International Journal of Trend in Scientific Research and Development (IJTSRD)

Volume 4 Issue 1, December 2019 Available Online: www.ijtsrd.com e-ISSN: 2456 – 6470

Forensic Auditing and Public Sector

Fraud Detection in Rivers State, Nigeria
Ekwe, Michael. C.1; Azubike J. U. B.2; Odogu, Laime Isaac2
1Department
of Accounting, College of Management Science,
Michael Okpara University of Agriculture, Umudike, Abia State, Nigeria
2Department of Accountancy, Bayelsa State Polytechnic Aleibiri, Ekeremo LGA, Bayelsa, Nigeria

ABSTRACT How to cite this paper: Ekwe, Michael. C. |

The study examined The need for forensic auditing in public sector fraud Azubike J. U. B. | Odogu, Laime Isaac
Reduction in Nigerian public sector. To achieve this objective, data was "Forensic Auditing and Public Sector
collected from secondary source which include press reports, report of Fraud Detection in Rivers State, Nigeria"
Economic and Financial Crime Commission (EFCC), Report of Independent and Published in
Corrupt Practices Commission (ICPC) and Report from investigation International
committees. Two hypotheses were tested with the use of simple regression Journal of Trend in
analysis. The results revealed that there is a significant relationship between Scientific Research
forensic audit and fraud reduction also, that an increase in Forensic Audit and Development
significantly leads to a decrease in the occurrence of fraud cases in Nigerian (ijtsrd), ISSN: 2456-
public sector. On the basis of this finding, the study concludes that the services 6470, Volume-4 | IJTSRD28122
of Professional Forensic Auditors are needed to help reduce the occurrence of Issue-1, December
fraud in Nigerian public sector. Consequently, the study suggests among 2019, pp.109-118, URL:
others that the Federal Government of Nigeria should adopt the services of https://www.ijtsrd.com/papers/ijtsrd28
professional forensic auditors to help reduce the occurrence of fraud in 122.pdf
Nigerian public sector.
Copyright © 2019 by author(s) and
KEYWORDS: Forensic auditing, fraud reduction, assets misappropriation, International Journal of Trend in Scientific
automated audit support, financial statement fraud. Research and Development Journal. This
is an Open Access article distributed
under the terms of
the Creative
Commons Attribution
License (CC BY 4.0)
(http://creativecommons.org/licenses/by
/4.0)
INTRODUCTION
Over the years various administrations in Nigeria have economy on a daily basis under the supervision of both the
articulated polices and measures designed to combat this internal and external auditors (Benjamin 2012).
economic monster called fraud. Examples include General
Murtala Muhammed’s crusade of confiscation of assets This reveals the outright failure, weakness and or
illegally acquired by Nigerians; Shehu Shagari’s ethical ineffectiveness of the fraud detection and prevention
revolution to combat corruption through the introduction of mechanisms, internal control, audit investigation
code of conduct for public servants, General Buhari’s procedures, etc that underlines the perpetuation of frauds by
operation war against indiscipline, General Ibrahim all, particularly by top government official and top
Babaginda’s ethical and social mobilization crusade, etc. managements of corporate organizations, this has brought to
These efforts have been largely cosmetic attempts to address the fore once again the need for re-examination and
a systemic problem that is deep-rooted in the fabric of the procedure restructuring and policy formulations. The failure
country (Benjamin 2012). of existing fraud detection and prevention mechanisms of
internal control, audit investigation to curb the fraud
In spite of these enabling laws and the relevant institutions menace, has attracted widespread criticisms and agitations
to administer them, fraudulent activities still thrive in the for alternative approach from stakeholders, it has prompted
economy unabated. President Olusegun Obasanjo responded the accounting/auditing and law professions to seek for and
positively to the yearnings of Nigerians and the International adopt an alternative more effective fraud detection and
community by taking proactive and responsive approach to prevention focused approach, (Owojori & Asaolu 2009).
eradicate this menace by establishing the Anti Corruption Consequently, the two professions have come up with the
Commission, Creation of the Due Process Office in the discipline of forensic auditing. Forensic auditing is
Presidency, Corrupt Practices and Related Offences Act of introduced due to the quest to combat this economic
2000, and the establishment of the EFCC in 2002. President monster called fraud, the concept of forensic auditing is out
Jonathan, introduce the single treasury account system to to reduce the incessant occurrence of fraud in our financial
curb fraud in the system. But despite all these effort to curb system which has held back our society and as such,
this economic monster, fraud is still perpetrated in our hindered infrastructural development and loss of confidence

