THE USEFULNESS OF FORENSIC ACCOUNTING IN PREVENTING AND DETECTING FRAUD
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
The issue of employee and management fraud, money laundering and other financial crimes in business and government organisations has made the application and practice of forensic accounting a necessity and mandatory. Forensic accounting arises from the effect and cause of fraud and technical error made by human. Forensic accounting is an upcoming practise in Nigeria as companies have realized that the service of a forensic accountant is needed as cases of fraud have increased substantially in number (Ojaide, 2000)
Forensic accounting also known as investigative accounting is that branch of accounting that deals with recovering proceeds of fraud, money laundering and other related corrupt practices that may occur in an organization. Once fraud is perceived or detected, a professional set of people that is; the forensic accountants are called upon to help detect the fraud and provide management with substantial and enough evidence to be presented in the court of law, when prosecuting the suspects involved in the fraud.‘Forensic’ which means evidence or material(s) to be used in court has been incorporated into accounting and finance as a result of increase in white collar crimes (Mazunder, 2011). Mazunder(2011) also remarked that the law enforcement personnel in recent years have become more aware of white collar crimes but lack the expertise.
According to Zysman (2004), forensic accounting makes use of accounting, auditing, and investigative skills. Enyi (2012) also asserted that it takes an accountant to catch a corrupt or fraudulent accountant successfully. An auditor must be fully independent and must be aware of the tricks of management staff and employees in perpetrating fraud in an organization.Joshi (2002) traced the history of forensic accounting to Kutilya, the first economist to openly recognize the need for the forensic accountants. The first form of forensic accounting can be traced to an 1817 court decision. The phase “forensic accounting” was first coined by Publoubet in 1946. Publoubet was the first man to publish in his book the pase “forensic accounting”.
Since Nigeria gained her independence in 1960, forensic accounting has existed due to increase in fraud, money laundering, and other forms of economic and financial crimes in the country(Enyi 2012).Forensic accounting is the application of financial skills and investigative mentality to unsettled issues, conducted within the context of the rules of evidence (Arokiasamy& Cristal, 2009).Bologna and Lindquisitn (1987) assert that forensic accounting as a discipline encompasses fraud knowledge, financial expertise and a sound knowledge and understanding of business reality and the working of the legal system.It has been noted that “government spending has always been a big business, butit has become so massive today that the public through its legislators is demanding to know whether the huge outlays of money are being spent wisely or whether they should be spent at all”. Officials and employees who manage public sector activities are by virtue of that duty, required to render adequate accounts of their activities to the public (Ribadu 2005).
The incidence of fraud continues to increase across private and public sector organizations and across nations. Fraud is a universal problem as no nation is immune, although developing countries and their various states suffer the most pain. Forensic accounting may be one of the most effective and efficient way to detect and prevent accounting fraud. Presently, forensic accounting is gaining popularity worldwide.
In the light of the above, the focus of this study therefore is to examine the role and prospects of forensic accounting in preventing and detecting fraud in Nigeriawith particular emphasis on the public sector.
1.2    Statement of the Research Problem
Forensic accounting provides cultural mediation for economic and political logics (Williams, 2002). It is the venue within which the cultural mediation of legal and economic claims is accomplished. The first decade of the twenty-first century experienced a tsunamior blizzardin the number of corporate scandals, frauds, and failures (Ball, 2009). These events precipitated and contributed to the Great Recession and significantly impacted the efficient functioning of free market capitalism. Some of which were actually facilitated by public accountants (Enron and Arthur Andersen). The scandals, frauds, and failures have contributed to the loss of confidence by the financial statements users in the ability of publicaccounting to contribute viable solutions to the financial problems, and have fuelled the growth in demand for forensicaccountants (Huber, 2012).
Recently, it has been established that series of fraud have been committed both in the public and private sector of the economy. Ojaide (2000) opined that the increase in the number of fraud and fraudulent activities in Nigeria is alarming with emphasis on the visibility of forensic accounting services. Okoye and Akambi (2009), Owojori and Asaolu(2009), Izedonmi and Mgbame (2011), Kasum (2009) have all acknowledged in their separate works the increasing incidence of fraud and fraudulent activities in Nigeria and these studies have argued that in Nigeria, financial fraud is gradually becoming the order of the day in the business world especially the public sector.
However, large company such as Cadbury NigPlc, Oceanic Bank Plc and Afri Bank had been found involved in fraud.This is because it is always possible for high level management to access data and change the information, paper-basedsystem or a computerized system alike. It all relates back to human nature and high level management. The possible wayto solve this issue is that the public should be educated and be informed of the use and function of forensic accounting toprevent fraud occurrences. When the public is made known of the concept, then they could actually demand for theservice in the company which they invest in.
Based on the problem stated above, this study is being carried outto address the following issues;
The effectiveness of forensic accounting in preventing fraud in the public sector.
The significant role the forensic accountant plays in the public sector.
The effectiveness of forensic accounting in detecting fraud in the public sector.
1.3    Statement of the Research Questions
1.    Is forensic accounting effective in preventing fraud in the public sector?
2.    Do forensic accountants play a significant role in the public sector?
3.     Is forensic accounting effective in detecting fraud in the public sector?
1.4    Objectives of the Study
The objective of the study includes;
To determine the effectiveness of forensic accounting in preventing fraud in the public sector.
To examine the significance of the role of forensic accountants in the public sector.
To determine the effectiveness of forensic accounting in detecting fraud in the public sector.
1.5      Research Hypotheses
1.    H0: forensic accounting is not effective in preventing fraud in the public sector.
2.    H0: forensic accountants do not play a significant role in the public sector.
3.    H0: forensic accounting is not effective in detecting fraud in the public sector.
1.6     Scope of the Study
In the light of broad coverage, this study focuses on the fraud detection and prevention in the public sector organizations using five(5) selected ministries in Edo State like ministry of finance, ministry of justice, ministry of works, ministry of local government and chieftaincy affairs, ministry of education, ministry of budget and planning, ministry of commerce and industry and ministry of health, etc. A total of hundred questionnaires would be distributed to get sufficient and reliable information for proper analysis.
1.7    Significance of the Study
This study is being carried out in order to determine the role of the forensic accounting in detecting and preventing fraud and other corporate crimes in the public sector. It will also show to organizations the importance of engaging a forensic accountant in the day to day operations of the business in order to combat corporate fraud and detect other prevailing type of fraud in the organization.
1.8    DEFINITION OF TERMS
Forensic Accounting: according to Manning (2002) defined forensic accounting as the application of financial accounting and investigative skills at a standard acceptable by the courts, to address issues in dispute in the context of civil and criminal litigation.
Accounting: this is defined as the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information (Frankwood& Sangster, 2005).
Accounting Fraud: this is an act of knowingly falsifying accounting records, such as sales or cost records, in order to boost the net income or sales figures; accounting fraud is illegal and subjects the company and the executives involved to civil lawsuits (Arokiasmy&Cristal, 2009).
Fraud: this is an act or course of deception, deliberately practised to gain unlawful or unfair advantage, such deception directed to the detriment of another (Anyanwu, 1993).
Detective Controls: these controls are designed to detect and report the occurrence of an omission, an error or a malicious act (Adeniyi, 2004).
Preventive Controls: these are controls that predict potential problems before they occur and make adjustments (Adeniyi, 2004).
Corporate Fraud: these are the activities undertaken by an individual or company that are done in a dishonest or an illegal manner and are designed to give an advantage to the perpetrating individual or company (Investopedia, 2015).