American Journal of Research in Humanities and Social Sciences ISSN (E): 2832-8019 Volume 8, | Jan., 2023 P a g e | 87 www.americanjournal.org THE EFFECT OF FORENSIC ACCOUNTING ON FRAUD CONTROL IN PUBLIC SECTOR MINISTRIES IN RIVERS STATE Dr. Solomon Egbe Department of Accounting Faculty of Management Sciences, University of Port Harcourt, Choba, Nigeria A B S T R A C T K E Y W O R D S The performances of government ministries are generally poor due to absence of an effectively functioning internal control system, high incidence of fraud and lack of accountability. Public sector fraud to a large extent has eaten deep into the blood stream of the Nigeria public sector which is the problem facing today’s Nigeria economy. The adoption of a democratic system of governance in the public sector has triple the epidemics of fraud in the public sector as politicians believe that public sector corruption is considered normal. Ministries, department and agencies fraud is considered a national problem that has eaten deep into the nation and has threatened the financial viability of the Nigeria economy. There is therefore an urgent need to install adequate fraud control technique in the Nigeria public- sector system to curb the menace of corruption and serve as a check mechanism to curb the ever changing and improving tactics of fraudster in government MDA’s. The research examined the relationship in existence between forensic accounting and fraud, control in some public sector ministries in Rivers State. The study adopted the descriptive survey method with sample size of 292, selected using taro Yamane formula from a total population of1,091 of the six ministries. 292 copies of questionnaires were administered among staff of the selected ministries. The statistical tool employed to examine the effect of the predator variables investigative accounting and litigation support services on fraud control is ordinary least square regression technique. Data obtained from the administered questionnaires was imputed into SPSS 20 for analysis. Investigative accounting. Internal control. Fraud Policy. Rivers State. Nigeria. Introduction It is notable to say emphatically that a major component of the economic structure of the Nigeria economy is the public sector which occupies over 75% of the pic chart of the total economic structure. The Nigeria public sector which is known as the Nigeria civil service is a major employer of labour owned and managed by the govern ent not for profit making motive but as an organized institution American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 88 www.americanjournal.org established to provide services and social welfare for its citizens. The Nigeria public sector is classified into Ministries, Departments and Agencies (MDA’s) which is set aside to carry out specific functions assigned as contained in the policy document of the nation. These ministries, department and agencies represent the government and arc set aside to reach the grassroots of its citizens at all levels. Funds arc released at the ministerial levels for both capital and recurrent expenditure. However, there exist a system of legal control which requires government ministries, departments and agencies to give account of its stewardship function to enable the government and its citizens conduc,,m nt adequate performance evaluation in terms of public funds entrusted on the various MDA's. This process ought to be a system of check and balance to eliminate extra budgetary activities. In recent times, the Nigeria public sector has been characterized by high incidence of financial and non- financial crimes, fraud and override of internal control system. These factors mentioned above are orchestrated by public sector employees which are the key players in the various MDA’s. These employees are expected to run the public sector to attain government stated objectives but rather, there arise conflict of interest as government employees arc of the practice of overriding control for their selfish financial advantages. According to Nipion (2013) fraud crumbles the economy greatly and occurs in several forms which includes: unemployment, inflation, high level of crimes, reduction in per capital income etc. according to Njauike , Dube and Mashayanye (2009) are of the opinion that the services of a forensic accountant be employed to investigate and prosecute cases of fraud and other related fraudulent practices. In the opinion of (Onuorah and Ebimobowei, 2012) forensic accounting should be adopted to an organizational internal control system. Forensic accounting as coined by peloubet is the use of accounting knowledge and investigative skills to identify and resolve legal issues. As a specialization that has to do with provision of information that is meant to be used as evidence especially for legal purpose, is the beginning process of a concluded audit exercise as forensic accountant conduct detailed investigation into incidence of organizational fraud. Forensic accountant does not express an opinion unlike statutory auditors, nor rely on the designed organizational internal control system rather, he conducts