IMPACT OF FORENSIC AUDITING AND FINANCIAL FRAUD IN NIGERIAN DEPOSIT MONEY BANKS (DMBS)

CHAPTER ONE

INTRODUCTION

1. BACKGROUND OF THE STUDY

The issue of fraud, money laundering, and other unethical activities in commercial and government organizations has necessitated the employment of forensic or investigative accounting procedures, as well as their application. Investigative accounting, sometimes known as forensic accounting, is a branch of accounting that focuses on recovering ill-gotten earnings from crimes such as fraud, money laundering, and other types of financial impropriety that may occur inside a business. When fraud is suspected or detected, an expert group of people known as forensic accountants is called in to help with the investigation. They also supply considerable proof to management that may be utilized in legal actions against anyone suspected of engaging in fraudulent activities. As white collar crime has increased, the word "forensic," which refers to evidence or material(s) to be utilized in court, has entered accounting and finance. This phrase refers to evidence or materials that will be utilized in court (Aduwo, 2016).

Accounting, auditing, and investigative skills are used in the discipline of forensic accounting, according to Bassey (2018). Claire and Jude (2016) claimed that just as a man is supposed to know a monkey's trick in order to catch it, an accountant is required to catch a corrupt or dishonest accountant. In other words, an accountant must capture a monkey. It is essential for an auditor to follow a set of strong ethical norms in order to do forensic accounting successfully. An auditor must be entirely objective as well as educated about the techniques employed by management and staff members in order to discover and prevent fraud in a firm.

Fraud is an epidemic in money deposit institutions, and it is progressively becoming a regular way of life in both the public and commercial sectors (The Punch, 2020). For a long time, the phrase "financial fraud" has been used to describe a danger that has led to the demise of a number of renowned organizations throughout the globe.

It is alarming that cases of fraud have grown so widespread in Nigeria that they are quickly nearing epidemic proportions, despite the fact that several laws have been implemented to limit, relieve, and, if possible, eradicate the occurrence and incidents of fraud. Despite these rules, it is probable that fraud may persist. In reality, perpetrating fraud has grown commonplace in Nigeria, especially in the financial industry.

Suleiman and Othman (2016) state that an increasing number of businesses throughout the globe are getting used to the existence of a rising requirement for forensic auditing. The goal of forensic accounting is to determine both the repercussions and the cause of human acts of fraud as well as technological mistakes. The profession of forensic auditing is still relatively new in Nigeria, but companies have lately realized that they need the services of a forensic accountant owing to an increase in the number of incidents of fraud. Forensic accounting is the process of using one's research skills and understanding of financial affairs in the context of unresolved problems while following to evidentiary standards.

According to Abdulrahman (2019), financial related fraud and an increase in financial crime have necessitated the use of forensic accounting to aid in the investigation and prosecution of financial crime syndicates, such as in the case of some prominent Nigerian companies, and some people are currently facing trials in various courts of law in Nigeria on charges of money laundering, embezzlement, misappropriation of funds, security fraud, and breach of contract.

This only demonstrates that there has been a startling growth in the number of instances of fraud and fraudulent activities in Nigeria, making it imperative that forensic accounting services be made more visible. In recent years, a number of studies have focused on the investigative function of forensic accounting in the prevention and detection of fraud in Nigeria, particularly in the public sector (Adebisi, & Gbegi, 2015) but there has been a dearth of researches in the money deposit banks hence the need for this study.

1. 1. STATEMENT OF THE PROBLEM

According to Enofe, Ochuwa, Henrietta, and Nosareimen (2017), the rising prevalence of fraud in the Nigerian banking system is causing widespread confusion. This is because fraudulent conduct has infiltrated practically every aspect of Nigeria's public sector. According to Ogundana, Okere, Ogunleye, and Oladapo (2018), the inability of auditors to detect, prevent, or reduce modern frauds in the public sector such as money laundering, security fraud, contract disparity, embezzlement, and other financial crimes has put a lot of pressure on professional accountants and legal practitioners to find better ways of revealing fraud in the banking sector. This is due to auditors' inability to identify, prevent, or mitigate contemporary crimes including money laundering and security fraud.