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by the general public who prefer to invest in the private general consulting. Forensic auditors have also been used in
sector rather than risk their resources in the public sector. bankruptcy, insurance claims personal injury claims,
fraudulent claims, construction, royalty audits and tracking
Forensic auditing is the tripartite practice of utilizing terrorism by investigating financial records. Forensic audit is
auditing accounting, and investigative skills to assist in legal an amalgamation of forensic science, investigation,
matters. It is a specialized field of auditing that describes accounting and legal process. Therefore, there is every need
engagements that result from actual or anticipated disputes to inculcate the services of a forensic auditor in our public
or litigation. Forensic auditing can, therefore, be seen as an sector to fill in the gap that an auditor could not cover hence
aspect of auditing that is suitable for legal review and bringing up the trust of the general public to be fresh again
offering the highest level of assurance (Apostolou, Hassell, & and strong as it used to be that is the observation of the
Webber 2000). Forensic audit also reduces fraud risks researcher after being motivated to carry out a research on
(Beredugo, Inah & Edom, 2014). the forensic audit and fraud detection in the Nigerian Public
Sector.
Ojaide (2000) noted that there is an alarming increase in the
number of corruption and fraudulent activities in Nigeria, STATEMENT OF THE PROBLEM
requiring the visibility of forensic auditing services. Centre In Nigeria, fraud has stultified growth and national
for Forensic Studies (2010: 12) also reports, “the increasing development, and impunity in the public service, and
need for forensic and investigative auditing in the public and frittered away the promise of the nation’s future. It has
private sectors results from the high rate of corruption in the caused decay and dereliction within the infrastructure of
economy.” This makes it difficult to monitor transactions by government and the society in general, despite all the efforts,
applying manual audit processes. This in turn makes the made to reduce fraud in the public sector, fraud is still
control utility of auditing ineffective. Virtually all the enduring all the way, and has unrelentingly thrived rather
weaknesses and challenges identified in the Nigeria's than perish. The anti-corruption commission has been seen
economy, and criminal investigations and prosecutions as a watchdog that can bark but cannot bite. It suffices to say
arising from them, are issues for forensic auditing. The that the independence of these bodies is not guaranteed
general expectation is that forensic auditing may offer some because they work as an employee of the government or
respite to the seeming vulnerability of conventional audit organization (Okoye & Gbegi 2013).
and accounting systems to financial fraud and corruption.
Consequently, the incorporation of modern forensic auditing The failure of existing fraud detection and prevention
techniques in Nigeria will be seen as timely in order to mechanisms of internal control, audit investigation to curb
prepare the auditing profession to deal effectively with the the fraud menace, has attracted widespread criticisms and
problem of unearthing ingenious fraud schemes arising from agitations for alternative approach from stakeholders, it has
audit failure to detect frauds in Nigeria. Centre for Forensic prompted the accounting/auditing and law professions to
Studies (2010) report in Nigeria, states that if well applied, seek for and adopt an alternative which is more effective in
forensic auditing could be used to reverse the leakages that fraud detection and prevention. Consequently, professionals
cause corporate failures. have come up with the discipline of forensic auditing.

Degboro and Olofinsola (2007) described forensic auditing RESEARCH QUESTIONS

as the application of criminalist methods and integration of The following research questions were raised as a guide in
auditing investigative activities and law procedures to detect order to carefully examine the challenges identified by this
and investigate financial crimes and related accounting study. They include:
misdeeds. The concept of Forensic Auditing can also be
defined as “a concentrated audit of all the transactions of the Is there any significant relationship between investigative
entity to find the correctness of such transactions and to auditing service and payroll fraud?
report whether or not any financial benefit has been attained
by way of presenting an unreal picture”. Forensic auditing Is there any significant relationship between automated
aims at legal determination of whether fraud has actually forensic auditing and financial statement fraud?
occurred. In the process, it also aims at naming the person(s)
involved (with a view to take legal action). Vasudevan The following hypotheses are created to help us test the data
(2004) noted that Forensic Auditing is also an examination for this research work.
and evaluation of a firm's or individual's financial Ho1 There is no significant relationship between
information for use as evidence in court. investigative auditing service and payroll fraud.
Ho2 There is no significant relationship between automated
In general terms, forensic auditing involves reporting where forensic auditing and financial statement fraud.
fraud is established and the report is considered as evidence
in the court of law. The engagements of forensic auditing Literature Review & theoretical reviw
techniques are usually geared towards finding where money The Theory of the Fraud Triangle
went how it got there and whowas responsible. A forensic Donald Cressey developed the theory of the fraud triangle.
auditor have been described as experienced auditors, One leg of the triangle represents a perceived non-shareable
accountants and investigators of legal and financial financial need which can be a source of pressure. The second
document that are hired to look into possible suspicious or leg is for the perceived opportunity, and the final is for
fraudulent activity within an organization; or are hired by a rationalization (Cressey, 1973). He concluded that
company who may just want to prevent fraudulent activities individuals commit fraud when three factors are present: (1)
from occurring. They also provide services in areas such as a financial need that cannot be shared, (2) aperceived
accounting, anti-trust, damage, analysis, valuation and opportunity for illicit gains, and (3) a personal