extensive investigation to obtain needed fact. Forensic accounting skills is thus needed to eliminate fraudulent employees in the public sector as well as control public sector fraud. It is laudable to be enlightened that the services of a forensic accountant should be engaged and a separate department established for forensic accounting in the public sector to control fraud. Objectives of the Study The aim of the study is to investigate the effect of forensic accounting on fraud control in public sector ministries in rivers state. Specifically, this study aims to achieve the following objectives; to: Examine what effect investigative accounting has on internal control. Examine how investigative accounting affects fraud policy. Research Questions Based on the specific objectives, the following research questions are addressed: to; What is the effect of investigative accounting on internal control? Flow investigative accounting does affects fraud policy? American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 89 www.americanjournal.org Research Hypotheses to Be Tested The following null hypotheses are tested in this study: H01: Investigative accounting does not significantly affect internal control. H02: Investigative accounting docs not significantly affect fraud policy. Scope of the Study The conceptual scope of the study is based on accessing the effect of forensic accounting on fraud control with the use of investigative accounting and litigation support services in alignment with fraud policy and internal control system established in the public sector. The geographical scopes of the study are public sector ministries in rivers stale. .The state ministries are selected as appropriate for the study as a result of their record on adherence to financial regulation, accounting policies and procedures. Review Of Literature Theoretical Framework White Collar Crime Theory In the work of Sutherland, White collar crime can be traced back to 1939. Sutherland (1949) as cited in Michael (2004) happened to be the first to formulate the term. Sutherland originally stated in his theory in an address to the American sociological society in an attempt to study two fields, crime and high society which had no previous empirical correlation. 11c explained his idea as crime committed by a person respectable and of high social status in the course of his occupation. He noted that in his time, less than two percent of the persons committed to prison in a year belong to the upper class. His goal was to prove a relation between money and social status and the likelihood of going to jail for a while collar crime. Compared to more visible typical crimes, although, the percentage is a bit higher today. Hence, because of the status of those who engaged in these atrocities, the service ol'a trained and experienced investigator like the forensic accountant is required to forestall the occurrence of such fraud. Public Sector According to Adams (2014), are all organizations that are not privately established or operated but arc ownbd, run and financed by the government on behalf of the public. This means that all the activities of public sectors are governed by government's laws. Adams (2014) lists out regulatory framework of public sector which includes the constitution of the Federal Republic of Nigeria, the 1979 as amended 1989 and 1999, the Finance (control and management) Act of 1958, and the Financial Regulation and Revenue Allocation Laws. Having seen unending several policies made by government. Frauds of different kinds and forms are prevalent in various public sectors. Fraud prevention saves government from huge investigation cost. According to Zimbelman and Albrecht (2012), an environment where fraud is prevented, there would not be detection and investigation costs. Forensic Accounting Defined: According to Joshi (2,003) it is the use of accounting knowledge and investigative skills to identify and resolve legal issues. The word forensic accounting was coined in 1946 by Peloubet, he was the first to publish the phrase forensic accounting. According to (Cocncn, 2005) another nomenclature for forensic accounting is called investigative accounting. Josh (2003) also defined forensic accounting as American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 90 www.americanjournal.org “the application of specialized knowledge and specified skill to stumble up on the evidence of economic translation” .Zysman (2001) also defined forensic accounting as the integration of accounting, auditing and investigative skills. (Coenen,2005)further defines forensic accounting as the application of accounting concepts and techniques to legal problems. (Zysman, 2001) further simplifies the definition by thus; “forensic accounting is a field of specialization that has to do with provision of information that is meant to be used as evidence especially for legal purposes” Fraud defined: According to black’s law dictionary (1979) fraud is defined as multifarious means human ingenuity can devise that arc resorted to by one individual to get an advantage over another by false suggestion or suppression of the truth. It