EFFECT OF FORENSIC ACCOUNTING IN FRAUD DETECTION

Abstract

This study investigated the effects of forensic accounting in fraud detection.  Data was collected from the staff of Nigeria National Petroleum Corporation (NNPC) with the aid of questionnaire as the research instrument. The objectives of the study are; to determine the chances of fraud discovery through forensic accounting in the petroleum sector, to help in narrowing the audit expectation gap and to ascertain forensic accounting techniques like motive evidence, audit trail etc to stem the tide of financial fraud. Two theories are considered in this study; Fraud diamond and the white-collar fraudster theories. the theory of fraud diamond in place of a triangle. They argued that the diamond offers better view of the factors leading to fraud.  According to them fraud diamond is the basic components that contribute to the occurrence of fraud. In other words, the fraud diamond is a triangular representation of those conditions that make fraud possible. These conditions are motive, opportunity, and rationalization. The white-collar fraudster theories set out that the following features for fraudster, likely to be married, member of a church or mosque, educated  beyond high school, no arrest records, age range teens to older than 60 years.

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPETR ONE

1.0   INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

 

 

 

 

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

• Background of the study

Financial irregularity is a severe global problem. It is the major concern to developing nations. It is so endemic that fraud and corruption is gradually becoming a normal way of life. Financial irregularities are so common that almost every individual cannot wash his or her hands, clean of it; starting from the public sector to the private sector, from the presidential villa of a nation, down the political office-holding ladder, to the ward councilors; from managing directors of a company, through middle management cadre and to as low as messengers (Kasum, 2007).

Individual perpetrates fraud and corrupt practice according to the capacity of their office. Although financial irregularities affects private and public sector, the magnitude of public office fraud, together with the extent to which citizens are affected, calls for alarm (Kasum, 2007). No money is entirely free and consequently misuse of any amount will impact negatively, on where it should legally be used. The effect of these can be on an organization or a whole nation. If the effect is not direct it may be indirect as it may affect facilities and infrastructure that is supposed to be beneficial to the concerned.

Unless it is impossible, individual or establishment affected negatively by the fraudulent or corrupt practices will want to seek redress. Individual, corporate body and interested government organs takes action towards seeking redress using divergent institutions like the police and the law court. Whatever an investigator wants to do, will not be complete if the extent to which the affected person is affected is not quantified.

From business, government, regulatory authorities, and the courts the world over, evidence indicates that a higher level of expertise is necessary to analyze current complicated financial transactions and events (Emmanuel et al., 2010).This and other pecuniary areas are where the service of the experts “forensic accountant” are been engaged for a very long time worldwide and probably, recently, in Nigeria (Kasum, 2007).

Investigation of fraud and corruption is confirmed thus, not to be new, even in Nigeria. It is only gaining prominence because of the growing wave of the crime under the seemingly new nomenclature the last five years (Emma, 2009).

Research continuously confirms that preventing fraud and uncovering deceptive accounting practices are in strong demand as companies and government alike, respond to closer scrutiny of their financial activities by shareholders and government agencies (Emma, 2009).

The Nigeria Deposit Insurance Corporation (NDIC) Annual Report for 2007 revealed that the banking sector alone lost N10 billion to fraudsters in that year. Many of these crimes are difficult to identify because the perpetrators have concealed their activities through a series of complex transactions (Emmanuel et al., 2010).

From business, government, regulatory authorities, and the courts the world over, evidence indicates that a higher level of expertise is necessary to analyze current complicated financial transactions and events. As a result, forensic accounting has been thrown into the forefront of the crusade against financial deception.

In addition, according to a paper presented at the 2008 Accountants Conference organized by the Institute of Chartered Accountants of Nigeria (ICAN), it was stated that the use of forensic accounting procedures to detect financial reporting fraud should be adopted. The article argued thatforensic accountants and financial statement auditors have different mindsets. Hence, lCAN should enhance its plan to have specialists in forensic accounting and auditing and the paper encourages professional accountants to obtain membership of International Fraud Investigation and Forensic Accountancy Bodies so that they can face and withstand the emerging challenges in the area (Emmanuel et al., 2010).

Forensic accounting, also called investigative accounting or fraud audit, is a merger of forensic science and accounting. Forensic science according to Crumbley (2003) “may be defined as application of the laws of nature to the laws of man”. He refers to forensic scientists as examiners and interpreters of evidence and facts in legal cases that also offers expert opinions regarding their findings in court of law. The science in question here is accounting science, meaning that the examination and interpretation will be of economic information.

Marianne (2005) stated that forensic accounting involves the application of accounting concepts and techniques to legal problem. It demands reporting, where the accountability of the fraud is established and the report is considered as evidence in the court of law or in the administrative proceeding.

It provides an accounting analysis that is suitable to the court, which will form the basis of discussion, debate and ultimately dispute resolution (Marianne, 2005).

