ABSTRACT
The
first decade of the twenty-first century experienced a tsunami or blizzard in
the number of reported corporate scandals, frauds, and failures (Ball, 2009).
According to Oseni (2017) the nature of such fraud rendered traditional
auditing and investigation inefficient and ineffective in fraud detection and
prevention. Statutory audit appears to have shown a lack of concern and
reflective attitude towards fraud fighting, thereby failing to offer the public
desirable assurance to handle corruption and fraud (Akhidime &
Ugbale-Ekatah, 2014). The scandals contributed to loss of confidence by
financial statements users on the ability of traditional auditing and
investigation to contribute viable solutions (Huber, 2012). Fraud includes all
the multifarious means human ingenuity can devise, that are resorted to by
individuals to get an advantage over another by false suggestions or
suppression of the truth. It includes surprises, tricks, cunning or
dissembling, and any unfair way by which another is cheated (Black’s Law
Dictionary, 2016). According to Mukoro, Yamusa, and Faboyede (2013) the first
and most sophisticated way of carrying out the fraudulent activities in many
organizations is through the accounting and financial records, as witnessed in
the cases of Enron, WorldCom, Global Crossing, Tyco, Cadbury Nig. Plc., Oceanic
Bank Plc., Afri Bank, among others. Thus, the need to counter, stop and prevent
the perpetration of frauds in modern organization led to the development of
forensic accounting (Mazunder, 2011). One of the modern approaches that can be
used from the prevention to detection is called forensic accounting. It touches
almost all disciplines especially, accounting, auditing, investigation, law and
psychology (Enofe, Agbonkpolor & Edebiri, 2015) Forensic 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. Forensic accounting utilizes accounting, auditing and
investigative skills (Zysman, 2004). The phase ‘Forensic Accounting’ was first
coined by Peloubet in 1946. Peloubet was the first man to publish in his book
the phase ‘Forensic Accounting’. The first form of forensic accounting can be
traced to an 1817 court decision. Joshi (2003) traced the history of forensic
accounting to Kutilya, the first economist to openly recognize the need for the
forensic accountants. Globally, the occurrence of fraud in corporate
organizations is becoming rampant and this can be shown in the large number of
reported cases of bribery, corruption, embezzlement, money laundering,
racketeering, fraudulent financial reporting, tax evasion, forgery and other
means through which both financial and economic dishonesty are being
perpetrated (Ofiafoh & Otalor, 2013).
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 it is to that
standard and potential outcome that forensic accountants generally have to work
(Crumbley, Heitger, and Smith, 2005). Forensic accounting can also 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). The
unrelenting series of embarrassing audit failures over the last 52 years has
prompted a paradigm shift in accounting. Interestingly, in the mid – 20th
century, when the flight from fraud detection was at its height, a few
observers predicted that in the future there will be acceptance of the general
responsibility of the auditor to perform tests to detect material defalcations
and errors if they exist (Brown, 1962).
The rise in corporate crimes has forced the developed and developing
economies to look for possible way of tackling the scandals. Nowadays, fraud
has become a norm in most organisations and as result of its widespread,
conventional auditing and investigations have become unproductive in its
prevention and detection.
Oyejide
(2008) opines that fraud is a subject that has received a lot of attention both
globally and in Nigeria specifically. Fraud is something that internal and
external auditors are supposed to guard against through their periodic audits.
