THE ROLES OF INDEPENDENT AUDITORS IN FRAUD CONTROL IN NIGERIA

ABSTRACT
          This
research examines the roles of independent auditors in fraud control in Nigeria.
It focuses on the extent to which independent auditors are responsible for
fraud prevention, detection and control.
          The
population of this study includes professional accountants and other people
with accounting qualifications and experience.
          The
main sources of data comprised of both primary and secondary sources. The
primary data were obtained from the respondents through questionnaire while the
internet, relevant textbooks, articles in journals and relevant unpublished
materials were used to obtain secondary data.
Data 
collected for this research were analysed through the use of tables,
percentage and chi – square.
From the findings of this research,
it was discovered that respondents are very concerned about the problem of
fraud and they placed that  high
expectation on independent auditors duties in fraud control. This perception is
in contrary with the stated objective of an audit as stipulated in ISA 200 which
merely required auditors to form an opinion on the financial statement but not
on fraud prevention and detection.
The research concludes that the
primary objective of an independent auditor is not only to prevent and detect
fraud but nevertheless they still have their own parts to play in fraud control
in Nigeria.
         



TABLE OF CONTENTS
                                                                                                     Pages
Title                                                                                         
Certification                                                                            
Dedication                                                                               
Acknowledgements                                                                
Abstract                                                                                  
Table of Contents                                                                             
CHAPTER ONE
1.0           
Introduction                                                                          
1.1           
Background
of the Study                                                      
1.2           
Statement
of the Problems                                  
       
1.3           
Objectives
of the Study                                                  
1.4           
Significance
of the Study                                                        
1.5           
Research
Questions                                                     
1.6           
Research
Methodology                                                  
1.7           
Scope
of the Study                                                                   
1.8           
Definition
of the Terms                                                 
CHAPTER TWO
2.0     Literature
Review                                                         
2.1     Independent
Auditor                                                     
2.2     Independent
Auditor responsibilities in Fraud
Detection       
 2.3    The
Menace of Fraud in Nigeria
                                   
2.4     Empirical
Studies on Fraud Detection                                     
2.5     Enhancement of Independent Audit to                         
Include Fraud Detection                                                          
2.6     Zweifel
Theory                                                               
CHAPTER THREE
3.0     Research
Methodology                                                  
3.1     Sources
of Data                                                             
3.2     Population                                                                     
3.4     Sampling
Techniques                                                     
3.5     Method
of Data Collection                                            
3.6     Method of
Data Presentation and Analysis                   
CHAPTER FOUR
4.0     Data Analysis,
Interpretation and Discussion of Findings      
4.1     Interpretation of
Items                                                 
4.2     Analysis of Data
                                                           
4.3     Analysis of Tables                                                         
4.4.1 
Test of Hypothesis I                                                      
4.4.2 
Test of Hypothesis II                                                     
4.4.3    Test of Hypothesis III                                                    
CHAPTER FIVE
5.0     Summary of Findings, Conclusion and
          Recommendations                                                                   
5.1     Summary of
Findings                                                    
5.2     Conclusion                                                                     
5.3     Recommendations                                                         
Bibliography                                                                  
Appendix: (Questionnaire)                                            
             

CHAPTER ONE
1.0     INTRODUCTION
1.1     BACKGROUND OF THE STUDY
          An independent auditor has a
responsibility to plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement,
whether caused by fraud, other illegal acts and errors is one of the most
controversial issues in Auditing and has been one of the most debated areas
among auditors, politicians, media regulators and the public, this debate has
been especially highlighted by the collapse of both small and big corporations
across the globe
 The auditing profession has caught the media’s
attention following financial scandals in some of the Nigerian Banks such as
Intercontinental Bank, now Access Bank (Dr Erastus Akingbola, 56 billion Naira,
Oceanic Bank, now Eco Bank (Cecilia Ibru, 191 billion Naira) and Bank PHB, now
Keystone Bank (Francis Atuche and Owoeye, 79 billions Naira) among others.
In as much
as the securities and exchange commission (SEC) requires companies whose shares
are publicly traded to obtain an audit by an independent auditors. There seem
presently to be a misconception that independent auditor’s duties are largely
the control of fraud through the preventing, detecting and controlling and
likewise the reporting e.g Idries (2009). This one needs to wonder much to how
devastating fraud have compromised the administrative competence, performance
capacity and general credibility of independent auditors in Nigeria.
1.2    STATEMENT OF THE PROBLEMS
Financial
laws and regulation continue to come by the day and court and tribunals
continue to administer justice to fraudsters, 
all in bid to prevent fraud but to no avail
The
fundamental concern of this research work is to critically analyse the role of
independent auditors in fraud prevention, detection and reporting in Nigeria.
Furthermore,
this study reveal the extent to which the independent auditors has continued to
minimize the importance of their role in detecting fraud by stressing that such
duty rested with the management.
1.3     OBJECTIVES
OF THE STUDY
The
questions about the credibility of external audits, auditors’ independence,
relevance and quality of audit work and the use of economic incentives for good
audits, the dissertation begins by discussing why auditors are accused of
seeking self interest.
Nevertheless, the purpose of this
study is to :-
1)               
 Identify financial report user’s perception of
the independent auditors responsibilities in detecting fraud and the
performance of related audit procedures.
2)               
Ascertain
whether the report user’s perception of auditors responsibilities on fraud are
consistent with those of the auditing profession as expressed in the auditing
standards in Nigeria.
3)               
 Examine the extent to which independent audit
are needed in combating fraud
1.4      SIGNIFICANCE OF THE STUDY
Often times,
it is complicated to actually determine whose responsibility it is to prevent,
detect and report fraud, errors and other illegal acts, whether it is the
independent auditors, the management  or
the internal auditor, but with the critical analysis of the role of independent
auditors in fraud control, there will be clarification as to which and what
extent is the errors, fraud and other illegal acts control is attributable to
the aforementioned parties.
In general,
the study is of immense importance to organizations whether profit or non –
profit making for the purpose of identifying who actually is to be held responsible
for the prevention, detection and reporting of fraud.
1.5     RESEARCH QUESTIONS
In view of
this research work, the following questions were answered:
1) 
     Is fraud a major concern for
business in Nigeria
2)      Is it the
responsibility of the auditor to uncover fraud and to report to the appropriate
authorities?
3)      Should the
independent auditors assess the internal controls used by the company to
prevent or detect the theft of asset?
4)      Should the
independent auditor assess the role of internal auditor?          
5)      Should the
auditor assess the management’s style to determine if the style might lead to
fraudulent financial reporting?



