THE EFFECT OF FINANCIAL CRIME ON THE GROWTH OF SMALL/MEDIUM SCALE BUSINESSES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1. BACKGROUND TO THE STUDY

Small and medium-sized enterprises (SMEs) play a crucial role in national economies, making them essential for the creation of new jobs, expansion of the economy, and alleviation of poverty. In this vein, the importance of small and medium-sized businesses in fostering economic development has been emphasized in a variety of government programmes, as noted by Ogbuanu, Kabouh, and Okwu (2017). Buttressing further, Ogbuanu et'al mentioned that the concentration on SMEs is because of the magnitude of their potential contribution to and acceleration of progress towards overarching economic goal and widespread adoption of indigenous technological solutions. On the other hand Mba and Cletus (2014) assert that although they are a springboard to the international export market and a stimulus for increased national productivity. However, insight into the problems of small and medium-sized firms (SMEs) in Nigeria suggests that the country's economy has not fully benefited from SMEs in the past. and this is likely the result of financial crime. According to the Collins English Dictionary referenced in Fakile and Adegbie (2015), corporate crime can be characterized as deceit, trickery, sharp practise, or breach of confidence, perpetrated for profit or to achieve an unfair or dishonest benefit. As a reminder, the Association of Certified Fraud Examiners (ACFE) defined fraud as "any illegal acts characterised by deceit, concealment, or violation of trust." These behaviours are not dependent on the use of violence or the threat of violence (ACFE 2016).

Evidently, financial crimes are perpetrated by individuals and organizations to obtain money, property or services; to avoid payment or loss of services; or to secure personal or business advantage. Okoye et’al (2016) averred that the Nigerian government at present is investing in Small and Medium Scale Enterprise’s (SMEs) and one of the major target is to increase Foreign Direct Investment as a means of creating job opportunity and increase internally generated revenue. However, the spate of corruption and effect of financial fraud is becoming alarming, the effect of which is more pronounced on the macroeconomic performance of the Nigerian economy. Okoye (2016), affirmed that corrupt and fraudulent events witnessed daily across the nation have continued to betray every good intention and selfless effort made by true patriotic Nigerians.

Undauntedly, Agbaje & Igbekoyi (2018) pointed that theft of inventory assets, misuse of expense account, secret commission and bribery, false invoicing, electronic and telecommunication fraud, unauthorized use of information, cheque forgery, cheque clone, false financial statements, and so on are the most common forms of financial crime committed against small-scale businesses; however, the underlying point is that the rising wave of crime in recent years could pose certain threats if it is not stopped. From an empirical perspective, the Association of certified fraud examiners report 2016, gave a great warning on the rate of payroll fraud occurring in the Small and Medium Enterprises which necessitated interest of the researcher on this study. According to ACFE Global Fraud Study in 2016; the report revealed that 60 percent of small business fraud victims didn’t recover any of their losses and they suffered the same median fraud losses with large organizations. The reports gave over 2400 instances of fraud across the world and discovered that payroll fraud and cheque tampering popped up in 19.9 percent of cases. From series of analysis performed by ACFE in 2016 it was concluded that small and medium businesses have fewer anti-fraud controls in place unlike public sector and large organizations.

Consequently, from past literature argues that financial crime in reference to banking industry reduces organizational assets and increases its liabilities especially when the members of top management of a company are charged for misappropriation of fund, insider trading,financial manipulation, or corruption, such news will receive a wide coverage by the medias. However, to what extent does financial crime influence the growth of small and medium in Nigeria is still subject to further empirical testing. Agianst the backdrop , the study seeks to examine the effect of financial crime on the growth of small/medium scale businesses in Nigeria.

1. 1. STATEMENT OF PROBLEM

The majority of corporate organizations in Nigeria have recently had their basis and reputation shaken by financial crime, which has led to some of the corporations being troubled. According to empirical data based on the incidents recorded each year, corporate crime is not a recent occurrence in Nigeria, and the rate is on the rise. Between 1999 and 2002, white-collar crime in Nigeria cost the country more than 93 billion dollars in damages, with over 6,000 instances recorded annually (Clarence, 2005, cited in Okoye et al. 2020). Between January 2003 and December 2004, 36% of businesses in other West African nations incurred financial losses due to fraud, and 17% of those businesses experienced losses of more over 1 million dollars, according to KPMG (2015), which was mentioned in Greenberg, (2020).

On the other hand, ACF (2016) reports that determining the company's risk of corporate crime is becoming more challenging, especially when transactions are made electronically and activities are carried out remotely. As a result, it is projected that corporate crime will grow to be a significant company issue and that the damage done by economic crime extends far beyond simple monetary loss. In contrast to the public sector and big organisations, small and medium-sized firms have less anti-fraud procedures in place, according to a series of analyses conducted by ACFE in 2016. They are susceptible to fraud because they lack proactive data, internal or external audit, monitoring, analysis, and review processes, among other things. Ghost workers, fake wage claims, and bogus expenditure claims are just a few signs of payroll fraud in small and medium-sized businesses. These often have an impact on the long-term development and expansion of SMEs.