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 International Journal of Trend in Scientific Research and Development (IJTSRD) @ www.ijtsrd.com eISSN: 2456-6470
rationalization of the act. Over the years, Cressey’s extends the fraud triangle which is “the fraudster’s
hypothesis has become well known as “the fraud triangle” as capabilities”.
shown in Figure 1 below. The first side of the fraud triangle
represents a pressure or motive to commit the fraudulent The fraud diamond: Considering the four elements of
act, the second side represents a perceived opportunity, and fraud”, Wolfowitz (2006) believed that many frauds would
the third side stands for rationalization (Wells 2011). not have occurred without the right person with the right
capabilities implementing the details of the fraud. He also
Perceived pressure relates to the motivation that leads to suggested four observable traits for committing fraud; (1)
unethical behaviors. Every fraud perpetrator faces some Authoritative position or function within the organization,
type of pressure to commit unethical behavior. Albrecht, (2) capacity to understand and exploit accounting systems
Howe, and Romney, (2006) pointed out that the word and internal control weaknesses, (3) confidence that she/he
perceived is important due to the fact that pressure does not will not be detected or if caught she/he will get out of it
have to be real; if the perpetrators believe they are being easily, and (4) capability to deal with the stress created
pressured, this belief can lead to fraud. Perceived pressure within an otherwise good person when she commits bad
can result from various circumstances, but it often involves a acts.
non-sharable financial need. Financial pressure has a major
impact on an employee’s motivation and is considered the The MICE Model
most common type of pressure. Specifically, about 95% of all Another model called “MICE” was suggested by (Kranacher &
cases of fraud have been influenced by financial pressure Dorminey 2010). In this model they suggested that
(Albrecht et al., 2006). Motivations are so natural to human motivation of fraud perpetrators, which is one of the sides in
beings that no special forces are necessary to explain law- the fraud triangle, may be more appropriately expanded and
breaking (Jensen, 2003). identified with the acronym: MICE that stands for: Money,
ideology, coercion, and ego. Ideological motivators justify the
Opportunity is created by weaknesses in the systems that means where they can steal money or participate in a fraud
allow an individual to commit fraud; in the accounting field, act to achieve some perceived greater good that is consistent
this is called weak internal control. The concept of perceived with their beliefs (ideology). Coercion occurs when
opportunity suggests that people classified and confidential individuals may be unwillingly pulled into a fraud scheme,
information which together with technological advancement but those individuals can turn into whistleblowers. Ego can
can give them the opportunity to commit frauds. All they also be a motive for fraud, where sometimes people don’t
need is some pressure and the rationalization and that way like to lose their reputation or position of power in front of
they become part of fraud cartels that are fleecing millions of their society or families. This social pressure can be a motive
shillings from the banks (Jensen, 2003). to commit fraudulent act just to keep their ego. Kranacer and
Dorminey (2010) argued that the model cannot solve the
will take advantage of circumstances available to them (Kelly fraud problem alone because two sides of the fraud triangle,
& Hartley, 2010). Perceived opportunity is similar to pressure and rationalization, cannot be easily observed. In
perceived pressure in that the opportunity does not have to fact, it is important for auditors to consider all fraud models
be real; the perpetrator must simply believe or perceive that to better understand why fraud is committed. Hence, the
the opportunity exists. In most cases, the lower the risk of above models should all be regarded as an extension to
getting caught, the more likely it is that fraud will take place. Cressey’s fraud triangle model and should be integrated in
Other factors related to perceived opportunity can also one model that includes motivation, opportunity, integrity,
contribute to fraud, such as the assumption that the and fraudster’s capabilities.
employer is unaware, the assumption that employees are not
checked regularly for violating company policies, the belief The Fraud Scale Theory
that no one will care, and the belief that no one will consider The fraud scale theory was developed by (Albrecht, Howe, &
the behavior to be a serious offense (Sauser, 2007). Romney, 1984) as an alternative to the fraud triangle theory.
Rationalization refers to the justification that the unethical The fraud scale is very similar to the fraud triangle; however,
behavior is something other than criminal activity. If an the fraud scale uses an element called personal integrity
individual cannot justify unethical actions, it is unlikely that instead of rationalization. This personal integrity element is
he or she will engage in fraud. Some examples of associated with each individual’s personal code of ethical
rationalizations of fraudulent behavior include “I am only behavior. Albrecht et al., (1984) also argued that, unlike
borrowing,” “the organization can afford it,” and “it is not rationalization in the fraud triangle theory, personal
really a serious matter.” It is important to note that integrity can be observed in both an individual’s decisions
rationalization is difficult to observe, as it is impossible to and the decision-making process, which can help in
read the perpetrator’s mind. Bank employees have assessing integrity and determining the likelihood that an
knowledge of the systems as well as individual will commit fraud. This argument is consistent
with other research. Experts agree that fraud and other
unethical behaviors often occur due to an individual’s lack of
personal integrity or other moral reasoning (Kranacher &
Dorminey, 2010; Rae & Subramaniam, 2008), as moral and
ethical norms play essential roles in an individual’s decisions
and judgment.
Figure 1: Fraud Triangle
Theory of Reasoned Actions (TRA)
The Fraud Diamond Model This theory originates from social psychology and was
Wolfe and Hermanson (2004) introduced the “Fraud developed by (Ajzen & Fishbein 1975). They developed TRA
Diamond Model” where they presented another side that

