Introduction

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 organisation. 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 (‘Audit’ 2011). 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 paper seeks to consider the effect of fraud and irregularities on banks performance in Nigeria and its

control.

 Discussions 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. For this reasons, banks in Nigeria should hire several experts to do the auditing and financial evaluations.  

Aside from hiring accountants and auditors that will work for them internally, they also need to seek help of other experts to

avoid biasness and also in order reveal the genuine stability of the entity being audited (Jones & Pendlebury, 2000).

According to Arter, (2002), these people are called independent auditors expert or sometimes called external auditors.

Basically, external auditors/accountants are audit experts who perform an audit on the financial statements of a government,

company, individual, or any other legal entity (Cameron, 1982).  As stated previously, these people are working

independently to present an unbiased and independent evaluation on such entities. In comparison to internal auditors,

external auditors’ primary responsibility is assessing the risk management practices and strategy, management and

governance processes of an entity.  These experts are usually does not express any opinion on the entity's financial

statements, they just evaluate and never do such recommendations. Similar to internal auditors, independent auditors are

considered by the public service sector and other organisations to take a look at financial statement to confirm they are free

of errors and obvious misstatements (Arter, 2002). 

Basically, Fraud & Irregularities occurring among banks in Nigeria created significant effect.   This event may result

to business failure or worst bankruptcy.  Aside from this, fraud & irregularities could also have significant effect to capital

market, capital structure, Efficiency Market Hypothesis and credit ratings. In accordance to the impact on control

environment and internal controls within Banks in Nigeria, the independent auditor has a number of affirmative

responsibilities. According to the Jones & Pendlebury (2000), firstly, the independent auditor must be precise in strategies to

find out and report the bank's genuine financial position. Secondly, as a representative for the public, the independent

auditor must stay independent of the management of the bank. The independent auditor owes the independence duty to the

shareholders of the bank, the public and the board of directors.  Thirdly, the independent auditor must completely reveal all

material features of the financial condition of the bank. The independent auditor duty of disclosure requires them to reject an

improper engagement, report cheating, and place a caution on statements pertaining to the ability and liquidity of the

company to continue as a going concern.

In independent auditor experts’ affirmative duty to discover irregularities and material errors, including fraud, the

independent auditor fulfils a function that the public considers the independent auditor's most significant role (Monaghan

1989).  According to Harvey, (1990), fraud does not become visible on the face of bank's records, but frequently signs of it

will likely in the form of irregularities, and, hence, the auditor can only divulge fraud by closely examining irregularities.  

Whereas the Statements of Auditing Standards (SAS) according to Arter, (2002) asserts the independent auditor's clear

liability to identify management fraud, that same SAS does not oblige the auditor to guarantee the accuracy of the firm's

financial statements.

Conclusion From the previous discussion, we may argue that auditors whether from internal or external, audit

committees and the management of Banks in Nigeria play important roles. The importance reflects on the fact that they

should have good teamwork and communication in order for them to organize and protect the relevant information in any

public service sector since it has significant impact on the control environment and internal controls within the banks sectors

in Nigeria. With this, their role and work must be reviewed including the idea of improvement. In the case of financial

fraud, auditors with respect to management assurances should be aware to the significant laws and protocol concerning their

work.

As indicated, the most important role of auditors is to convey an outlook on whether an entity's financial statements

are free of material misstatements. The independence of auditors is vital to an accurate and thorough assessment of an

entity's financial statements and controls. Meaning, any connection between the entity and the auditors, other than

maintenance for the audit itself, must be divulged in the report of auditor. This rule also forbid the auditor from having a

stake in public clients and harshly confines the kinds of non-audit services they can offer.

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The Effect of Fraud & Irregularities on Banks Performance in Nigeria and its Control

Introduction

Organized crime and other violent behaviors became synonymous in many of the banks. This includes the

money laundering, internet fraud, credit card and identity fraud. As an action of the government, they proposed

a special committee that can address the rising problems in terms of fraud and irregularities in the performances

of the banks. All of the stained processes of the banks will create difficulties for the financial sector therefore, it

is important to pay attention on the appropriate management within the banks.

