much fund available for the research to travel around to source materials owing to the high cost of transportation.
• Time: The researcher found it difficult to combine the research work with academic work. This contributed in making the research work difficult.
• Difficulties in Collection of Data: The researcher had limited access to official records and statistical data relevant to this work.

• DEFINITION OF TERMS

• Forensic: This can be defined as belonging, to, used in, or suitable to courts of judicature or to public discussion and debate.
• Litigation: An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest.
• Auditing: This is a systematic and independent examination of data, statement, records, operations and performance either financial or otherwise, of an enterprise for a stated purpose.
• Investigation: Searching inquiry for ascertaining facts; detailed or careful examination.
• Trickery: The use or practice of tricks or stratagems to deceive, artifice, or deception.
• Prosecution: The institution and carrying on of legal proceedings against a person or an offender of the law.
• Litigation support: This is that which provides assistance of an accounting nature in a matter involving existing or pending litigation.
• Investigative Accounting: This is the investigation of criminal matters among employers and employees.

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