The Effect Of Fraud And Financial Crimes On The Economy Of Nigeria (2007-2015)

Project and Seminar Material for Accountancy / Accounting

Abstract

This study is aimed at determining the impact of fraud and related financial crimes on the growth and development of Nigerian economy. Data for the study were collected from secondary sources only. The research analyzed the data generated using regression analysis. The research findings revealed that, fraud and related financial crime has significant effect on the Nigerian economy. The research therefore recommends that Auditors and Accountants in organizations and financial institutions should be trained on how to carry out forensic investigation since the fraudsters are now sophisticated in their act. Also internal control systems should be strengthened to block opportunities that attract fraud perpetrators and oversight function of the National Assembly be strengthened to make public office holders accountable.

Chapter One

1.0 Introduction

1.1 Background of the Study

Nigeria is one among the African nations that are plague with fraud and financial crimes and these have had effect on the economy of Nigeria. These crimes, be it economic or financial crimes or both have a kind of devastating effect on the economy, the security, socio economic development and social wellbeing of the citizens of Nigeria. Although it may be pertinent to highlight that as modern financial system encourages and also facilitates local and international commerce. Financial are also enhanced by modern financial global liberalization so as to transfer millions of dollars globally as a fast rate through the availability of good information and communication infrastructure such as the internet, e-money transfer etc.

It is evident that money laundering among other forms of economic and financial crime requires the existing financial system and operation for it efficiency in operation. In Nigeria today, money is laundered through currency exchange houses, the Nigeria stock brokerage houses, casinos, automobile dealership and other trading companies. These groups of institutions are more than capable of masking proceeds from most illegal criminal activities.

According to (Ribadu, 2004) stated that the overall effect of these activities on the socio-political lives and economic wellbeing of the people of most of the developing countries and Nigeria for instance could be well imagined.

In most of the developed economics of the west, it is evident that the criminal manipulation of company balance sheets created a more favourable picture about their finances than was the reality.

In Nigeria for instance, Lagos state government funds were once trapped while in the US there were crises in the management of mortgages which were inflated. It was then a boom and most investors made a lot of fortune on their mortgage investments as a result of these most people in the US and financial institutions started financing their mortgage with hope to make profit which later proves unrealistic and unsustainable. The ongoing issue caused series of default in payments leading to foreclosures that caused chaos, doom and gloom in housing market. We all know that the world is a global village, investors in the business were world-wide; the financial crises in the US have a significant effect on the world economy.

The most common fraud in Nigeria is bank frauds and fraud in most of the government agencies. the recent times includes: Fraudulent transfer and withdrawals; Use of unauthorized overdraft;; Posting of fictitious credits; Presentation of forged cheques; Conversion of banks money into personal use; Granting of unauthorized loans; Abuse of medical scheme; Insider abuse; Illegal conversion of pension funds in various agencies and ministries; Ghost workers fraud resulting into millions of naira paid into private pockets; Abuse of political office leading to contract over billings and over invoicing.

According to Commer (2008) stated that that motivations for corporate fraud include: Personal greed; Possibility of getting away; Low prosecution rate; societal pressures; Opportunity; Staff morale problems and Anti-institutional posture.

However, Nigerian government like many other governments of developing countries until recently has been very slow in putting in place strict policy measures and legislative framework in combating the effects of economic and financial crimes. It is to this regard that the researcher wishes to carry out a research on the effect of fraud and financial crimes on the economy of Nigeria.

1.2 Statement of Problem

What instigated the study is due to the Nigerian experience on the issue of fraud and other financial crimes and the overall effect on the economy of Nigeria. There have being a growing concern about the way the country’s resources are being managed, especially the oil and the revenue generated from oil, reason being that the oil produced does not comply with the relevant provision. According to the Nigeria 1999 constitution section 162 stated that the internally generated revenue (IGR) of the federal government of Nigeria must be deposited into the federal account but the operation of the excess crude account tend to violate this provision. Another major issue apart from the mismanagement of the excess crude account, there are worries about the revenues from the sales of gases.