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 International Journal of Trend in Scientific Research and Development (IJTSRD) @ www.ijtsrd.com eISSN: 2456-6470
to define the links between the beliefs, attitudes, norms, directly on public officials but also shape their behavior.
intentions, and behaviors of individuals in their intention to Electoral: Electoral corruption occurs when people, whether
use ICT. The theory assumes that a person’s behavior is endowed with political clout or not, illegally try to buy
determined by the person’s behavioral intention to perform influence through illegal payoffs such as illegal funding of
it, and the intention itself is determined by the person’s campaigns, illegal campaign contributions, bribes, buying of
attitudes and his or her subjective norms towards the votes for cash or other inducements (i.e. paying voters to
behavior. The subjective norm refers to “the person’s vote, thereby influencing their choices), promise of contracts
perception that most people who are important to him think or other favors etc. Electoral corruption may also take
he should or should not perform the behavior in question” coercive forms, such as paying thugs to intimidate or
(Fishbein & Ajzen, 1980). In TRA rational considerations threaten supporters of a candidate in order to compel
determine the choices and behaviors of individuals, supporters to vote for the candidate who employed the thugs
andindividual intentions determine behavior. Intentions or stop them from voting entirely. Electoral corruption can
refer to individuals’ plans and motivations to commit a lead to outright rigging of elections; expectation of reward
specific act. Intentions also reflect individual attitudes and once victory is achieved, or encouraging quid pro quo deals
the extent to which individuals perceive a specific act as (Etzioni, 2018). It can include weak credible opposition
desirable or favorable. The theory suggests that human politics, and the undermining of democraticvalues, especially
behavior is governed by personal attitudes, but also by social where there is a conflict between the politicians’ interests
pressures and a sense of control. Adeniji (2010), states that and those of the public. Corporate: Corporate corruption
fraud refers to “an International act by one or more occurs in the relationship between private business
individuals among management, employees, or third parties, corporations and their vendors or clients. It can also take
which results in a misrepresentation of financial place within a corporation when officers use company’s
statements”. It may also involve, resources for private aggrandizement, at the expense of the

Manipulation, falsification or alteration of records or shareholders (Bhargava, 2005). Financial Statement
documents. Fraud: Bradford (2010), defined financial statement fraud as

Misappropriation of assets. deliberate misrepresentation, misstatement or omission of

Suppression or omission of the effects of transaction financial statement data for the purpose of misleading the
from records or reader and creating a false impression of an organization's

documents. financial strength. Public and private businesses commit

Recording of transactions without substance. financial statement fraud to secure investor interest or

Misapplication of accounting policies. obtain bank approvals for financing, as justification for
bonuses or increased salaries or to meet expectations of
Adeniji (2010) further explains that among the various shareholders. Upper management is usually at the center of
definitions of fraud, the most common is that “fraud is a financial statement fraud because financial statements are
generic term, and embraces all the multifarious means which created at the management level. According to the
human ingenuity can devise, which are resorted to by one Association of Certified Fraud Examiners, the average loss
individual, to get an advantage over another by false due to financial statement fraud is over $1 million. Due to its
representations. No definite and invariable rule can be laid nature, financial statement fraud is committed by one or
down as a general preposition in defining fraud, as it more persons in top management. Frequently, collusion
includes, surprise, lickers, cunning and unfair ways by which between a number of persons is found behind such schemes.
another is cheated. The only boundaries defining it are those This type of fraud can be devastating to an organization and
which limit human knowing”. Fraud is also defined “as the the morale of the employees who have committed much of
crime or offense not deliberately decreeing another in order their lives to an organization.
to damage them usually to obtain property or services
injustice” (Ekeigwe, 2010). Also Kano (2004), Opines that According to the Association of Certified Fraud Examiners
“fraud and forgery are jointly defined as irregularities (ACFE 2017), financial statement frauds fall into these
involving the use of criminal detection to obtain unjust or categories. They are improper revenue recognition,
illegal advantage”. manipulation of liabilities, manipulation of expenses,
improper disclosures on financial statements and
Types of Corruption Activities in Nigeria overstating assets. Improper Revenue Recognition The
Based on existing studies on corruption, the following types most common scheme used in financial statement fraud
of corruption are visible in Nigeria: involves manipulation of revenue figures. According to a
Political: This is the sale by government officials of survey by Deloitte of Accounting and Auditing Enforcement
government property for personal gain. It involves the use of Releases (AAER 2016) filed by the SEC from 2000 through
public office by politicians both for financial gain and 2008, improper revenue recognition was recognized as the
purposes of remaining in office. It is further facilitated by the scheme employed in 38 percent of the 403 cases
creation of rent seeking projects. Bureaucratic: This studied. Schemes to manipulate revenue figures typically
involves the use of public office for pecuniary gain. involve posting sales before they are made or prior to
Bureaucratic corruption is common in Nigeria because the payment. Examples include recording product shipments to
government plays crucial roles in the development process, company-owned facilities as sales, re-invoicing past due
especially intervening in the domestic economy. It is also accounts to improve the age of receivables, pre-billing for
common where there is instability in government and lack of future sales and duplicate billings. Manipulating Expenses
tenure, which drive bureaucrats to engage in rent seeking Another fraud involving financial statements is the
opportunities for personal aggrandizement. Socio-economic deliberate manipulation of expenses. The Deloitte survey of
conditions, such as poverty and inequality, cultural norms (AAER 2016) filings by the SEC shows that 12 percent
and practices, such as kinship loyalty not only impinge involved expense manipulation and 8 percent manipulation

