Fraud Control In The Local Government System, Challenges And Prospects

Project and Seminar material for Public Administration

Abstract

This work titled “Fraud Control in the Local Government System; Challenges and Prospects; A Study of Ebonyi Local Government Area (2003-2014)” was aimed at ascertaining the extent to which Ebonyi Local Government Council keep adequate and reliable records of its activities, examining the extent to which auditing can help in minimizing fraud and mismanagement of resources among the local government workforce in Ebonyi Local Government Area among others. The research was motivated by the inability of the Ebonyi Local Government Council to ensure proper auditing as to limit the rate of fraud in the council. Expectancy theory propounded by Victor Vroom in 1960 was adopted to theoretically guide the study.

A survey research design was adopted to study a population of 532 which was reduced using Taro Yamane’s formula to a simple size of 228. Simple random sampling and stratified sampling techniques were used and data were collected from primary and secondary sources. Structured questionnaire instrument was used for data collection while simple percentage method and frequency distribution tables were used to analyze the data gotten from the questionnaire instrument. Chi-square statiacted was used for testing the hypothesis that guided the study. This study however, revealed that Ebonyi Local Government Council keeps adequate and reliable records of its activities through the use of computers and certified receipts, the fraudulent behaviours of revenue officers such as falsification of receipts, non-remittance of collected revenue among others constitute major challenges of Ebonyi Local government council among others. The implication is that is computers and certified revenue receipts are used; fraud can be controlled in the local government system. Hence, this study recommended that Nigerian local government system should adopt the use of computers and certified receipts to effectively keep adequate records; fraudulent behaviours of revenue officers should be curbed in order to control fraud in the local government system among others.

Chapter One

Introduction

1.1 Background Of The Study

How extensive should a company’s fraud control measures be? In today’s environment, this is a difficult question to answer. The reason being that some current business, legal, and social trends suggest that companies need to increase their emphasis on fraud control, while other trends indicate just the opposite. Organisation failures and widespread losses over the past two decades have elevated the importance of effective fraud control within the formal financial sector worldwide. In the United States for example, organisation failures rose over 200 percent in the 1980s partly due to fraud and mismanagement. Internationally, the collapse of Barings Organisation and Yamaichi Securities further focused the financial sector’s attention on fraud control. The Basle Committee analyzed the problems related to these losses and concluded that they probably could have been avoided had the organisations maintained effective fraud control measures (public organisation, a regulatory and auditing guide). In addition, a review of traditional organisations affirmed that the implementation of effective fraud control measures played an important role in reducing organisation failures.

Fraud control, the strength of every organisation, has become of paramount importance today in Nigeria organisations. The reasons being that the control measures in any organization are a pillar for an efficient accounting system as well as achievement of organizational goals.

1.2 Statement Of The Problem

The regularity of fraud and misappropriation of funds is creating fear, anxiety, and a loss of confidence in the minds of organisation customers. Also, poor fraud control measures leads to increase in organisation losses. Management is required to set up fraud control measures but this system varies significantly from one organization to the next, depending on such factors as their size, nature of operations, and objectives. Since fraud controls operate in an environment which influences its operations, proper care must be exerted into the implementation of these systems in other to achieve the utmost aim of the organisation. This heightened interest in fraud controls is, in part, a result of significant losses incurred by several public organisation organizations. An analysis of the problems related to these losses indicates that they could probably have been avoided had the organisations maintained effective fraud control measures. Such systems would have prevented or enabled earlier detection of the problems that led to the losses, thereby limiting damage to the public organisation organization.

1.3 Objectives

To find out the impact of fraud control measures, on the overall management of Local government council Nigeria Ebonyi state.
To find out the local government council employees knowledge base on the concept of fraud in the public organisation sector.
To find out effective fraud control measures influence on prevention and detection of fraud.
To find out the problem of fraud and how to curb it.

1.4 Research Questions

Does Local government council have fraud control measures? If yes, how effective is it?
What kind of relationship exists between detection and prevention of fraud and fraud control measures?
Is lack of good fraud control measures a major cause of fraud in organisations? And what other major causes exist?
Can organisations with effective fraud control measures prevent the menace of fraud?

1.5 Research Hypothesis

The research is intended to investigate the impact of fraud control measures in the circumstances of embezzlement and fraud detection in the organisation.

Therefore the data to be collected in this exercise will be used to test the following hypothesis.

H1: Effective fraud control measures can help to prevent and detection of fraud in Local government council.
H0: That effective fraud control measures may not help to prevent and detect fraud in Local government council.

