ANATOMY OF FRAUD AND CORRUPTION IN NIGERIA: A Search for the Pandora Box and Panacea by Prof. Emma I. Okoye Part 3

"The focal point made by the study is the need for organisations to employ the service of Forensic Accountants as staff who must be involved in the audit process of the organisations right from the planning stage. As much

as the consultative expert service of a Forensic Accountant could lead to the detection of fraud. Okoye and Gbegi (2013), believe that the onset participation of the Forensic Accountant from the audit planning stage will lead to the effective minimization of fraud and corruption in organisations and the system as a whole".
 

4.3      Judicial Weaknesses

High profile bribe rumours now flirts our courtrooms as justice is forcefully made to lie low in heavy bounds in the hands of conscienceless men. Waziri (2011) stated that, ‘Corruption seems to be the systemic disease of the Nigerian Judiciary and has generated complaints from all segments of the society, including social commentators, lawyers, judges, and even former President Olusegun Obasanjo’.

4.3.1   Delay in Litigation Cases

A feature of the Nigerian judicial system is the time frame in passing a judgement on a case. Waziri (2011) stated that although the right to a fair trial in Nigeria is guaranteed by the Constitution, Section 36(1) of the Constitution, but ‘daily experiences appear to support the assertion that delay is one of the major obstacles to the search for justice in Nigeria. Hearing in a case at first instance in a Nigerian superior court can take as long as 5–6 years with another 3–4 years consumed in appellate proceedings’.

4.4      Legislative Weaknesses

How can a nation survive economic hardships when those entrusted with the checks and balances on the actions of the Executives and their attitude to financial decisions (the Legislature), are busy fighting for their pockets and their selfishness at a time when the country needs their attention most? We just recently swallowed the disgraceful quest of the Senate for 36 SUVs (Jeeps) at a time when Nigerians were suffering untold hardship as a result of the national fuel hike that led to a litre of fuel being sold for between N195 – N250. Their Legislative oversight has been compromised because they are easily lobbied into silence in neglect of their oversight function as enshrined in constitution.  

4.4.1   The Shielding Effect of the Immunity Clause

The ‘Immunity Clause’ in the Nigerian Constitution, has also, provided a shielding effect on the activities of State looters.

Section 308 (1) of the 1999 Constitution offers a virtual carte blanche to the Executives to get away with anything. What it confers on them is that they are free from criminal and civil prosecution, no matter what offence they committed whilst in office (Waziri, 2011). This immunity clause protects the President, the Vice President, the Governors, and the Deputy Governors during their term of office from any of the following:

1.    arrest;

2.    application or issuance of Court process requiring their appearance;

3.    commencement or continuance of civil or criminal proceedings; and

4.    detention/imprisonment.

Section 1(1) of the Constitution declares that the “Constitution is supreme and its provisions have binding force on all authorities and persons throughout the Federal Republic of Nigeria”. I see the immunity clause as a partial (bias) derogation from this aspect of the Supremacy Clause in that the persons to whom the immunity is granted may be corrupt themselves or tolerate or even promote corruption during the period of their office but due to the immunity clause, no judicial process can be set in motion to stop them during such periods.

Funding of Election Expenses: Section 221 of the Constitution prohibits any association or person from funding election expenses except a registered political party. In the premises of the foregoing, we now wonder little why the Supreme Court held that elections are won by political parties and not individual candidates.  It would then be understood that the government in Nigeria both at the Federal and State level is run by political parties. Whoever is the President, Vice-President, Governor, Deputy-Governor, Member of the National Assembly or a State House of Assembly is there to execute the will of the political party that sponsored him and funded his election expenses.  Surely, he who pays the piper dictates the tune and for a country like Nigeria, this is a room for corruption because most times the political party that sponsored a candidate to an elective position will press him/her to refund the party the fund expended at the election.

4.4.2   Overbearing Function of the Executive

The Constitution provides for the appointment of the Auditor General, Accountant General, and the CEO of the Security Printing, Minting Commission (SPMC) and CBN Governor by the Presidency. This function might provide a medium for manipulation and abuse, as due process might not be observed in such appointments and the appointees turn out loyal to the Presidency.

