CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
This paper explores the relevance of forensic
accounting in the detection and
prevention of fraud in our private and public sectors respectively due to the
prevalent increase in the rate of misappropriation and embezzlement of funds
using Nigerian private and public sectors as a study.
The financial irregularities is a severe problem of concern globally. It is common that almost every individual cannot wash his or her hands clean of it, starting from the public sector to the private sectors. Accounting as a social science plays significant roles in our society and serves as a legitimating device for the market economic system and also a form of social language and certainly a business language.
The financial irregularities is a severe problem of concern globally. It is common that almost every individual cannot wash his or her hands clean of it, starting from the public sector to the private sectors. Accounting as a social science plays significant roles in our society and serves as a legitimating device for the market economic system and also a form of social language and certainly a business language.
However, accounting figures are
heavily exposed to fraud due to their influence on numerous crucial decision
that affect various key social actors with far reaching implications. For
instance, accounting figures are sources of rewards for management, a basis for
the assessment of firm performance and grouping in the sense of profitable and
none profitable firms and investors decisions. These numerous needs and
interest makes accounting figures to be extremely susceptible to fraud. Fraud
in accounting is fraudulent financial reporting and misappropriation of firms
resources and this has been occurring in
our society thereby making great emphasis on how fraud will be detected and
prevented. Though the auditors responsibility has been increased to consider
the risks of fraud while conducting audit of financial statements; thereby
calling for stronger technique and skills on those who perform these audits.
Hence the primary responsibility of an auditor is to verify whether the
financial statements show a true and fair view of the business white their
secondary responsibility is the prevention and detection of errors and fraud.
The third party emphasized that an
auditor must be in a position to detect all kinds of fraud, but the auditors
are not so persuaded as they believe that it is not their primary duty to
detect fraud. So there is a gap between auditors and third, parties (sale hi
and Azary, 2009a) and this has brought about the introduction of somebody who has higher skill to do the
secondary responsibility of an auditor called a “forensic accountant”.
Enyi (2009) submits that all normal
statutory audits should contain some elements of forensic enquiry as the
evidence of fraudulent activities can be easily discovered if a thorough evaluation of the adequacy and compliance of
the internal control mechanism is made may not be achieved by an auditor
without some understanding society of forensic accounting methods. Events of
the recent years in our society that involves the public sectors and private
sectors have contributed to the growing demand for forensic accounting to help
detect and prevent fraud accountant has been ascribed to the fact that the
audit system in an organization had failed to detect certain errors in the
managerial system. The following have been figured as being responsible for the
growth of forensic accounting which includes:-
Ø Failure of internal audit and audit committee to
unearth hidden aspects of corporate fraud.
Ø The apparent lack of independence of internal auditors
Ø The often compromised method of appointing statutory
auditors
Therefore, forensic accountants were introduced in
order to prevent, detect and respond to harm caused by fraud that an auditor
could not detect or prevent. A forensic accountant has the sole aim of
unveiling fraudulent activities within and outside the organization. In general
terms, forensic accounting involves reporting where fraud is established and
the report is considered as evidence in the court of law. The engagement of
forensic accounting techniques are usually geared towards finding where money
went how it got there and who was responsible.
In respect to the above submissions and endemic nature
of fraud in Nigeria and the necessity of specialized skills to unveil such
frauds, it becomes imperative to bring in the services of forensic accounting
techniques into our society to help solve the problem of fraud activities we
experience in our society.
A forensic accountants have been described as
experienced auditors accountants and investigators of legal and financial
documents that are hired to look into possible suspicious of fraudulent
activity within a company; or are hired by a company who may just want to
prevent fraudulent activities from occurring. They also provide services in
areas such as accounting, anti trust, damages, analysis, valuation and general
consulting. Forensic accountants have also been used in bankruptcy, insurance
claims personal injury claims, fraudulent claims, construction, royalty audits
and tracking terrorism by investigating financial records. Forensic accounting
is an amalgamation of forensic science and accounting.
Therefore, there is every need to inculcate the
services of a forensic accountant in our private and public sectors to fill in
the gap that an auditor could not cover hence bringing up the trust of
investors and general public in our organizations to be fresh again and strong
as it use to be that is the observation of the researcher after being motivated
to carryout a research on the relevance of forensic accounting to fraud
detection and prevention in private and public sectors.