can also be defined as a deliberate and intentional misrepresentation of information in the financial statement or otherwise in other to gain unjust illegal advantage. Dandago (1997) defined fraud as an intentional misrepresentation of financial information by one or more individual among management, employees or third parties. In a nut shell, fraud is seen as a deliberate means of deceit perpetrated by an individual to gain an unjust advantage. The Concept of Fraud Control Jenfa, (2002) outlines various types of fraud as: (i) bite fraud, (ii) nibble fraud, (iii) management fraud and (iv) con-artist or “419”. Okolo, (1987) explains various types of fraud that may be discovered as Teeming and Lading or carry-over fraud, fraudulent manipulation of account not involving defalcating, defalcation of money and goods. Attwood and Stein (1986) emphasize that the responsibility for prevention and detection of fraud rest with management, and. that this responsibility is fulfilled mainly through the implementation and continued operation of an adequate system of internal control. Attwood and Stein (1986) express further that the engagement letter should made this clear. Furthermore, the engagement should explain that the auditor will endeavour to plan his audil so that he (the auditor) has a reasonable expectation of detecting material misstatement in the financial statement resulting from fraud. It is believed that the responsibility for fraud prevention and detection rest with every staff of an organization, whether on managerial level or not. Fzc (2005) pointed oiit, that detection of fraud is a secondary object of an audit, an auditor docs not set out with declared intention of detecting fraud, this comes to light in the normal course of his examination of vouchers, ledger and other available evidence in support of the financial statement he is auditing. As a means of fraud prevention, Millichamp (1996) avers that an effective internal audil is an essential element of a system of internal control and should be prevention to fraud. Millichamp (1996) opines that internal control is “the whole system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprises in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of records”. Rittenbcrg and Senwieger (2000) define internal control as “a process effected by an entity’s board of directors, management and other personnel designed to provide reasonable assurance regarding the achievement of objectives in the following categories (1) reliability of financial reporting (2) compliance with applicable laws and regulations (3) effectiveness and efficiency of operations and (4) safeguarding of assets”. However, the researcher is of the view that internal control may be a government system installed, to effectively and efficiently prevent and control material accounting errors or fraud on a timely basis. American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 91 www.americanjournal.org Dimension of Public Sector Fraud Public sector organization in Nigeria is highly susceptible to various categories of fraud. These frauds arc committed by high ranking officers occupying sensitive position. They commit these frauds to gain illegal financial advantages; both internal auditors and external auditors arc however unable to discover these frauds due to creative accounting. The following are various categories of fraud predominant in the public sector, these includes: Financial Statement Fraud: - these type of fraud in the public sector occurs when preparers of financial statement window dress the account of the state to present a positive picture of government expenditure in other to balance it against unspent revenue and allocation from federation account. Payroll Fraud: - these is a common, type of fraud where by preparer of monthly salary vouchers increase the actual salary of workers by conniving with the workers and also to include ghost workers in the salary vouchers to obtain financial advantage in the loophole in the payroll system. Computer Fraud: - this type of public sector fraud is closely related to payroll fraud for public sector organization that has a computerized system of employee record linked to its payroll system. Fraud perpetrator simply manipulates the employee record by imputing ghost workers to correspond with the payroll voucher to be prepared. This is mostly possible when there is a default in the physical control system of the organization. Tax Fraud: - this type of fraud in the public sector occurs when deduction on civil servant salaries is not remitted as at when due to the relevant tax authority. Misappropriation of asset: - public sectors assets are often susceptible to misappropriation. Vehicle entrusted to public officers are most often confiscated Im¬personal use. This is because there is no adequate records on government vehicles and the financial statement of the public sector does not report on government asset as the statement is been prepared on cash bases. Inventory fraud: - this type of public sector fraud is perpetrated from the preparation of requisition on purchases of item. The prices of individual items