FORENSIC ACCOUNTING AND LITIGATION SUPPORT FOR CORRUPTION CASES IN NIGERIA
Abstract
One of the issues mostly discussed in Nigeria today is about corruption. Almost every section of the country is affected by corruption ranging from education sector to the various organs of government. In the corporate world, many businesses have collapsed due to mismanagement by the corrupt directors appointed to manage them. This study examined the need for application of forensic accounting technique to successfully investigate and detect cases of corruption in Nigeria. Survey research design has been employed in this study. This research design was chosen because it ensures that reliable empirical data is obtained to test the relationship that exist between the dependent and independent variables in order to achieve the research objective and test the hypothesis formulated.
The result of the regression analysis, the p-value (0.142) associated with the coefficient of β0 is greater than 0.05 level of significance; R² of 0.129 has low explanatory power on the dependent variable (corruption prevention), and the F calculated of 1.920 is less than the F tabulated of 4.08, hence the Null hypothesis (Ho) (Fraud prevention, bribery prevention and embezzlement prevention will not significantly ensure effective prevention of corruption through the application of forensic accounting technique) is therefore accepted.
This study has been able to establish the need for application of forensic accounting technique to investigate and detect cases of corruption in Nigeria. The court system that usually causes delays in the trial of accused persons needs to be strengthened, to ensure the success of the efforts of EFCC. There is no forensic accounting unit in EFCC, and the professional firms that have forensic expertise are not consulted to carry out proper investigation of corrupt cases. It is recommended that EFCC should set up a forensic accounting unit where trained expert should be employed to carry out investigation. Forensic accounting experts from the professional accounting firms should be retained by EFCC to carry out investigations
Introduction
Corruption seems to be the most popular issue discussed as a cause of underdevelopment in Nigeria today. Almost every section of the country is affected by corruption ranging from education sector to the various organs of government. In the corporate world, many businesses have collapsed due to mismanagement by the corrupt directors appointed to manage them. Corrupt practices are reported in the area of pensions, salaries and wages, in legislative process as well as other areas of government business. It undermines good government, fundamentally distorts public policy, leads to the misappropriation of resources, harms the public sector and private sector development, and particularly it hurts the poor. To combat the menace, many tribunals, probe panels and anti corruption institutions had been set up to reduce corruption, but it appears they lacked investigative skills that will ensure successful prosecution of persons accused of corrupt practices. There is therefore the need to adopt effective investigation technique that will assist the anticorruption institutions to successfully reduce corruption. Corruption is seen as the abuse of entrusted power for private gain (Golden, Skalak, and Clayton, 2006). Corruption is the largest single inhibitor of equitable economic development in many countries of the world including Nigeria. It is a form of behaviour, which includes conflict of interest, embezzlement, fraud, bribery, political corruption and extortion (Onakuse, 2004). According to Mazumder (2011), the law enforcement personnel in recent years have become more aware of white-collar crimes, they however have lacked the training and expertise in combating such crimes.
Despite the establishment of anti corruption agencies, cases of corrupt practices both in the public and private sectors appear to be on the increase and it seems difficult for anti corruption agencies to successfully prosecute many of the alleged cases of corruption involving billions of naira by government functionaries, contractors, as well as private individuals and organizations. Before the establishment of the Economic and Financial Crimes Commission (EFCC) and Independent Corrupt Practices Commission (ICPC), successive governments had been handling cases of corruption by setting up special military tribunals, banks and miscellaneous offences tribunal, Okigbo panel, as well as many other ad hoc bodies. None of such efforts seem to have yielded results (Adegbie and Fakile, 2012). The Obasanjo administration set up EFCC and ICPC as the institutions that were to be on standing basis.