According to research by Funso and Temitayo (2018), the deposit of banks in Nigeria are negatively and significantly impacted by the sums engaged in fraud cases, the amount lost to fraud, and the number of staff members involved.However, Taiwo, Muftau, and Damilola (2017) found that a number of variables, including poor administration of rules and procedures and bad working conditions, contributed to the occurrence of frauds in business enterprise. Although the results of these earlier studies were uncertain, making it impossible to establish the impact of financial crime on Nigerian business entities, this study's importance still makes it necessary to look into the impact of financial/economic crime on Nigerian business entities.

1. 1. RESEARCH QUESTIONS

The research is guided by the following research questions in line with the research objectives:

1. What is the extent at which financial crime occur in small and medium scale businesses in Nigeria?

2. What are the types of financial crime that occur in small and medium scale businesses in Nigeria?

3. What are the factors contributing to financial crime occurrence in small and medium scale businesses in Nigeria?

4. How does financial crime occurrence impact business growth in Nigeria?

1. 1. RESEARCH OBJECTIVES

The broad objective of this study is focused on the effect of financial crime on the growth of small/medium scale businesses in Nigeria. Other specific objectives include:

1. What is the extent at which financial crime occur in small and medium scale businesses in Nigeria?

2. What are the types of financial crime that occur in small and medium scale businesses in Nigeria.

3. What are the factors contributing to financial crime occurrence in small and medium scale businesses in Nigeria?

4. How does financial crime occurrence impact business growth in Nigeria.

1. 1. RESEARCH HYPOTHESES

Ho1: The extent at which financial crime occur in small and medium scale businesses in Nigeria is low.

Ho2: There is no significant effect of financial crime on growth of small and medium scale businesses in Nigeria

1. 1. SIGNIFICANCE/JUSTIFICATION OF THE STUDY

The research focused on financial crime occur in small and medium scale businesses in Nigeria is timely and of great importance to the business sector, the economy and the nation as a whole. Couple with the occurrence of insider fraudulent activities within organization which is capable of causing business failure and damage corporate image of the organization, revelations made by this research will help businesses, financial institutions and other fraud-prone institutions curb the menace of financial crime. This is because this study will identify the types of financial crime that occur in small and medium scale businesses in Nigeria, and as well as proffer solutions to this canker worm called fraud.

Additionally, the various contributing factors and ways to mitigate them are also identified by this study., hence findings will be of great importance to every business managers and stakeholder of organization on putting anti-fraud controls in place which will reduce the incidence of financial crime in their system to the barest minimum and increase the level of public trust. In a nutshell, this study can be regarded as a blue print of solutions to tackle financial crime in small and medium scale organization .

Empirically, the study add to the general body of knowledge and students studying accountancy and other finance related courses will find this study relevant especially on how to prevent financial crime. It is also expected that this study will stimulate the interest of more students to further carry out research on this issue thereby widening the basis on which an opinion could be formed on this subject matter.

1. 1. SCOPE AND LIMITATIONS OF STUDY

The scope of this study borders on types of financial crime that occur in small and medium scale businesses in Nigeria with reference to selected businesses in Lagos State. The study thus will look into the effect determine the effect of economic crime on business entities performance in Nigeria.

However the researcher encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size using selected businesses in Lagos State.. Thus findings of the study cannot be used for generalization for other states in Nigeria.

More so, the researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research will be reduced. Howevr., regardless of the limitation, the researcher downplayed every bias to ensure an appropriate scientific result is derived from the study.

1. 1. INSTRUMENTATION OF STUDY

The research instrument used in this study is the questionnaire. A survey containing series of questions were administered to the enrolled participants. The questionnaire was divided into two sections, the first section inquired about the responses demographic or personal data while the second sections were in line with the study objectives, aimed at providing answers to the research questions. Participants were required to respond by placing a tick at the appropriate column. The questionnaire was personally administered by the researcher.

1. 1. DEFINITION OF RELEVANT TERMS

Financial Crimes: The term `financial crimes’ covers offenses which are securities-related and involves the movement, transfer or use of monetary instruments in circumstances which render such act unlawful. In context of the on-going efforts to sensitize the small and medium scale enterprise in Nigeria, the above definition has been extended to include any dishonest, unethical or unprofessional conduct which results in financial loss to customer or institution for the benefit of the employee/employer/management as the case maybe.

Fraud: The level of fraud in the country today has assumed an unenviable height. It has eaten deep into the nation’s Fabrics that no sector is spared. It has over the time undergone some levels of refinement and sophistication. Fraud can summarily be described as an act carried out by individual in order to gain some advantages dishonestly. For an act to constitute fraud, there must be a deliberate intention to deceive and they must be intended to enrich the perpetrator dishonestly.

Business Growth: Business growth is a stage where an organization experiences unprecedented and sustained increases in market reach and profit avenues. Business growth refers to the increase in a company's size, revenue, market share, and profitability over time. This can be achieved through a variety of means product development, market development, diversification, and market penetration.