ABSTRACT
The purpose of this study was to determine the relationship between corporate culture and employee fraud incidence in Nestle Nigeria PLC. To achieve this objective the study used a causal explanatory design. The population was Nestle Nigeria PLC from which a sample of 234 was selected using simple random sampling. Primary data was collected through a structured questionnaire. The data collected was analyzed using ordinal regression model to test five hypothesis from the study. The study established that board size was significant in explaining employee fraud incidence in Nestle Nigeria PLC. The study concluded that most of the governance practices proposed in literature are insignificant in explaining employee fraud incidence. It is recommended that policy makers and Nestle PLC coordination bureau stipulate the maximum board size of 10 members for Nestle Nigeria PLC. It is further recommended that Nestle Nigeria PLC use other practices besides governance practices to deter employee fraud such as tone at the top, whistle blower policies, strong compliance programs and conducting fraud risk assessments. The study has contributed to current literature on governance and fraud in Nestle Nigeria PLC by demonstrating that governance practices alone are not enough in deterring employee fraud in Nestle Nigeria PLC.
CHAPTER ONE
INTRODUCTION
• Background of study
Corporate culture has attracted increasing attention over the past years, due to financial scandals from accounting irregularities (Brennan, 2008). This has increased the number of studies on governance, most of which have focused on companies in countries such as USA (Beasley, 1996; Beasley, Carcello, Hermanson, & Lapides, 2000), UK, Australia, China and Malaysia (Chen, Firth, Gao, & Rui, 2006; Farber, 2005; Shan, Graves, & Ali, 2013). These studies have yielded mixed results making it difficult to generalize the relationship between corporate culture and fraud. A study by Beasley (1996) in USA, found that firms with no- fraud had a more independent directors on their boards. Similar findings were obtained by other scholars such as Chen et al. (2006), (Farber, 2005), (Uzun, Szewczyk, & Varma, 2004). On the contrary, some researchers have found no relationship between some governance variables such as board independence, audit committee and internal audit and fraud (Agrawal & Chadha, 2005; Shan et al., 2013). Farber (2005) found that firms which were victims of fraud later amended their governance system by appointing independent board members. A study in Asia by Chen et al., (2006), found a relationship between the incidence of fraud and some board features namely proportion of outside directors, number of board meetings and the tenure of the chairman. In contrast, a similar study by Rahmayanti & Irianto (2010) on Malaysian firms found no relationship between fraud and corporate culture and board characteristics except audit quality. The study also found that firms audited by the big four accounting firms experienced less fraud than their counterparts audited by other audit firms.
The literature on Nestle PLC provides little guidance on the relationship between governance and employee fraud. This could be due to the fact that most of the researchers have studied governance aspects independently without linking them to fraud, but to other aspects such as accuracy of expenses, donations, performance and organizational efficiency (Callen, Klein, & Tinkelman, 2003; Harris et al., 2015; Kawira, 2012; Kimunguyi, Memba, & Njeru, 2015; Yetman & Yetman, 2012). Other researchers on nonprofit fraud have considered other aspects such as nonprofit corruption and organizational culture (Kimemia, 2013), while others have studied nonprofit fraud alone without linking it to governance (Archambeault, Webber, & Greenlee, 2014; Greenlee et al., 2007; Okaro, Okafor, & Ofoegbu, 2013). A fraud survey by BDO found employee fraud to be on the rise, while other surveys over the years by Association of Certified fraud Examiners (ACFE) indicate that occupational fraud or employee fraud is the most common or frequent fraud in organizations.
Moreover, some research on governance in profit making organizations have only considered governance aspects narrowly by focusing on individual governance aspects such as board characteristics, audit committees and CEO duality (Fich & Shivdasani, 2007; Uzun et al., 2004). A similar approach has been used by some researchers in Nestle PLC culture studying board composition, audit committees (Hyndman & McDonnell, 2009; Kitching, 2009; Puyvelde, Caers, Bois, & Jegers, 2012). Some researchers such as Cornforth (2012) and Renz (2010) have raised concern on the narrow conceptualization of governance limited to board characteristics and proposed broadening governance to include audit and regulatory bodies.
More research has been conducted on fraud in companies as compared to that in Nestle Nigeria PLC. Empirical studies on fraud in companies have focused on financial statement fraud (Beasley et al., 2000; Bourke, 2006; Shan et al., 2013; Uzun et al., 2004), while limited studies are available on asset misappropriation frauds perpetrated by employees (Harris et al., 2017; Otieno, Chelule, & Bor, 2014). One of the justifications for this focus on financial statement fraud is difficulty in measurement and identification of asset misappropriation type frauds (Tan, Chapple, & Walsh, 2015). A study by PriceWaterHouse in 2009 indicated that asset misappropriation constituted 95% of the frauds committed. A similar study in 2016 indicated that asset misappropriation still leads among committed frauds at 64%. Further, a fraud survey by Association of Certified Fraud Examiners, (2014), indicated that asset misappropriation occurs in more than 83% of cases and is the most common form of occupational fraud. In this case the median loss is $125,000 which is the lowest of the frauds. Other fraud surveys by firms such as BDO (2014) have indicated that Nestle Nigeria PLC reported more incidents of frauds involving employees. Even though the median loss on occupational fraud or employee fraud is low in comparison with financial statement fraud and corruption, this type of fraud may lead to cumulative high losses for an organization considering that it is the most common.