1.2 Statement
of the Problem
The increase in the rate of fraud
–public and private fund embezzlement has caused a serious concern to the
investors, general public and owners of the business. Hence, the investors and
general public have been disappointed in the failure of the responsibilities of
auditors in their work.
Fraud has been discussed in two
different ways viz fraudulent financial reporting and misappropriation of
assets refers to deliberate and calculated activities and attempts to
misrepresent transactions in the financial statement in order to derive or take
undue advantage. On the other hand misappropriation of assets refers to
deliberate and calculated activities to take firms resources without
authorization, this includes stealing. However all these fraudulent financial
reporting and misappropriate of rim resources exist due to their influence on
numerous crucial decisions that affects various key social actors with a far
reaching implication for example, accounting figures are sources of rewards for
management; a basis for the assessment of firm performance and grouping in the
sense of profitable and non profitable firm. These numerous needs and interest
makes accounting figures to be extremely susceptible to fraud.
Therefore most people now are of the
view that the emergence and inclusion of
forensic accounting techniques to fraud detection and prevention in public and
private sectors in Nigeria is needed to arm the accounting profession to deal
with the problem of unearthing ingenious fraud schemes arising from audit’s
failure to detect and prevent it. Though the study of forensic accounting in
Nigeria is very few in our universities irrespective of the numerous
universities we have in Nigeria thereby not having a good number of forensic
accountants to curb the excessive fraud activities going on in our public and
private sectors.
This study, therefore is aimed at
ascertaining the impact the available forensic accountants will create on
detecting and preventing fraud using the forensic accounting techniques and
thus its contribution in bridging the audit expectation gap. Below are some of
the statement of problem that was looked into
1.
To what degree do
people believe in the opinion of auditors concerning their report on an audited
financial statements
2.
To what extent
has the negligence of auditors to their job caused financial misappropriation
in our sectors.
3.
In what way has
the 50% unindependent quality of an auditor affected their opinion to the
public concerning the financial statement of our sectors.
1.3 Objectives
of the Study
The overall objective of this study
is to find out the perception of accountant techniques in fraud detection and
prevention can enhance the chances of fraud discovery and thus help in closing
the audit expectation gap between the auditor responsibilities and publics
expectation. For this study we looked into the following objectives which is as
follows:-
(i)
To ascertain the
extent to which forensic a accounting has helped in detecting and preventing
fraud in public and private sectors in
Nigeria.
(ii)
To ascertain if
the forensic accountant should be analytically minded and inquisitive.
(iii)
To find out if
there is need for the services of forensic accountant to fraud detection and
prevention in our public and private sectors.
(iv)
To ascertain if
the services of the forensic accountants are needed in Nigeria.
(v)
To find out the
view of staffs of the sectors as to whether on a cost benefit basis, the
introduction of some forensic accounting techniques in an audit is capable of
stemming the tide of financial fraud and bridge the audit expectation gap.
1.4 Research
Questions
The following research questions
were formulated for the purpose of this study. They includes:-
(i)
In what ways has
the forensic accounting helped in detecting and preventing fraud in Emanite limited
and Nigerian bottling company Enugu
(ii)
Should a forensic
accountant be analytically minded and inquisitive.
(iii)
What are the
needs for forensic accountant’s services in fraud detection and prevention in
organization.
(iv)
Why do the
services of forensic accountant been needed in Emanite Ltd Emene Enugu State
and Nigerian bottling company Enugu
(v)
What are the
views of staff of Emenite Ltd Emene Enugu and Nigerian bottling company as to
whether the cost benefit basis, the introduction of some forensic accounting
techniques in an audit is capable of stemming the tide of financial fraud and
thus bridge the audit expectation gap.
1.5 Hypothesis
(1) H0- There is no relationship between forensic
accounting and fraud detection and prevention in Emenite Limited Enugu and
Nigerian bottling company Enugu.
H1- There
is no relationship between forensic accountant and analytical mind and
inquisitiveness in fraud detection and prevention in Emenite Limited Enugu and
Nigerian bottling company Enugu.
(2) H0- There is a relationship between forensic
accounting and analytical mind and inquisitiveness in fraud detection and
prevention in Emenite Limited Enugu and Nigerian bottling company Enugu.
H1-
There is a relationship between forensic accounting and analytical mind and
inquisitiveness in fraud detection and prevention in Emenite limited Enugu and
Nigerian bottling company Enugu.
(3) H0
–There is no relationship between forensic accountant and there services in
fraud detection and prevention in Emenite Ltd Enugu and Nigerian bottling
company.