Background and Problem Statement

Nigeria has the second largest financial services sector in Sub-Saharan Africa, after South Africa. It is

also considered to have the fast growing financial sectors that can compete internationally because Nigeria is

identified to gather the opportunity to become an influential player for providing financial services in low

income countries. Aside from oil, Nigeria has also a favorable domestic background because of the growth of

their population along with the growth of other non-oil products and services. However, Nigeria remains

clouded with several of challenges like the poverty, limitations in financing accessibility, poor infrastructures,

and high levels of corruption. These are the barriers for the total growth of the country and are associated with

their banking sector (Becker, et al., 2008). In order to make Nigeria an attractive country, the financial

institution should have the strengths and ensure the improvements in the business processes. Therefore, the

study will address the negative effects of bank fraud and other irregularities in Nigeria.

Research Aim and Objectives

The aim of study is to minimize the incidence of fraud and irregularities in Nigerian banks. Therefore,

there is a mean to improve the risk management in the banking processes and increase the skills of the

employees who can facilitate the banking transactions. In order to provide this aim, there are four objectives

that should be settled. First is to identify the reasons or causes of fraud in Nigerian Banks. Second is to

recognize the type of bank frauds that are typical in Nigerian banking sector. Third is to determine the control

level of fraud among the banks. And fourth is to suggest other effective methods in which fraud can be

perpetuated. 

Literature Review

Fraud can be seen as the intentional misrepresentation, concealment, or omission of the truth for the

purpose of deception/manipulation to the financial detriment of an individual or an organization (such as a

bank) which also includes embezzlement, theft or any attempt to steal or unlawfully obtain, misuse or harm the

asset of the bank. Banks are the most common place wherein fraud and other irregularities can be found and

apparently, the incidence of fraud continuous to rise, affecting the entire economic and financial future. Nigeria

and its banking sector indicated the high incidence of fraud that deteriorates the credibility of the services and

shifted to be the most common problem in the financial industry. In a typical interpretation, when fraud exists

within the financial institution like banks, it definitely affects both assets and liabilities of an enterprise (as an

example). There is a unreliable trend which shows the reduction of their assets while there is a sudden increase

in their liabilities. In this case, the banks may loss their potential to gain clients and results in a scandal such as

the crisis in the confidence. In the long-run, the rotten processes of the bank will cause its downfall. Therefore,

the action of the government is to investigate in the existence of the fraud and irregularities in the banking

sector because it can affect the entire financial stream and increase the poverty in the country. The fraud and

irregularities are also representing the loss of strategic management and control and the unreliable employees in

banking operations (Abiola, 2009).

MethodologyThe method adopted in this study is the use of survey and interview. The survey is done

through the use of Likert Scale questionnaire and conducted among the bank employees. The participants

involve the personnel in selected banks and in different positions like the bank teller, accountants/auditors,

operation manager, and vault authorities. In this way, the study can determine the perceptions of the employees

regarding the fraud incidents and irregularities in their workplace. On the other hand, the interview includes the

Branch Managers of the selected banks in Nigeria. The study can conduct the method within the selected 10

banks in Nigeria and represent the entire population on banking institutions. The information, afterwards, will

be organized according to the objectives and therefore, determine the effects of fraud on the banking services of

the country.   

 References:

Abiola, I., (2009) An Assessment of Fraud and its Management in Nigeria Commercial Banks, European

Journal of Social Sciences, 10(4): 628[Online] Available at: http://www.eurojournals.com/ejss_10_4_14.pdf

[Accessed 10 August 2010].

Becker, L., Chammard, M.B., Hussein, Z.W., Kotsuji, Y., & Quagraine, N., (2008) Nigeria: Financial

Services Cluster Analysis and Recommendations [Online] Available at:

http://www.isc.hbs.edu/pdf/Student_Projects/Nigeria_Financial_Services_2008.pdf [Accessed 10 August 2010].

