THE EFFECTIVENESS OF FORENSIC ACCOUNTING AS A TOOL FOR

DETECTING FRAUD AND CORRUPTION IN NIGERIA PUBLIC SECTOR.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Forensic accounting refers to the application of accounting, auditing, and investigative

techniques to uncover and prevent financial fraud and misconduct (Association of Certified
Fraud Examiners [ACFE], 2022). It involves analyzing financial records, transactions, and other
relevant data to detect fraudulent activities, trace assets, and provide evidence for legal
proceedings. In recent years, forensic accounting has gained increasing recognition as a powerful
tool in combating fraud and corruption, particularly in the public sector.

The Nigerian public sector has long been plagued by high levels of fraud and corruption, leading
to significant financial losses and a lack of accountability. This pervasive issue has hindered the
country's development and undermined public trust in government institutions. The
misappropriation of public funds and unethical practices have had far-reaching consequences on
Nigeria's economy and society as a whole.

According to a report by the Independent Corrupt Practices and Other Related Offences
Commission (ICPC), Nigeria's public sector experiences an estimated loss of N9.4 billion
annually due to corruption (ICPC, 2020). These staggering figures underscore the urgent need
for effective measures to address fraud and corruption in the country. Forensic accounting has
emerged as a potential solution, offering a systematic and specialized approach to identifying,
investigating, and preventing financial malfeasance.

By leveraging forensic accounting techniques, professionals can conduct in-depth examinations

of financial records, identify irregularities, and follow the money trail to uncover fraudulent
schemes. They use various methods such as data analysis, document examination, and
interviewing relevant parties to gather evidence and build a strong case against perpetrators.
Forensic accountants also provide expert testimony in legal proceedings, assisting in the
prosecution of individuals involved in fraudulent activities.
The effectiveness of forensic accounting in detecting fraud and corruption in Nigeria's public
sector has garnered significant attention from researchers and policymakers. In a study by
Oyerinde et al. (2021), the authors emphasize the critical role of forensic accounting in
addressing fraud and corruption challenges in Nigeria's public institutions. By implementing
robust forensic accounting practices, public institutions can strengthen internal controls, enhance
transparency, and deter potential wrongdoers.

This study topic evaluated the effectiveness of forensic accounting as a tool for detecting fraud
and corruption in Nigeria's Public Sector. The study will examine the current state of fraud and
corruption in the Nigerian Public Sector, identified the role of forensic accounting in detecting
fraudulent activities, and analyzed case studies where forensic accounting has been used
successfully to detect fraud and corruption in Nigeria. By doing so, the study provided insights
into how forensic accounting used to improve accountability and reduce fraud and corruption in
Nigeria's public sector.

1.2 Statement of the Problem

Fraud and corruption continue to pose significant challenges to the Nigerian public sector,
resulting in massive financial losses and a lack of accountability. According to the Independent
Corrupt Practices and Other Related Offences Commission (ICPC) report released in 2021,
Nigeria's public sector lost an estimated N2.5 trillion annually to corruption. The prevalence of
weak internal controls, inadequate accountability mechanisms, and the absence of effective
regulatory frameworks have facilitated fraudulent activities and corruption in the public sector
(Ogunleye & Adeyemi, 2019). Detecting and preventing fraudulent activities have become
increasingly challenging, emphasizing the need for innovative solutions to address fraud and
corruption in the Nigerian public sector. Forensic accounting has been proposed as a potential
solution to the challenges of fraud and corruption in the Nigerian public sector. Forensic
accounting involves the application of accounting, auditing, and investigative skills to detect and
prevent fraud and other financial crimes (Oyerinde et al., 2021). The use of forensic accounting
in detecting and preventing fraud and corruption has been widely accepted in developed
countries, but there is a lack of empirical evidence on its effectiveness in the Nigerian public
sector.
The lack of empirical evidence on the effectiveness of forensic accounting as a tool for detecting
fraud and corruption in the Nigerian public sector is a significant research problem. While there
have been a few studies on the role of forensic accounting in detecting fraud and corruption in
Nigeria's public sector (Oyerinde et al., 2021; Akpan & Etuk, 2019), they have mainly focused
on theoretical frameworks and case studies. There is a need for a comprehensive study that
provides empirical evidence on the effectiveness of forensic accounting in detecting and
preventing fraud and corruption in the Nigerian public sector.

Furthermore, there are several challenges to the effective use of forensic accounting in Nigeria.
For instance, there is a lack of adequate training for forensic accountants, limited awareness
among public sector organizations on the benefits of forensic accounting, and inadequate legal
frameworks to support the use of forensic accounting in fraud detection and prevention
(Oyerinde et al., 2021). These challenges underscore the need for a comprehensive study that
evaluates the effectiveness of forensic accounting in the Nigerian public sector and identifies the
factors that hinder its use.

Therefore, the problem this study seeks to address is to evaluate the effectiveness of forensic
accounting as a tool for detecting fraud and corruption in the Nigerian public sector, identify the
factors that hinder its use, and propose recommendations for its effective implementation. The
research examined the current state of fraud and corruption in the Nigerian public sector, identify
the role of forensic accounting in detecting fraudulent activities, and analyze case studies where
forensic accounting has been used successfully to detect fraud and corruption in Nigeria.

1.3 Research Question

In line with problem statement of the study described above, the following specific research
questions were formulated and used to address the problem:

i. How effective is forensic accounting in detecting fraud and corruption in the Nigerian
public sector?

ii. What are the challenges faced by forensic accountants in detecting fraud and corruption
in the Nigerian public sector?
 iii. How can forensic accounting be improved to enhance its effectiveness in detecting fraud
and corruption in the Nigerian public sector?