4.5      Corporate Governance Lapses

In Nigeria, the Central Bank of Nigeria [CBN] in its Report (2006) stated that “poor corporate governance amongst other things was identified as one of the major factors in virtually all known instances of a financial institution’s distress in the country”. The calibre of people found on the Board of most banks may not necessarily be of proven integrity and as a matter of fact they are often not independent of the Chairman or any other Director who may turn them to mere rubber stamp (Adedipe, 2004). Appointments into Board positions are usually done based on political affiliations, relationship with the owners, etc. rather than expertise or ability to meaningfully contribute to the growth and development of the corporation.

4.5.1   Inadequacy of the Traditional Audits

With the evolving landscape of fraud in the country, the traditional audits are increasingly losing relevance especially were the perpetrators of large scale schemes are professionals with a knowledge of financial expertise. The failed corporations in the US, e.g. Enron, WorldCom, etc., and Cadbury, Oceanic Bank, in Nigeria all had External Auditors in place who were expected to provide independent assurance on the ‘true and fair’ nature of the financial statements.

Moreover, the nature of appointments and the duration of the appointment have also constituted a flaw in the performance of their duties. Most firms rely on a continued basis of appointment as a source of revenue, while the length of client-Auditor engagement impairs the independence of the Auditors, as most usually engage in other services for the client for which they are paid for.

4.5.2   Financial Reporting Weaknesses

Professional Accountants in most organisations, fail to comply with the ethical requirements of their profession. A clear case is the role the Finance Director of Cadbury Nig. Plc. played in the scam that rocked the company some years back. At times Accountants collude with the management in changing principles and policies over time with a view to manipulate the figures.

The previous accounting regulatory framework in the country is also not tilted towards high quality disclosure, most times information of a qualitative nature are neglected, and not displayed in financial reports. Some of the quoted companies seem not to have functional websites were the public can track and download annual and interim reports of performance over a period of time.

4.6      Religious Hypocrisy

Religion is capable of affecting the beliefs of a group of people, however, there seems to be a disregard of the purported teachings of the church, as individuals who perpetrate fraud also profess to be Christians.

It therefore calls to mind, the fact that ‘people do not practice what is being taught’, moreover the overwhelming influence of politics on most churches, has also diluted the fundamental tenets of the church, questioning whether it’s really purpose for Christ or for accolades by politicians.

5.1      The Panacea

The dismal discourse is that the country's traumatic experience is yet to ease up fifty years after the attainment of political freedom. The crucial question then becomes, what can be done to stem this seemingly increasing trend of fraud and corruption in the country? A prominent scholar, Soyinka, described corruption as the unifying factor in Nigerian governance. A holistic approach will therefore require a joint responsibility among the three arms of government – the Executive, the Legislature and the Judiciary – in tackling the menace and promoting governance. A clear biblical exposition of 1 Corinthians 12:12-31, of the relatedness of all parts to the greater good of all.

5.2      Executive Measures

A stream of measures to be adopted by the Executive arm of Government to tackle fraud and corruption in the country and ensure macro-economic stability in the country.

5.2.1   A Subservient Democratic Process

The challenges that face Nigeria as a nation cannot be met without a credible and competent leadership. A credible and competent leadership cannot emerge through an electoral process riddled with corruption and violence (Idada & Uhunmwuangho, 2012), therefore a necessary first step in tackling fraud and corruption in the country is to re-examine ways in which political leaders are elected and or appointed. This can be achieved by democratizing the election process, ensuring the real and absolute independence of the INEC, and the police to safeguard life and property during the process. A case of defeat should be accepted whole heartedly without prejudice

5.2.2   Proper Monitoring of the Implementation of Treasury Single Account[TSA]

Previously, successive governments in the country operated multiple accounts for the collection and spending of government revenue which was in disregard to the provision of the 1999 Constitution requiring that all government revenue be remitted into a single account. Specifically, Section 80 (1) of the 1999 Constitution as amended states:

“All revenues, or other moneys raised or received by the Federation (not being revenues or other moneys payable under this Constitution or any Act of the National Assembly into any other public fund of the Federation established for a specific purpose) shall be paid into and form one Consolidated Revenue Fund of the Federation”.

A question bothering most Nigerians therefore is; has the TSA really achieved the purpose for its implementation?