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irregularities-on-banks-performance-in-nigeria-and-its-cont.html#ixzz1O760L6Py

JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 8 NO 1, JUNE, 2010

THE ROLE OF AUDITORS IN FRAUD DETECTION, PREVENTION AND REPORTING IN NIGERIA

Akinyomi Oladele JohnDepartment of Financial Studies, Redeemer’s University, Mowe

E-mail: delejohn21@yahoo.com

AbstractThis study investigates the role of auditors in the detection, prevention and reporting of fraud. Data were

obtained from 184 respondents in Nigeria. The findings revealed that the respondents are very concerned about the problem of fraud. In addition, the respondents placed very high expectation on auditors’ duties on fraud

prevention and detection. This perception is in contrast with the stated primary objective of an audit, as stipulated in ISA 200, which merely required auditors to form an opinion on the financial statements, but not of

fraud detection.

ntroduction That 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 (Gay et al 1997). 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, Afribank, 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 in Nigeria, and to determine their perceptions of the auditor’s responsibilities in detecting fraud and the performance of related audit procedures. The paper also aims to ascertain whether the report users’ perceptions of auditors’ responsibilities on fraud are consistent with those of the auditing profession as expressed in auditing standards in Nigeria.

Literature review Fraud     Fraud, according to Adeniji (2004:354) and ICAN (2006:206), is an intentional act by one or more individuals among management, employees or third parties, which results in a misrepresentation of financial statements. Fraud can also be seen as the intentional misrepresentation, concealment, or omission of the truth for the purpose of deception/manipulation to the financial detriment of an individual or an organization which also includes embezzlement, theft or any attempt to steal or unlawfully obtain, misuse or harm the asset of the organization, (Adeduro, 1998 and, Bostley and Drover 1972). Fraud has increased considerably over the recent years and professionals believe this trend is likely to continue. According to Brink and Witt (1982), fraud is an ever present threat to the effective utilization of resources and it will always be an important concern of management. ISA 240 ‘The Auditor’s Responsibilities to Consider Fraud in an Audit of Financial Statement (Revised)’ refers to fraud as “an intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an unjust or illegal advantage”. Aderibigbe and Dada (2007) define fraud as a deliberate deceit planned and executed with the

intent to deprive another person of his property or rights directly or indirectly, regardless of whether the perpetrator benefits from his/her actions.

Weirich and Reinstein (2000 cited in Allyne & Howard 2005), define fraud as “intentional deception, cheating and stealing”. Some common types of fraud include creating fictitious creditors, “ghosts” on the payroll, falsifying cash sales, undeclared stock, making unauthorized “write-offs”, and claiming excessive or never-incurred expenses. Pollick (2006) regards fraud as a “deliberate misrepresentation, which causes one to suffer damages, usually monetary losses”. Albrecht et al (1995 cited in Allyne & Howard, 2005:287) classified fraud into employee embezzlement, management fraud, investment scams, vendor fraud, customer fraud, and miscellaneous fraud. Fraud also involves complicated financial transactions conducted by white collar criminals, business professionals with specialized knowledge and criminal intent (Pollick 2006).

Empirical studies on fraud detection Extensive studies have been conducted in many countries into the perception of financial report users of auditors’ responsibilities in fraud prevention and detection [For example, Monroe and Woodliff (1994) in Australia; Epstein & Geiger (1994) in the US; Humphrey et al (1993) in the UK; and Low (1980) in Singapore; Leung and Chau, (2001) in Hong Kong; Dixon et al (2006) in Egypt; Fadzly and Ahmad (2004) in Malaysia]. These studies found that many financial report users believe that the detection of irregularities is a primary audit objective and that the auditors have a responsibility for detecting all irregularities. This is a misconception and shows the existence of an audit expectation gap between auditors and financial report users with respect to the actual duties of auditors.

Despite the extensive international research on fraud, very few studies have been conducted on the issue of fraud in Nigeria. The extensive international findings may not be applicable in Nigeria as research methods and results are influenced by and usually reflect economic, social or legal factors unique to those countries in which the studies took place. It is hoped that the findings of this study will provide insight into the financial report users’ perceptions on the extent of fraud in Nigeria and their perceptions of auditors’ responsibilities for and procedures in detecting fraud.