Research is poised to confirm true or otherwise, to achieve this purpose the research has formulated the above hypothesis. That the general financial management and control measures as regard revenue and expenditure is effective, efficient and technical. Also the general financial management and control measures as related to the public opinion is inadequate, ineffective, and this lacks improvement in its operation achievements which will hinder general development.

1.6 The Significance Of The Study

The findings of the study would help the management of the organisation to maintain an enhanced controlled environment by helping management and local government council employees to establish and maintain an environment throughout the organisation that sets a positive and supportive altitude towards fraud control, reliable management, operating personnel for effecting fraud control and internal audit for evaluating whether appropriate controls have been implemented and whether the fraud controls are functioning as intended. Other significance of the study includes:

Help the organisation in reducing fraudulent activities that occur in the organisation.
Requirement for the award of a Master’s degree.
Reference for other research topics

1.7 Scope Of The Study

The content of this research should not be seen as being totally exhaustive of all possibly situations available in the Nigerian public organisation sector on the theme of this study. This is due to the vast size of the public organisation sector and the boundless nature of the study under review. Therefore, the scope of this research is limited to the study carried out on Local government council branch in Aba, Nigeria.

1.8 Limitations

The limitations of this research work are as follows;

The fraud control involves human actions which introduces the possibility of errors in processing or judgement.
Fraud controls can also be overridden by the plan among local government council employees and evasion of controls or oppression by top management and superior external influences.
Limited funds prevented the choice of more than one study area.

1.9 Operational Definition

Fraud control:

A control is “any action taken by management to enhance the likelihood that established objectives and goals will be achieved” [institute of internal auditors, 1993].in other words, controls are designed to ensure that organizations conform to standards or plans. Examples of controls include the use of sales or expense budgets, computer passwords, or even padlocks on warehouses.

Effectiveness:

Within this context of the study it means measure of productivity in utilizing an entity’s resources.

Efficiency:

It means measure of cost control in performing recurring function within an entity

Fraud:

Intentional deception made for personal gain or to damage another individual.

1.10 Chapter Organisation

The whole study consists of chapters and the breakdown is as follows;

Chapter One

Chapter one highlights on the background of the study and explains the need and purpose of the study. It also goes on to talk about the statement of the problems, objectives, scope limitations as well as definition of terms.

Chapter Two

Chapter two gives a conceptual framework about the literature review as well definition of terms.

Chapter Three

Chapter three describes the research methodology and how the research was under taken.

Chapter Four

Chapter four deals with findings from data collected, presentation and analysis of the result.

Chapter Five

Chapter five is centred on the summary, recommendations and conclusions drawn from the study.

Chapter Five

Summary, Conclusion And Recommendation

5.1 Introduction

This chapter focuses on the summary of the major conclusion based on the figures and findings derived and the recommendations provided for proper implementation of efficient and effective fraud controls in the public organisation to help in the detection and prevention of fraud. It also offers recommendations based on the findings of the study.

5.2 Summary Of Findings

From the data analysis, discussion of findings and answers to the questionnaire in chapter four of the study, it was observed that the concept of fraud control goes beyond financial and accounting matters and the custody of organisations assets but it includes controls designed to improve operational efficiency, prevention and detection of fraud and to ensure adherence to the organisation’s policies. It also includes good governance that is, management style of leadership, reward and motivational systems in the achievement of organisational goals. The researcher as at the beginning of this research, set objectives of which; was to be achieved as at the end of the project work. To achieve these set goals, questions were of which response where given.

The researcher’s first objective was to find out the impact of fraud control measures, on the overall management of Local government council in Nigeria. According to the analysis, it is evident that Local government council has fraud controls because staff are aware of this system in place as well as the effect (negative; when it is not implemented in a organisation and positive; when it is implemented in a organisation) of fraud control measures in the public organisation industry. This was made evident in the responses given by the respondent as to why fraud control measures is needed in a organisation and how effective the implemented fraud control measures is in the organisation. At the end, based on the analysis made, the researcher found out that fraud control measures has an impact on the performance of management in organisations because an effective and adequately implemented fraud control measures will help the organisation in areas of their operations such as: safeguarding of asset, financial statement preparation due to proper record keeping, performance of its operations, etc.

The researcher’s second objective was to find out the knowledge base of local government council employees concerning the concept of fraud in organisation. With respect to this objective, the researcher hoped to find out the local government council employees knowledge on fraud. Questions were asked and responses were given. Hence according to the study, the respondents have knowledge as to what fraud is, of which a greater percentage termed it as an illegal act of acquiring wealth and they do know when fraud is said to occur. The researcher found out that a weak fraud control measures is a major cause of fraud although there are other causes such as human greed, availability of opportunity, societal expectation etc. It was also made evident that theft of cash is the most commonly committed fraud in organisations, and cashiers’ were seen as the most perpetrators of organisation fraud. It was also shown that the most occurring nature of fraud is that which involves single management alone, senior or junior staff.

