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FRAUD PREVENTION AND CONTROL IN NIGERIAN PUBLIC SERVICE: THE NEED FOR A DIMENSIONAL APPROACH

ABSTRACT

This article addresses some fundamental issues on fraud prevention and control and their implications on socio-economic development of Nigeria using its public sector machinery. Using the records compiled from early study covering 637 reported fraud cases in Nigeria, which were committed between 1970-1990 in respect of three-tiers of government selected from ten (10) states, the study employs chi-square technique to test the dependence of the types of fraud and the areas covered on the public sector organisation in which they are committed. The study establishes the dependence and calls for systematic review of audit approach among others, to give special attention to fraud dimensions and areas, drawing largely from behavioral, equity, sociological and ethical principles.

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Public demands and expectations at the grassroots for the provision of essential social and basic services using government resources have continued to be astronomically high, as manifested by rising pressure on the resources with which to satisfy these.  This assertion is not difficult to appreciate if we accept the simple fact that the strength of any government depends on the success of its development programmes, which largely depend on an effective implementation of its policies, by its bureaucrats and technocrats.  It is obvious that social, political and economic development involves the effectiveness and the efficiency of the bureaucracy on one hand and the probity of the bureaucrats on the other.  Government exists to serve the interest of the citizens.  There must therefore be a way of holding the former accountable to the latter.

Huge amount of money is lost through fraud or due to internal control inadequacies and other criminal temptations, which to say the least, drains the nation’s meager resources through fraudulent means with its far-reaching and attendant consequences on the development or even socio-economic or political programmes of the nation.  Thus, like Kamaluddeen (2011) observes “billions of Naira is lost in the public sector every year through fraudulent means”.  This, he argues represents only the amount that is ferreted out and made public.  Indeed much more substantial or huge sums are lost in undetected frauds or those that are for one reason or the other hushed up.  Cases of frauds in the public sector are so pronounced that everyone in every segment of the public service, could seem to be involved in one way or the other in some of these nasty acts.  This assertion is not difficult to appreciate if we accept and adopt the simple definition of fraud as any deliberate false act aimed at deceiving or harming any party, individual or corporate body, in any manner. 

Haladu (2011) puts it starkly when he observes that:

The bane of financial administration in Nigeria has since the oil boom years a period under which the foregoing observation becomes relevant, has been the existences of structurally weak control mechanism, which create a variety of loopholes that have tended to facilitate and sustain, corrupt practices.  This is coupled, of course, with the fact that there is a near total absence of the notion and ethics of accountability in the conduct of public affairs in the country. “The Guardian” in its issue of Wednesday, August 14th 1996 carried a story: “Public service staff Audit Report Ready”.  The article referred to the report of the Task Force on Staff Audit in the Federal public service inaugurated in March 1996 to investigate the incidence of ghost workers in 29 Federal ministries and about 500 Federal parastatals.  Indeed, the setting up of the Task Force was necessitated by the rampant discovery of ghost workers in the nominal roll of most government extra-ministerial departments, ministries and parastatals.  What came out of this Task Force and to what extent has it served, as adequate preventive measure is not clear to many academic and political observers!

Presenting the 1989 budget, Babangida (2015) laments that: “This administration has always appreciated the desirability of fiscal discipline and the need to bring planned expenditure and projected revenue into reasonable alignment.  Our performance in this regard in 1988 was far from satisfactory”.  According to Zayyad (2010) an estimated 8 billion has been lost in abandoned projects during the two decades 1970-1990, this is not to talk of what was lost in the last decade, through abandoned projects and other fraudulent means.  This is not to talk about billions of dollars recovered from some public office holders who served Abacha government and stories that even the recovered amounts were not properly accounted for, let alone punishing wrong doers.  Buhari worries that:

The last time the annual financial account of the Federal Government was prepared and submitted for audit uses, I understand, in 1980.  And at the 1984 conference of Auditors-General of the Federation and States Directors of Audit, it was revealed to the astonishment of no one that eleven States last submitted their annual accounts for audit in 1967.  During the tenure of our government in 1984-1985, we instituted a programme to update audited account and publish them but this was soon washed away. What all these tend to expose is that there is a management or operational problem in the Nigerian public sector in the financial or the accounting control.  

