FORENSIC ACCOUNTING AS A TOOL FOR FRAUD DETECTION AND PREVENTION (A CASE STUDY OF ETI OSA LOCAL GOVERNMENT COUNCIL, LAGOS STATE)
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The prevalence of fraud, money laundering, and other corrupt practices in corporate and government organisations has prompted the use of forensic or investigative accounting. Forensic or investigative accounting is a branch of accounting concerned with recovering the proceeds of fraud, money laundering, and other corrupt acts that may occur within an organisation. When fraud is seen or identified, a professional group of people—forensic accountants—is called upon to assist in detecting it and provide management with considerable evidence to be presented in court when prosecuting the suspects involved. The term "forensic", which refers to evidence or material(s) to be used in court, has been adopted into accounting and finance in response to a surge in white-collar crimes (Hassan & Hamid, 2021). Hassan and Hamid also noted that while law enforcement professionals have become more aware of white-collar crimes recently, they lack the necessary skills and training to tackle them. According to Anderson and Smith (2020), forensic accounting combines accounting, auditing, and investigative skills. Enyi (2012) asserts that an accountant must identify a corrupt or fraudulent accountant, just as a man must understand a monkey's trick to catch it. To successfully undertake forensic accounting, an auditor must adhere to strict ethical standards. An auditor must be completely unbiased and knowledgeable about the tactics used by management and personnel to commit fraud within an organisation. Jones and White (2021) traced the origins of forensic accounting to Kautilya, the first economist to openly acknowledge the need for forensic accountants. The origins of forensic accounting can be traced back to an 1817 court judgement. Puloubet created the concept "forensic accounting" in 1946. Puloubet's book was the first to use the term "forensic accounting". Since Nigeria's independence in 1960, forensic accounting has existed due to a surge in fraud, money laundering, and other forms of economic and financial crime (Adebayo, 2021). The term 'forensic accounting' is not new in Nigeria; accountants, police, and intelligence units use it on a daily basis in the course of their work. The growing demand for forensic accounting is a well-known characteristic of most businesses worldwide. Forensic accounting is concerned with the effects and causes of fraud and technological errors committed by humans. Forensic accounting is relatively new in Nigeria, with corporations realising that the services of a forensic accountant are required since the number of fraud cases has climbed significantly. Forensic accounting is the application of financial abilities and an investigative mindset to unresolved situations, all while adhering to the norms of proof. According to Bologna and Lindquist (1987), forensic accounting is a field that combines fraud knowledge, financial skill, and a thorough awareness of corporate reality and the workings of the legal system. Forensic accounting may be one of the most effective and efficient techniques to prevent and detect accounting fraud. Forensic accounting is becoming increasingly popular around the world. Many educational institutions across the globe teach it as a major course (Akinbile 2020). According to reports, "Government spending has always been a big business, but it has become so massive today that the public, through its legislators, is demanding to know whether the giant outlays of money are being spent wisely or whether they should be spent at all." Officials and personnel who oversee public sector activities have an obligation to provide adequate accounts of their activities to the public (Adebayo, 2021). Fraud is becoming increasingly common in both the corporate and public sectors, as well as across countries. Globally, fraud affects all countries, with developing countries and their numerous governments bearing the brunt of the burden. Forensic accounting is thought to significantly increase the quality of fraud detection and prevention. This study intends to assist and remind Kogi State's public sector organisations, particularly those in affected ministries, to develop an integrated approach to preventing and regulating fraud and corruption in the workplace through an established Professional Forensic Accounting service. 