H1-
There is relationship between forensic accountant and there services in fraud
detection and prevention in Emenite Limited Enugu and Nigerian bottling
company.
(4) H0-
There is no relationship between forensic accountant and the need for there
services in Emenite Limited Emene Enugu and Nigeria bottling company Enugu.
H1- There
is relationship between forensic accountant and the need for there services in
Emenite Limited Emene Enugu and Nigeria bottling company Enugu.
(5) H0- There is no relationship between
accounting and the negative view about the cost benefit basis, the introduction
of some forensic accounting techniques in an audit which is not capable of
stemming the tide of financial fraud and thus not cover the audit expectation
gap the organization workers have in mind.
H1-
There is relationship between
accounting and the negative view about the cost benefit basis, the introduction
of some forensic accounting techniques in an audit which is not capable of
stemming the tide of financial fraud and thus not cover the audit expectation
gap the organization workers have in mind.
1.6 Significance of the Study
The research under took this research on the topic
“the relevance of forensic accounting to fraud detection and prevention in
private and public sectors- Nigerian bottling company Plc and Emene Enugu as a
case study” due to the increase in the financial misappropriation and
embezzlement in our private and public sectors and the failure of auditors to
accurately represent the public, shareholders, investors in the duty they
(auditors) owe them because of limited or no independence right which they have
now n our country in order to make quick money, there is need to introduce
someone who is more sincere and can go beyond investigating only paper work,
someone who can do police work, lawyer job and state security service (SSS)
job. That is going as far as investigating how the misappropriation started,
people that are involved, reasons for their involvement someone who has
initiative mind on private investigation and accounting, that can recognize
financial fraud, who can look beyond the financial numbers to find out what is
not right and scrutinize on that.
The researcher discovered that the shareholders,
investors, general public, company and the government will benefit in the
inclusion of forensic accountants to the diction and prevention of fraud in our
private and public sectors. Since their investigation goes beyond the
investigation of an ordinary auditor. Again, the researcher discovered that if
forensic accountants will be given proper and adequate support by the
beneficiates named above to do their job in dependently with full cooperation
without interference. From the perpetrators of the financial misappropriation,
the sky will be their starting point in detecting and preventing fraud in our
private and public sectors and also help reduce the level of embezzlement and
financial misappropriate we experience in our organizations.
1.7 Scope
and Limitations of the Study
For the purpose of this study, I
focused on a selected private sector and a selected public sector which is
Emenite Ltd, Emene Enugu and Nigerian bottling company Plc in Enugu
respectively. The two sectors (company) that was selected out of the numerous
private and public sectors in Nigeria and has their accountants, auditors and
senior staffs as the main target.
During the research, the research
had constraints on the area of insufficient fund, inadequate time and space,
resistance non challant attitude of most respondents and difficulty in getting
enough materials for his writing to carryout further investigation of the
research topic.
1.8 Definition
of Terms
Forensic – “This means suitable for use in a court of law;
“pertaining to court”; being accepted as a standard in legal cases”
Accounting – This is the process of recording, classifying,
summarizing, analyzing and interpreting financial transactions and communicating
the results thereof to interested users
Auditing – This is an independent examination of and expression
of opinion on, the financial statements of an enterprise by an appointed
auditor in pursuance of that appointment and in compliance with any relevant
statutory obligation.
Forensic accounting - This is a type of accounting that
provides accounting analysis that is suitable for the court and which will form
the basis for discussion, debate and ultimately dispute resolution. It is
actually the integration of accounting, auditing and investigative skills to
assist in legal matters.
Investigate – This is to discover and examine all the facts about
something, somebody’s character, background, political view, fraud, information
etc. using police or lawyer method of research.
Litigation - This is a process of bringing or defending a claim
before a law court
Misappropriation -This is using somebody’s or some people’s money embezzlement
placed in a person’s care without authorization by the owner for one’s benefit.
Private sector - This is simply a
business firm that issues shares to the general public. It is a business part
of economy or industry managed and controlled by the state.
Fraud - This
is the action or an instance of deceiving somebody in order to make money or
obtain goods illegally.
Audit expectation gap- This is described as the gap between the
auditors actual standard of performance and the various public expectations of
auditors performance.
Fraudulent financial Reporting - This refers to deliberate and calculated
activities and attempts to misrepresent transactions in the financial statement
in order to derive or take undue advantage.