[Watoseninyi, 2015]. Thus, one needs not wonder too much to see how devastatingly frauds have compromised the administrative competence, performance capacity and general credibility of the public sector - initial estimates of major projects become little fractions of ultimate costs paid, original cash projections produce less than half of the benefits expected and projects which seemed technically feasible and economically viable, turnout “white elephant” if not, abandoned, with serious implications for growth and development. [Bello, 2011]. The paper is therefore divided into seven major sections, namely, introduction, purpose of the study, hypothesis, theoretical background, methodology, data analysis, conclusion and recommendation.

1.2   Purpose of the Study

The major problem, which the paper seeks to address, is the increasing trend in the face of fraud in the Nigerian public sector organizations.  Financial laws and regulations continue to come by the day and courts and tribunals continue to administer justice to fraudsters, all in a bid to prevent and control fraud but to no avail.  Some scholars argued that explanations to this sad trend lies in the quality of the accounting system, accountants and auditors, yet others maintained that it is a function of leadership and the society at all.

The paper is concerned with examining the fraud dimensions in Nigerian public sector and establishing whether these types of frauds being perpetrated differ from one public sector organization to another.  It will also establish whether the major areas covered or involved in fraud in public sector organizations are different or similar.  The central objective being to evaluate fraud prevention and control in the light of the character of these public sector organizations, so that appropriate framework to restore sanity and financial discipline can be recommended.

1.3    Hypothesis

The study attempts to test the following hypotheses:

1.  HO: The type of fraud committed is not dependent on the type of public sector organization in which it is committed.

H1: The type of fraud committed is dependent on the type of public sector organization in which it is committed.

2.  HO: The major area of fraud is not dependent on the type of public sector organization in which it is committed.

H1: The major area of fraud is dependent on the type of public sector organization in which it is committed.

1.4    Theoretical Background

In every organizational system where management of resources is detached from ownership, some means of holding the former accountable to the latter becomes indispensable if credibility, accountability, and confidence are to be lent to actions. [Kamaluddeen, 2015].  Writers agree that this is the underlying philosophy of auditing in the public service as well as most privately owned organizations.  Ahmed (2017), for instance explains the purpose as serving to restrict the tyrannical misuse of power by those to who such power is delegated.  Ola (2015) also notes that the need for public financial accountability has led all sovereign nations to the application and use of audit as a most important requirement of a political, conscious and generally alert and free or civilized society.

Despite the apparent unanimity as to the philosophical foundation of public sector auditing, writers differ as to its scope.  The purview of public sector audit, writes Gutman, (2011), is restricted to the review of the financial activities of government ministries and submits thereof.  Ola (op. cit) notes that government audit could be viewed from the tripod angles of accountancy, appropriation, and administrative contents. Accountancy audit relates to the verification of the application of sound accounting tenets and frauds detection, appropriation audit ensures regularity while administrative audit ensures authority and legality of expenditure in all the areas within the government’s competence. [Kamaluddeen, ibid).  The public sector under our definition would include all those organizations established by governments like Federal ministries, parastatals, State Governments and Local Governments.

The concept of fraud is, itself chaotic.  But scholars vary significantly in their expressions about frauds.  The cause is sometimes confused with effect. Defining fraud thus is as difficult as identifying it. [Bello: 2011]. Kamaluddeen (2015) quoting Russell (2014), remarks that, “The term fraud is generic and is used in various ways.  Fraud assumes so many different degrees and forms that courts are compelled to contend themselves with only few general rules for its discovery and defeat... it is better not to define the term lest men should find ways of committing frauds which might evade such definitions.  However, fraud is generally considered to be anything calculated to deceive”.

According to Apaa (2013) fraud is “all offences against ethical ... practices. It includes embezzlement, theft or attempt to steal or acts of unlawfully obtaining, missing or harming the assets or reducing the liabilities of banks”. Mani (2013) also shares this view but added that a single definition may be inadequate.  He thus defines fraud as involving “the use of deception to obtain an unjust or illegal financial advantage; intentional misstatement in, or omissions of amounts or disclosure from an entity’s accounting records or financial statements; or theft whether or not accompanied by misstatements in accounting records or financial statements”. An apt summary of these definitions within the context of our discussions tends to suggest that fraud is an act of obtaining financial value by trick or deceit through inflation of contract, kickbacks, paying or collecting money for non-existing commodity usually from State corpus, misappropriation of cash, manipulation of accounts to disclose false position, wages frauds, ghost workers, incorrect deduction etc. etc.

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