Another crucial question in the implementation of TSA, is the adequacy of Government monitoring mechanisms on the system? To this, we argue that the level of monitoring of the Treasury Single Account should be strengthened as to ensure total compliance. 

5.2.3   Independence of Anti-Graft Agencies

Both the ICPC and EFCC were charged with the responsibility of implementing Nigeria’s numerous anti-corruption legislations. In order to boost their performance, these agencies first need to be independent of the Executive arm of Government, who might use them to achieves selfish objectives. The anti-graft agencies would then need to rise up and stand upon the statutory independence granted to them so that they can perform their statutory duty without fear or favour and not at the whims and caprices of the President or Governor or the ruling Political Party.

Also, is the evaluation of their performance using carefully designed set of quantitative indicators (statistical data and measures of public perceptions) and qualitative indicators (expert assessment and surveys) based on the functions that the institution carries out and not necessarily on the deceptive false performance stories rolled out daily by the government on our national dailies and newspapers with pending results that are rarely attained.

5.3      The Relevance of Forensic Accountants

Okoye and Akamobi (2009) posit that forensic accounting as a profession remained unknown until the plethora of high-profile scandals, stricter reporting and internal control regulations which brought to light its importance to the business world. Forensic accounting is the tripartite practice of utilizing accounting, auditing and investigative skills to assist in legal matters (Modugu & Anyaduba, 2013). It is a specialized field of accounting that describes engagements that result from actual or anticipated disputes or litigation. Forensic accounting can, therefore, be seen as an aspect of accounting that is suitable for legal review and offering the highest level of assurance (Apostolou, Hassell, & Webber, 2000). According to Okoye and Akenbor (2009a) forensic accounting covers two broad areas of practice, these are: litigation support and investigative accounting.  

In a series of well documented cases, Forensic Accountants have proved to be of great relevance to the Nigerian economy. Two outstanding cases were NNPC $20b USD unremitted amount to Federation account in 2014 and NSE 2010 investigation as a result of whistle blowing unveiled billions of stolen money.

The study undertaken by Okoye and Gbegi (2013), entitled ‘An Evaluation of Forensic Accountants to Planning Management Fraud Risk Detection Procedures’, evaluated the extent the involvement of forensic accountants during the audit planning stage effectively modifies the extent and nature of audit test when the risk of management fraud is high and whether forensic accountants can adequately propose unique procedures that are not proposed by auditors when the risk of management fraud is high. The study compared the findings with the results of a previous study done by Asare and Wright (2004), employing Multivariate Analysis of Variance (MANOVA) and One Way Analysis of Variance (ANOVA) for comparison. 

Table 5.1: Comparison of Risk Assessment (No Risk Assessment Fraud Check List Provided) against Asare and Wright (2004)

Type of Risk and Test Value	T	Df	p-value	Mean Difference
Inherent Risk (IR): 5.47	0.968	15	0.349	0.530
Control Risk (CR): 3.64	2.299	15	0.036	1.173
Fraud Risk (FR): 4.67	5.297	15	0.000	2.080

Source: Field Survey (2011)

The study found that Forensic Accountants Inherent Risk judgment were indistinguishable from those of auditors used in the Study by Asare & Wright’s (2004). However, their Control Risk and Management Fraud Risk assessments were higher than those of auditors. Consequently, for the organisation to maximise the effectiveness of the Control Risk and Managerial Fraud Risk assessment, the Forensic Accountant must be on ground as a staff of the organisation, and not as a consultant or an appointed Forensic Auditor.

