Forensic Accounting as a Tool for Fraud Detection and Prevention
Chapter One
OBJECTIVES OF THE STUDY
The objective of the study is to find out the following:
- To examine the role of Forensic Accountant in an organization.
- To examine the possibility of reducing the occurrence of fraud cases using Forensic Accounting.
- To find out whether Forensic Accountant can help in detecting and preventing fraud in the Public Sector
- To examine if there is significance difference between Forensic Accountants and External Auditors.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
Fraud and corruption are fundamental problems of third world countries, particularly Nigeria were official corruption has become endemic.(Akram 2009). The spate of world-wide corporate scandals involving Enron, Worldcom, Global Crossing, Tyco International, Xerox (USA); Parmalat (Italy) and corporate fraud perpetuatedin Nigeria by management of Lever Brothers, Union Dicon Salt, Cadbury (Nigeria), and the 14 distressed banksas exposed by audit of the Central Bank of Nigeria has shown the failure of traditional audit techniques inunraveling corporate fraud and have rejuvenated interest in forensic accounting. So also are the increasinggovernment concerns over official corruptions and the doggedness of the various anti corruption agencies atunraveling them through the deployment of forensic accounting methodology.
Companies are now beginning tobe more determined than ever to ensure that their operations are above board and in no way connected withfinancial frauds. These have resulted in a steadily growing demand for sophisticated accounting and auditingtechniques as provided by forensic accounting in detecting, correcting and preventing fraud as well as deceptiveand creative accounting practices. Until recently, the detection of fraud or white collar crimes was generallythought to be part of the conventional accounting and auditing functions. Generally, Fraud was something thatinternal or external auditors were supposed to guard against through their periodic audits.
However, the failure oftraditional audit in curtailing the menace of official corruption and white collar crimes is inflaming passion forforensic accounting techniques. The extent to which forensic accounting is gaining relevance in Nigeria in thefight against corruption in Nigeria, the investigative capacity of Nigerian accountants and the pace ofdevelopment of forensic accounting in Nigeria are among the principal objectives of this paper.
CONCEPT OF FORENSIC ACCOUNTING
To date, various definitions have been given to describe forensic accounting. Thornhill (1995), positsthat forensic accounting discipline is relatively new and that up to date, there has been no formal definition thatis being accepted as the standard. Webster’s Dictionary defines forensic as “pertaining to, connected with, or usedin the courts of law or public discussion and debate”. Hence, forensic accounting is closely related to the legalprocess and has the potential to be involved in proceedings in the civil and criminal courts. Forensic accountingprovides an accounting analysis to assist in legal matters which will form the basis for discussion, debate and ultimately dispute resolution. Manning (2002) also defined forensic accounting as the application of financialaccounting and investigative skills at a standard acceptable by the courts, to address issues in dispute in thecontext of civil and criminal litigation.
Bologna and Lindquist (1987) provide the definition of forensic accounting as:
…. application of financial skills and investigative mentality to unresolved issues, conducted within the context of the rules of evidence. As a discipline, it encompasses financial expertise, fraud knowledge, and a sound knowledge and understanding of business reality and the working of the legal system. Its development has been primarily achieved through on-the job training as well as experience with investigating officers and legal council. p.47
In the views of Razee, Crumbley and Elmore (2009), Forensic Accounting is simply a specialty field inAccounting that deals with the identification of financial fraud, and reports in a way that it would be suitable foruse in a court of law. Howard and Sheetz (2006) defines Forensic accounting as simply the process ofinterpreting summarizing and presenting complex financial issues clearly, succinctly and factually often in acourt of law as an expert witness. It is concerned with the use of accounting discipline to help determine issuesof facts in business litigation. Forensic Accounting is the fastest growing and highest paying field of Accounting,and with the integration and complexity of the global markets and financial institutions, it would be in greaterdemand within the next few decades. The needs of governments, regulatory authorities and courts for high level of expertise for the analysis of intricately devised frauds underlie the importance of forensic accounting(Ramaswamy,2005). Forensic accountants provide services in accounting, auditing investigation, damagesclaims, analysis valuation and general consultation and also have critical roles in divorce, insurance claims,personal damage claims, fraud claims, construction, auditing of publication right and in detecting terrorism byusing financial precedence (Hassan &Morteza, 2012).
