THE EFFECT OF FORENSIC ACCOUNTING APPLICATION ON FRAUD DETECTION IN PUBLIC SECTOR (CASE STUDY OF FEDERAL MINISTRY OF FINANCE)

THE EFFECT OF FORENSIC ACCOUNTING APPLICATION ON FRAUD DETECTION IN PUBLIC SECTOR (CASE STUDY OF FEDERAL MINISTRY OF FINANCE)

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BACKGROUND OF THE STUDY

The problem of fraud, money laundering, and other unethical behaviors in commercial and government organizations has demanded the use of forensic or investigative accounting and the practice of those accounting methods. Investigative accounting, sometimes known as forensic accounting, is a subfield of accounting that focuses on recouping ill-gotten gains through crimes such as fraud, money laundering, and other forms of financial impropriety that may take place within a company. When fraud is suspected or discovered, an experienced group of individuals known as forensic accountants are brought in to assist in the investigation of the situation. They also provide management with substantial evidence that can be used in legal proceedings against those who are suspected of being involved in the fraudulent activity. As a consequence of a rise in white collar crimes, the term "forensic," which refers to evidence or material(s) to be used in court, has been adopted into accounting and finance. This term indicates evidence or material(s) to be used in court (Aduwo, 2016).

According to Bassey (2018), the abilities of accounting, auditing, and investigation are utilized in the field of forensic accounting. As man is expected to know the trick of a monkey in order to capture it, Claire & Jude (2016) also argued that it needs an accountant to catch a corrupt or fraudulent accountant. In other words, an accountant is required to catch a monkey. In order for an auditor to properly carry out forensic accounting, it is imperative that they adhere to a set of strict ethical practices. In order to detect and prevent fraud in a company, an auditor has to be completely impartial as well as knowledgeable about the strategies used by management staff and staff members.

From the presidential cabinets, down to the political officers, to the ward councillors, from managing directors of companies, through middle management cadre, and to lower managers in Nigeria, fraud is an epidemic that is gradually becoming a normal way of life in both the public and private sectors (The Punch, 2020). The term "financial fraud" has been used for a long time to refer to a threat that has been responsible for the downfall of a number of reputable institutions around the world. Some examples of these institutions include the scandals involving Enron and Bernie Madoff, WorldCom, Lehman Brothers, Tyco International Ltd, and Adelphia Communications Corporation in the United States; the Parmalat crises in Italy; and HIH Insurance Ltd in Australia. Cadbury Nigeria Plc, Afribank Nigeria Plc, NAMPAK, Oceanic Bank Nigeria Plc, and African Petroleum Plc were all victims of major fraud in Nigeria (Sule, Ibrahim, & Sani, 2019). It is troubling that instances of fraud have become so common that they are rapidly approaching epidemic proportions in Nigeria, despite the fact that numerous laws have been enacted to reduce, alleviate, and, if at all possible, eliminate the occurrence and incidences of fraud. Despite these laws, it is possible that fraud will continue to occur. In point of fact, committing fraud in Nigeria has become an everyday occurrence, particularly in the public sector.

According to Suleiman & Othman (2016), an increasing number of organizations all around the world are becoming used to the presence of a growing need for forensic accounting. In forensic accounting, the focus is on determining both the consequences and the source of human acts of fraud as well as technology errors. The practice of forensic accounting is still relatively new in Nigeria, but businesses have recently come to the realization that they require the assistance of a forensic accountant due to the significant rise in the number of instances of fraud. The practice of putting one's investigation skills and one's knowledge of financial matters to use in the context of unsolved problems while adhering to the standards of evidence is known as forensic accounting.

It has been stated that "Government spending has always been a major concern, but it has gotten so gigantic now that the public, through its politicians, is demanding to identify whether the enormous outlays of money are being spent wisely or whether they should be spent at all" (Suleiman & Othman 2016). It is expected of public officials and workers who manage operations in the public sector that they would effectively account to the public for the activities they supervise. Through budget padding, financial misappropriation, revenue leakages in all tiers of government, and money laundering by the top government officials to their overseas accounts eastward, the prevalence of fraud continues to rise in the public sector system and across nations. Developing countries and the various states that make up these countries suffer the most pain as a result of fraud because the money that is stolen from them is intended to be used to raise their standard of living and, as a result, improve their health. Nevertheless, fraud is a global problem to which no nation is immune. The effectiveness of fraud detection and prevention is significantly improved by the use of forensic accounting (Suleiman & Othman, 2016).

When a nation's economic growth is stunted by the pervasive threat posed by fraud, corruption, and other financial crimes, it becomes exceedingly difficult for that nation to meet the basic needs of its population and to provide them with the vital amenities they require. The problem of fraud has reached an alarming level in Nigeria, which has resulted in the ongoing misuse of resources and the destruction of government property (Nonye & Okoli, 2015). According to Claire & Jude (2016), financial crime has gotten more extensive, and the potential for fraudulent operations has also turned out to be more widespread. In a similar vein, the expansion of many government ministries and agencies has been stymied as a result of a high degree of financial abuse caused by an inflation of expenditures, which has been caused mostly by key officials. The widespread nature of the fraud that has been perpetrated inside the ministries has rendered the traditional methods of auditing and investigation ineffective and inadequate for detecting fraud. According to Adebisi & Gbegi (2015), fraud is a topic that has recently captured the attention of people all around the world.