However, the auditors can only check for the compliance of a company’s books to
Generally Accepted Accounting Principles (GAAP), auditing standards, and
company policies. According to Owolabi (2010) bank failures are as old as
banking industry itself. The Dictionary of Economics and Commerce confirmed
that 200 banks failed in England between 1815 and 1850 just a period of 35
years, and one of the reasons attributed to the failure is fraud. Therefore,
fraud is not limited to one economy but is a general problem. The origin of bank
failure in Nigeria can be traced to the 1930s bank failure and crises. Nwankwo
(1992) stated that “the crises of confidence in Nigerian banking industry is
not a new one, it has been with us for quite a long time. It occurred in the
1930s when all indigenous banks, except one (National Banks), collapsed. It
occurred again during the banking boom and crash of the late 1940s when all but
four indigenous banks escaped the liquidators’ hammers”. Also between 1952 and
1954, 16 out of 21 indigenous banks failed. In the late 1990s, 26 failed banks
were liquidated at once while others went through various surgical operations
ranging from, restructuring, renaming, acquiring and complete sales to new
investors (Owolabi, 2010).
As a consequence of capital inadequacies,
Nigerian banks experienced liquidity problem which led to the raising of
minimum capital base of N25 billion in 2004. The recapitalization brought the
number of banks to 25 in 2006, a considerable reduction from the 89 which
existed in 2004. In 2009, Nigerian banks witnessed sacking of the management of
five banks; Intercontinental, Oceanic, Union, Afri, and First Inland banks over
alleged fraudulent mismanagement which tremendously heightened public anxiety
about the health of these banks and to some extent created doubts about the
audit function being performed in these banks. Fraud constitutes a problem to
banks in their operations and their roles in the economy at large. Evidence
therefore shows that out of the 25 big banks operating in Nigeria after
recapitalization, three international accounting firms have been their
auditors. Forensic accounting is a rapidly growing field of accounting that
describes the engagement that results from actual or anticipated dispute or
litigations. “Forensic” means “suitable for use in a court of law”, and it is
to that standard Forensic Accountants generally work. Forensic Accounting is an
investigative style of accounting used to determine whether an individual or an
organization has engaged in any illegal financial activities. Professional
Forensic Accountant may work for government or public accounting firm.
Although, forensic accounting has been in existence for several decades, it has
evolved over time to include several types of financial information scrutiny. Employee
and management fraud, theft embezzlement, and other financial crimes are
increasing, therefore accounting and auditing personnel must have training and
skills to recognize those crimes, both at the state level and the grassroots
(local) level to better ensure the states prospect in the area of fraud
prevention, deterrence, detection, investigation and remediation. In making
reference outside the scope of this research to enhance better need of the
service of forensic accounting in Kogi State is the news reports following the
September 11 attacks depicted how terrorists used the international banking
system to fund their activities, transfer money, and hide their finances, and
signaled a need for investigators to understand how financial information can
provide clues as to future threats.
These events raised public awareness of fraud
and forensic accounting. Forensic accounting includes the use of accounting
auditing, and investigative skills to assist in legal matters. It consists of
two major components. Litigations services that recognized the role of an
accountant as an expert consultant, and investigative service that uses a
forensic accountant’s skills and may required possible court room testimony.
According to the definition developed by the Association of Institute of
Certified Public Accountants (AICPA’s) forensic and litigation services
committee, forensic accounting may involve the application of special skills in
accounting, auditing, finance, quantitative methods, the law and research. It also
involves quantitative skill to collect, analyze, and evaluate financial
evidence, as well as the ability to interpret and communicate findings. Fraud
includes all the multifarious means human ingenuity can devise that are
resorted to by be individual to get an advantage over another by false
suggestions or suppression of the truth. It includes surprises, tricks, cunning
or dissembling, and any unfair way by which another is cheated (Black’s Law
Dictionary, 1979). 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
Forensic
accounting includes the use of accounting auditing, and investigative skills to
assist in legal matters. It consists of two major components. Litigations
services that recognized the role of an accountant as an expert consultant, and
investigative service that uses a forensic accountant’s skills and may require
possible court room testimony. According to the definition developed by the
Association of Institute of Certified Public Accountants (AICPA’s) forensic and
litigation services committee, forensic accounting may involve the application
of special skills in accounting, auditing, finance, quantitative methods, the law
and research. It also involves quantitative skill to collect, analyze, and
evaluate financial evidence, as well as the ability to interpret and
communicate findings. It is in view of this that the researcher intends to
investigate the usefulness of forensic audit in the prevention and detection of
fraud.
