Forensic accounting and checkmating global fraud

Astudy conducted by Crowe Clarke Whitehill and the University of Portsmouth’s Centre for Counter Fraud Studies (CCFS) in 2018 put global fraud and organised crime at a whopping $3.78 trillion! Indeed, average annual expenditure loss by companies to fraud is estimated to be 7%. Of these, the United Kingdom alone lost $141.75 billion.

Also, the PWC Global Report on Fraud and Organised Crime in same 2018 had the following chilling statistics: 49% of organisations globally said they have been victims of fraud and economic crime; 64% of respondents said losses due directly to their most disruptive fraud could reach US$1 million; 52% of all frauds are perpetrated by people inside the organisation and 31% of all respondents that suffered fraud indicated they experienced cyber-crime!

In Nigeria, the situation is equally grim. Former Finance Minister, Dr. Ngozi Okonjo-Iweala in her book, “Reforming the Unreformed”, published in 2012 stated that Nigeria was estimated to have lost over US$400 billion to corruption since independence. A report by the Nigeria Depositors Insurance Corporation (NDIC) in 2018, showed that N116.25 billion was paid to depositors in failed financial institutions with the banking industry alone losing N15.15 billion to fraud.

As dark as the horizon seems at present, there is an antidote to the rising wave of fraud and organized crime both locally and internationally- Forensic Accounting! Maurice Peloubet, a New York CPA, first coined the term “Fore Accounting” in 1946, and its inspiration came from the responsibility of “reconstructing financial enigmas” to prove “fraud” or “embezzlement”. Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that describes engagements that result from actual or anticipated dispute or litigation. “Forensic” means “suitable for use in a court of law”. Forensic accountants, also referred to as forensic auditors and investigative auditors, often have to give experts evidence at eventual trial.

Forensic Accounting also refers to a “comprehensive application of investigative accounting, auditing and legal skills to the task of extracting, verifying, interpreting and communicating a transactional and reporting event evidence in an objective, legally sustainable fashion for use by attorneys involved in civil and criminal litigation and in giving trial testimony.” It is a combination of auditing procedures and investigative techniques in verifying the accuracy and legitimacy of financial reporting.

Beyond the numbers, companies all over the world rely on Forensic Accounting to manage and track their financial transactions to ensure they remain profitable, prevent and investigate fraud. Governments, Public institutions and Regulators also rely on Forensic Accounting to ensure transparency, accountability and overall integrity of transactions they undertake on behalf of the public.

Sadly, in spite of the immense benefits of Forensic Accounting to reducing financial fraud to the barest minimum, it has not been fully embraced in Nigeria and other emerging economies. Financial Accounting should not only be embraced but grabbed by everyone interested in curtailing fraud, organized crime and criminality in both the private and public sectors of Nigeria. Its strength lies in its combination of various disciplines geared towards curbing fraud or wiping it off entirely- Law, IT, Data Analytics, Psychology and Economics. It is a must skill for the 21st century accountant.

The benefits of adoption and engagement of Forensic Accounting in the Public Sector include but not limited to the following: 1. The current waste in government will be reduced by 75% across the three tiers of governments with the potential of saving N2 trillion annually. 2. Public sector financial management especially within MDAs will transition from the era of “Transparency” to the era of “Accountability” fostered by strict adherence to accounting standards. 3. The growing level of high level of corruption, organized crime and fraud within the financial system will be reduced significantly thereby restoring more confidence by the international community in the Nigerian financial system. 4. For the African Union and Regional integration, Forensic Accounting will promote and enhance the financial system integrity especially against transnational and cross border crimes. It will also combat terrorist financing and money laundering, which are considered as the most significant barriers to the progress for the successful take off of the Africa Continental Free Trade Zone and the ECOWAS single currency implementation in 2020.

It is for these reasons that the Society for Forensic Accounting and Fraud Prevention (SFAFP) is promoting the adoption of Forensic Accounting in Nigeria not only by core accountants but also other professionals in AntiCorruption fight. Agencies such as the Police, EFCC, ICPC and CCB need to embrace Forensic Accounting as a matter of urgent national importance. The old ways of investigations are no longer suited for today’s hi-tech fraudsters and criminals. Like the Psychologist, Dr. Ijeoma Nwafor posited recently in her paper, “Thinking Like the Thief”, we must not only understand the innermost working of the thief in order to neutralise him but move several steps ahead of him. This is the underlining philosophy of Forensic Accounting and the driving force of SFAFP. It is poised to pioneer indigenous professional distinction in the training and development of Forensic Accountants and the delivery of high quality service to foster integrity and excellence in Fraud Prevention. It is equally set to redefine standards of integrity and professional excellence in Forensic Accounting and Crime Prevention.

Wouldn’t you rather be part of SFAFP now?

Gashinbaki is Chairman, Society for Forensic Accounting and Fraud Prevention (SFAFP) gashinbaki@ gmail.com