Fraud And Financial Malpractices As A Lending Factor To Business Failure: A Case Study Of Nigerian Telecommunication Limited (NITEL)

Fraud And Financial Malpractices As A Lending Factor To Business Failure: A Case Study Of Nigerian Telecommunication Limited (NITEL)

Abstract

The study is concerned with an investigation into fraud and financial malpractices as a leading factor in business failure and eventual liquidation.

A case study of Nigerian Telecommunication Limited (NITEL).

By way of background, the study commenced with an overview of the business environments and its effects on business growth and survival.

Using NITEL as a case study, it was established that inspite of its privatization, NITEL is still saddled with the problem of bad image arising mostly from fraudulent practices.

With the above stated problem, the specific objectives of the study were:

1. To ascertain why NITEL Plc is still saddled with problem.
2. To determine whether there is significant weakness in NITEL internal control system.

Data collected were analysed using weighted mean and ranking order. Major findings of the study were:

1. The study revealed that the NITEL is unable to achieve its objective
2. It was also revealed that fraud and financial malpractices was the most important factors that has contributed poor performance of NITEL.

At the end, the following recommendation were made:

1. NITEL management should design appropriate policies.
2. The organisation should also strengthened its internal control system.

Chapter One

Introduction

1.1 Background of the Study

Fraud is irregularities involving the use of criminal to obtain and against illegal advantage.

Fraud involving the manipulation of the record and the accounts, usually by the company’s senior officers, with a view to benefiting in some way from the false picture which they convey (eg obtaining finance under false pretences, or concealing a material worsten of the company’s true position)

Frauds, usually by employees, involving the theft, misappropriation or embezzlement of the company\s funds, usually in the form of cash, or of its other assets (such as good held in a warehouse).

Fraud and financial malpractices in many business involving the public sector organisation today contribute mostly to one of the factor that lead to business failure.

In all human endeavour and activities, there are usually stories of successes achievement and failures.

Business are therefore no exception initially, a motive for setting up a company is for economic reasons which are usually taken to be profit maximization objectives in period of booms as was experiences in the mid seventies during the oil boom; making business, including the public sector organizations, thieved in an era of abundance.

In such as era employment production and income were at their peak level and government expenditures at all levels rise considerably without any corresponding rise in productivity.

During this period also, no one complained and managers of our various businesses did not think of means of survival and sufferance.

Efficiency and effectiveness in the use of scare resources were never thought of and there were total absence of research control mechanisms.

Economic planners in such periods, makes unrealistic projections and assumptions they plan to build high ways, sky scrappers, new state capital (or new cities), contracts were awarded induscomminately without the need for detailed cost benefit analysis.

In summary, the sky was the limit for businesses that have access to cheap credits, and investible funds. In such periods, capital inadequacy, under utilization of production capacity, deficiency in aggregate demand for the firm’s product etc, were never heard of during the peak periods.

Contrary, when the hay days were over and the down turns take over the dooms day arrives and business failures becomes the order of the day as a result of adverse macro-economic policies and resulting adverse conditions.

Consequently, expansion is hindered for even the surviving firms. This is the time when company executives / managers, government federal, state and local governments as well as individuals, remember to think of such phrases as viability, belt tightening profitability, growth and survival and better ways or resource planning, control and managements, it is a time when managers/directors of our business firms, public companies/corporations and other governmental organization now thinks of cost reduction and minimization of fraud and financial malpractices which has hitherto plunge such organisation into distressed conditions.

The adverse marco-economic conditions in Nigeria today has attained a dimension that can best be described as “crisis” level. This had led to some drastic measures/programmes being initiated by the government to keep the nation afloat.

Such measures have come in different names at different times, ranging from the belt tightening of the Shagari administration through economic emergency order of the Buhari – regime to the structural adjustment programme (SAP).

As a result of these measures, firms and individuals have found themselves in extremely hard conditions to the extent that some have failed completely, other are stagnated and distressed.

What factors are specifically responsible for such state of affirms of the business firms?

This project is set out to investigate how fraud and financial malpractices can bring a highly profitable organizations into distressed and untimely liquidation.

1.2 Statement of Problems

1. Inspite of the federal government in privatalsing the telecommunication industry, NITEL Plc is still saddled with the problem of bad image arising mostly from fraudulent malpractices by both management and staff of the company
2. INTERNAL CONTROL: There are inherent weakness in the internal control system of NITEL Plc.
3. NIEL Plc management does not consider policy or fraudulent cases as strategic in its decision taking.
4. NITEL Plc has not met with the expectation of its investors as a practiced entity since its privatization.

1.3 Purpose of the Study

1. To fund out the extent of which bad image arising mostly from fraudulent malpractices by both management and staff despite of its privatization.
2. To ascertain the extent to which inherent weakness in the internal control system of NITEL Plc.
3. To find out the extent in which they do not consider policy or fraudulent cases as strategic in its decision taking.
4. To find out the extent in which they do not met with the expectation of its investors as a privatized entity since it privatization.

1.4 Scope of the Study

The scope of this study mainly focuses on fraud and financial malpractices as a leading factors in business failure. The survey is to be carried out at NITAL Plc Okpara Avenue, Enugu in Enugu State.