Table 5.3: Fraud Risk Factors Based on Asare and Wright (2004) Checklist

Management's characteristics and influence over the control environment:	Yes (n, %)	No (n, %)
Is a significant portion of management's compensation represented by bonuses, stock options, or other incentives, the value of which is contingent upon the entity achieving unduly aggressive targets for operating results, financial position, or cash flow?	15 (93.8%)	1 (6.3%)
Is there any excessive interest by management in maintaining or increasing the entity’s stock price or earning trend through the use of unusually aggressive accounting practices?	10 (62.5%)	6 (37.5%)
Is there a practice by management of committing to analysts, creditors, and other third parties to achieve what appear to be unduly aggressive or clearly unrealistic forecasts?	10 (62.5%)	6 (37.5%)
Does management have an ineffective means of communicating and supporting the entity’s values or ethics, or communication of inappropriate values or ethics?	0 (0%)	16 (100%)
Is management dominated by a single person or small group without compensating controls such as effective oversight by the Board of Directors or Audit committee?	3 (21.4%)	11 (78.6%)
Does management fail to correct known reportable conditions on a timely basis?	9 (56.3%)	7 (43.8%)
Does management set unduly aggressive financial targets and expectations for operating personnel?	1 (6.3%)	15 (93.8%)
Does management display a significant disregard for regulatory authorities?	9 (56.3%)	7 (43.8%)
Does management continue to employ an ineffective accounting, information technology, or internal audit staff?	0 (0%)	16 (100%)
Has there been a high turnover of senior management, counsel, or board members?	0 (0%)	16 (100%)
Are there frequent disputes with the current or predecessor auditor on accounting, auditing, or reporting matters?	0 (0%)	16 (100%)
Is there any known history of securities law violations or claims against the entity or its senior management alleging fraud or violations of securities laws?	0 (0%)	16 (100%)
Risk factors relating to industry conditions:	Yes (n, %)	No (n, %)
Is there a high declining of competition or market saturation accompanied by declining margins?	15 (93.8%)	1 (6.3%)
Is the industry declining with increasing business failures and significant declines in customers’ demands?	12 (75%)	4 (25%)
Risk factors relating to operating characteristics and financial stability	Yes (n, %)	No (n, %)
Is the client unable to generate cash flow from operations while reporting earnings and earnings growth?	3 (18.8%)	13 (81.3%)
Are there significant pressures to obtain additional capital necessary to stay competitive considering the financial position of the entity-including need for funds to finance major research and development or capital expenditures?	9 (56.3%)	7 (43.8%)
Are assets, liabilities, revenues, or expenses based on significant estimates that involve unusually subjective judgment or uncertainties, or that are subject to potential significant change in the near term in a manner that may have a financially disruptive effect on the entity-such as ultimate collectability of receivables, timing of revenue recognition, realizability of financial instruments based on the highly subjective valuation of collateral or difficulty-to-assess repayment sources, or significant deferral of costs?	11 (68.8%)	5 (31.3%)
Are there significant, unusual, or highly complex transactions, especially those close to year-end, that pose difficult “substance over form” questions?	15 (93.8%)	1 (6.3%)
Are there difficulties in determining the organization or individual(s) that control(s) the entity?	0 (0%)	16 (100%)
Has the company experienced an unusually rapid growth or profitability especially compared with that of other companies in the same industry?	5 (31.3%)	11 (68.8%)
Is the company vulnerable to changes in interest rates?	8 (50%)	8 (50%)
Does the company have an unrealistically aggressive sales or profitability incentive program?	11 (68.8%)	5 (31.3%)
Is there a threat of imminent bankruptcy or foreclosure, or hostile takeover?	0 (0%)	16 (100%)
Is there a poor or deteriorating financial position when management has personally guaranteed significant debts of the entity?	1 (6.3%)	16 (93.8%)

Source: Field Survey (2011)

To examine whether Forensic Accountants propose unique procedures that are not proposed by auditors when the risk of Management Fraud is high, two independent forensic accountants reviewed the subjects’ response to the audit procedures, and, also identified a significant number of additional procedures not contained in the study by Asare and Wright (2004).

