Forensic Accounting and Fraud Management among Ministries, Departments and Agencies (MDAs) In the Nigerian Public Sector

Forensic Accounting and Fraud Management among Ministries, Departments and Agencies (MDAs) In the Nigerian Public Sector

Cyril Lee ORIAIFOH, Oluwasola LODIKERO

PhD Student, Department of Accounting, Faculty of Management Sciences, University of Benin, Benin City, Nigeria

*Corresponding Author

DOI: https://dx.doi.org/10.47772/IJRISS.2025.90400382

Received: 28 March 2025; Accepted: 03 April 2025; Published: 17 May 2025

ABSTRACT

This study investigated impact of forensic accounting and fraud management within the Ministries, Departments, and Agencies (MDAs) in the Nigerian public sector, focusing specifically on the Benin City metropolis. The study utilized a survey research design. The study’s population consisted of directors, internal auditors, and professional accountants working in the internal audit department, account, and finance department of selected Federal-owned ministries, departments, and agencies (MDAs) in Benin City, Edo State. These individuals were chosen because of their expertise and knowledge of forensic accounting in managing frauds among MDAs. A sample size of one hundred (100) of the respondents was selected using random sampling method for the purpose of administering the research instrument. To ensure the reliability of the research instrument, the Alpha Cronbach reliability technique was employed and it yielded a value of 0.737. The collected data was analyzed using descriptive statistics, correlation matrix regression estimation method. The findings reveal significant challenges in the current fraud detection mechanisms, highlighting gaps in the implementation of forensic accounting practices. Specifically, the study identifies weaknesses in the execution of forensic document examination and fund tracing techniques, alongside a limited application of lifestyle analysis in identifying fraudulent activities. The results underscore the necessity for enhanced training and resources to improve forensic accounting capabilities within MDAs. The study therefore recommends policy reforms aimed at strengthening institutional frameworks to better combat fraud.

Keywords: Forensic Accounting, Fraud Management, Forensic Document Examination, Life Style Analysis, Tracing Fund

INTRODUCTION

In Nigeria, the importance of forensic accounting has been on the rise, particularly in government ministries, departments, and agencies (MDAs). This is due to the increasing need to address and manage fraud and corruption, which are significant challenges in the public sector (Adeyemo, 2017). In recent times, forensic accounting and fraud management within Ministries, Departments, and Agencies (MDAs) in Nigeria has become a crucial area of focus due to the significant role these entities play in the governance and economic health of the country. It is widely believed in Nigeria that government Ministries, Departments and Agencies (MDAs) are particularly susceptible to fraud, exacerbated by inadequate anti-corruption legislation and poor management (Ewa, et al., 2019). The Association of Certified Fraud Examiners (ACFE) highlighted in their 2004 report on the occupational fraud and abuse that MDAs were significantly represented in their analysis of 1,483 cases of occupational fraud (ACFE, 2004). According to reports by ACCA and EY in 2020, the scale of fraudulent and financial crimes was enormous on a global scale. Thus, while fraudsters are frequently employing increasingly sophisticated methods, establishments are also utilizing forensic accounting techniques to identify these fraud methods for effective detection and management purposes both in the public and private sectors respectively. In Nigeria, the public sector, including Ministries, Departments, and Agencies (MDAs) have been so

influenced with frauds and crimes such that the ramifications of these frauds and crimes have impacted Nigeria’s corruption perception on a global scale, leading to a decline in investment and, consequently, adversely affecting the nation’s economic growth (Ladi-Awofeso et al., 2023). In the light of this, forensic accounting therefore serves as a deterrent and investigative tool in the to minimize the increasing level of corruption, particularly in a developing country. In the view of Smith (2020), one of the means of effectively managing frauds both in the public and private sectors of the Nigerian economy is through the use of the expertise of forensic accountants. Forensic accounting in Nigerian MDAs serves as a critical tool in detecting and preventing fraud. Through the integration of auditing and investigative skills, forensic accountants provide insights that are not available through traditional accounting methods. Their work often leads to improved internal controls and systems designed to reduce the risk of fraud and financial mismanagement (Smith, 2020).

Forensic accounting, a blend of accounting, auditing, and investigative techniques, is critical for ensuring integrity and accountability within government entities like the MDAs (Adebayo, 2018). In Nigeria, MDAs handle significant public funds, making them susceptible to financial mismanagement and fraud (Oyedokun, 2018). Forensic accounting involves the use of accounting techniques to uncover fraud and embezzlement, providing detailed financial investigations that help to bring accountability and transparency to governmental operations (Chukwuemeka, 2021). In a more succinct form, forensic accounting in Nigerian MDAs mainly concerns the use of accounting skills to investigate financial statements and transactions for signs of fraud, embezzlement, or misappropriation of funds in Ministries, Departments and Agencies (MDAs).

Forensic accountants are employed to detect anomalies that could indicate financial mismanagement or corruption (Adams, 2022). Nigerian MDAs often face challenges such as lack of transparency, inadequate record-keeping, and limited accountability. Forensic accountants are trained to identify and trace fraudulent activities through financial records (Kumar, 2020). Their expertise helps in detecting anomalies that may indicate fraud. In the event of suspected fraud, forensic accountants perform thorough investigations to uncover the truth, gather evidence, and understand the methods of fraud (Nguyen, 2021). They also provide crucial support during legal proceedings by preparing financial evidence, explaining their findings in court, and aiding in the resolution of disputes (Smith, 2020).