Empirical studies on fraud in Nigeria have been few, and those available have focused on the banking industry and county governments (Otieno et al., 2014). Fraud studies in Nestle Nigeria PLC have looked at corruption (Kimemia, 2013). Other accounts on fraud in Nestle Nigeria PLC have been reported in newspaper articles. Furthermore, the available studies have mainly focused on describing fraud perpetrated and characteristics of fraud commonly perpetrated in Nestle PLC (Harris et al., 2017).
The Association of Certified Fraud Examiners (BDO Newzealand, 2016) classify fraud into three categories namely Asset misappropriation, financial statement fraud and corruption. Asset misappropriations are frauds perpetrated by employees by stealing or misuse of organization resources. They include skimming and cash larceny, frauds involving fraudulent disbursement of cash like billing, cheque tampering, expenses reimbursement, payroll inflation, tempering with cash register and assets misappropriation, like cash on hand misappropriation and non-cash appropriation (Otieno et al., 2014). Financial statement fraud involves the misstatement or omission of material information from the organizations’ financial reports. Corruption is defined as the misuse of public power, office or authority for private benefit.
Despite the fact that frauds by employees seem to be on the rise, and that employee fraud or occupational fraud is the most common or frequent fraud encountered, empirical research is limited. The available empirical studies have not researched on employee fraud incidence and the fraud surveys undertaken by firms such as ACFE and BDO have been descriptive of occupational fraud. This leaves a knowledge gap which this study will attempt to fill. This study will focus on asset misappropriation fraud or employee fraud by looking at how frequently 13 types of occupational fraud proposed by ACFE occur.
Problem Statement
Studies in United States and UK on businesses governance have related governance with performance, donations, asset diversions and accuracy of charitable expenses (Harris et al., 2015; Yetman & Yetman, 2012).
Studies on fraud in Nigeria are limited and those available have focused on linking governance in Nestle Nigeria PLC with other aspects other than fraud, such as performance, organizational efficiency and financial performance (Kimunguyi, Memba & Njeru, 2015; Meme, 2012; Ouna, 2014). Other studies have focused on corporate culture and performance in other sectors such as in Nigerian banks (Matengo, 2008) and Nigeria cooperative creameries (Mureithi, 2008). Current research on nonprofit fraud has not linked governance and employee fraud incidence and it is not clear if there is a relationship between Nestle PLC culture and frequency of employee fraud.
The available studies on governance and fraud in Non-governmental organizations make it difficult to generalize the relationship between businesses governance and employee fraud incidence. Furthermore, the narrow conceptualization of governance to board characteristics without broadening it to other governance aspects such as audit committees, external audit leaves a gap which this study aims at filling.
General Objective
The general objective of this study was to assess the relationship between governance practices and employee fraud incidence in Nestle Nigeria PLC.
Specific Objectives
The Specific research objectives were;
• To determine employee fraud incidence in Nestle Nigeria PLC.
• To determine the governance practices in Nestle Nigeria PLC.
• To establish the relationship between governance practices and employee fraud incidence in Nigerian businesses.
Research Questions
This study will provide answers to the following research questions:
• How frequently does employee fraud occur in Nestle Nigeria PLC?
• What are the governance practices among Nestle Nigeria PLC?
• What is the relationship between governance practices and employee fraud incidence Nigerian businesses?
Scope of the Study
The study focused on employee fraud or asset misappropriation as proposed by Association of Certified Fraud Examiners, (2014) and Seven corporate culture as proposed by (Cornforth, 2012; Harris et al., 2015). The population under study was Nestle Nigeria PLC.
Significance of the Study
The findings from this study will be a step towards understanding corporate culture among Nigerian businesses and how these relate to employee fraud incidence. It will support the government’s efforts towards strengthening Business sector through Nestle PLC Bureau. Nigerian businesses have become an important development partner of the donors and the Nigerian government, and other stakeholders. Proper governance practices will help ensure that funding reaches the intended beneficiaries, thereby ensuring that the donor objectives are met. Failure to use good governance practices leads to misuse of funding due to fraud thereby negatively impacting on Business sector and robbing the beneficiaries and society as a whole of the benefits of the projects.
This study will be useful to policy makers such as Nestle PLC coordination bureau in terms of policy formulation on existing governance practices especially minimum board size for Nigerian businesses and audit committees. Nestle PLC Bureau being a body responsible for Nestle Nigeria PLC sets the Policy framework to improve accountability in the sector. Policy makers require information to enable them formulate sound policies that would enhance discipline in the sector as far as governance is concerned. This study will provide relevant information for policy formulation in Business sector regarding governance practices which can help deter fraud in Business sector.
The study results will be beneficial to Nestle Nigeria PLC keen on understanding the governance practices that can help in curbing employee fraud. Research has shown that improving the governance practices in Nestle Nigeria PLC is key and is a proactive approach in dealing with employee fraud.
The results of this study will add on the available literature on fraud and governance in Nestle Nigeria PLC using, as informed by agency theory and institutional theory. Students and academicians will find this beneficial, since the study will highlight possible research areas that can form basis for further studies for academicians and reference points for students.
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