According to Abdulrahman (2019), financial related fraud and an increase in financial crime have led to the need for forensic accounting in order to aid investigation and prosecution of the syndicates of financial crimes just like in the case of some prominent political parties, ex-governors in Nigeria are presently facing trials on charges of money laundering, embezzlement, misappropriation of funds, security fraud, and breach of contract from various courts of law within the country an

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. Also, a recent event occurred in the forensic audit of the oil sector, in which the current government demanded that additional forensic audit exercises be carried out after a report was presented to the authority by a Nigerian auditing firm. This occurred after the government received the report from the auditing firm. 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).

​​​​​​​STATEMENT OF THE PROBLEM

According to Enofe, Ochuwa, Henrietta, & Nosareimen (2017), the growing incidence of fraud in the Nigerian public sector is resulting in a great deal of misunderstanding. This is due to the fact that fraudulent activity has permeated nearly every facet of the public sector in Nigeria. According to Ogundana, Okere, Ogunleye, & Oladapo (2018), the inability of auditors to detect, prevent, or reduce modern frauds such as money laundering security fraud, contract disparate, embezzlement and other financial crimes in the public sector has put a lot of pressure on professional accountants and legal practitioners to find better ways of revealing fraud in the public sector. This is because auditors are unable to detect, prevent, or reduce modern frauds such as money laundering security fraud. 

In addition, since 2015, the administration that is led by the president of Nigeria, Muhammadu Buhari, has made combating corruption a top priority in an effort to significantly cut the number of instances of unethical financial practices (Ogundana, Okere, Ogunleye, & Oladapo 2018). There have been a significant number of arrests made in connection with corruption cases; nevertheless, the number of prosecutions cannot be seen in the same manner. The most recent major financial scandals that occurred in the year 2020 include the one that took place in the Niger Delta Development Commission (NDDC), the over N2.6 billion school feeding scandals in Federal Government schools, the scandal in the Ministry of education, and the scandal that was committed by the chairman of the Economic and Financial Crimes Commission (EFCC) himself, which led to him being removed from his position as chairman of the commission (The Punch, 2020). 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 public 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.

1.3 OBJECTIVES OF THE STUDY

The primary objective of this study is to examine the effect of forensic accounting application on fraud detection in public sector (case study of federal ministry of finance). Specifically but not limited to, other objectives of this study are:

1. To examine the effectiveness of forensic accounting in the detection of fraudulent activities in Nigeria public sectors.
2. To examine the effectiveness of forensic accounting in detecting false presentation of financial statement in Nigeria public sectors.
3. To examine whether the application of forensic accounting in Nigeria public sectors has reduced the occurrence of fraud cases.
4. To identify the factors militating against the effectiveness of forensic accounting in Nigeria public sectors.

1.4 RESEARCH QUESTIONS

The following research questions which are in line with the objectives of this study will be answered:

1. How effective is forensic accounting in the detection of fraudulent activities in Nigeria public sectors?
2. How effective is forensic accounting in detecting false presentation of financial statement in Nigeria public sectors?
3. Has the application of forensic accounting in Nigeria public sectors reduced the occurrence of fraud cases?
4. What are the factors militating against the effectiveness of forensic accounting in Nigeria public sectors?

1.5 RESEARCH HYPOTHESES

To determine the effectiveness of this study, the following research null hypotheses is formulated to guide the study and it will be tested at 0.05% levels of significance.:

H01: Forensic accounting is not very effective in the detection of fraudulent activities in Nigeria public sectors

H02: Forensic accounting is not very effective in detecting false presentation of financial statement in Nigeria public sectors.

H03: The application of forensic accounting in Nigeria public sectors has not reduced the occurrence of fraud cases.

1.6 SIGNIFICANCE OF THE STUDY

This research will assist in the development and implementation of forensic accounting techniques in Nigeria. Because forensic accounting 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.

1.7 SCOPE OF THE STUDY

Generally, this researched is focused on the effect of forensic accounting application on fraud detection in public sector (case study of federal ministry of finance). specifically, this research is focused on examining the effectiveness of forensic accounting in the detection of fraudulent activities in Nigeria public sectors, and examining the effectiveness of forensic accounting in detecting false presentation of financial statement in Nigeria public sectors.

This study is also focused on examining whether the application of forensic accounting in Nigeria public sectors has reduced the occurrence of fraud cases and identifying the factors militating against the effectiveness of forensic accounting in Nigeria public sectors.

This study is using selected staff of the Federal ministry of finance, Ahmadu Bello way, Central Business District, Abuja as enrolled participants for its survey.

1.8 LIMITATIONS OF THE STUDY

This study was limited by the federal ministry of finance 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.

1.9 DEFINITION OF TERMS

Accounting: This is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities.

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.

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