ACCOUNTING RECORDS AND FRAUD PREVENTION MEASURES AMONGST CIVIL SERVANTS

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Government parastatals are those institutions established by government to provide essential goods/services to the people at affordable prices. The government at various levels invests billions of Naira in parastatals for the interest of tile citizens. These institutions can only meet tile objectives for which they were established if they are efficiently managed, operated and adequately controlled to prevent fraud.

lnternal control has been recognized as a major mechanism for the detection and prevention of financial frauds (Roato 1992). Internal control had since been used a measure for prevention in financial frauds. According to Chartey ( 1982), Egyptian treasurer’s activities in 200 BC as grain collector was checked by scribes. The scrbes did the checking to prevent the treasurer from misappropriating the grain’s income.

The internal control arrangement within an organization according to Culley oncd Bauer (1953) are setup to safe guide cash, merchandise, and other assets, and also to provide checks on tile accuracy or the records and compliance with the organization policies. without internal control, the existence and success of an organization would be in doubt, as the system would collapse clue to errors, fraud s and maladministration.

In large organizations, the board members and some top management staff are not always there in the establishment, making it an impossible task to supe1vise the employees individually. To overcome this inherent problem, management must introduce internal control system to ensure that its decisions and policies are properly adhered to. Through internal control, management will obtain information that are very essential to successful operations of the organization.

Financial frauds are very rampant in government parastatals and ministries in Nigeria. It leads to loss of money and assets, which results in reduced level of resources available for use in operations of public businesses consequently causing untold hardship to the Nigerian masses.

Embezzlement of fund is a common financial fraud. It is corr1monly heard in the mass media of government functionaries diverting fund entrusted in their care to their personal use: or personal bank accounts. Ahembe (1996) said that a school principal in Cross River State fraudulently diverted a huge sum of money including staff salaries to her personal account. Ageda (1993) said that some managers of Peoples Bank of Nigeria Limited diverted the bank’s fund for their personal use.

Forgery is another common type of financial fraud. The fraudsters alter documents or instruments with the intent to gain or derive financial benefit. It is commonly done to revenue receipts by altering the amount there on or writing revenue receipts such that the amount on the original receipt is different from that which appeared on the duplicate copy of the receipt or producing fake invoice.

It is not uncommon in the electronic and print media to talk about cases of misappropriation of fund. Fund is said to be misappropriated if the expenditure made does not conform with budgetary provisions and financial regulations. Nwakamn (2001) said that commission of inquiry on cocoa fund found public officers misappropriating cocoa buffer stock and were asked to refund $20m to the federal government.

Various reasons account for why many people are involved in financial frauds. According to lmasa (1991), many people regard fraud as victimless crime, while many organizations act as if it is not a crime at all. He added that they do not report it to the police but rather make regular budgetary adjustments for it and treat it as just part of the cost of doing business. As stated by Biakie (1999) the crave for materialism is one of the banes of the Nigerian society and it is largely responsible for the spate of fraud that has irretrievably engulfed our society. He added that the Nigerian society seems to have accepted and encourage the acquisition of ill-gotten wealth by all means since the practice is reinforced by the title and other marks of recognition granted to such by their communities, religious groups and societies. Udo (2000) supports this, in his assertion said that the display of material polarity of man’s being and the desire to be recognized in the society as a result of material influence has become the order of the day. According to him, the circle of avarice and ostentatious living perpetuates itself by winning more disciples year in year out, also responsible is the absence of moral value and discipline in the way of life of many Nigerians. According to Shehu (2000), many Nigerians see government fund as free money. They therefore collude and defraud the government of its financial resources. Usman cited in Oyaide (2000) said that today many people see public service primarily as a machinery for acquiring and retaining wealth and accumulation of private property no matter at what cost to the nation. He further said that one explanation for the wide spread of fraud in the public service is believed to be a culture of neglect to call erring pu01ic officials to order.

For government parastatals to meet the objectives for which they were established, various internal control measures must be adopted to prevent financial frauds. It is the duty of the management to enforce strict compliance of internal control measures.

The organizational structure of an establishment serves as a framework for direction and control of its activities. An effective structure provides for communication of the delegation of 9uthority and scope of responsibility (Anderson 1976). It should be designed in such a way that an individual does not have an overriding control.

One of the most important elements of successful internal control is personnel Unqualified and dishonest persons can undermine a system no matter how well planned the organization may be. According to Hongren and Foster (1987), individuals must be given authority, responsibility and duties commensurate with their abilities, interest, experience and reliability. Careful selection places an employee in a position he is best suited.

Duties in an organization 1imust be separated, especially those, if combined under the control of one pension, would increase the temptation to perpetrate and/or conceal errors and irregularities in the course of his duty. Dupree and Marder (1984) stated that proper separation of duties reduces the likelihood of I wrong doing by employees and increases the probability that wrongful acts that occur will be discovered.

All transactions in an establishment should be duly authorized by the designated officer before they Eire carried out. Hongren and Foster (193l), and Nwoko (1988) were of the opinion that proper authorization imply that the designated officer grants the required approval, who would be held accountable for the transaction.

The internal control measures can be effective in preventing financial frauds if they are strictly adhered to by the employees and if they are properly enforced and supervised by management. Effective separation of duties is paramount in preventing financial frauds. Authorization, execution, custody arid recording are the four main functions, which need separation (Howard 1982).

Effectiveness of internal contro1 measures will be enhanced if employees of an organization are carefully selected and placed at positions where they are best suited. Attwood and Oepaul’a (1982) noted that an important feature of effective internal control 1is that the directors should review the organization’s financial operations and positions at regular and/ frequently intervals. Other areas of control need to be closely supervised by ‘the management to ensure effective compliance of the establishments policies.

STATEMENT OF THE PROBLEM

Fraud and fraudulent activities are reported every time in the print and electronic media in Nigeria. Various cases of financial frauds occur in most government parastatals. Many financial frauds are perpetrated by staff of the government parastatals while in others, staff collaborate with outsiders (Shehu 2000). According to Chukwu (1993), many staff of government parastatals are only interested in amassing wealth without considering the continuity of the establishment.

The persistence of financial frauds can be traced to the inadequacies of inte1nal control measures in government parastatals (Government White Peper 1979). Internal control measures can play an important role in reducing to barest minimum incidence of financial frauds in government parastatals.

The system of internal control requires more improvement beyond what is currently done in most of the government parastatals in order to cope with the challenges posed by the present wave of financial frauds in Nigeria (Chukwu 1993). The frequent f1inancial frauds have been attributed to lack of supervision on the part of those in position of authority. The persistent problem of financial frauds has also been attributed to failure of the parastatals’ employees to adequately comply with the laid down procedures of internal control system (Committee report 1981). The problem of rampant financial frauds was also attributed to poor selection and training of employees, and the government apparent lack of action in certain cases, to punish erring public servants committee report added

These and other factors could be responsible for the rise in financial frauds in government parastatals. However, it is not clear what steps the government is taking to curb the upsurge of financial frauds in the state. This study is therefore undertaken to examine the problem.

PURPOSE OF THE STUDY

The major purpose of the study is to identify and assess the internal control measures for preventing financial frauds in government parastatals in Akwa lbom State.

Specifically the study:

(1)ascertained the various types of financia1 frauds prevalent in government parastatals;

(2)ascertained the causes of financial frauds in government parastatals;

(3)ascertained the various internal control measures adopted by government to prevent financial frauds in its parastatals;

(4)ascertained the opinions of junior and senior staff on the causes of financial frauds in government par[:t.statals.

(5)determined to what extent the various internal control measures are effective in preventing financial frauds in government parastalals.