arc been sky rocketed by those preparing the requisition, and also when the purchases have been made, they also steal from the little available inventory procured. Embezzlement: - this is classified as one of the greatest challenges facing the Nigeria public sector today. Public officer’s belief that embezzlement of public funds is the only means of getting rich. Funds allocated for capital and recurrent projects arc been embezzled by • those in custody of such fund which is used for extra budgetary activities against the approved appropriation. Litigation Support Services This concept provides assistance of an accounting nature in matters related to existing or pending litigation. Litigation services deals with issues related to quantification of economic damages as well as calculation of economic loss which arose due to a breach of contract. Litigation support service as it relates to a forensic accountant implies more familiarization with the commercial dispute in question thereby providing consultative services as well as rendering advices to attorneys, although the kind of advice provided by the forensic accountant varies, depending on the nature of case in question. Advice rendered to the attorney could be cither determining the extent of damages in a legal case or rendering assistance by providing documentation and relevant fact on an issue in other to support a legal case. The documentation process required of a forensic accountant involves the review process of necessary documents as part of an initial assessment of a case, or by aiding in the discovery proceedings by American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 92 www.americanjournal.org helping to formulate key questions with regards to the financial evidence. Litigation support service is a veritable tool that can be used to achieve a desire outcome in issues concerning a dispute. Litigation support services are of several dimensions which includes: A forensic litigator assists in settlement of discussion and negotiation process. Forensic litigator need to be presence at trials to hear the testimony of the opposing expert and to provide assistance with cross examination. Forensic litigator is mandated to review the opposing expert damages report and reporting on both the strength and weakness of the position adopted. Forensic litigator assists in providing necessary documentation necessary to support or refute a claim. It is of paramount importance that the forensic litigator review such relevant documents obtained in four above in other to form an initial assessment of the case in view and identify vividly the area of loss. Forensic litigator provides assistance with examination of individuals involved in legal suit by formulating questions to be administered regarding financial claims as evidence. Investigative Accounting This technique of forensic accounting is useful in the sense that various complaints and allegations could be used as a guide for gathering evidence used in investigation. This is cited as being proactive because it is widely felt that the existence of a system of investigation in such cases is significant deterrent to fraud and corruption Ezeilo (2010). L/.eilo (2010) defined investigative accounting as “accounting that is performed to investigate incident of possible fraud or misappropriation of institutions funds”. It is usually seen as an accounting that takes place as a result of report of unusual or suspicious activity on the part of an individual or a department. It usually focuses on specific aspects of the work of a department or individual in relatipn to fraud and corruption, so as to examine how the system can be reinforced for fraud prevention and detection. Ezilo (2010) further explains that investigation is a valuable part of accounting because it focuses on the risks that threaten achievement such as risk of fraudulent. claims for expenditure, fraudulent provision of services to an organization or fraud and evasion of revenue payments. It also concentrates on the standards of financial management, implementation of internal control and electronic services. Research Methodology The survey method of research design is considered appropriate as direct or indirect contact is established with individuals related to the study by the use of a well-designed tool called questionnaire. The population of the study comprises of six (6) ministries in Rivers State from a total of (28) ministries. The table 1 below gives a clear picture of the various ministries and their corresponding population. American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 93 www.americanjournal.org S/N Ministries No Of St 1 Ministry of finance 201 2 Ministry of housing 56 3 Ministries of chieftaincy and community affairs 64 3 Ministry of budget and economic planning 75 5 Ministry of urban development 38 6 Ministry of health 657 Total 1,091 The research instruments used in collection of data for a study of this nature is primary instrument personal interviews and questionnaires as the major primary instrument for data collection to enable the researcher obtain relevant and appropriate questions