Abstract
Fraudulent practices in
Nigerian banks have led to increased losses and collapse of commercial
banks, hence the need to use forensic accounting services to detect and
prevent such fraudulent activities. The banking industry is a very
important institution with many internal controls in order to overcome
the fraudulent practices. The objective of this study is to examine the
impact of forensic accounting services on fraud detection and prevention
among commercial banks in Nigeria the data collection instrument
preferred for the study was questionnaire. Findings from the study
revealed that fraud detection and prevention increased when forensic
accounting services are employed. The study used descriptive research
survey design and judgmental sampling method was adopted in the
selection of seven commercial banks that constituted the sample size.
The data was analyzed using the analysis of variance (ANOVA) and
regression analysis in testing the research questions. The findings
indicated that the application of forensic accounting services by banks
led to increased fraud prevention in the commercial banks in Nigeria and
the highest application was on enhancing quality of financial
reporting. Therefore, the study recommends that in order to sustain
effective operation in the bank, fraudsters must be punished....
Chapter
One
Introduction
1.1
Background of the Study
Forensic accounting is the specialty area of
the accountancy profession which describes engagements that result from actual
or anticipated disputes or litigation. “Forensic” means “suitable for use in a
court of law” and forensic accounting can also be seen as an aspect of
accounting that is suitable for legal review and offering the highest level of
assurance.
With all the publicity given to forensic
accounting these days, forensic accounting is fairly recent aspect of the
accounting profession, but evidence shows that it has actually been around for
centuries. In fact, archaeological findings reveal that, as far back as
3300-3500 BC, the scribes of ancient Egypt, who were the accountants of their
day, were involved in the prevention and detection of fraud. In more recent
times, a close relationship developed between the accountancy and a legal
profession in the 1800’s, with accountants acting as expert financial witnesses
in court cases. And in 1930’s America, while Eliot Ness got all the publicity
in the case against Al Capone, it was the work of Elmer Irey, an accountant
with the Internal Revenue Service working behind the scenes that ensured
Capone’s conviction for tax evasion. He was probably America’s first
high-profile forensic accountant. So, far from being a new practice, forensic
accounting has long been part of the accounting profession. While it took a
back seat in the early 20th century with general accounting taking a greater
role, it is now merely returning to its traditions. Today’s forensic
accountants are involved in a wide variety of cases, from the more mundane
family law and commercial matters through to a range of criminal
investigations, which include white-collar crimes such as business and
insurance fraud through to organized crime, murder and even terrorism where
forensic accountants are used to trace the money trail and uncover just who is
financing the terrorist groups.
Banks are institutions that are involved in
the business of financial intermediation and therefore mobilization of
deposits/savings from the surplus economic units to the deficit economic units.
However for investment purposes which promotes economic growth and contribute
the economy of the nation, therefor banking sector in Nigeria is the sector
that is highly contribute in development of the national economy because of the
circulation of the money. So that the regulatory authorities in the Nigerian
banking industry have continually formulated market mechanism and implementation
for reduction of financial crises and fraud. However banking Industry recorded
decline in frauds, Forgeries (NDIC source) the banking industry recorded a
decline in the rate of successful fraud incidences and extent of amount of
losses in 2016, compared to 2015, Ibrahim made this disclosure while delivering
a lecture: “The Role of NDIC in Mitigating Corruption in the Nigerian
Banks” at the general meeting of the Abuja Chapter of the Alumni
Association of the National Institute (AANI).
Ibrahim who was represented by a deputy
director in research, policy and international relations department (Ahmad), the
reported cases of frauds, forgeries and outright theft involving bank staff
recorded a huge decline of 48.12 percent from N18.02 billion in 2015 to N8.68
billion in 2016, while the actual losses to the nation’s banking industry
dropped by 24.29 percent from N3.17 billion in 2015 to N2.40 billion in 2016.
Also, the level of attempted cases of frauds and forgeries declined by N0.329
billion or 11.94 percent from N2.756 billion in March 2017 to N2.427 billion in
June 2017. However The NDIC made the decision in the light of the most recent
report from its Off-Site Supervision of the DMBs which revealed the number of
fraud cases attributed to internal abuse by staff of banks increased from 231
in 2016, to 320 in 2017, or 38.53% above the figure reported for the previous
year. The report relied on a total of 286 responses received from 26 banks
during the period. There were 22 NIL monthly responses from the banks
as at year ended 31st December, 2017. However the 286 responses received from
banks in 2017 cited 26,182 cases of fraud and forgeries which is 56.30% higher
compared to 16,751 cases reported in 2016. Similarly, the amount involved in
the fraudulent activities documented increased by ₦3.33 billion from the ₦8.68
billion reported in 2016 to ₦12.01 billion in 2017 or 38%. However, the
expected/actual loss slightly-decreased by ₦24.42 million or 1.03% from ₦2.39
billion in 2016 to ₦2.37 billion in 2017.