According to Falana (2010) stated that facts have continued to emerge daily on huge sums of money that may have being looted, misappropriated, shared, mismanaged or committed into the so called white elephant project. It is kind of worrisome to observe that the highest level of this profligacy and continuous irregularities by all tiers of government in the management of the country’s resources and wealth of the nation.

1.3 Objectives of the Study

The main aim of the research work is to examine the effect of fraud and financial crimes on the economy of Nigeria. The specific aims and objectives of the research work are stated below as follows:

To examine the effect of fraud and financial crimes on the GDP of Nigeria
To examine the effect of fraud and financial crimes on inflation rate in Nigeria
To examine the relationship between the rate of inflation and the gross domestic products of Nigeria
To proffer solution to the negative effect of fraud and financial crime on the economy of Nigeria

1.4 Statement Of Research Hypothesis

Hypothesis 1

H0: Fraud and inflation have no significant effect on the gross domestic product of Nigeria
H1: Fraud and inflation have significant effect on the gross domestic products of Nigeria

Hypothesis 2

H0: There is no significant relationship between fraud and inflation rate in Nigeria
H1: There is significant relationship between fraud and inflation rate in Nigeria

1.5 Significance of the Study

The study will be of immense benefit to both the state and the federal government of Nigeria, the study will also benefit the oil and the non-oil sector of the Nigeria economy in policy generation and decision making as it will reveal the effect of fraud and financial crimes on the economy of Nigeria. Finally the study will be of great guide to other researchers that want to carry out similar research on the effect on the effect of fraud and financial crimes on the economy of Nigeria.

1.6 Scope and Limitation of the Study

This study is primary concerned with the effect of fraud and financial crimes on the economy of Nigeria. This study covers 2007-2015. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

1.7 Definition of Terms

Fraud:

Wrongful or criminal deception intended to result in financial or personal gain

Financial Crimes:

May involve fraud (cheque fraud, credit card fraud, mortgage fraud, medical fraud, corporate fraud, securities fraud (including insider trading), bank fraud, insurance fraud, market manipulation, payment (point of sale) fraud, health care fraud); theft; scams or confidence tricks; tax evasion; bribery

GDP:

The gross domestic product is one of the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy

Inflation:

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
Chapter three deals on the research design and methodology adopted in the study.
Chapter four concentrate on the data collection and analysis and presentation of finding.
Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain a critical analysis of the effect of fraud and financial crimes on the economy of Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefitin addressing the challenges of fraud and financial crimes.

5.2 Summary

This study aimed at havinga critical analysis of the effect of fraud and financial crimes on the economy of Nigeria. Five objectiveswere raised to guide the study. Two hypotheses were posited and tested using the chi-square statistical tool.

5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
The impact of fraud and financial related crimes on the Nigerian economy are enormous when we consider the high rate of crimes and the amount involved especially on the area of advance fee fraud or 419 or Nigeria letter. Fraudulent practices and financial related crimes have portrayed Nigeria in bad light and as such foreign investors are skeptical in doing business in our country. The research therefore concludes as follows:

Fraud and related financial crime has significant effect on Gross Domestic Product thereby affecting the Nigerian Economy.
Fraud and related financial crime has no significant effect on inflation. However, it has contributed in affecting the economy in a negative way.

5.4 Recommendation

Fraud Detection and Prevention Measures: It was recommended that Auditors and Accountants in organizations and financial institutions should be trained on how to carry out forensic investigation since the fraudsters are now sophisticated in their act. Also internal control systems should be strengthened to block opportunities that attract fraud perpetrators.

Fight against Corruption: Corruption has become a way of life in Nigeria since authorities no longer frown at it because chief cronies are involved. Despite various agencies and commissions established to fight corruption and crimes in the country, the crime rate especially financial related crimes are on the increase hence the researcher suggested that government should be serious in the fight against corruption. Recently a chieftain of PDP that was jailed for corruption was released after completing his jail term, but surprise he was received by statesmen and government officials in a well celebrated reception. This type of attitude does not portray the government in good light before the international community; hence, anti-corruption agencies should improve on their strategies in fighting corruption and fraud so as to reduce the negative effect of fraud on the Nigeria economy

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