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of liabilities. An example of manipulating expenses is to or a department. It usually focuses on specific aspects of the
capitalize normal operating expenses. This scheme is an work of a department or individual in relation to fraud and
improper method to delay recognition of the expense and corruption, so as to examine how the systems can be
artificially raise income figures. An example of this type of reinforced for fraud prevention and detection. Ezeilo (2010)
scheme is the WorldCom scandal, where significant further explains that investigative audit is a valuable part of
operating expenses were listed as capital on the balance audit toolkit because it focuses on the risks that threaten
sheet. Concealment and manipulation of liabilities frauds achievement such as risk of fraudulent claims for
include failure to record accounts payables or report regular expenditure, fraudulent provision of services to an
expenses on financial statements. Keeping certain liabilities, organization or fraud and evasion of revenue payments. It
leaving notes or loans off-the-books and writing off money also concentrates on the standards of financial management,
lent to executives are also common methods of fraud. implementation of internal control regimes and electronic
Improper Disclosures Disclosure frauds are commonly services. It is also worth noting that this audit differs from
based on misrepresenting the company and making false other audits because they are normally conducted without
representations in press releases and other company filings. first notifying the personnel who may be affected by the
Making false statements in the commentary sections of findings.
annual reports of other regulatory filings are another source
for improper disclosures. Some disclosures might be In carrying out this investigation, the forensic auditors who
intentionally confusing or obscure and impossible to are usually referred to as investigative auditors have certain
completely understand. Overstating Assets Overstatement principal tools used in investigating, and they include;
of current assets on financialstatements and failure to record 1. Information (informants)
depreciation expenses are often employed as methods of 2. Interviews (witnesses)
fraud. Overstatement of inventory and accounts receivables 3. Interrogation (suspects)
are also commonly used to inflate company assets on 4. Instrumentation (crime laboratory, comparison
fraudulent statements. microscopes, polygraph etc.).

Forensic Auditing Out of all these tools, information contribute to the solution
As a result of all these fraudulent activities perpetrated in of crime more than the other tools, although there are some
our economy, the auditors coming together decided to have a evidence that instrumentation could be used more
special people to do an in-depth study of what is happening. frequently and more effectively to solve a greater number of
The need to incorporate expertise that will be charged with crimes.
responsibility of carrying out judicial functions together with
accounting skills instigate forensic auditing. Mobile Greek Asset Misappropriation Fraud:
(2011), defined forensic auditing as an examination and According to Chad Albrecht (2010), Asset misappropriation
evaluation of a firm’s or individual financial information for fraud happens when people who are entrusted to manage
use as evidence in court. It can be conducted in order to the assets of an organization steal from it. Asset
prosecute a party for fraud, embezzlement or other financial misappropriation fraud involves third parties or employees
claims. Chatterji (2009) opined that Forensic auditing is “the in an organisation who abuse their position to steal from it
application of auditing skills to situations that have legal through fraudulent activity. It can also be known as insider
consequences”. It is also seen as “an examination and fraud. This type of fraud can be committed by company
evaluation of a firm’s or individual’s financial information’s directors, or its employees, or anyone else entrusted to hold
for use as evidence in event”. During a forensic auditing, and manage the assets and interests of an organisation
professionals compile and assess financial information to be (Benjamin 2012).
used in legal proceedings, whereas the auditing is conducted
by forensic auditors who rely on the principles of law, Typically, the assets stolen are cash or cash equivalents, such
business and ethics. These reports are sometimes used to as credit notes or vouchers. However, the fraud can extend
prepare legal defenses as well as prosecuting a party for to include company data or intellectual property. At one end
fraud, embezzlement or other financial claims. (Investopedia of the scale, asset misappropriation fraud may be limited to
2019). Forensic auditing has been seen as a specialization isolated cases of expense fiddling or an employee lying about
within the field of accounting, whereby forensic auditors his or her qualifications to get a job. Ezeilo, (2010) stated
provides experts testimony during trial proceedings (Nigrini, that there are different types of fraud which fall into this
2011). Scott (2008) defined forensic auditing “as a special category. The common feature is the theft of cash or other
practice of accounting that involves using auditing assets from the company, for example: Cash theft – the
techniques to specifically look for financial misconduct”. stealing of physical cash, for example petty cash, from the
premises of a company.Fraudulent disbursements –
Investigative Audits company funds being used to make fraudulent payments.
Smith (2011) defined investigative audit as utilization of Common examples include billing schemes, where payments
specialized investigative skills in carrying out an inquiry are made to a fictitious supplier, and payroll schemes,
conducted in such a manner that the outcome will have wherepayments are made to fictitious employees (often
application to a court of law. A Forensic Investigation may be known as ‘ghost employees’). Inventory frauds – the theft of
grounded in accounting, medicine, engineering or some inventory from the company.
other discipline. Ezeilo (2010) also defined investigative
audit as “audit that are performed to investigate incident of Automated Forensic Audit: They are a branch of forensic
possible fraud or misappropriation of institution funds.” It is science pertaining to legal evidence found in computers and
usually seen as an audit that takes place as a result of report digital storage mediums. These tools are ideal for solving
of unusual or suspicious activity on the part of an individual cyber-crimes, revealing accounting fraud, and more