There are, seemingly, inadequate competent professionals to handle cases of corruption as alluded to by Ribadu (2006) and the judicial system in Nigeria is slow leading to delay in the prosecution process. The immediate past chairman of EFCC, Waziri, (2011) complained of unnecessary delay by the judiciary in prosecuting persons accused of corruption. For the court to be able to deliver judgments without delay, investigation must be thorough. EFCC must therefore ensure that competent personnel handle investigation on corruption and other financial crimes. This is where the expertise of forensic accountants is required hence this study examined the need for application of forensic accounting technique to successfully investigate and detect cases of corruption in Nigeria since it was successfully employed by the Central Bank of Nigeria and Securities and Exchange Commission in 2009 and 2011 respectively.
Following this background the the objective of this study was to determine how forensic accounting can act as litigation support for the eradication corruption through fraud prevention, bribery prevention and embezzlement prevention.
LITERATURE REVIEW
Oyejide (2008) said it is well established that Nigeria suffers from endemic and systemic corruption which harms the country’s development. According to him, the main factors which generate corruption in Nigeria are not different from those responsible for this phenomenon in other parts of the world. They are closely associated with the policies and actions of government and the non-transparent and discretionary mechanisms through which they are implemented. The associated types and levels of corruption in Nigeria may have been influenced and heightened by the direct access of government to oil windfall income in an environment of weak public institutions, capture or near-capture of the state by powerful vested interests and the inability of the citizens to effectively assert their rights. In these circumstances, it seems clear that effective control of corruption will require extraordinary effort, take more time than is currently realized, and be based on a strategy which is focused only on strong anti-corruption agencies.
Forensic accounting is a technique that is suitable for legal review, offering the highest level of assurance, and including the now generally accepted connotation of having been arrived at in a scientific fashion. Findings are based upon the scientific detection and interpretation of the evidences of phenomena introduced into the books and records of an accounting system and the effects of such phenomena upon the accounts, inventories, or the presentation thereof. The primary orientation of forensic accounting is explanatory analysis (cause and effect) of phenomena – including the discovery of deception (if any), and its effects. The primary methodology employed by forensic accountants is objective verification. Auditing on the other hand, is the independent examination and expression of opinion on the true and fairness view presented by the financial statements prepared by the management of an organization. An audit may not be able to go deep into the cause and effect of a particular misstatement or error contained in the financial statement, but forensic accounting technique can be employed to unravel the cause and effects of such misstatement and establish the intention of the perpetrator to assist in prosecution, if corruption (fraud, bribery and embezzlement) is involved.
Concept of Corruption
Corruption is a concept that is difficult to define because of its multi dimensional and multidisciplinary nature. One definition is therefore not sufficient to appropriately describe the concept. Annan (2004) believed that corruption is an insidious plague that has a wide range of corrosive effects on societies, undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organized crime, terrorism and threats to human security to flourish. He further claims that although corruption is also found in economically developed countries, it is in the developing world that the effects of corruption are most destructive and that corruption is a key element in economic underperformance, and a major obstacle to poverty alleviation and development. The Black Law Dictionary (1990) defined corruption as an act done with intent to give some advantage inconsistent with official duty and rights of the perpetrators. Thus, it is the act of an official or fiduciary person who unlawfully and wrongfully uses his status or character to procure some benefit for himself or for another person, contrary to duty and the rights of others. In addition, corruption can also be viewed as the misuse of public office for private gains. This encompasses abuses by public officials such as embezzlement and nepotism, as well as abuses linking public and private actors such as bribery, extortion, influence peddling and fraud. Corruption has continued to thrive in Nigeria as a result of excessive concentration of power and resources at the federal level; inefficient federal structure and excessive federal government involvement in corporate business enterprises; political instability; inadequate enforcement of existing laws and absence of the rule of law; inefficient police force; late or non payment of wages to public officials, and high levels of poverty, unemployment and under- remuneration.