1.2 Statement of the Problem Recently, a number of scams have been committed in both the public and commercial sectors of the economy. These are undoubtedly perpetrated under the observation of the organisation's internal auditors. Simply put, working for the government or an organisation does not guarantee the independence of the internal auditor. Then comes the idea of external auditors, although fraud continues to occur on a daily basis. The instance above demonstrated that as the world of information communication technology (ICT) and other disciplines evolves, fraudsters continue to refine their strategies for fraudulent actions. It is now necessary to introduce and practise forensic accounting because external auditors lack or may not have the necessary training to deal with modern frauds such as white-collar crimes, such as security fraud, embezzlement, bankruptcies, contract disputes, and possibly criminal financial transactions, including money laundering by organised criminals. In addition, the forensic accountant must be capable of providing legal support and investigative accounting. These sectors have become complex sources of worry for the accounting profession. 1.3 GOALS OF THE STUDY The study aims to determine the following: The study aims to investigate the role of a forensic accountant within an organisation. The study also aims to explore the potential of using forensic accounting to reduce the number of fraud cases. The aim is to ascertain whether a Forensic Accountant can aid in the detection and prevention of fraud within the public sector. The study also aims to identify any significant distinctions between forensic accountants and external auditors. 1.4 RESEARCH QUESTIONS What role does a forensic accountant have in an organisation? Would it be possible to reduce the number of fraud cases by employing forensic accounting? Can a forensic accountant help discover and prevent fraud in the public sector? Is there a substantial difference between forensic accountants and external auditors? 1.5 Research Hypothesis Hypothesis 1: Forensic accountants do not function in organisations. H1: Forensic accountants play an important role in an organisation. Hypothesis 11: The adoption of forensic accounting does not significantly reduce fraud in the public sector. H1: The application of forensic accounting dramatically reduces the number of fraud cases in the public sector. Hypothesis 111: There is no significant difference between Professional Forensic Accountants and Traditional External Auditors. H1: There are substantial differences between Professional Forensic Accountants and Traditional External Auditors. 1.6 Significance of the Study The study will help to build a solid foundation for the design and implementation of forensic accounting practices in Nigeria. This study will assist policymakers and other stakeholders in developing appropriate policies to guide the practice of forensic accounting in Nigeria, where forensic accounting is still relatively new. The study will also be useful as a resource for students and independent researchers interested in the issue. Future research into forensic accounting and fraud detection in organisations will rely on the findings and recommendations of this study. 1.7 SCOPE OF THE STUDY The study focuses on forensic accounting as a tool for fraud detection and prevention in Nigeria, specifically in Eti Osa Local Government Council in Lagos State. 1.8 Limitations of the Study The study's limitation was management's unwillingness to disclose sensitive material for fear of disclosure, which could harm their operations. Distance and the associated costs of travel to acquire information for this study were additional significant limitations. Another weakness of the study is the limited time frame, which did not allow for full research work, making acquiring adequate information impossible. Finally, there is a shortage of materials on the subject. This research represents a novel contribution to the field of forensic accounting, specifically regarding the detection and prevention of fraud in Nigeria. As a result, the researcher decided to take a friendlier approach to obtaining the necessary materials or information from the organisation under study by administering a questionnaire. 1.9 Definition of Terms and Acronyms Forensic Accounting: Manning (2002) defines forensic accounting as the use of accounting and investigative skills at a court-acceptable level to handle matters in dispute in civil and criminal litigation. Accounting is described as the act of collecting, measuring, and conveying economic information so that users can make informed judgements and decisions (Wood & Sangster, 2020). ACCOUNTING FRAUD: Accounting fraud is the intentional falsification of accounting data, such as sales or cost records, to increase net income or sales statistics. The company and its management face the prohibition of accounting fraud, which can lead to civil lawsuits (Ademola & Ojo, 2022). FRAUD: Fraud is defined as an act or course of deception committed with the intent of gaining an unlawful or unfair advantage; such deception is intended against another (Brown & Smith, 2021). DETECTIVE CONTROLS: These controls are intended to detect and report any omission, error, or malicious act (Adeniji, 2021). PREVENTIVE CONTROLS: These are controls that anticipate possible problems and make modifications (Adeniji, 2021). CORPORATE FRAUD: These are operations carried out by an individual or company that are dishonest or criminal in nature and are intended to benefit the perpetrator (Investopedia, 2023).
.