For this reason, it is important to strengthen the practice of forensic accounting, which is one of the methods that may be utilized for the identification and prevention of wrongdoing in the banking sector. This is as a result of the possibility that auditors working in the public sector in Nigeria might not possess the critical expertise necessary for identifying, preventing, or decreasing fraud.

1. 1. OBJECTIVES OF THE STUDY

The primary objective of this study is to assess the impact of forensic auditing and financial fraud in Nigerian Deposit Money Banks (DMBS). Specifically, other objectives of this study are:

1. To determine the extent of financial fraud in Nigerian Deposit Money Banks.

2. To examine the effectiveness of forensic auditing in the detection of fraudulent activities in Nigerian Deposit Money Banks.

3. To examine whether the application of forensic auditing in Nigerian Deposit Money Banks has reduced the occurrence of fraud cases.

4. To identify the factors militating against the effectiveness of forensic accounting in Nigerian Deposit Money Banks.

1. 1. RESEARCH QUESTIONS

The following questions will be answered in this study:

1. What is the extent of financial fraud in Nigerian Deposit Money Banks?

2. What is the effectiveness of forensic auditing in the detection of fraudulent activities in Nigerian Deposit Money Banks?

3. Has the application of forensic auditing in Nigerian Deposit Money Banks has reduced the occurrence of fraud cases?

4. What are the factors militating against the effectiveness of forensic accounting in Nigerian Deposit Money Banks?

1. 1. SIGNIFICANCE OF THE STUDY

This research will assist in the development and implementation of forensic auditing techniques in Nigeria. Because forensic auditing is still relatively new in developing countries like Nigeria, this study will assist policymakers and other stakeholders in formulating appropriate policies to govern forensic accounting practice in Nigeria.

Specifically, the findings of this research will be beneficial to the following class of people:

The Government: The research will inform various governments on how to give forensic accountants and auditors more authority and responsibility in order to prevent fraud and save operating costs.

The public: This research aims to educate the public on the purpose and operations of forensic accounting, as well as the importance of forensic accounting.

To businesses: This research will teach students the value of forensic accounting in improving financial performance. It will also teach them how to enhance the environment for forensic accounting to effectively perform their duty based on the results.

To scholars and the academia: The findings and recommendations from this study will be used to influence future research in forensic accounting and fraud detection in government and in businesses.

1. 1. SCOPE OF THE STUDY

This study focuses on the impact of forensic auditing and financial fraud in Nigerian Deposit Money Banks (DMBS). Specifically, this study focuses on determining the extent of financial fraud in Nigerian Deposit Money Banks, examining the effectiveness of forensic auditing in the detection of fraudulent activities in Nigerian Deposit Money Banks, examining whether the application of forensic auditing in Nigerian Deposit Money Banks has reduced the occurrence of fraud cases and identifying the factors militating against the effectiveness of forensic accounting in Nigerian Deposit Money Banks.

1. 1. LIMITATIONS OF THE STUDY

This study was limited by some deposit money bank management's unwillingness to provide some sensitive information and their fear of publishing, which may jeopardize their operations.

A key drawback was the distance and associated cost of travel in order to acquire information for this investigation. Another limitation of the study is the limited time frame, which did not allow for full investigation, making it a little difficult to acquire appropriate data.

Finally, the scarcity of materials on the subject is another limitation. In Nigeria, this is a first in the field of forensic accounting for fraud detection and prevention. As a result, the researcher resolved to use a friendlier approach in order to gather the necessary materials or information from the company under investigation via questionnaire administration.

1. 1. DEFINITION OF TERMS

Forensic Accounting: Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that investigates whether firms engage in financial reporting misconduct. Forensic accountants apply a range of skills and methods to determine whether there has been financial reporting misconduct.

Fraud Detection: Fraud detection is a set of activities undertaken to prevent money or property from being obtained through false pretenses. Fraud detection is applied to many industries such as banking or insurance. In banking, fraud may include forging checks or using stolen credit cards.

Banks:A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services such as wealth management, currency exchange, and safe deposit boxes. There are several different kinds of banks including retail banks, commercial or corporate banks, and investment banks.