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commonly, for the retrieval of accidentally/deliberately money laundering, embezzlement, bribery, looting and any
deleted data. Payroll Fraud: Unauthorised altering of form of corrupt malpractices and child labour, illegal oil
payroll or benefits systems in order for an employee to gain bunkering and illegal mining, tax evasion, foreign exchange
funds which are not due. malpractice including counterfeiting, currency, theft of
intellectual property and piracy, open market abuse,
Financial Fraud dumping of toxic waste and prohibited goods, etc. This
Financial fraud has been variously described in literature. No definition is all-embracing and conceivably includes financial
one description suffices. Wikipedia dictionary describes crimes in corporate organization and those discussed by
Fraud as crimes against property, involving the unlawful provision authors (William, 2005 and Khan, 2005). At the
conversion of property belonging to another to one’s own. level of corporate organization, financial crimes were known
Williams (2005) incorporates corruptions to his description to have led to the collapse of such organization.
of financial crimes. Other components of fraud cited in
Williams (2005) description include bribes cronyism, Cotton (2003) attributes the collapse of Enron, WorldCom,
nepotism, political donation, kickbacks, artificial pricing and Tyco, Adelphia, to corporate fraud. $460 billion was said to
frauds of all kinds. The array of components of financial have been lost. In Nigeria, Cadbury Nig Plc whose books
crimes, some of which are highlighted above, is not were criminally manipulated by management was credited
exhaustive. The EFCC Act (2004) attempts to capture the to have lost 15 billion Naira. In the case of the nine collapsed
variety of economic and financial crimes found either within commercial banks in Nigeria, about one trillion naira was
or outside the organization. The salient issues in EFCC Act reported to have been lost through different financial
(2004) definition include “violent, criminal and illicit malpractice. This is still being investigated by EFCC under
activities committed with the objective of earning wealth the EFCC Act (2004). Generally, financial fraud is varied and
illegally in a manner that violates existing legislation and committed by individuals and institutions.
these include any form of fraud, narcotic drug, trafficking,

CONCEPTUAL FRAMEWORK

Sources: Conceptualized by the Researcher based on the fraud models in the theories above

Research Methodology
This study adopts the cross-sectional field survey of quasi-experimental research design. The survey design was adopted
because of the need to gather enough discriminative data across a wide range of the study subjects that further enhanced the
generation of our findings.

Data used in this study were mainly collected from secondary sources which include: Press Reports, report of Economic and
Financial Crime Commission (EFCC), reports from Independent and Corrupt Practices Commission (ICPC), and report from
investigation committees. The data collected was analyzed with the use of Simple regression; SPSS Version 20.0 was
particularly used

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 International Journal of Trend in Scientific Research and Development (IJTSRD) @ www.ijtsrd.com eISSN: 2456-6470
Accordingly, the functional relationship between the variables are casted thus:
PF = f (IAS) ……………………1
FSF = f (AFA) ………..………..2
Where
PF = Payroll Fraud
FSF = Financial Statement Fraud

From the above functional relationship, the econometric models are specified thus:
PF = b0 + b1 LSS + U2t …………..3
FSF = w0 + w1 LSS + U3t …………4
PF = ζ0 + ζ1 IAS + U5t ..………….5
FSF = µ0 + µ1 IAS + U6t .………….6
PF = ρ0 + ρ1 AFA + U8t ………….7
FSF = ∩0 + ∩1 AFA + U9t …..…….8

Where LSS, IAS and AFA are Independent variables. Also U1t are the errors terms with the assumption of constant and variables
are normally distributed. Again, b0, w0, ζ,0 µ0, β1, ρ1, and ∩1 are all parameter estimates.

