THE ROLES OF AUDITORS IN CONTROLLING FRAUD AND OTHER FINANCIAL IRREGULARITIES IN THE BANKING SECTOR

 

THE ROLES OF AUDITORS IN CONTROLLING FRAUD AND OTHER FINANCIAL IRREGULARITIES IN THE BANKING SECTOR

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPTER ONE

1.0   INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPTER TWO

2.0   LITERATURE REVIEW

CHAPTER THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

 

 

 

 

 

 

Abstract

The level of fraud and other financial irregularities in the banking sector has become hydra monster that has eating deep into the financial sector of the Nigerian economy. Fraud in the Nigerian Banking Industry before and after the recent merger, acquisition and recapitalization was at alarming rate. It has caused many banks to collapse, and many investors and depositors funds were trapped in. In fact it has prevented many banks from achieving their goals and many businesses went into liquidation. That calls for the need for this study and the purpose of this study therefore is to identify the role of auditors in controlling fraud and other financial irregularities in the banking sector in Nigeria.

 

 

 

 

 

                                        CHAPTER ONE

                                        INTRODUCTION

 1.1 Background of the study

Fraud is the intentional distortion of financial statements or other records by a person (internal or external) to the organisation which is carried out to conceal the misappropriation of assets or otherwise for gain”(Adeniji 2004 and Institute of chartered Accountant Nigeria-ICAN 2006).It can also be define fraud as involving “the use of deception to obtain an unjust or illegal financial advantage; intentional misstatement in, or omissions of amounts or disclosure from an entity’s accounting records or financial statements; or theft whether or not accompanied by misstatements in accounting record or financial statement (Mani,1993). According to Gay, Schelluh and Reid 1997, an auditor has the responsibility for the prevention, detection and reporting of fraud, other illegal acts and errors is one of the most controversial issues in auditing, and has been one of the most frequently debated areas amongst auditors, politicians, media, regulators and the public. This debate has been especially highlighted by the collapse of both small and big corporations across the globe. The auditing profession in Nigeria has caught the media’s attention following financial scandals in some of the Nigerian banks such as Intercontinental Bank, Oceanic Bank, Afri Bank, and Bank PHB among others. There seems presently to be a misconception that auditors’ duties are largely the preventing, detecting and reporting of fraud, for example, Idris (2009). The aim of this paper is to identify financial report users’ perceptions of the extent of fraud and financial irregularities in first bank of Nigeria plc, and to determine their perceptions of the auditor’s responsibilities in detecting fraud and other financial irregularities and the performance of related audit procedures in first bank. The project also aims to ascertain whether the report users’ perceptions of auditors’ responsibilities on fraud and other financial irregularities are consistent with those of the auditing profession as expressed in auditing standards in Nigeria. Archibong (1992) describes Fraud as a predetermined and well planned tricky process or device usually undertaken by a person or group of persons, with the sole aim of checking another person or university, to gain ill-gotten advantages, be it monetary or otherwise, which would not have accrued in the absence of such deceitful procedure. Fraud is an enrichment attained by an individual wrongfully which is detrimental to individual(s) or organization(s). Fraud is either internal (employees, management) or external (customers or noncustomers). In the past ten years, depositors have lost billions of naira (millions of dollars) to fraudsters. According to Yishau (2013), bank fraud worth N28 billion was recorded in 2011, N4.071 billion was lost to fraudsters in 2010, N7.5 billion in 2009, N17.5 billion in 2008, and N2.9billion in 2007. Fraud has eaten deep into the fabric of the global financial system and financial intermediation is worst hit. Bank fraud is on the rise. Stakeholders are experiencing increasing losses through fraud while the cost is borne by government Fraud involves recording of transactions without substances, suppression or omission of the effect of transaction from records or document, Intentional misapplication of accounting policies and wilful misrepresentation of transaction of the entity’s state of affairs. (Olatunji2009). According to Pollick 2006, fraud can be regarded as a “deliberate misrepresentation, which causes one to suffer damages, usually monetary losses. Bank organizations in Nigeria perform a variety of tasks and responsibilities not only for transformation agenda but also to enable it to function in an effective manner. These tasks and responsibilities are distributed among teams, which are assigned to fulfil their duties in a specific organization. All designated tasks are equally important in Nigerian Banks, thus, making all employees and staff crucial to the operations of the bank. One of the crucial functions in these organizations is the process of auditing especially in the cases of fraud and irregularities. It has been reported that an audit is an evaluation of an organization, system, process, project or product, which involves the independent and fair assessment of the financial statements of the organization. Knowledgeable, independent, and objective individual or group of individuals, known as auditors or accountants, makes a report based on the results of the audit. In addition, this function is performed to determine the reliability and validity of financial information, and to present an evaluation of a specific company or an internal control of a particular business system, for these systems must comply with the generally accepted standards laid down by national governing bodies for regulation (Power, Walsh, & O’Meara, 2001). Because of such importance, this project seeks to consider the effect of fraud and irregularities on first bank performance in Nigeria and its control.