necessary in achieving the objective of the study. The instrument also includes consultation of records, documents such as internet materials, text books and journals as it provides vital information on issues related to the research study. For a research of this nature, the researcher decided to adopt non- probability sampling techniques which was used to select the six ministries which forms the population ,of the study. The researcher decided to use the purposive sampling technique due to the fact that the six ministries which makes up the population of the study forms part of the 28 ministries, and it thus, reasonably represent the total ministries as the accounting system and process in these ministries are similar; so are fraud committed among the six ministries are similar to the 28 ministries as a whole. The two variable s employed by researcher for the study are: the independent variable and dependent variable. The data collected as a result of the questionnaire administered was analyzed with the use of ordinary least square (OLS) regression technique to test the research hypothesis. Descriptive analysis such percentages were also employed in the course of the study to determine the number of responses for or against the research question. Data analysis Hypothesis 1: Investigative accounting does not significantly affect internal control Table 2: Showing the relationship between Investigative accounting and internal control in public sector organizations in Nigeria. Variable N Mean S.D Df R Sig Decision Investigative Accounting 292 1.7705 1.11784 291 .915 .000 Reject internal control 2.2671 1.47507 The result from the study on the relationship between Investigative accounting and internal control in public sector ministries in rivers state, shows that Investigative accounting had a mean of 1.7705 and American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 94 www.americanjournal.org a standard deviation of 1.11784 and internal control had a mean of 2.2671 and a standard deviation of 1.47507 with a degree of freedom (of 292 - 1) 291. while correlation coefficient (r) =.915, which shows that the result is significant at 0.05 two tail test (P<.05) level of significance, (using SPSS). Since the significance level .GOO is less than 0.05 alpha levels. Therefore, the null hypothesis of “Investigative accounting does not significantly affect internal control.” is rejected. Hence, the result indicates that the Investigative accounting docs significantly affect internal control. (See table above and Appendix 1) Hypothesis 2: Investigative accounting does not significantly affect fraud policy. Table 3: Showing the relationship between Investigative accounting and fraud policy in public sector ministries in rivers state _Variabl e N Mean S.D Df R Sig Decision Investigative 1.7705 1.11784 accounting Fraud policy. 292 1.8973 1.17669 291 .959 0.000 Reject The result from the study on the relationship between Investigative accounting and fraud policy in public sector ministries in Rivers State, shows that Investigative accounting had a mean of 1.7705 and a standard deviation of 1.11784 and fraud policy had a mean of 1.8973 and a standard deviation of 1.17669 with a degree of freedom (df = 292 - 1) 291, while correlation coefficient (r) .959, which shows that the result is significant at 0.05 two tail test (P<05) level of significance, (using SPSS). Since the significance level .000 is less than 0.05 alpha level. Therefore, the null hypothesis of “Investigative accounting does not significantly affect fraud policy ” is rejected. Hence, the result concludes that Investigative accounting docs significantly affect fraud policy, (see table above and Appendix 2). Discussion of findings: The result of the findings of the study is in line with the hypothesis stated and the theories. Hypothesis one: This state the relationship between investigative accounting on fraud control through internal control. The result indicates that there exists a significant relationship between investigative accounting and internal control of some public sector ministries in rivers state. It was suggested that the presence of forensic accountant through investigative accounting can control fraud in public sector ministries in rivers state through adequate internal control system. Hypothesis two: 'Phi's state the relationship between investigative accounting on fraud control through fraud policy. The result indicates that there exists a significant relationship between investigative accounting and fraud policy of some public sector ministries in rivers state. It was suggested that the presence of forensic accountant through investigative accounting can control fraud in public sector ministries in Rivers State through effectiveness of fraud policy. Conclusion The research examined the relationship in existence between forensic accounting and fraud control in some public sector ministries in Rivers State. The study adopted the descriptive survey method with sample size of 292, selected using taro Yamane formula from a total population ol 1,091 of the six American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 95 www.americanjournal.org ministries. 