KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY

ISNTITUTE OF DISTANCE LEARNING (IDL)

RESEARCH PROPOSAL ON DETECTING FRAUDULENT FINANCIAL REPORTING

THROUGH FINANCIAL STATEMENT ANALYSIS

(A CASE STUDY OF GHANA COMMERCIAL BANK LIMITED, BOUNDARY ROAD

BRANCH-ACCRA)

BY

NAME INDEX NUMBER

NII ARMAH ANTEH --------

-------
 INTRODUCTION

1.1 Background of the Study

The phenomenon of fraud is one which plagues many organizations across different industries of

varying sizes around the world. Of 2690 cases studied globally in 2018, the Association of

Certified Fraud Experts (ACFE) Report to the Nations, point out that the incidence of fraud

resulted in an average loss of $2.1million, with the total loss of $7 billion.

Additionally, it is estimated that, fraud might cost global organizations up to 7% of their annual

sales. It shows a rise from 2016, when the 2,410 incidents of occupational fraud investigated

resulted in losses above $6.3 billion, which is equivalent to 7% of global corporate annual

revenue and the most common kind of fraud. The seriousness of fraud is emphasised by

Schmalleger (1991), who poignantly asserts that “More money has been stolen at the point of a

pen- than at the point of a gun”. In Ghana, the central bank reports that the monetary values of

fraud cases (both successful and unsuccessful) for the year 2016 aggregate to Ghc244 million.

At this rate, fraud has the potential of “inflicting substantial damage from the individual,

organizational and community and even national levels” ((Lanham, Weinberg, Brown & Ryan

1987) and is consistent Greenspan (2002) who addresses fraud as an existential threat to

capitalism.

Fraud is a broad concept with two basic types of fraud seen in practice. The first is the

misappropriation of assets and the second is fraudulent financial reporting (FFR). FFR usually

occurs in the form of falsification of financial statements in order to obtain some forms of

benefit. Others believe that fraud involves an intentional distortion of financial statements (Ata

and Syerek, 2009). Fraud detection is among the highest priorities for capital market participants

and other stakeholders in the financial reporting process (e.g., Elliott, 2002; PCAOB, 2007).
Isa (2011) argues that motivation aside; there are internal factors in corporations that assist

executives to engage in fraudulent activities. Weak internal control systems and flexibility of

accounting are some of those factors captured by Isa (2011). The Association of Certified Fraud

Examiners posits that financial fraud more often than not occurs with management’s knowledge

(ACFE, 1993). This can especially happen when weak internal controls and other corporate

weaknesses are at play. Beasley (1996), Carcello and Nagy (2004) all conclude that proper

corporate governance characteristics can minimize the occurrence of financial statement

misreporting. Proper corporate governance measures should necessarily encompass a check on

related party transactions.

There is a theory that seeks to link economic situation of a firm and unethical practices such as

financial statement misrepresentation. As concluded by Bell et al. (1991), a financially distressed

organization with unethical managers can seek to improve their financial position, albeit

artificially, through fraudulently generated financial statements. Financial statement fraud is not

the only way a firm can engage in corporate fraud. Asset misappropriation and corruption also

constitute fraud (ACFE, 2012). Asset Misappropriation as indicated by Albrect et al. (2008) can

be divided into the theft of cash and theft of non-cash assets. The Association of Certified Fraud

Examiners reports that 85% of asset misappropriation cases involve the dishonest use of cash

(ACFE, 2012). According to a KPMG (2004) report, asset misappropriation most times occurs

when organizations have weak internal controls. In the words of Albrect et al. (2008), weak

internal controls include improper documentation and bad record keeping, lack of physical

safeguards and having more than one person complete a task. Holtfreter (2004) underlines the

importance of having a good system of internal controls when he concluded that an organization
could forestall the occurrence of asset misappropriation by institutionalizing strong internal

control mechanisms.

1.2 Statement of the problem

One of the most troublesome crimes now plaguing the world of business is fraud. Its effect could

even outweigh certain street offenses (Rebovich & Kane 2002).

Given the persistence, and the enormity of present and potential damage that the occurrence of

fraud cause, it is pertinent the accounting body of knowledge devise potent methods to prevent

them from occurring and detect them should they occur. Research literature is replete with fraud

prevention research on a global scale often influenced with Eurocentric or western influences.

In spite of the many countries accenting to the IASB’s International Financial Reporting

Standards and International Auditing Standards, Leonard, K.M et al (2010) argue that the

practice in individual countries may have their own local nuances on the professional practice.

Fraudulent financial reporting poses a significant threat to the credibility of financial statements

and undermines the integrity of financial markets. Despite the efforts of regulators and auditors

to detect and prevent fraudulent activities, some companies still engage in fraudulent financial

reporting to manipulate their financial statements and mislead stakeholders.

Financial statement analysis is an essential tool for detecting fraudulent financial reporting, but it

is not foolproof. Therefore, this study aims to investigate the effectiveness of financial statement

analysis in detecting fraudulent financial reporting in Ghana Commercial Bank Limited.

1.3 Objectives of the study

 1) Identify the financial statement ratios and metrics that are most susceptible to

manipulation in Ghana Commercial Bank Limited.

2) Analyze the financial statements Ghana Commercial Bank Limited to detect any red flags

or irregularities that could indicate fraudulent financial reporting.

3) Evaluate the effectiveness of financial statement analysis in detecting fraudulent financial

reporting in Ghana Commercial Bank Limited.

1.4 Research Questions

1) What financial ratios and other indicators are most useful in detecting fraudulent financial

reporting?

2) How can financial statement analysis be used to identify fraudulent activity in a

company's financial statements?

3) What factors should be considered when developing a fraud detection model for financial

statement analysis?

1.5 Hypothesis

(H0): There is no significant difference in financial statement ratios between firms that

engage in fraudulent financial reporting and those that do not engage in fraudulent financial

reporting.

(H1): There is a significant difference in financial statement ratios between firms that engage

in fraudulent financial reporting and those that do not engage in fraudulent financial

reporting.
1.6 Population of the Study

Study population is a subset of the target population from which the sample is actually

selected. In this study, Ghana Commercial Bank Limited is the study population. The sample

size would be drawn from the staff population at the Boundary Road Branch of Ghana

Commercial Bank Limited.