History Of Forensic Accounting In Nigeria

History Of Forensic Accounting In Nigeria

George A. Manning in one of his books titled “Financial Investigation and Forensic Accounting" defines Forensic Accounting as the science of gathering and presenting financial information in a form that will be accepted by a court of jurisprudence against perpetrators of financial and or economic crimes. 

Forensic accounting is a new and rapidly growing area of accounting (especially in Nigeria) and is concerned with ways which financial fraud and white-collar cimes can be detected and prevented. The combination of accounting, auditing, and investigative skills gave birth to the Forensic Accounting, whose main objective is detecting or preventing economic and financial crimes. According to the Webster’s Dictionary, forensic means, "Belonging to, used in or suitable to courts of judicature or to public discussion and debate."

The word accounting is defined as "a systematic process of recording and summarizing financial transactions and analyzing, verifying, and recording the results for decision making." The term ‘forensic accounting’ can be defined as financial fraud investigation which includes the analysis of accounting records to prove or disprove financial fraud and serving as an expert witness in Court to prove or disprove the same. Therefore, forensic accounting aims at using accounting report for legal purposes.

The history of Forensic accounting can be traced back as far as 1817 to Meyer v. Sefton, a case in Canada that allowed an ‘expert witness’ to testify in court. The term ‘forensic accounting’ was first published in an article in 1946 "Forensic Accounting- Its Place in Today’s Economy" authored by Maurice E. Peloubet. 

He stated that, "during the war, both the public and industrial accountant have been engaged in the practice of forensic accounting." Interest in forensic accounting spread through the United States and England early in the twentieth century. One of the first institutions to use the services of Forensic Accountants was the Inland Revenue Service to control tax evasion.

The FBI used forensic accountants in their investigations and employed almost 500 accountants during World War II. Forensic accounting as a profession continued to grow during the latter half of the century, as the Generally Accepted Accounting Practice and tax laws became widespread and mandatory.

Forensic Accounting is a fast emerging field in the control and management of Economic and Financial Crimes, a.k.a white-collar crimes. Although it has been around for a long time, it has become increasingly popular and much relevant today in view of global financial crisis arising from high profile cases like Lehman Brothers, Enron, World.com and recently Goldman Sachs with their ripple effects across the globe. Although Investigative Accounting has been around for years, it has only recently begun to transform into a new branch of accounting called Forensic Accounting. 

Forensic accountants look beyond the numbers, unlike traditional accountants. In fact, while the traditional accountants are looking at the numbers, Forensic Accountants look behind the numbers. It is the application of scientific knowledge to legal problems and legal proceedings. Forensic Accounting is like the bridge which connects accounting system to legal system. Thus, we can say that forensic accounting is an accounting that is used to help the court to arrive at the truth about a particular case in a court of law. 

Enron scandal was one of the high-profile cases in the recent past; where large numbers of American forensic accountants were deployed. The wave of financial crisis primarily caused by corporate malfeasance and fraudulent financial activities eroded public trust and investors’ confidence in financial reports and audit services and need was felt to look beyond the conventional accounting function which only fulfilled the compliance requirements i.e. company’s books of accounts are kept in accordance with rules & regulations. 

In view of the increasing number of financial frauds committed by conspiracy with complex accounting schemes, creative accounting, records manipulation, and outright falsification of books of accounts, it was felt that a new breed of Accountant is needed to detect the financial fraud in companies with financial, accounting, auditing, and investigative skills, even some regulatory knowledge, and also assist in legal matters. This area of accounting came to be known as ‘forensic accounting’. There is a global awareness to fight the cases of economic and financial frauds as well as general corruption.

Though many strategies have been formulated and many actions have been taken to fight against these vices, the problems still persist. One major hindrance in fighting financial crime cases is due to lack of forensic accounting professionals to carry out qualitative forensic analysis of financial statements and accounting records. So many cases of financial crimes have faced the dearth of qualified forensic accounting experts who could have come handy on time and offer accurate investigation to unearth the complex modus operandi adopted by the fraudsters who are themselves in some cases highly qualified financial professionals. 

