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AN EVALUATION OF THE EFFECT OF FRAUD AND RELATED FINANCIAL CRIMES ON THE NIGERIAN ECONOMY

ABSTRACT

The objective of this study is to determine the impact of fraud and related financial crimes on the growth and development of Nigerian economy. Data for the study were collected from secondary sources only. The research analyzed the data generated using regression analysis. The research findings revealed that, fraud and related financial crime has significant effect on the Nigerian economy while fraud and financial crime have no significant effect on inflation. The research therefore recommends that Auditors and Accountants in organizations and financial institutions should be trained on how to carry out forensic investigation since the fraudsters are now sophisticated in their act. Also internal control systems should be strengthened to block opportunities that attract fraud perpetrators and oversight function of the National Assembly be strengthened to make public office holders accountable.

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

Economic and financial crimes in whatever form and nature have potentially devastating impacts on economy, security and social wellbeing of the people. It is perhaps pertinent to stress that as modern financial system encourages and facilitates local and international commerce, antithetically, financial criminals are also enabled by modern financial global liberalization to transfer millions of dollars around the world instantly through available information communication infrastructures such as internet, electronic money transfer (wire transfer) and the rest.

Money laundering among other forms of economic and financial crime requires existing financial system and operation. Money is laundered in Nigeria through currency exchange houses, stock brokerage houses, casinos, automobile dealership, and trading companies. These institutions are capable of masking proceeds from illegal criminal activities. The overall effects of these activities on the socio-political lives and economic wellbeing of the people of the developing countries and Nigeria in particular could be well imagined (Ribadu, 2004).

In the developed economies of the West, evidence emerged (which was at first difficult to believe) that the criminal manipulation of Company balance sheets created a much more favourable picture about their finances than was the reality. The Enron Company which unexpectedly went bust is probably the best known example of accounting books manipulation in our time. Here in Nigeria, the Lagos state government funds are trapped while there was also crisis in US in the management of mortgages which were inflated. It was a boom and investors made huge profits on their mortgage investments. This encourages people and financial institutions all over the world to finance mortgages in the USA hoping to earn profits which proved both unrealistic and unsustainable. With time, there were massive defaults in payments leading to foreclosures which caused chaos, doom and gloom in housing market. Since the world is a global village, investors in the business were world-wide; the financial crisis in the US had a contagion effect on the world economy.

Webster’s collegiate dictionary of current English defines fraud as: “deceit, trickery, specifically: international pervasion of truth in order to induce another to part with something of value or to surrender a legal right”. This definition more specifically focuses 419ners, or con-men and other forms of commercial dishonesty. We can then characterize fraud by the following elements: (i) Intent to commit a wrongful act or to achieve a purpose inconsistent with law or public policy; (ii) Disguise of (purpose): falsifications and misrepresentations employed to accomplish the purpose; (iii) Reliance by the offender on the ignorance or carelessness of the victim (s); (iv) Concealment of the violation.

The most prominent of frauds in banks and agencies of government detected in Nigeria in the recent times includes: Fraudulent transfer and withdrawals; Use of unauthorized overdraft;; Posting of fictitious credits; Presentation of forged cheques; Conversion of banks money into personal use; Granting of unauthorized loans; Abuse of medical scheme; Insider abuse; Illegal conversion of pension funds in various agencies and ministries; Ghost workers fraud resulting into millions of naira paid into private pockets; Abuse of political office leading to contract over billings and over invoicing.

Commer (2008) noted that motivations for corporate fraud include: Personal greed; Possibility of getting away; Low prosecution rate; societal pressures; Opportunity; Staff morale problems and Anti-institutional posture.

However, Nigerian government like many other governments of developing countries until recently has been very slow in putting in place strict policy measures and legislative framework in combating the effects of economic and financial crimes. As a result economic and financial crimes have eroded the integrity of Nigerian financial institutions since sizeable numbers of them were actively involved in money laundering and other financial crimes on the economy and socio­political development of Nigeria as a developing nation. It is instructive to stress from on set that this study is not intended to delve into details legal discussion on the concept of economic and financial crimes and the relevant provisions of Nigerian law regulating same. This of course will not obviate occasional reference being made to various forms of economic and financial crimes as known to Nigerian law and relevant statutory laws regulating those forms of crimes.

This study aims at evaluating the effect of fraud and related financial crimes on the economy of Nigeria.

1.2   STATEMENT OF THE PROBLEM

There have been concerns about the management of the country’s resources, particularly oil and its revenues, has been on the operation of the Excess Crude account by the government because it does not comply with relevant provisions of the 1999 constitution. Section 162 of 1999 constitution specifically stated that “internally Generated Revenues (IGR) of the federal government of Nigeria must be paid into the federation Account”, but the operation of the Excess Crude Account (ECA) by the Federal Government violates this provision. Apart from concerns over the mismanagement of the Excess Crude Account, there are also worries about revenues from the sale of gases.

Falana (2010) noted that facts have continued to emerge daily on huge sums of money that have either been looted, misappropriated, shared, mismanaged or committed into white elephant projects. It is worrisome to observe the highest level of profligacy and irregularities by all tiers of government in the management of the country’s resources and wealth of the nation. In view of the above development, the researcher is interested to investigate the impact of fraudulent fiscal practices and financial crimes on the growth and development of Nigeria economy.

1.3   OBJECTIVES OF THE STUDY

The main objective is to determine the impact of fraud and financial crimes on the growth and development of Nigerian economy. The specific objectives include the following:-

i.                  To examine the effect of fraud and related financial crime on Gross Domestic Product.

ii.                To examine the effect of fraud and related financial crime on inflation in the economy. RESEARCH QUESTIONS

i.           To what extent do fraud and related financial crime affect Gross Domestic Product?

ii.         To what extent do fraud and related financial crime affect inflation in the economy?

1.4   STATEMENT OF THE HYPOTHESES

Hoi: Fraud and related financial crime have no positive and significant effect on the Gross Domestic Product.

Ho2: Fraud and related financial crime have no positive and significant effect on inflation in the economy.

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