Corrupt acts are increasingly regarded as unfair and indeed criminal by many high-income countries because the bribe-recipient’s betrayal of trust with his employer, when practiced systemically by high-ranking public officials, compromises the development of fair and efficient markets (Boatright, 1999). Consequently, corruption falls within a larger class of usually nonviolent economic crimes. Nigeria is also infamous for deceptive business practices, popularly known as 419 scams or advance-fee fraud, and the manufacture and sale of counterfeit pharmaceutical drugs and other consumer commodities (Erubami and Young, 2003). Ataman (2007) said corruption does not mean the stealing of money alone, it also includes body language, leakage of official confidential information, unfair practices in procurement, as well as delays in fulfilling tasks. Anthony (2003) believed that corruption attacks the fundamental values of human dignity and political equality of the people cutting across the social, political and economic spheres. He went further to say that its frequency and manner of operation holds the nation hostage making poverty and food insecurity the order of the day for the very poor in the rural areas.
Aluko (2006) said the meaning of corruption varies and depends on the context in which it is used. It could mean moral depravity and perversion of integrity through bribery or favour, or a conscious and well planned act by a person or a group of persons for personal gain at the expense of the general public. El-Rufai (2003) viewed corruption as covering a wide range of social misconducts, including fraud, extortion, embezzlement, bribery, nepotism, influence peddling, bestowing of favor to friends, rigging of elections, abuse of public property, the leaking of a government secret, and sale of expired and defective goods, such as drugs, food, and electronic and spare parts to the public. This study has adopted corruption to include fraud, bribery and embezzlement.
Concept of Forensic Accounting
Akintoye (2008) said forensic accounting is accounting that is suitable for legal review, offering the highest level of assurance, and including the new generally accepted connotation of having been arrived at in a scientific fashion and providing the needed findings in settling disputes. Crumbley, et al (2009) defined forensic accounting as the action of identifying, recording, settling, extracting, sorting, reporting and verifying past financial data or other accounting activities for settling current or prospective legal disputes or using such past financial data for projecting future financial data to settle legal disputes.
Dhar and Sarkar (2010) said forensic accounting is the application of accounting concepts and techniques to legal problems. It demands reporting where fraud, bribery or embezzlement is established and the report is considered as evidence in the court of law or in administrative proceedings. The utilization of specialized investigative skills in carrying out an inquiry conducted in such a manner that the outcome will have application to a court of law is called forensic investigation. Investigative Accounting is often associated with investigations of criminal matters. A typical investigative accounting assignment would be an investigation of employee theft, securities fraud, insurance fraud, kickbacks and proceeds of crime investigations. Mehta and Mathur, (2007) posited that forensic accounting involves a financial detective with a suspicious mind, a financial bloodhound, someone with a ‘sixth sense’ that enables reconstruction of past accounting transactions and an individual who looks beyond the numbers. Bhasin (2007) noted that the objectives of forensic accounting include: assessment of damages caused by an auditors’ negligence, fact finding to see whether an embezzlement has taken place, in what amount, and whether criminal proceedings are to be initiated; collection of evidence in a criminal proceedings; and computation of asset values in a divorce proceedings. He argues that the primary orientation of forensic accounting is explanatory analysis (cause and effect) of phenomenon including discovery of deception (if any), and its effects introduced into the accounting domain. Gray (2008) analyzed forensic accountants as a combination of an auditor and private investigators. Knowledge and skills include investigative skills, research, law, quantitative methods, finance, auditing, accounting and law enforcement officer insights. He confirmed that forensic accountants have been employed by the Federal Bureau of Investigation (FBI), Central Intelligence Agency (CIA), Internal Revenue Service (IRS), Federal Trade Commission (FTC) and other government agencies. Therefore, a forensic accountant’s primary duty is to analyze, interpret, summarize and present complex financial and business-related issues in a manner that is both readily understandable by the layman and properly supported by evidence. This study is of the view that forensic accounting technique can also be applied in Nigeria to deal with cases of corruption.
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FORENSIC ACCOUNTING AND LITIGATION SUPPORT FOR CORRUPTION CASES IN NIGERIA