1.5 Research Question

For the purpose of this study the follow research questions were asked:

1. To what extent does bad image arising mostly form fraudulent malpractices by both management and staff of the company affect business.
2. To what extent does inherent weakness in internal control system of NITEL Plc contribute to fraud and financial malpractice.
3. To what extent does inability to consider policy on fraudulent cases as strategic in its decision taking brought about business failure.
4. To what extent does damages caused by fraudulent and financial malpractices on the expectations of the investors on their returns.

1.6 Significance of the Study

Significance of the study refers to the importance or usefulness of the research to individuals, shareholders, management, potentials investors, suppliers/creditors and all those having one interest or the other on the operations of the business firms.

The ultimate aim of every research is to provide knowledge and information that will bring about a better understanding of the topic under review.

Specifically this project will offer enough information and explanation to the management of NITEL Plc, the government and the general public.

Furthermore, the research findings and recommendations will form a basis to be relied upon by subsequent researcher who may wish to make further inquiries on the issue of fraudulent practices and its effect on business failure.

1. To ensure that good image will arise mostly from fraudulent malpractices by both management and staff of the company.
2. To ensure useful solution of eliminate inherent weakness in internal control system.
3. To make sure that there is consider policy on fraudulent cases as strategic in its decisions making.
4. To ensure that they met with the expectation of its investors on their returns.

Chapter Five

Discussion of Results, Conclusions, Implications and Recommendations

This chapter deals with the discussion of the results of the study, conclusions, implications, recommendations as well as suggestion for further study and limitations or constraints to the study.

5.1 Discussion of Findings

Based on the analysis of data in chapter four, a lot of findings were made in this research work. They can be summarized as follows:

1. The Nigerian Telecommunication Limited has not really done well in the area of profitability and return to shareholders inspite of its privatization. It was believed that by privatizing to its responsibilities. Most importantly, the stigma attached to NITEL by its customers will be erased since individual entrepreneurs are assumed to have the financial strength and other things it requires to reposition the telecommunication industry.
2. The study revealed that the inability of NITEL to achieve its objectives are both internal and exernal factors but the internal factors ranked highest. Such factors include management incompetency, lack of adequate planning, poor quality services, fraud and financial malpractices.
3. It was also discovered that fraud and financial malpractices was the most important factors that has so far contributed to poor performance of NITEL Plc.
4. The study also revealed the fraud and financial malpractices mostly occurs in business firms with poor internal control system.
5. It was also discovered that ineffectiveness of internal control system in NITEL was due to inadequate staffing of internal audit unit with unqualified staff and dependency of the internal audit unit on management control. This assertion stems form the fact that internal audit unit is the hallmark of other control devices.

Other subsidiary findings that affected poor internal control system of billings, collected and recording system, absence of regular staff rotation and vocation leave programme, lack of interest by top management among others.

5.2 Conclusions

The following conclusions have been drawn from the relevant major findings of the study.

1. NITEL has not achieved its stated objectives since its privatization by the federal government.
2. The level of performance of NITEL and other business organizations are influenced by host of internal and external factors or by the organisation’s operating environments.
3. Fraud and financial malpractices us a serious threat to the survival of profitable organisation.
4. Fraud and financial malpractices can only be successfully executed in a poor and ineffective internal control system.
5. Weakness in internal control system is mainly due to absence of effective internal audit unit.

5.3 Implications of the Study

The findings of this study have some important implications. They are as follows:

1. NITEL Plc and similar organizations is made aware of bad image and possible elimination of fraud in its system.
2. It will encourage design of appropriate policies in fraudulent cases.

5.4 Recommendaions

The following recommendations have been made in light of the findings and the discussions, which have been highlighted in 1, 2, 3, 4 and 5 above.

1. NITEL management should design appropriate policies that will ensure the achievement of its objectives.
2. Appropriate and qualified persons should be appointed in the various departments of NITEL so as to eliminate incompetence in management of the organisation.
3. NITEL management should consider the issue of fraud and financial malpractices as a strategic factor and should take appropriate punishment measures to curb this evil such as dismissal of fraudsters without benefits and handling over the fraudster to police for recovery of the stolen money.
4. The organisation should strengthened its internal control system by ensuring adequate staffing of the internal audit unit for they should be allow independence to enable it perform its duties effectively.
5. The organisation should design appropriate incentive schemes that have motivational effects as most fraud are committed in organisation with poor remuneration system.
6. Finally, the management of NITEL should organized training programmes so as to educate its staff on effect of fraud. This can help in minimizing fraudulent cases.

5.5 Suggestion for Further Studies

Base on the result of this study, the following topic is suggested for further study:

1. Effects of frauds on reported profits of a company.

5.6 Limitation of the Study

The researcher encountered some problem, while carry out this study. Among the constraints encountered include:

1. Some logistic problems and lack of co-operation form some of the respondents.
2. Financial problem also affected the study since the researcher could not afford to finance to enable her widen the scope of the study and visit NITEL regularly so as to generate much data.
3. Time also has its share, as it was also the period for lectures and examinations that this study was carried out.

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