Data Presentation
The analyses begin with the examination of the basic features of the data using descriptive statistics. Averages and percentages
were obtained from the studied ministries on the dimensions of the independent as well as the dependent variables.

From the table 1, the total frequency of Assets Misappropriation Fraud (AMF) committed in Rivers State public sector between
2008 – 2018 is about 6 recorded cases while about 74 cases where recorded in Nigeria within the same period. This however,
show an average frequency of 0.6 in Rivers State and 7.4 in Nigeria for a particular year. Also, available data from the table 1
above reveals that, between 2008 – 2018, the total occurrence of payroll fraud (PF) committed in Rivers State is about 9
recorded cases while about 43 cases was recorded in Nigeria within the same period.

This, however, shows an average frequency of 0.9 in Rivers State and 4.3 in Nigeria for a particular year. Again, available data
from the above table also reveals that between 2008 – 2018, the total occurrence of Financial Statement Fraud committed in
Rivers State public sector is about 7 cases while about 38 cases was recorded in Nigeria within the same period. This, however,
shows an average frequency of 0.7 in Rivers State and 3.8 in Nigeria for a particular year.

TABLE1 FREQUENCY OF FRAUD OCCURRENCES IN RIVERS STATE AND NIGERIA (2008 – 2018)
Assets Misappropriation Fraud (AMF) Payroll Fraud (PF) Financial Statement Fraud (FSF)
Year
Rivers State Nigeria Rivers State Nigeria Rivers State Nigeria
2008 0 5 1 3 0 4
2009 0 7 0 2 1 2
2010 1 5 1 7 0 4
2011 1 4 2 7 1 3
2012 1 5 1 4 0 4
2013 2 11 0 3 1 3
2014 0 7 1 4 0 5
2015 0 8 1 5 1 2
2016 0 9 0 4 1 1
2017 1 6 1 0 0 6
2018 0 7 1 4 2 4
Total 6 74 9 43 7 38
Average 0.6 7.4 0.9 4.3 0.7 3.8

Source: Financial data obtained from Newspapers, press, Reports, EFCC reports, ICPC reports, and other publications

TABLE2 FREQUENCIES OF DETECTED CASES OF FRAUD COMMITTED IN RIVERS STATE AND NIGERIA (2008 – 2018)
Litigation Surport Service Investigative Auditing Automated Forensic
Year (LSS) Services (IAS) Audit (AFA)
Rivers State Nigeria Rivers State Nigeria Rivers State Nigeria
2008 0 3 1 3 0 0
2009 0 5 0 1 0 0
2010 1 4 1 5 0 0
2011 1 6 1 6 0 0
2012 1 5 1 4 0 0
2013 1 7 1 2 0 1
2014 0 4 2 4 0 1
2015 0 6 0 5 0 0

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2016 0 8 0 3 0 0
2017 1 5 1 0 1 2
2018 0 7 1 3 0 2
Total 5 60 9 36 1 6
Average 0.5 6.0 0.9 3.6 0.1 0.6