These means that forensic accounting is a field of specialization that has to do with provision of information that is meant to be used as evidence especially for legal purposes. The persons practicing in this field (i.e. forensic accountants) investigate and document financial fraud and white-collar crimes such as embezzlement and investigate allegations of fraud, estimates losses damages and assets and analyses complex financial transaction (Marianne, 2005).

This research will be considering the role of forensic accountants in detecting fraud in the petroleum industry using Nigeria National Petroleum Corporation (NNPC) as a case study.

NNPC was established on April 1, 1977 as a merger of the Nigerian National Oil Corporation and the Federal Ministry of Mines and Steel. NNPC by law manages the joint venture between the Nigerian federal government and a number of foreign multinational corporations, which includeRoyal Dutch Shell, Agip, ExxonMobil, Chevron, and Texaco (now merged with Chevron). Through collaboration with these companies, the Nigerian government conducts petroleum exploration and production. In 2007, the head of the Nigerian wing of Transparency International said salaries for NNPC workers were too low to prevent graft.  The NNPC Towers in Abuja is the headquarters of NNPC. Consisting of four identical towers, the complex is located on Herbert Macaulay Way, Central Business District Abuja. NNPC also has zonal offices in Lagos, Kaduna, Port Harcourt and Warri. It has an international office located in London, United Kingdom (Google.com)

1.2  Statement of the Problem

Some people believe that the incorporation of modern forensic auditing techniques in an audit in Nigeria is needed to arm the accounting profession to deal effectively with the problem of unearthing ingenious fraud schemes arising from audit failure to detect frauds. According to Hassan (2012), the level of corruption in NNPC is so high that it is affecting the economic well being of the nation. The control system adopt in all Nigerian parastatals is so porous that it gives room for corruption (Marwan, 2013). Previous report on activities in NNPC have shown that the corporation has the highest level of fraud in the oil sector, no good internal control system is in place to reveal these fraudulent practices and most auditors auditing the account of NNPC have no knowledge on modern techniques of discovering fraud (Adeola, 2011).

Though, studies on forensic accounting are very few in Nigeria, this study intend to reveal how forensic accounting can be used in tackling fraudulent practices in NNPC.

1.3  Aim and objectives of the Study

This study is aimed at ascertaining the effect of forensic accounting in fraud detection, while specific objective of the study include:

1. To determine the chances of fraud discovery through forensic accounting in the petroleum sector.
2. To ascertain the extent to which motive evidence stem the tide of unlawful withdrawal of fraud.

iii.             To ascertain how audit trail has reduced inconsistency in entries.

1.4   Relevant Research Questions

The following research questions were formulated for the purpose of this study.

1. How has forensic accounting be useful in fraud detection?
2. How has motive evidence helped to stem tides of unlawful withdrawal of funds?

• Does audit trail is sufficient to reduce inconsistency in entries?

1.5 Relevant Research Hypothesis

For the purpose of this study, the following research hypotheses were framed and tested in this study:

HYPOTHESIS 1

H0:      There is no significant relationship between forensic accounting and fraud detection.

H1:    There is significant relationship between forensic accounting and fraud detection.

HYPOTHESIS II

H0:      There is no significant relationship between motive evidence and unlawful withdrawal of fund.

H1:   There is significant relationship between motive evidence and unlawful withdrawal of fund.

1.6   Significance of the Study

The importance of this study can be drawn from the statement of the problems and objectives above:

1. To contribute to the growing literatures on the use of forensic accounting system in detection of fraud.
2. To further expose to the management of Nigeria National Petroleum Corporation (NNPC) the importance of forensic accounting toward fraud detection.

1.7       Scope of the Study

This study focus on the effects of forensic accounting techniques to discover fraud, restricting the scope of the study to Nigeria National Petroleum Corporation (NNPC). This restriction will enable the researcher to comprehensively handle the research topic effectively and efficiently well.

1.8 Definition of Terms

For the purpose of this report, I do not define different concepts as forensic accounting. These concepts are already well established in the literature and elsewhere and do not need further explanations.

However, the following definitions were considered necessary for this project:

External audit – An audit performed by an auditor engaged in public practice leading to the expression of a professional opinion which lends credibility to the assertion under examination.

Forensic audit – An examination of evidence regarding an assertion to determine its correspondence to established criteria carried out in a manner suitable to the court. An example would be a Forensic Audit of sales records to determine the quantum of rent owing under a lease agreement, which is the subject of litigation.

Internal audit – An audit performed by an employee who examines operational evidence to determine whether prescribed operating procedures have been followed.

Investigative accounting – Is often associated with investigations of criminal matters. A typical investigative accounting assignment would be an investigation of employee theft. Other examples include securities fraud, insurance fraud, kickbacks and proceeds of crime investigations.

1.9 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 (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology 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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