Table 5.4: Description of Additional Procedures Proposed by Forensic Accountants

S/No	Description of Risk	Procedure
1	Revenue Recognition: Revenue are recognized by precision before they are ended (Fraud specialist referred to this risk by such labels as “Channel Stuffing”, “Bill and Hold”)	Sales to distributors and not sold on to the end user should be measured against the revenue recognition criteria. Abnormal finance terms are indicators of non-compliance with GAAP. Perform the following on sample of distributors: Obtain the contract; Ascertain whether the 4 revenue recognition criteria are met; and Determine whether precision assisted the customer in obtaining financing or provided direct financing for the sale.
2	Precision in shipping goods in excess of what distributors have committed to and/or have the capacity to sell.	Select key item sample of distributors for confirmation of inventory on hand and amount receivable by Precision. Contact any non-replies by phone directly to enquire of status of account (in the circumstances shipment records or subsequent payments may be inappropriate and questionable value). Make enquiry of 4 distributors regarding their allotment minima. Request and review schedule of allotments of product that must have been prepared by the company and probably revised several times.
	Channel stuffing	Review the terms under which precision ships goods to customers to ensure they are based on a purchase contract and that no channel stuffing has occurred
3	Analog sales/purchases	Analyze monthly analog sales and order trends of for company and industry. Assess impact of programme on historical purchases by each of the known customers. If end users would be increasing analog purchases to an implausible level, assessment of the consequences of the distributors were still having significant quantities on hand. Ultimately, if end users cannot absorb the equipment what happens? (e.g. bad debts, damage to distribution chain or does precision step into rescue distributors and or provide additional incentives for the end users).
4	Consignment	Ensure no consignment type arrangement exist especially for customers who don’t have warehouse capacity.
5	Customers verification	Obtain listing of customers who have been distributed funds by precision. Investigate any distributors and sales that are comfortable in limiting or amount. Obtain supporting documentation to understand the nature of the distribution as well as whether all revenue recognition have been met.
6	Precision recognizes revenue upon shipment. If they ship to warehouse, but customer does not have the need/capacity for such goods, the company may be improperly recognizing revenue, when all required criteria for recognizing have not been met.	Assess ownership of good in offsite storage Has legal title passed? Who owns offsite storage? Who is responsible for rent? Who pays insurance (many)?
7	Confirmation with distributors	Confirm with distributors all amounts; Removed from precision’s inventories but not delivered to distributors; and held at warehouse or under accommodations to ensure they meet the requirements for revenue recognition according to GAAP. Tie these amounts into sales contracts.
8	Allowance for doubtful accounts Provision for bad debts is not adequate	Obtain download of customers list. Run customer list against credit rating agency database. Focus particularly on sales near period end. Examine supporting documentation to ascertain whether amounts were collectible at point of revenue recognition.
9	Account receivables and doubtful account	Assess the reasonableness of accounts receivable collection and allowance for doubtful accounts. (Although credit has been extended, it is uncertain on what basis credit history would support collectability since credit history reflects past, but customers already acknowledge difficulty in paying for new management initiative. Uncertain if they can sell analog if precision is already experiencing difficulty selling).
10	Analog sales on precision estimate	Obtain analog sales data for distributors participating in the marketing programme. Compare distributors’ sales to third parties to distributor’s analog purchase from precision. Determine if distributors are on track for selling 30% (based on precision estimate) of their inventory when their promissory notes are due to precision.
11	Right to return Distributors will ship back product prior to or on June 2006	Review the terms under which precision will accept return of their goods.
12	Historical rates of returns	Analyse and assess the historic rates of returns for participation in marketing programmes and actual returns during field work period to determine if provision needed and if so the adequacy of management’s position
13	Understated Expenses Precision has not recorded all the expenses associated with the programme. As this is a new programme management; judgment will be used to determine expenses	Review the documentation prepared by precision to estimate the effects of the new marketing programme. Identify costs factored into the analysis of the programme and what costs have been omitted (if any). Examine and recalculate company’s estimate of costs and revenue contra amounts and those actually accrued (if any)
14	Motivation for programme. The establishment of the marketing programme was motivated by management compensation plan rather than sound business rational and therefore reflects a conflict of interest.	Determine the impact of the marketing programme in management compensation by comparing the year’s bonus to top management (by employee) to prior year’s to see how much individuals are benefitting from marketing programme.

Source: Field Survey (2011)

The focal point made by the study is the need for organisations to employ the service of Forensic Accountants as staff who must be involved in the audit process of the organisations right from the planning stage. As much as the consultative expert service of a Forensic Accountant could lead to the detection of fraud. Okoye and Gbegi (2013), believe that the onset participation of the Forensic Accountant from the audit planning stage will lead to the effective minimization of fraud and corruption in organisations and the system as a whole.

The results suggest that the consultative involvement of Forensic Accountants whereby the audit team provides them with a summary risk assessment, might not yield significant results as when the Forensic Accountants actively participate during planning stage of the audit.

A 2016 research carried out by ACFE corroborated the above views of Okoye and Gbegi (2013), stressing that:

“organisations with CFEs (Forensic Accountants) on staff uncover fraud 50 percent sooner and have losses 55 percemt lower”