292 copies of questionnaires were administered among staff of the selected ministries. The statistical tool employed to examine the effect of the predator variables investigative accounting and litigation support services on fraud control is ordinary least square regression technique. Data obtained from the administered questionnaires was imputed into SPSS 20 for analysis From the result in the section above, we have the following findings: Investigative accounting does significantly affect internal control in public sector in Nigeria. This implies that the more investigative accounting is carried out, there will be an internal control in public sector in Nigeria. The result also showed that investigative accounting does affect fraud policy in public sector on Nigeria. This implies that the more often investigative accounting is applied, the' will be an increase in affect proper authorization process and verification of transaction in public sector on Nigeria. Investigative accounting is an important determinant in uncovering fraud and theft in public sector. State government should create a favourable environment for proper investigative accounting. Litigation support services deals with issues related to economic damages, thus litigation support services are important in fraud related issues in public sector. The forensic accountant provides consultative services as well as rendering advices to attorneys Recommendation Based on the study so far, it has been found out that forensic accounting has a strong effect on fraud control in public sector. This was made possible because of the in depth level of investigative accounting as well as litigation support services. In the light of the above, the following recommendation will be made: Government should create an enabling environment for auditors to perform their duties effectively and efficiently. Government should employ the services of forensic accountants for proper documentation and verification of transactions to curb fraud in the public sector. Government should ensure adequate and continuous training and retraining of staff it relates to forensic accounting methods. References 1. Adams, R. A. (2014). Public sector accounting and finance.4th edition, Lagos: Corporate Publishers Ventures 2. Albrecht, C, C., Albrecht, W. S., & Dunn, S. G. (2001). Can auditors detect fraud? A review of the research evidence, Journal of Forensic Accounting, 2(1), Pp. 34 51. 3. Albrecht, W. S., Hill, N. C., & Albrecht, C. C. (2006). The ethics development model applied to declining ethics in accounting. Australian Accounting Review, 16(1) 30 40. 4. Anao, A. R., & Uche, C. U. (2002). Research design and implementation in accounting and finance, Institute of Chartered Accountants of Nigeria (ICAN) Lagos Attwood, F. A., & Stein, N. D. (1986). De Paula’s Auditing 7th Ed London Pitman 682p. 5. Eze, .1. C. (2005). Principles and techniques of Auditing lsl Edition, Enugu J.T.C. Publishers 545p. 6. Ezeilo, G. (2010). Forensic Accounting, Lagos. Institute of Chartered Accountants Publications. American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 96 www.americanjournal.org 7. Jcgcdc, A. E. (2008). Corruption and the locales: Reconsidering Niger Della (Marginalization thesis) paper presented at the international conference on the Nigerian conference on the Nigerian state, oil industry and the Niger Delta, March, 11 13. 8. Jcnfa, B. I. (2002). Tips on principles and practice of auditing, investigation and professional practice. Jos, Plateau State. Amazing Concept Ltd 21 Op. 9. Jenfa, B. I. (2004). Elements of Professionalism and Practice of Accountancy, lsl Edition, Jos Plateau State, Amazing Concept Ltd Jos. 230p. 10. Millichamp, A. H. (1996). Auditing 71'1 Edition London Letts Educational, Aldinc. 566p. 11. Mohd, S. I., & Mazni, A. (2008). An overview of forensic accounting in Malaysia, Kuala Lumphr, University of Malaysia Press Inc. 12. Murray, J. (2013). Likert Data: What to use, parametric or non parametric? International Journal of Business and Social Sciences, 4(11), 258 264. 13. Niplon, S. (2015). Bank fraud and the Nigerian economy: A psycho economic analysis. 14. Okolo, J.U.'f. (1987). The concept and practice of auditing, Ibadan, Evans Brothers (Nig.) Publishers Ltd. 322p. 15. Owojori, A. A., & Asaolu, T. O. (2009). The role of forensic accounting in solving the vexed problem of corporate world. European Journal of Scientific Research 29 (2), 1 83-1 87. 16. Rittenberg, W. E., & Schwieger, B. J. (2000). Auditing concepts for a changing environment 3™ cd. Orlando Florida, USA Harcourt College Publishers. 855p. 17. Wolf, D. T., & Ilcrmanson, D. R. (2004). The fraud diamond: considering the four elements of If aud. The Certified Public Accountants Journal. 18. Zimbelman, M. F., & Albrecht, C. C. (2012). Forensic accounting, 4th edition. International edition, Canada: Nelson Education Ltd. Appendix 1 American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 97 www.americanjournal.org American Journal of Research in Humanities and Social Sciences Volume 8, Jan., 2023 P a g e | 98 www.americanjournal.org