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PROJECT TOPIC: EFFECTS OF FORENSIC ACCOUNTING IN FRAUD DETECTION

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CHAPTER ONE

 

INTRODUCTION

1.1 Background to 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 that forensic 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 include Royal Dutch Shell, Agip, Exxon Mobil, 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)


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