1.2 STATEMENT OF THE PROBLEM

The role of auditors in fraud control and other financial irregularities is essential. Fraud has been one of the most problematic and unsolvable matter for business all over the world for a long time; however, there has been much more attention and research dedicated to the topic after the scandals such as Enron, WorldCom and others. Frauds have led to loss of huge amount of money in the banking industry and nation’s economy in general (Fatoki, 2015). Researchers have discovered that fraud contributed drastically to the financial distress of poor performance of many banks in Nigeria (Austin, 2011). According to Olorunsegun (2010), fraud is a major challenge of banking industry and this makes all banks vulnerable and distress. The management of each bank spends their hard-earned money to curtail it occurrence. Moreover, it puts question marks on the integrity of the employees and management of the banks and also gives rise to absolute loss of customers’ confidence in banking. In accordance to fraud and irregularities on banks performance in Nigeria, auditing and financial evaluation are crucial since it reflect on how their respective administrators manage the flow of their income, assets and transactions. It is against this backdrop that the researcher decide to investigate the role of auditors in controlling fraud and other financial irregularities in the banking sector.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to examine the role of auditors in controlling fraud and other financial irregularities in the banking sector. But to aid the completion of the study, the researcher intends to achieve the following specific objectives;

1. i) To examine the effect of auditors report on the truth and fairness of the financial statements on customers confidence in the banking sector
2. ii) To ascertain if there is any significant relationship between internal control system and fraud control in the banking

iii) To examine the impact of auditors report in instituting effective internal control system in the banking sector

1. iv) To examine the role of external auditors in curtailing financial irregularities in the banking sector

1.4 RESEARCH QUESTIONS

The following research questions were formulated by the researcher to aid the completion of the study;

1. i) Is there any effect of auditors report on the truth and fairness of the financial statements on customer’s confidence in the banking sector?
2. ii) Is there any significant relationship between internal control system and fraud control in the banking?

iii) Does auditors report have any impact in instituting effective internal control system in the banking sector?

1. iv) Does external auditors play any role in curtailing financial irregularities in the banking sector?

1.5 RESEARCH HYPOTHESES

The following hypotheses were formulated in null and alternate form to aid the completion of the study;

H₀: there is no significant relationship between internal control system and fraud control in the banking

H₁: there is a significant relationship between internal control system and fraud control in the banking

H₀: External auditors do not play any role in curtailing financial irregularities in the banking sector

H₂: External auditors do play a role in curtailing financial irregularities in the banking sector

1.6 SIGNIFICANCE OF THE STUDY

It is a general consensus that the financial system of any economy is the function around which the economy revolves. Within this preview, banks strategically occupy an indispensable position in the economy. This is as a result of their primary function of servicing as channel or intermediary between the surplus economic unit and deficit economic unit, hence, the efficient functioning of the economy. In carrying out this study, the researcher intends to highlight the importance and benefit of cost effectively applying appropriate and correct fraud and prevention and detection measures. This will serve as a benchmark particularly to the distressed banks whose unfortunate position are particularly attributable to fraud and other malpractices. The result of the knowledge of the cost – benefit analysis will definitely be of importance to the policy makers in that it will help them in assessing the effectiveness and efficiency of the existing statutory laws and policies, and highlight the areas that need further efforts. The study also aim at treating how a well-designed, carefully installed and a resolutely implemented internal control system will aid in checking the incidence of fraud. This, it is strongly believed will be importance not only to the regulatory and supervisory authorities and the commercial banks management but the banking industry as a whole in their various task of putting in place sound banking system for the country. The study will at its end to be of importance to the general public whose confidence and trust have been vehemently shaken as a result of the alarming magnitude of fraudulent activities, failure and distress syndrome in our banking system. It will make them to be aware of unrelenting concerted efforts that has been made and being made by the Government and the regulatory authorities to bring to an end this cankerworm called fraud. Furthermore, the study is designed for all those who may be interested in carrying out further study on internal control system as it relates to fraud prevention in commercial in Nigeria. Finally, it enable the operators themselves to know how they have failed in their tasks and operations which they have set for themselves in meeting the financial needs of Nigerians.

1.7 JUSTIFICATION OF THE STUDY

The effectiveness and efficiency of every nations economy lies on the credibility and effectiveness of the financial system most especially the deposit money banks. Nigeria financial institution has the capacity and the potential investors, but the challenges is the outrageous numbers and record of fraud and financial irregularities. It is no doubt that the cost of effective internal control do tell on the profit of the banks and the return on investment that accrue to investors, but the benefit out-way the cost.

As part of my requirement for the award of Bachelor degree (B.Sc) in accounting, this study is carried out to ascertain the role of auditors in controlling fraud and other financial irregularities.

1.8 SCOPE OF THE STUDY

The scope of the study covers the role of auditors in controlling fraud and other financial irregularities in Nigeria banking sector, irrespective of the difficulties encountered by the researcher in sourcing for information and materials for the study, indept literature review and analysis of respondents response were carried out by the researcher with the aid of SPSS.

1.9 OPERATIONAL DEFINITION OF TERMS

Fraud: In law, fraud is deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud itself can be a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation), a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities) or it may cause no loss of money, property or legal right but still be an element of another civil or criminal wrong.

Control: Control is the forces that guides activities towards some predetermined goal. It is concerned with the guidance of the internal operations of the business to produce the most satisfactory projects at the lowest cost.

Malpractices: In banks, they are omissions of any functionary of banks which is contrary to the promotion of safe and sound banking practice, or which is in flagrant disregard to the laws, rules and regulation or guidelines made for the promotion of safe and sound banking practices, and which result in financial loss to the bank. Fraud and fraudulent conduct, it should be understood are also malpractices.

Errors and Irregularities: Errors are unintentional actions, example, errors of judgment, etc., while irregularities are intentional errors; and irregularities that result in an immediate loss of asset is referred to as defalcation.

Banking sector: The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth, and the regulation of those activities by government agencies.

Auditors

An auditor is a person or a firm appointed by a company to execute an audit. To act as an auditor, a person should be certified by the regulatory authority of accounting and auditing or possess certain specified qualifications.

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