1.4 Objectives of the Study

The broad objective of this study is to examine the effectiveness of forensic accounting as a tool
for detecting fraud and corruption in the Nigeria public sector. The specific objectives of the
study are to:

i. examine the effectiveness of forensic accounting in detecting fraud and corruption in the
Nigerian public sector.

ii. Investigate the challenges faced by forensic accountants in detecting fraud and corruption
in the Nigerian public sector.

iii. recommend strategies to improve the effectiveness of forensic accounting in detecting

fraud and corruption in the Nigerian public sector.

1.5 Research Hypotheses

The following hypotheses were formulated and tested in the study to examine the effectiveness
of forensic accounting as a tool for detecting fraud and corruption in the Nigeria public sector:

Ho: Forensic accounting is not an effective tool for detecting fraud and corruption in the Nigerian
public sector.

Ho2: The challenges faced by forensic accountants in detecting fraud and corruption in the
Nigerian public sector cannot be overcome.

Ho3: There are no strategies that can improve the effectiveness of forensic accounting in detecting
fraud and corruption in the Nigerian public sector.

1.6 Significance of the Study

The significance of the study on the effectiveness of forensic accounting as a tool for detecting
fraud and corruption in the Nigerian public sector cannot be overstated. Firstly, the study will
contribute to the existing body of knowledge on forensic accounting, particularly in the Nigerian
context, where there is a paucity of research in this area. This research will provide insights into
the effectiveness of forensic accounting techniques and their potential to combat fraud and
corruption in the public sector.

Secondly, the study's findings will be relevant to policymakers, regulators, and other
stakeholders involved in the fight against financial crimes in the Nigerian public sector. The
research will help in developing appropriate strategies to improve the effectiveness of forensic
accounting in detecting and preventing fraud and corruption, thereby promoting transparency,
accountability, and good governance. Thirdly, the study will be of significant importance to the
Nigerian public by providing information on the challenges facing the public sector in detecting
and preventing financial crimes, as well as recommendations on how to overcome these
challenges. This research could contribute to reducing the impact of fraud and corruption on the
Nigerian economy, social welfare, and political stability.

Finally, the study's results may have implications for other developing countries with similar
challenges of fraud and corruption in their public sectors, as the findings could be applicable in
other contexts. Overall, the study's significance lies in its potential to enhance the effectiveness
of forensic accounting in detecting and preventing financial crimes in the Nigerian public sector
and beyond. Additionally, the findings and recommendations from forensic accounting
investigations can inform the development of policies and procedures to prevent future instances
of fraud and corruption. D'Souza and Jacobs (2017) highlight the value of forensic accounting in
promoting accountability and integrity in the public sector. Their research emphasizes the need
for proactive measures, such as forensic audits and whistleblower protection, to mitigate fraud
and corruption risks effectively.

1.7 Scope of this Study

The focus of the study is on the effectiveness of forensic accounting as a tool for detecting fraud
and corruption in Nigeria Public Sector with a particular reference to Ile-Oluji/Oke-igbo Local
Government Secretariat, Ondo State.

1.8 Limitations of the study

The limitations of the study is restricted to public sector in Nigeria, other limitations include the
following:
 i. Time Constraints: The study is limited by time constraints, the timeframe at which
the study is being conducted is too short for Gathering data, conducting thorough
analyses, and drawing meaningful conclusions. As a result, the study may not provide
a comprehensive understanding of the long-term effects or trends related to the role of
forensic accounting in Nigeria in the development of policies and practices that
enhance transparency, accountability, and good governance in the public sector.
ii. Finance: The researcher is not financially buoyant to conduct robust research.
iii. Data Availability and Reliability: The availability and reliability of data present
limitations in this study. Access to financial information needed on forensic
accounting from the selected public sector are restricted, incomplete, or subject to
bias. The accuracy and quality of the data used for analysis could impact the validity
of the study's findings.

1.9 Definition of terms

i. Forensic Accounting: Forensic accounting is a specialized field of accounting that

utilizes investigative and analytical techniques to examine financial records and
transactions in order to uncover and prevent fraudulent activities, financial irregularities,
and corruption.

ii. Fraud: Fraud refers to intentional deception or misrepresentation carried out for personal
or financial gain. In the context of the public sector in Nigeria, fraud involves acts of
dishonesty, manipulation, or embezzlement of public funds or resources, with the intent
to deceive and obtain unauthorized benefits.

iii. Corruption: Corruption refers to the abuse of power, position, or authority for personal
or private gain. In the Nigerian public sector, corruption involves acts of bribery,
embezzlement, nepotism, favoritism, or other forms of unethical behavior that undermine
the proper functioning of public institutions and the fair distribution of resources.

iv. Nigeria Public Sector: The Nigeria public sector encompasses government
organizations, agencies, and institutions at various levels, including federal, state, and
local government bodies. It includes ministries, departments, public enterprises, and
 public service organizations responsible for the provision of public services, governance,
and the management of public funds and resources.

v. Effectiveness: Effectiveness refers to the degree to which a particular approach,

methodology, or tool achieves its intended purpose or objectives.

vi. Tool: In this context, a tool refers to the use of forensic accounting methodologies,
techniques, and practices as a means to detect, investigate, and mitigate fraud and
corruption in the Nigerian public sector.

vii. Detecting: Detecting refers to the process of identifying, uncovering, or discovering

instances of fraud and corruption within the Nigerian public sector.