Research methodology The primary data used for this study were obtained through the administration of well designed questionnaire to respondents. The questionnaire is adapted from that used by Alleyne and Howard (2005). Using convenience sampling methodology, the questionnaire was handed to 200 respondents in Nigeria. The respondents were bankers, managers, investors and accountants. 184 questionnaires were returned, yielding a 92 per cent response rate. Furthermore, more than 90 per cent of the respondents claimed that they were aware of what auditors do. The high level of awareness combined with their accounting qualifications and audit experience should add credibility to the findings of the research

   Findings and discussion    Extent of fraud Table 1: Perceptions of extent of fraud

  Users of financial reports N = 184

Questions Strongly Disagree

Disagree Neutral Agree Strongly Agree

Is fraud a major concern for business in Nigeria?

4 (2.2%)

24 (13.0%) 40 (21.8%) 86 (46.7%)

30 (16.3%)

Do you think that the discovery of fraudulent activity would have a negative impact on users?

4 (2.2%)

20 (10.9%) 34 (18.5%) 88 (47.8%)

38 (20.6%)

The results in Table 1 show that 46.7 per cent of the respondents agreed and 16.3 per cent strongly agreed that fraud is a major concern for business in Nigeria. However, 21.8 per cent have a neutral opinion while 13 per cent disagreed and 2.2 per cent strongly disagreed with this statement. That the majority of responses agreed with the statements may be due to the high publicity of fraud cases in Nigeria. Overall the responses in this study show that fraud is an area of concern in Nigeria. When respondents were asked whether the discovery of fraudulent activity would have a negative impact on users, 20.6 per cent strongly agreed and 47.8 per cent agreed to this statement. Such responses reflect the common market reaction to negative publicity.

auditors’ responsibilities for fraud detection

  Users of financial reports N = 184

Questions Strongly Disagree

Disagree Neutral Agree Strongly Agree

Do you feel that it is the responsibility of the auditor to uncover fraud and to report this to the appropriate authorities?

14 (7.6%)

28 (15.2%) 38 (20.6%) 62 (33.7%) 42 (22.9%)

Do you think that there should be legislation to this effect?

16(8.7%)

16 (8.7%) 36 (19.5%) 68 (37.0%) 48 (26.1%)

Conclusion and recommendations This study explores the financial report users’ perceptions of the extent of fraud in Nigeria and of auditors’ responsibilities in detecting fraud. It also investigates the perceived extent of the related audit procedures. The study also aims to ascertain whether the report users’ perceptions of the auditors’ responsibilities on fraud detection is consistent with the Nigerian auditing professions’ published standards.

The study found that respondents are very concerned about the problem of fraud in Nigeria. In addition, the results show that respondents’ perception of the official objective of an audit is incorrect, as they placed a very high expectation on auditors’ duties on fraud prevention and detection. This perception is in sharp contrast with the stated primary objective of an audit, as stipulated in ISA 200, which merely required auditors to form an opinion on the financial statement, but not of fraud prevention and detection efforts of the company. The study also found a lack of understanding among respondents of the statutory duties of auditors. The lack of understanding is because the users may not have read the statutory provisions for auditors, or have chosen to ignore or forget them.

The present situation may be improved through several strategies, the two most likely to succeed being: i) educating the users on the role and the actual duties of auditors, through better communication by auditors; and ii) by expanding the scope of the audit to meet market expectations. Porter (1997) believes that education may help in solving the misconception problem as it may reduce the “misunderstanding gap” caused by ignorance. On the other hand, expanding the scope of an audit may help to mitigate the “expectation gap” problem as auditors would then be performing additional duties not previously required. It is hoped that by implementing both approaches, the public’s expectation and auditor’s duties will be brought into closer accord.

 

References Adeduro, A.A. (1998): “An investigation into frauds in banks”. An unpublished thesis of

University of Lagos.Adeniji, A. (2004): Auditing and Investigation. Lagos, Value Analysis Publishers

Aderibigbe, P. (1997): Auditing: Conceptual Emphasis. Ibadan, Lyons Ltd

Aderibigbe, P. and Dada, S. O. (2007): Microauditing Principles. Lagos ICAN Students Journal, Vol 11 No 1, Jan/March.