From the table 2 above, the total frequency of Litigation preparation of payroll if so much authority is vested in an
Support Service (LSS) between 2008 – 2018 in Rivers State individual or group over time the tendency of manipulating
is about 5 recorded cases while about 60 cases was recorded the payroll becomes high. This is a problem that has
in Nigeria within the same period. This however, show an persisted in the Nigerian public sector. Conventionally, t-
average frequency of 0.5 in Rivers State and 6.0 in Nigeria for calculated = 3.210˃ t-table = 2.323. Therefore, the null
a particular year. Also, available data from the table 2 above hypothesis is rejected meaning that there is a significant
reveals that, between 2008 – 2018, the total occurrence of relationship between investigative audit services and payroll
investigated cases in Rivers State is about 9 while about 36 fraud.
cases were investigated in Nigeria within the same period.
This, however, shows an average frequency of 0.9 in Rivers HO2: There is no significant relationship between automated
State and 3.6 in Nigeria for a particular year. Again, the forensic auditing and financial statement fraud.
above table 2 reveals that between 2008 – 2018, the total
occurrence of automated forensic auditing cases in Rivers Table4. A simple regression for automated forensic
State public sector is about 1 while about 6 cases were auditing and financial statement fraud at 5% level of
recorded in Nigeria within the same period. This, however, confidence.
shows an average frequency of 0.1 in Rivers State and 0.6 in Simple Regression Method Independent variable: Automated
Nigeria for a particular year. Forensic Auditing Dependent Variable: Financial Statement
Fraud
HO1: There is no significant relationship between Co- t- F-
Variable R2 Prob.
investigative audit services and payroll fraud. efficient value value
Constant
Table3. A simple regression for investigative audit 0.217 0.490 2.703 1.445 0.079
(C)
services and payroll fraud at 5% level of confidence. FSF 0.667 0.004
Simple Regression Method Independent variable:
investigative audit services Dependent Variable: payroll Researcher’s computation from appendix 2
fraud
Co- t- F- From table 4. above shows a positive but weak relationship
Variable R2 Prob.
efficient value value between automated forensic auditing and financial
Constant statement fraud. Forensic audit investigates the financial
0.731 0.534 0.049 10.04 .062
(C) records of the organization with a view to detecting any
PF 3.210 .001 misgiving that may exist therein. R2 being 0.490 shows that
approximately 49% of the total variation in financial
Researcher’s computation from appendix 2 statement fraud is explained by automated forensic auditing.
The remaining 51% is caused by other variables outside the
From table 3 above shows a strong correlation between model but covered by the error term. F-value calculated of
investigative audit services and payroll fraud. Forensic audit 1.445 is less than 10.13 table values implying that the model
helps to detect fraud if it exists in the financial records of the is significant at 0.05 level of significance.
organization. R2 being 0.534 show that approximately 53%
of the total variation in payroll fraud is explained by The T-value calculated of 2.705 is greater than table value of
investigative audit services. The remaining 47% is caused by 2.353 which indicates that there is a significant relationship
other variables outside the model but covered by the error between automated forensic auditing and financial
term. F-value calculated of 10.04 is less than 10.13 table statement fraud. This result is consistent with literature as
values implying that the model is significant at 0.05 level of supported by other results in respect of forensic audit and
significance. financial statement fraud in Nigeria. According to Albrecht,
(2005) while discussing the effect of financial statement
The T-value calculated of 3.210 is greater than table value of fraud observed that inpreparing financial statements,
2.353 which indicates that there is a significant relationship management is responsible for making a number of
between investigative audit services and payroll fraud. This judgments or assumptions that affect significant accounting
result though consistent with literature may be as a result of estimates and for monitoring the reasonableness of such
the function played by audit in Nigeria. However, Rezaee, et estimates on an ongoing basis. Fraudulent financial
al. (1996) pointed out that Misstatements arising from reporting often is accomplished through intentional
fraudulent financial reporting are intentional misstatements misstatement of accounting estimates. It was also found that
or omissions of amounts or disclosures in financial material misstatements in financial statements due to fraud
statements designed to deceive financial statement users can occur throughout the period and may involve extensive
where the effect causes the financial statements not to be efforts to conceal how it is accomplished. Fraudulent
presented, in all material respects, in conformity with financial reporting need not be the result of a grand plan or
generally accepted accounting principles. They further conspiracy. It may be that management representatives
stated that this fraudulent act can only be detected through rationalize the appropriateness of a material misstatement,
thorough audit investigation. Again their study shows that in for example, as an aggressive rather than indefensible

@ IJTSRD | Unique Paper ID – IJTSRD28122 | Volume – 4 | Issue – 1 | November-December 2019 Page 116
 International Journal of Trend in Scientific Research and Development (IJTSRD) @ www.ijtsrd.com eISSN: 2456-6470
interpretation of complex accounting rules, or as a [3] Anis Chariri, (2009). The Relevance of Forensic
temporary misstatement of financial statements, including Accounting in Detecting Financial Fraud (CASAFA) On-
interim statements, expected to be corrected later when Line Retrieved May 3, 2011.
operational results improve. Conventionally, t-calculated =
[4] Ajzen, I. & Fishbein, M. (1980). Understanding
2.705˃ t-table = 2.323. Therefore, the null hypothesis is
Attitudes and Predicting Social Behavior Englewood
rejected meaning that there is a significant relationship
Cliffs, NJ: Prentice-Hall, Inc.
between investigative audit services and payroll fraud.
[5] Apostolou, B. (2000). “Internal Fraud investigation,”
Conclusion and Recommendation Louisiana. Institute Of Internal Auditors Publications.
The researcher in the course of this work, made the
[6] Bhasin, M. (2007). Forensic accounting: A new
following findings;
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There is a significant relationship between investigative
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corporate governance in the Nigerian public sector which
Planning fraud detection procedures: Forensic
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by law to break into the organization system and examine CollarCrimes: Lessons From Nigeria. Paper Presented
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investigation in such a manner that, where there is [11] Brown, A., Aiken, P., & Visser, L. (2007). Reducing
evidence of fraud, appropriate disciplinary action in fraud: A programme that will deliver benefits on the
accordance with the Provision of Public Service Rules bottom line. Accountancy Ireland, 39(6), 28-30.
should be implemented. Criminal prosecution should
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losses of public fund or property. Accountants’ perceptions regarding fraud detection
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