CHAPTER THREE
RESEARCH METHODOLOGY AND PROCEDURE
INTRODUCTION
This chapter is concerned with the methods and procedures used in the collection of data for the study. The strategies adopted in the collection of data are discussed under the following sub-headings which includes; research design, area of the study, population of the study, sample size and sampling techniques, sources of data, method of data collection as well as method of data analysis.
DESIGN OF THE STUDY
This study adopted the survey research design. According to Nworgu (1991), defines survey research as one in which a group of people or items are studied by collecting analyzing data from only a few or items considered to be representative of the entire group. Thus, the researcher collected data from the staff and management of Eti-Osa local government council that formed the population of the study.
AREA OF THE STUDY
This study is limited to Eti-Osa local government council as a study area.
POPULATION OF THE STUDY
The population of this study consisted of all the staff of Eti-Osa local government council which is estimated to be 70staff. Emphasis was placed on staff knowledge and information concerning the subject of the study.
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
INTRODUCTION
This chapter entails the presentation of data analysis and interpretation of data collected. The data was through the use of questionnaire while the analysis was based on the research questions stated earlier in chapter one of this study. Simple percentages and tables were used to analyze the research questions while Chi-square statistical tool was used for testing of hypotheses.
CHAPTERFIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
INTRODUCTION
This chapter presents the summary, conclusion and recommendations for further studies.
SUMMARY
Summary of findings for this research is based on the analysis of data collected through questionnaires and testing of hypotheses. They are itemized as follows:
- That the services of Professional Forensic Accountants differ to a Traditional External Auditor.
- That the services of Professional Forensic Accountant are preferable to the services of Traditional External Auditor.
- That the uses of Forensic Accounting do significantly reduces the occurrence of fraud cases in the public sector.
- That there is significant difference between Professional Forensic Accountants and Traditional External Auditors in terms of a skills and techniques applied and fraud investigation.
- Majority of the respondents are aware of Forensic Accounting which where majorly drawn from the top management and senior staff and very few from the middle and lower cadre.
- Majority of the respondents had good knowledge of the concept of Forensic Accounting.
- Based on oral interview Eti-Osa Local Government Council does not use the services of Professional Forensic Accountants and therefore required such services.
- That the services of Professional Forensic Accountants are needed more in the public sector.
- That Forensic Accounting can help in detecting and preventing fraud in the public sector.
CONCLUSION
In conclusion, this study has analyzed why attention has to be given to the question of fraud detection and fraud prevention in public sector and Eti-Osa Local Government Council in particular with the aid of Forensic Accounting. It has discussed the Forensic Accounting approach or procedure necessary for detection, prevention of fraud and the type of control to be established in order to control the incidence of fraud in the state. It should be emphasized that whether within the business world or in the public sector, the ultimate responsibility for discouraging and preventing fraud and corrupt practices rests with management.
This study also appreciated some of the reasons why government staff and other public servant engage themselves in fraudulent practices. Also, the role of forensic accountants and the skills they need to possess to be able to contribute their quota meaningfully in achieving the objectives of this study was extensively discussed.
Above all, the study revealed that the use of Forensic Accounting do significantly reduces the occurrence of fraud cases in the public sector, as it equally showed that there is significant difference between Professional Forensic Accountants and Traditional External Auditors in terms of skills and techniques applied in Fraud detection and prevention.
RECOMMENDATIONS
From the findings of this study, the researcher made the following recommendations:
- Forensic Accounting will provide litigation support service with appropriate provision of professional services in the law courts.
- Forensic Accounting will institute good corporate governance in the public sector which will install public confidence in the government and the entire system.
- The traditional auditing has limitation in detecting fraudulent practices which the forensic accountants will effectively fill. They have the professional ability back up by law to break into the organization system and examine the books, make discoveries and present the documentary evidences in the law courts.
- The image of Nigeria in the international community has discouraged foreign direct investment because of economic and financial crime. This has effect on development, employment and the standard of living of the people. Eradication of economic and financial crime through the adoption of forensic accounting in the system will improve the image of firms under review.
- Detection and prevention of corruption have given rise to the profession of forensic accounting. Due to this fact, the most important thing companies have to do with regard to fraud is to prevent the crime from being committed.
- Government and regulatory authorities should ensure the provision of standards and guidelines to regulate forensic activities and above all Nigerians should embrace integrity, objectivity, fairness and accountability in theirday-to-day activities.
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