1.3 OBJECTIVE OF THE STUDY
The
main objective of the study is to ascertain the usefulness of forensic audit in
the prevention and detection of fraud. But for the successful completion of the
study the researcher intends to achieve the following objective;
i) To ascertain the usefulness of
forensic audit in fraud detection
ii) To ascertain the role of forensic
audit in fraud prevention
iii) To investigate the relationship
between forensic audit and fraud prevention
iv) To investigate the effect of forensic
audit on the transparency of the financial statement.
1.4 RESEARCH HYPOTHESES
To
aid the completion of the study, the following research hypotheses were formulated
by the researcher;
H0:
forensic audit does not play any significant role in fraud detection in an
organization.
H1:
forensic audit does play a significant role in fraud detection in an
organization.
H02:
there is no significant relationship between forensic audit and fraud detection
H2:
there is a significant relationship between forensic audit and fraud detection
1.5 SIGNIFICANCE OF THE STUDY
It
is believed that at the completion of the study, the findings will be useful to
the management of organizations as the study seek to emphasis on the usefulness
of forensic audit in fraud prevention and detection in organizations. The study
will also be of great importance to the audit profession as the study seek to
elaborate on the importance and role of forensic audit in crime prevention and
detection. The study will also be of great importance to student who intend to
embark on a study in similar topic as the findings of the study will serve as a
pathfinder to them. Finally the study will be of great importance to students,
teachers and the general public as the finding will add to the pool of existing
literature
1.6 SCOPE AND LIMITATION
The
scope of the study is centered on the usefulness of forensic audit in the
prevention and detection of fraud, but in the cause of the study there are some
factors which limited the scope of the study,
a) AVAILABILITY OF RESEARCH MATERIAL: The
research material available to the
researcher is insufficient, thereby limiting the study.
b) TIME: The time frame allocated to the
study does not enhance wider
coverage as the researcher has to combine other academic activities and examinations with the study.
c) FINANCE: The finance available for the
research work does not allow for wider
coverage as resources are very limited as the researcher has other academic bills to
cover
1.7
DEFINITION OF TERMS
Fraud
In
law, fraud is deliberate deception to secure unfair or unlawful gain, or to
deprive a victim of a legal right. Fraud itself can be a civil wrong (i.e., a
fraud victim may sue the fraud perpetrator to avoid the fraud or recover
monetary compensation), a criminal wrong (i.e., a fraud perpetrator may be
prosecuted and imprisoned by governmental authorities) or it may cause no loss
of money, property or legal right but still be an element of another civil or
criminal wrong.
Forensic
A
forensic audit is an examination and evaluation of a firm's or individual's
financial information for use as evidence in court. A forensic audit can be
conducted in order to prosecute a party for fraud, embezzlement or other
financial claims.
Audit
An
audit is a systematic and independent examination of books, accounts, statutory
records, documents and vouchers of an organization to ascertain how far the
financial statements as well as non-financial disclosures present a true and
fair view of the concern. It also attempts to ensure that the books of accounts
are properly maintained by the concern as required by law.
1.8
ORGANIZATION OF THE STUDY
This
research work is organized in five chapters, for easy understanding, as
follows. Chapter one is concern with the introduction, which consist of the
(background of the study), statement of the problem, objectives of the study,
research questions, research hypotheses, significance of the study, scope of
the study etc. Chapter two being the review of the related literature presents the
theoretical framework, conceptual framework and other areas concerning the
subject matter. Chapter three is a
research methodology covers deals on the research design and methods adopted in
the study. Chapter four concentrate on the data collection and analysis and
presentation of finding. Chapter five
gives summary, conclusion, and recommendations made of the study.
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Item Type: Project Material | Size: 63 pages | Chapters: 1-5
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