CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Forensic accounting, in recent years, can be said to be gaining more awareness as stakeholders are seeking more enhanced methods of curbing the menace of financial irregularities. Since its emergence as a tool for detecting financial irregularities, it has become a very important subject among researchers and scholars in various countries. Forensic accounting can be described as the practice of utilizing accounting, auditing and investigative skills to assist in legal matter and the application of specialized body of knowledge to the evidence of economic transaction and reporting suitable for the purpose of establishing accountability or valuation of administrative proceeding. In wide sense, it can be said to be the integration of accounting, auditing and investigative skills to obtain a particular result (Mukoro et al, 2014).

Stanbury and Paley-Menzies (2010) also defined Forensic accounting as the science of gathering and presenting information in a form that will be accepted by a court of jurisprudence against perpetrators of economic crime Financial irregularities, on the other hand, cannot be effortlessly detected, prevented or deterred in any situation or setting, either in the home, an organization or society at large without the reviewer having adequate training and skill on financial irregularities detection. The Association of Certified Financial irregularities Examiners defined financial irregularities as the use of one’s occupation for personal enrichment through deliberate misuse of the employing organization’s resources or assets. It is therefore any act of misappropriation, theft or embezzlement of corporate assets in a particular economic environment (Efiong, 2013). Nwaze (2012) defined financial fraud as a predetermined as well as planned tricky process or device usually undertaken by a person or group of persons with the sole aim of cheating another person or organization to gain ill-gotten advantage which would not have accrued in the absence of such deceptive procedure.

Financial fraud can be described as the use of dishonesty or trickery means with the aim of gaining undue advantage, evading a commitment, or causing loss to person, a group of persons or an organization. Financial irregularities refer to an unthoughtful or thoughtful act that commonly consist of the misuse of fund either by error or omission. With the advancement in technology around the globe, there is a massive change in the way banks as well as their customers do business, which place more reliance on the use of electronic medium, the nature of financial irregularities and fraudulent practices has also changed and requires a timely and professional approach to avoid the inherent risk and losses associated with financial irregularities.

According to the Centre for Forensic Studies (2010) report, the increasing need for forensic and investigative accounting in the banking sector results from the nature of modern-day banking that involve large volume of complex data, which makes it difficult to monitor those transactions by applying manual audit processes. Virtually all the weaknesses and challenges identified in the banking industry in Nigeria's post-consolidation (such as inadequate system-based controls, insider trading, creative accounting to boost financials by carrying unrealizable assets with huge values, etc.) and criminal investigations and prosecutions arising from them, are issues for forensic accounting. Authors such as McMahon, Serrato, Bressler and Bressler, (2015), Zimbleman, Albrecht, Albrecht and Albrecht (2012) and Bressler, (2011) revealed that of the different financial irregularities prevention and detection mechanisms that are being adopted to combat the menace of financial irregularities, forensic accounting techniques appears to be the most effective and currently used in most developed countries of the world (Efiong, 2013). There is need to consider how forensic accounting impacts on financial irregularities detection in deposit money banks in Nigeria. If well applied, forensic accounting could be used to reverse the leakages that cause corporate failures, this is because of the fact that forensic accounting is a technique that encapsulates accounting, auditing and investigative skills to address issues relating to financial irregularities (Enofe Agbonkpolor & Edebiri, 2015). Owojori and Asaolu (2009) opined that there is an alarming increase in the number of financial irregularities and fraudulent activities in various sectors in Nigeria calling for the use of forensic accounting services.

1.2 STATEMENT OF THE PROBLEM

Every organization, aware of the potential impact on performance and corporate image, voluntarily attempts to distance itself from fraud and financial irregularities. As businesses are working hard to restrict this danger, the fraudsters are also creating new techniques. Recent rise in bank frauds such as look-alike frauds, card payment frauds, dud cheques, compromising of client details, call for tightening of security system (Khanna & Arora, 2009). As a result, security is a crucial and growing concern in the banking sector nowadays (Kanniainen, 2010). Deposit money banks are always searching for more effective ways to combat the threat of fraud in order to protect resources for the benefit of their shareholders, clients, and the public at large. Global knowledge and acceptance of forensic accounting as a tool to combat fraud and fraudulent actions are growing. According to Owojori and Asaolu (2009), there has been a concerning rise in fraud and fraudulent activities across Nigeria's several sectors, necessitating the employment of forensic accounting services. A number of studies such as Enofe, Agbonkpolor and Edebiri (2015), Modugu and Anyaduba (2013) and Okunbor and Obaretin (2010), had been done on the concept of forensic accounting services in Nigerian banks. Notwithstanding the volume of research work dedicated to the topic of forensic accounting, the nature of the recommendations from each of them advocates that this area of research work to more validate empirical findings. To the best of the researcher’s knowledge there has not been satisfactory emphasis on the effectiveness of the components of forensic accounting in fraud detection, particularly empirical evidence; thus the study explored further the impact of forensic accounting on financial fraud detection in deposit money banks in Nigeria, by examining the effectiveness of conducting investigation, analyzing financial transactions and reconstructing incomplete accounting records on financial fraud detection in deposit money banks.

1.3 AIM AND OBJECTIVES OF THE STUDY

The study seeks to determine the effect of forensic accounting on financial irregularities in the banking sector in Nigeria. The objectives of the study are:

1. To determine the relationship between forensic accounting and financial irregularities in the banking sector in Nigeria
2. To determine importance of forensic accounting in the banking sectors of Nigeria
3. To identify the causes of financial irregularities in the banking sector in Nigeria
4. To evaluate the effectiveness of forensic accounting in curbing financial irregularities in the banking sector in Nigeria

1.4 RESEARCH QUESTIONS

The research questions are:

1. What is the relationship between forensic accounting and financial irregularities in the banking sector in Nigeria?
2. What is importance of forensic accounting in the banking sectors of Nigeria?
3. What are the causes of financial irregularities in the banking sector in Nigeria?
4. How effective is forensic accounting in curbing financial irregularities in the banking sector in Nigeria

1.5 STATEMENT OF THE HYPOTHESIS

H0: there is no significant relationship between forensic accounting and financial irregularities in the banking sector in Nigeria

H1: there is significant relationship between forensic accounting and financial irregularities in the banking sector in Nigeria

1.6 SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1.     The outcome of this research will create awareness to both the general public and the banking sector about the effect of forensic accounting on financial irregularities in the banking sector in Nigeria.

2.     This research will be a contribution to the body of literature in the area of the effect of forensic accounting on financial irregularities in the banking sector in Nigeria, thereby constituting the empirical literature for future research in the subject area.

1.7 SCOPE OF THE STUDY

The study covers on the effect of forensic accounting on financial irregularities in the banking sector in Nigeria

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 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, or financial misconduct within the workplace by employees, officers or directors of the organization

FINANCIAL IRREGULARITIES: An intentional misstatement or omission of information related to financial transactions. Includes embezzlement, fraud, misuse of university assets, misappropriations of assets, falsification of records or noncompliance with laws or regulations.