Abstract
With an upsurge in financial accounting fraud in the current economic
scenario experienced, financial accounting fraud detection has become
an emerging topic of great importance for academic, research and
industries. In this age of high technology, fraud investigators can no
longer be satisfied with just auditing or accounting skills, these
investigators should be trained as forensic accountants and this
training should include an extensive knowledge of accounting
information. Despite the independence of auditors, fraud is still in the
increase and most organizations has internal control system that
checkmates the operations of the organization but fraud still exist
within the organization. In order to protect our banking sector, it is
crucial to examine the level of assessment of fraud risk with respect to
financial statement audits.
The study is on auditing as a tool for fraud risk assessment in
commercial banks within Kwara State.The researcher employed both primary
and secondary data in collection of information, and correlation
analysis for testing of hypothesis, SPSS package was also used for
analysis of questionnaire.
it is therefore required to note some areas of improvement that, The
organization should put in place policies and procedures that will help
in reducing fraud and also provide Conducive working atmosphere must be
ensured for staff members.
Keywords: Auditor, Fraud, audit report, risk assessment, objectivity, integrity.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The recent global financial crisis, which had its roots in the
banking sector, highlighted, except from the existing regulatory gaps,
the lack of proper and efficient internal audit functions within the
banking institutions in order to mitigate the resulting negative
effects. The burst of the credit crunch and the following financial
recession resulted in the dramatic increase of bank frauds all over the
world, a fact that strengthened the need for the implementation of
internal audit techniques.
Moreover, the internal audit function plays a crucial role in the
ongoing maintenance and assessment of a bank’s internal control, risk
management and governance policies thus, adding value and assisting in
the achievement of the management’s goals.
In the intermediation, banks mobilize savings from the surplus units
of the economy and channel these to the deficit units, particularly
private business enterprises for the purpose of expanding their
productive capacity (Adeyemo, 2012). Levi (2001), asserts that corporate
financial scandals in the USA such as Enron and Tyco debacles send
shockwaves in the corporate world, regulatory authorities, audit
fraternity and the economic world society at large. These have led to
the erosion of investor confidence in the financial markets.
The incidence of fraud and misappropriation of funds in recent time
poses a threat accounting profession because of its perennial nature.
This has resulted to questions as to whether accountants actually play
any significant role towards the attainment of accountability and
prevention of fraud especially that which is currently happening in our
major or key financial institutions.
With an upsurge in financial accounting fraud in the current economic
scenario experienced, financial accounting fraud detection has become
an emerging topic of great importance for academic, research and
industries. In this age of high technology, fraud investigators can no
longer be satisfied with just auditing or accounting skills, these
investigators should be trained as forensic accountants and this
training should include an extensive knowledge of accounting
information.
Fraud imposes numerous costs to organizations that experience it.
The banks might suffer loss in terms of monetary, reputation, human
capital as well as the exposure to the risk of bankruptcy. In a wider
scope, fraud does not only threaten our country’s economic condition
with the loss of investors and resources, but it is in fact endangers
the serenity and political stability of the nation. Nevertheless, while
banks are active in the quest to reduce costs of fraud, it is important
to make sure that they do not immensely deteriorate the effectiveness of
current functioning key fraud controls.
Having committed a large sum of funds and resources as a shareholder
to financial institutions, the expectation is to generate a high level
of profitability but this has been thwarted by the high index of fraud
perpetrations in the industry. Financial statements produced can no
longer be relied upon except audited.
1.2 STATEMENT OF THE PROBLEM
Fraud is a challenge in organizations regardless of which type.
Research has shown that inability of assessing fraud risk with accuracy
can cause fraud not being detected, also improper recording of financial
statement have accounted for the rise of irregularities and some acts
usually perpetrated by some staff and members of management in a
financial institution (Olowookere, 2001).
Furthermore, despite the independence of auditors, fraud is still in
the increase and most organizations has internal control system that
checkmates the operations of the organization but fraud still exist
within the organization. In order to protect our banking sector, it is
crucial to examine the level of assessment of fraud risk with respect to
financial statement audits.
1.3 OBJECTIVES OF THE STUDY
The main objective of this research work is to evaluate audit as a tool for fraud risk assessment in a financial institution.
The specific objectives are stated as follows:
i. Determine whether independence of auditors reduces fraud risk.
ii. Evaluate the effect of managerial integrity in reduction of fraud risk.
iii. Examine internal control framework in reducing fraud risk.
iv. Identify the constraint faced in minimizing fraud risk in commercial banks.
v. Suggest possible recommendation for auditors in combating fraud risk in commercial banks.
1.4 RESEARCH QUESTIONS
The following research questions were answered based on the stated objectives of the study.
i. Does the independence of auditors reduce fraud risk?
ii. What is the effect of managerial integrity in reduction of fraud risk?
iii. What are the internal control frameworks in reducing fraud risk?
1.5 HYPOTHESES OF THE STUDY
Based on the research questions and for the purpose of this study, the following hypotheses were formulated.
Ho1: Independence of auditors has no significant relationship with fraud risk reduction.
Ho2: There is no significant relationship between managerial integrity and fraud risk reduction.
Ho3: Internal control framework does not significantly correlate with fraud risk reduction.
1.6 JUSTIFICATION OF THE STUDY
The impact of auditing in the assessment of fraud risk cannot
be over emphasized. As such a lot of research works have been carried
out on it both internationally and nationally which include assessment
of the adequacy of external auditing in disclosing fraud in Nigerian
commercial banks (Zachariah, Musa & Ibrahim, 2012), however the
researcher is not aware of any research work carried out on this topic
in Kwara State. This research will be of significance to the banking
sector in Ilorin, Auditors and students who are willing to carry out
further research in this area.
1.7 SCOPE OF STUDY
The study is on auditing as a tool for fraud risk assessment in
commercial banks within Kwara State. However, due to time and financial
constraint, the study focused on some selected banks within Ilorin
metropolis, Kwara State, Nigeria.
1.8. DEFINITION OF TERMS
1. Auditor: Auditor is a qualified accountant who
also passed a professional examination. Such a person must be of good
conduct and have a vast knowledge and able to understand a practical
business, endeavor always to grasp the technicalities and business,
methods of any concern whose account he undertakes to audit.
2. External Audit: This is an audit carried out by an independent person who is not an employee of the enterprise.
3. Audit: Audit can be define as the independent
examination of a financial statement and expression of opinion on the
financial statement of enterprise by an appointed auditor in pursuance
of that appointed and in compliance with any relevant statutory
obligation.
4. Objectivity: refers to the need to maintain
impartial judgment (e.g. not developing analysis to support a decision
that the accountant knows is not correct.
5. Qualified Opinion report is issued when the
auditor encountered one of the two types of situations which do not
comply with generally accepted accounting principles, however the rest
of the financial statements are fairly presented.
6. FRAUD is an act or course of deception,
deliberately practiced to gain unlawful or unfair advantage; at the
detriment of another, it is also defined as a conscious premeditated
action of a person or group of persons with the intention of altering
the truth and or fact for selfish personal monetary gain
7. FORENSIC AUDITING: as the utilization of
specialized investigative skills in carrying out an enquiry conducted in
such a manner that the outcome will have application to the court of
law.
8. TRADITIONAL AUDITOR or statutory auditor is appointed to carry out statutory audit.