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

abstract

The purpose of this research is to ascertain the impact of fraud and related financial crimes on the growth and development of the Nigerian economy. Only secondary sources were used to collect data for the study. The data generated for the study was analyzed using regression analysis. According to the research findings, fraud and related financial crime have a significant impact on the Nigerian economy, but have no impact on inflation. As a result, the research suggests that auditors and accountants in organizations and financial institutions be trained in forensic investigation techniques, as fraudsters are becoming more sophisticated in their deception. Internal control systems should also be strengthened to prevent opportunities that attract fraud perpetrators, and the National Assembly’s oversight function should be strengthened.

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

Economic and financial crimes, in whatever form or nature they take, have the potential to devastate the economy, security, and social well-being of the people. It is perhaps pertinent to emphasize that, while the modern financial system encourages and facilitates local and international commerce, financial criminals are also able to transfer millions of dollars around the world instantly through available information communication infrastructures such as the internet, electronic money transfer (wire transfer), and so on.

Money laundering, like other forms of economic and financial crime, necessitates the use of an existing financial system and its operation. In Nigeria, money is laundered through currency exchange houses, stock brokerage houses, casinos, automobile dealerships, and trading firms. These institutions have the ability to conceal the proceeds of illegal criminal activity. The overall consequences of

These activities could have a significant impact on the sociopolitical lives and economic well-being of people in developing countries, particularly Nigeria (Ribadu, 2004).

Evidence emerged (at first difficult to believe) in the developed economies of the West that criminal manipulation of company balance sheets created a much more favorable picture of their finances than was the reality. The Enron Corporation, which went bankrupt unexpectedly, is probably the most well-known example of accounting book manipulation in our time. Here in Nigeria, the Lagos state government funds are trapped, while there was also a crisis in the management of inflated mortgages in the United States. It was a boom, and investors profited handsomely from their mortgage investments. This motivates people and

Financial institutions from all over the world financed mortgages in the United States in the hope of making profits, which proved both unrealistic and unsustainable. With the passage of time, there were massive payment defaults, which resulted in foreclosures, causing chaos, doom, and gloom in the housing market. Because the world is a global village, investors in the business were global; the financial crisis in the United States had a ripple effect on the global economy.

Fraud is defined 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” by Webster’s collegiate dictionary of current English. This definition focuses on 419ners, or con-men, and other forms of commercial dishonesty. The following elements can then be used to characterize fraud:

I Intent to commit a wrongful act or to achieve a goal that is contrary to law or public policy; (ii) Disguise of (purpose): falsifications and misrepresentations used to achieve the goal; (iii) Reliance by the offender on the victim’s ignorance or carelessness; and (iv) concealment of the violation.

The following are the most recent frauds detected in Nigerian banks and government agencies: fraudulent transfers and withdrawals; use of unauthorized overdraft; Posting of false credits; presenting forged cheques Conversion of bank funds for personal use; Unauthorized loaning; Medical scheme abuse; Insider abuse Pension funds illegally converted in various agencies and ministries; Fraud involving ghost workers that resulted in millions of naira being paid into private pockets; Misuse of

Contract overbilling and overinvoicing as a result of political office.

According to Commer (2008), motivations for corporate fraud include: personal greed; the possibility of escaping; a low prosecution rate; societal pressures; opportunity; staff morale issues; and an anti-institutional posture.

However, the Nigerian government, like many other developing-country governments, has been slow to implement strict policy measures and a legislative framework to combat the effects of economic and financial crime. As a result, economic and financial crimes have eroded the integrity of Nigerian financial institutions, as a significant number of them were actively involved in money laundering and other financial crimes affecting Nigeria’s economy and socio­political development as a developing nation. It is instructive to emphasize from the start that this study

is not intended to go into detail about the concept of economic and financial crimes and the relevant provisions of Nigerian law that govern them. This, of course, does not preclude the occasional mention of various types of economic and financial crimes as defined by Nigerian law and relevant statutory laws governing those types of crimes.

The purpose of this research is to assess the impact of fraud and related financial crimes on the Nigerian economy. is not intended to go into detail about the concept of economic and financial crimes and the relevant provisions of Nigerian law that govern them. This, of course, does not preclude the occasional mention of various types of economic and financial crimes as defined by Nigerian law.

and the relevant statutory laws that govern those types of crimes.

The purpose of this research is to assess the impact of fraud and related financial crimes on the Nigerian economy.

1.2   STATEMENT OF THE PROBLEM

Concerns have been raised about the government’s management of the country’s resources, particularly oil and its revenues, due to the operation of the Excess Crude account, which does not comply with relevant provisions of the 1999 constitution. Section 162 of Nigeria’s 1999 constitution specifically stated that “internally Generated Revenues (IGR) of the federal government of Nigeria must be paid into the federation Account,” but the Federal Government’s operation of the Excess Crude Account (ECA) violates this provision. Aside from concerns about the mismanagement of the Excess Crude Account, there are also concerns about revenue from gas sales.

According to Falana (2010), facts about large sums of money that have been looted, misappropriated, or stolen continue to emerge on a daily basis. White elephant projects can be shared, mismanaged, or committed to. It is concerning to see the highest level of profligacy and irregularities in the management of the country’s resources and wealth by all levels of government. In light of the foregoing, the researcher wishes to look into the impact of fraudulent fiscal practices and financial crimes on the growth and development of the Nigerian economy.

1.3   OBJECTIVES OF THE STUDY

The primary goal is to assess the impact of fraud and financial crime on the growth and development of the Nigerian economy. The following are some of the specific goals:

i. To investigate the impact of fraud and related financial crime on the Gross Domestic Product.

ii. To investigate the impact of fraud and related financial crime on economic inflation. QUESTIONS FOR RESEARCH

i. To what extent do fraud and related financial crime have an impact on GDP?

ii. To what extent do fraud and related financial crime affect economic inflation?

1.4   STATEMENT OF THE HYPOTHESES

Hoi: Fraud and related financial crime have no positive or significant effect on the GDP.

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

 

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