1.6     RESEARCH METHODOLOGY
          Data
were sourced primary through the use of questionnaire while the secondary data
were gathered through the use of internent, relevant textbooks, articles in
journal, newspaper and relevant unpublished materials.
1.7     SCOPE OF THE STUDY
          This
research examines the auditors role in controlling fraud in Nigeria especially in the public
sector.
          The
paramount attention of this research is restricted to limited liability
companies and service providing government parastatals e.g power Holding
company  of Nigeria (PHCN), although
other companies were examined, this is because fraud occurs in virtually all
organisations. Therefore, other examined companies were to complement the study
carried out within the scope of this research.
1.8     DEFINITION OF TERMS
AUDITING: This is the independent
examination and investigation of the evidence from which a financial statement
has been prepared with a view of enabling the independent examiner to report,
whether in his opinion and according to the best of the information and
explanation obtained by him, the financial statements are prepared in
accordance with an identified financial reporting framework.
INDEPENDENT AUDITOR:- An independent
auditor is a certified public accountant who reviews a companys business
activities to identify and resolve discrepancies. An independent auditors is
not employed by the company he or she is investigating but by the shareholders
of the company. He may investigate potential theft or fraud and ensure compliance
with applicable regulations and policies.
INTERNAL AUDITOR:- An internal
auditor is a person employed by a company who review their own company’s
business activities to identify inefficiencies, reduce costs and otherwise
achieve organisational objectives. An internal auditor may investigate
potential theft and he also assist in risk management.
FRAUD:- Fraud can be referred to as
the intentional manipulation of financial statement to gain an illegal
advantage. Therefore, every activity carried out intentionally which renders
the financial statement misleading is a fraud. It may be either an employee
fraud or a management fraud. A fraud  can
also be described as an intentional act which results in a misrepresentation of
financial statement.
AUDITING STANDARD AND GUIDELINES:-  These are those pronouncement or statement
being issued normally by professional bodies e.g Institute of Chartered
Accountant in Nigeria (ICAN), National Accounting
Standard Board (NASB) e.t.c as well as statutory bodies as contained in various
government legislation.
FINANCIAL STATEMENT:- This refers to
the balance sheet, income statement or profit and loss account, statement of
changes in financial  position, notes and
other statements.
MANAGEMENT:-  Management comprises of officers and others
who also perform senior managerial functions.
INTERNAL CONTROL SYSTEM:- It refers
to all the policies and procedures adopted by the management of an entity to
assist in achieving management’s objectives of ensuring as far as practicable,
the orderly and efficient conduct of its business including adherence to
management policies, the safe – guarding of assets, the prevention and
detection of fraud and error, the accuracy and completeness of the accounting
records and the timely preparation of reliable financial information.



HISTORICAL OVERVIEW OF POWER HOLDING
COMPANY OF NIGERIA
(PHCN)
          The
power Holding Company of Nigeria
(Abbreviated PHC or PHCN), formally the National Electricity Power
Authority  (Abbreviated NEPA) is an
organisation governing the use of electricity in Nigeria.
          The
history of electricity development in Nigeria
can be traced back to the end of the 19th century when the first
generating power plant was installed in the city of Lagos in 1898. from then until 1950, the
pattern of electricity development was in form of individual electricity power
undertaking were Federal Government bodies under the public works department;
some by native authorities and others by municipal authorities.
ELECTRICITY CORPORATION OF NIGERIA (ECN)
          By
1950, in order to integrate electricity power development and make it
effective, the then colonial government passed the ECN ordinance No, 15 of
1950, with this ordinance in place, the electricity department and all those
undertakings which were controlled came under one body.
          The
ECN and the Niger Dam Authority (NDA) were merged to become the National
Electricity Power Authority (NEPA) with effect from the 1st of April
1972. the actual merger did not take place until the 6th of January
1973 when the first General manager was appointed. Despite the problems faced
by NEPA, the authority has played an effective role in the nation’s socio –
economic development therefore steering Nigeria into a greater industrial
society, the success story is a result of careful planning and hard work.  
          The
statutory function of the authority is to develop and maintain an efficient co
– ordinate and economical supply throughout the Federation.

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