The researcher’s third objective was to assess effective fraud control measures influence on prevention and detection of fraud. With this objective, the researcher hoped to find out if an effective fraud control measures can help a organisation to prevent and detect fraud. The researcher found out that organisations do have policies and procedures that help them in performing their operations and these policies help the management of organisations in prevention and detection of fraud according to table 4.23. Also, based on the study, it was revealed that there is a relationship between fraud control measures and fraud prevention and detection and that fraud control measures impacts on fraud prevention and detection. This impact can either be negative or positive as seen in table 4.20 interpretation. In addition, the study shows that an effective fraud control measures can help a organisation to prevent fraud since the function of an effective fraud control measures is to facilitate effectively and efficiently the operations of the organisation by enabling it to respond appropriately to significant business, operational, financial, compliance, and other risks to achieving the company’s objectives. This includes the safeguarding of assets from inappropriate use or from loss or fraud, and ensuring that liabilities are identified and managed.

The researcher’s last objective was on how to curb fraud in organisations. The researcher saw the need to give the respondent the opportunity to make bare their minds in area such as this, believing that fraud if not directly, does affect people indirectly. The researcher went on to find out from the respondent apart from policies and procedures, what can be used to curb fraud it is was shown that intensifying the punishment of the fraudsters and some mentioned steps will help in preventing fraud. The respondent went further to say that efficient and adequate fraud control measures is the best measure to be adopted in fraud prevention. Hence, the need to implement an effective fraud control measures arises.

5.3 Conclusion

Organisation fraud is now becoming a global phenomenon. Fraud in general, inflicts untold hardship on organisation owners, customers and their family members, as most organisation failures are associated with large scale frauds.

The prevention and detection of fraud are basically the responsibility of the management, through the establishment of an effective and efficient fraud control measures.

Conclusively, the importance of the fraud control department/ unit of any organization, especially organisations cannot be undermined since according to public organisation, a regulatory and auditing guide, “a organisation without a sound fraud control measures ought not to be authorized”. Lack of fraud control measures, according to the findings is the major cause of organisation frauds; hence, management of every organisation should create and establish a standard fraud control measures, strong enough to stand against the deceits of fraud in order to promote continuity of operations and to ensure the liquidity, solvency and going concern concept of the organisation.

5.4 Recommendations

The function of fraud prevention, detection and control are interwoven, as the three works together to eliminate fraud and fraudulent tendencies.

Adequate Fraud Control

Fraud control measures as mentioned earlier is of great importance to the public organisation sector since it helps the organization in achieving its objectives.Effective fraud controls are the foundation of safe and sound public organisation. Organisations should develop a strong fraud control measures and review of procedures should be properly documented and enforced. Ongoing monitoring activities of the fraud control and corporate audit department should be strengthened.

The essential element of a strong fraud control measures is the recognition by all local government council employees of the need to carry out responsibilities effectively and to communicate to the appropriate level of management any problem in operation, policy violation, or ethics. This is only achievable where there are effective control activities and monitoring systems. A properly designed and consistently enforced system of operational and financial fraud control helps a organisation’s board of directors and management safeguard the organisation’s resources, produce reliable financial reports, and comply with laws and regulations. Effective fraud control also reduces the possibility of significant errors and irregularities and assists in their timely detection when they do occur.

Proper Attention Should Be Paid To Cash

From the findings, it is observed that cash is the most defenseless asset to theft, in reference to table 4.20 it can be seen that cash accounted for 68.8% of fraud committed in organisations. The research in reference to table 4.19 also revealed the fact that the most perpetrators of organisation fraud are the cashiers. Hence, their recruitment must be thorough, based on personal knowledge, guarantee, and reference from people with high integrity rather than sentiment. This will go a long way in reducing the recruitment of kleptomaniac, greedy and ungodly individuals in the public organisation industry.

Attractive Pay Package

The management should look into the rewarding scheme of their local government council employees as well as the environment in which they are to work. This will enable the average organisationer live above the poverty level that is to say, able to provide for his or her basic needs. Thus, he or she will shun the temptation to defraud the employer.

Educating Of Local Government Council Employees

The management of organisations should make it a point of duty to send their local government council employees on training in other to get them acquainted with the changes in the public organisation sector as well as the economy of the nation. Don’t forget that the public organisation sector takes care of the nation’s economy. Just like in most of our universities; not all the theory that a student is taught are applied in the practical firm, management must therefore make it a point of duty to educate their local government council employees in the new trend and then spell out to them what is expected of them.

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