The reason why there has been rampant increase in white collar financial crimes is because fraudsters think that they can always get away with it. However, the conviction rate in the financial fraud cases is very low due to weak law enforcement which is attributable to weak litigation support in prosecution process and cumbersome legal processes that are often abused in order to waste time. Of great importance in this part of the world is the ignorance and general apathy on the part of the populace, imagine a case involving a big political stalwart who was provided a carnival like support at the premises of the court of law, with his supporters singing and raining abuses on all those who brought their (accused) bread winner to the court. Without full support of accounting expert, prosecutors often fail to prove and provide strong evidence to put fraudsters behind bar. 

Here, the Forensic Accountant can play an important role by providing accounting or financial information or other evidentiary inputs for legal purposes. To achieve this aim, forensic accountant besides having financial accounting expertise, should also have proven skill in financial regulatory frame works, scientific investigative technique, interpersonal and communication skills etc.

The Western Countries like USA, Canada, etc are utilizing the forensic accounting expertise to address the financial fraud cases, and economic crimes. United States and Canada are pioneers in the development & implementation of Forensic Accounting. 

Forensic Accountants offer specialized services in areas such as:
  • fraud and economic loss quantification,
  • investigating and analyzing financial evidence; 
  • testifying as an expert witness;
  • becoming involved in criminal investigations and uncovering financial evidence in employee or insurance fraud cases;
  • Investigating in the rapidly evolving area of computer and Internet fraud.
  • Business Valuations
  • Assets Valuation for Matrimonial Cases
  • Royalty Audits
  • Damage Computation
  • Determination of Compliance
  • Financial Surveillance
  • Anti Money Laundering Programs
  • Background Checks etc, etc.

In Nigeria, forensic accounting is yet to be fully deployed by the government at all levels and the private sector, despite the alarming increase in complex financial and economic crimes and the lack of properly trained professionals to investigate them. Not quite long ago, The Institute of Chartered Accountants of Nigeria (ICAN), created its Forensic Accounting Faculty in order to jump start the training of specialist in this all important field of accounting.

Growing financial fraud cases, bank failures, despite regular inspections, recent stock marker scams, and the almighty allegation of world-wide- wipe-out of the finances of the Nigerian Stock Exchange, failure of non banking financial companies, and failure of the regulatory mechanism to curb it requires extra investment in forensic accounting skills. 

However, the main important law enforcement agency involved directly in combating financial and economic crimes is the Police Special Fraud Unit, Economic and Financial Crime Commission (EFCC) and Independent Corrupt Practice Commission (ICPC). While the EFCC combats financial crimes involving large amount of money, the ICPC is in charge of crimes with lesser amount. I am not sure these law enforcement agencies usually train their investigators in the usage of forensic accounting. It is very common that investigation of major financial crimes is handled by ordinary investigating officers who after spending some time in investigation of conventional crimes are transferred to the economic offence wing and they are expected to handle financial crime cases involving complex and intricate financial records which must be analyzed to unearth crime or unique Modus Operandi adopted by the white collar criminal. The result is obvious, the case dies a natural death and the criminals roam freely on our Streets, as the Investigating Police Officer soon get bored with cumbersome financial records, due to his lack of specialized knowledge and qualification. 

On the other hand, if we look at advanced countries like USA, the law enforcement agencies like FBI, CIA have properly marshaled their pool of special agents with forensic accounting backgrounds, who are the backbone of the bureau’s financial crimes squad. They investigate with professional acumen, complex financial crimes like money laundering, cyber crimes, financial institution fraud and other economic crimes.

Today, there are more than 600 FBI agents with accounting backgrounds. In our own little way, we have secured the approval of The Institute of Certified Forensic Accountants, Canada to bring and run the Forensic Accounting Certification Program here in Nigeria. Our objective is to produce a crop of well trained Forensic Accountants ready for deployment by Local, State and Federal Government Agencies in combating financial crimes
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