1.2
Statement of the Research Problem
The failure of the major corporate governance
mechanism to reduce financial fraud and the increasing numbers of financial
fraud has posed serious threat to investors, government, and general public
(Eyisi & Agbaeze, 2014). Moreover, the stakeholders of most banks are
worried over the unqualified audit report and manipulation of financial
statements not been satisfied by certified external auditors, However financial
crisis leading to bankruptcy and most times liquidation. The effect of
financial crimes is enormous. In the case of nine commercial banks were
fraudulent and constituted financial crimes in Nigeria, about one trillion
naira was credited to have been lost through different means (EFCC Act 2004).
Through there were known cases of fraud in the banking section, one major
question still remain unanswered which is what is the nature and different ways
through which fraud can be perpetuated in banks, that fraud in the bank is
possible with corroboration of an insider. The banks are expected to ensure
that they carry out their responsibilities with sincerity of purpose which is
devoid of fraudulent practices. This is relevant if the banking sector is to
gain public trust and goodwill.
Another problem is the government and it is
agencies have not put enough effort in the prevention and control of bank fraud
in Nigeria, otherwise the level of banks fraud would have reduced to a bearable
level. Agencies like Money Laundering Act which helps to place surveillance on
any account through which such excess cash deposits or withdrawals are made,
Nigerian Deposit Insurance Corporation which is involved in managing bank
distress, failed banks and financial malpractices in banks Act which was vested
with power to recover the debts of failed banks, Dishonored Cheque Act which
affects banks in their collection and payment of cheque on behalf of their
customers and Bill of Exchange Act which helps to collect the proceeds of trade
bills of exchange and cheques are not putting of enough effort in the
prevention and control of banks fraud that is the reason why bank fraud is
increasing day by day in Nigeria. However, there is a general expectation that
forensic accounting training and skills may be able to combat financial fraud
in Nigeria.
The failure of statutory auditing to prevent
and reduce such fraudulent activities and an increase in crimes within banks
has put much pressure in management of such banks to employ the usage of
forensic accounting services as a better way to curb such frauds. This in turn
has made such commercial banks to easily control and detect fraud due to
increased usage of forensic accounting services.
In view of the above problems, this study
tends to examine the impact of forensic accounting in detection and prevention
of fraud activities so as to improve performance in Nigeria Banks.
1.3
Objectives of the Study
The main objective of this study is to
examine the impact of forensic accounting in detection and prevention of fraud
in Nigeria commercial Banks. The specific objective is to:
1. To examine the influence of forensic accounting
control ling the poor internal control system and inadequate staffing in the
commercial bank.
2. To establish out whether forensic accountant
ling helps in detecting and preventing of fraud, poor book keeping and
inadequate training in the commercial bank.
1.4
Research Question
1. Does forensic accounting have influence
controlling the poor internal control system and inadequate staffing in the
commercial bank?
2. Does forensic accountant ling helps in
detecting and preventing of fraud, poor book keeping and inadequate training in
the commercial bank?
1.5
Scope of the Study
This study concerned about the impact of
forensic accounting as the tools for the detection and prevention of fraud
particularly in 14 commercial banks in Nigeria.
1.6
Significance of the study
The
role of forensic accounting provoke many areas in which research can be carried
out, but this study focused on the impact of forensic accounting in deduction
and prevention of fraud in the commercial banking in Nigeria, the study is
expected to help the following various groups:
Government: through the central bank of
Nigeria in formulating of guidelines towards increasing effectiveness of
forensic accounting services to reduce the extent of financial frauds happening
in the banking section.
Researchers and Academicians: the study forms
the basis for future researchers and academicians who may be conducting
research on impact and effectiveness of forensic accountants in service
delivery since accounting as a profession has changed over the years thus
contributing to theory by indicating whether the forensic accounting services
are fully applicable in the banking industry. It will add to the existing body
of knowledge and provide a source of reference to further empirical studies
into the little known ways of fraudulent practices in banks.
Investors: The potential and current
investors will benefit from this research, the study seeks to inform the
investors about the importance of forensic accountants and their services and
further advice on the risks related to their exclusion in the banking
activities. This will make them make informed decision on whether to dispose
their shares or to buy more so as to benefit in future from the bank. Potential
investors will pursue investment in companies that have reduced fraudulent
activities due to proper policies like incorporation of forensic accounting
services.
Bank
Management: The study will offer the suggestions as to internal controls that
Banking sector could implement to reduce the likelihood of fraud and to
strengthen the Effectiveness of such services for the survival of the banking
sector. If indeed these Services can prevent fraudulent activities, the
management would rethink its policies and Regulations so as to spur confidence
in the market and also enable the management to know the future performance of
their banks.