Statement of Research Problem

As Wall and Fogarty (2016) highlighted that the importance of fraud mitigation through the tool of forensic accounting cannot be overstated, particularly in light of advancements in telecommunication and the rise of electronic banking. These developments have given fraudsters sophisticated tools to circumvent organizational control systems. Several high-profile cases have highlighted the role of forensic accounting in uncovering fraud within Nigerian MDAs. For instance, the discovery of a large-scale procurement fraud within the Ministry of Health was facilitated by forensic auditors, who identified discrepancies in procurement documents and misappropriation of funds (Doe, 2021). Nonetheless, forensic accountants in Nigeria face several challenges, including lack of adequate training, insufficient technological resources, and resistance from within the MDAs themselves. Often, there is a lack of support from senior management, which hinders the effective implementation of forensic accounting practices (Jones & Silver, 2019).

Recent research on the impact of forensic accounting on fraud management focused on responses from employees of deposit money banks in Nigeria. This study therefore takes a departure from previous studies focusing on public sector employees of MDAs to see if the results hold true in a different segment of the Nigerian economy. This approach will help validate previous research and contribute to developing more relevant and effective control mechanisms to combat illicit financial activities.

Several studies have assessed the impact of forensic accounting on fraudulent practices as well as fraud management and yet produced mixed and inconclusive results (See Akani and Ogbeide, 2017; Lou and Wang, 2017; Smith, 2017; Oyedokun, 2019). On the empirical fronts, assessing the impact of forensic accounting on fraud management particularly among MDAs in the context of a developing country like Nigeria might prove difficult. For instance, the introduction of forensic accounting practices into public sector organizations such as MDAs may fail due to resistance from staff or lack of expertise and this situation can result in a perceived negative impact if the measures introduced are seen as disruptive or are poorly integrated with existing processes (Lou & Wang, 2018).

Forensic accounting often requires specific skills and tools that may be costly or difficult for ministries, departments and agencies (MDAs) to acquire and this can limit the effectiveness of forensic accounting practices in managing fraud among ministries, departments and agencies. In some public sector environments, entrenched cultural norms and practices may undermine the effectiveness of forensic accounting. If there is a strong culture of non-compliance or corruption, forensic accountants may find it challenging to perform their duties effectively. Inadequate legal and regulatory support could limit the effectiveness of forensic accounting. If forensic accountants do not have the necessary legal backing to enforce their findings and if their recommendations are not taken seriously, this can lead to ineffective fraud management. Premised on this, the specific objectives are to investigate the forensic accounting techniques for fraud management; and to examine the nature of fraud management by eliciting responses from the employees in the accounts and audit units in Federal Ministries, Departments and Agencies in Benin City, Edo State.

Research Questions

The following specific research question is raised to guide the study:

1. What is the impact of forensic accounting techniques on fraud management among ministries, departments and agencies (MDAs) in Nigeria?

Objective of the Study

The broad objective of this study is to examine the impact of forensic accounting on fraud management among ministries, departments and agencies in Nigeria. However, the specific objective of the study is:

1. To investigate the impact of forensic accounting techniques on fraud management among ministries, departments and agencies (MDAs) in Nigeria.

Hypotheses of the Study

This study used the following stated null hypothesis

H_o1: There is no significant impact of forensic accounting techniques on fraud management among ministries, departments and agencies (MDAs) in Nigeria.

Scope of the study

This study examines the impact of forensic accounting on fraud management among ministries, departments and agencies in Nigeria. In terms of scope, the study focuses on the Federal ministries, departments and agencies in Benin City, Edo State. Structure questionnaires were designed to elicit responses from the respondents which mainly comprised of directors, internal auditors, and professional accountants working in the internal audit department, account, and finance department of selected Federal-owned ministries, departments, and agencies (MDAs) in Benin City, Edo State.

LITERATURE REVIEW

Conceptual Review

There are various views about fraud by varying authors, each shaping their definition according to specific circumstances. Some view fraud as a deceptive trick designed to seize another person’s assets. Meanwhile, Black’s Law Dictionary offers a broader definition, characterizing fraud as encompassing every conceivable method that human creativity can concoct. This includes methods used by one individual to gain an advantage over another through misleading representations or by concealing the truth. According to this definition, fraud involves any form of surprise, trickery, cunning, or deceit, as well as any dishonest means by which someone is defrauded. It essentially centers on deception, betrayal, and manipulation.

Forensic accounting involves the use of accounting, auditing, and investigative skills to conduct an examination into the finances of an entity or individual. It is often used in cases of financial fraud, disputes, or litigation. Forensic accounting combines accounting, auditing, and investigative skills to assist in legal proceedings, expert determinations, and the investigation of suspected fraud, irregularities, or improprieties. It involves using investigative tools and an analytical mindset within the framework of legal evidence rules to address complex financial issues. Forensic accountants bring financial expertise, fraud awareness, and a deep understanding of business operations and legal systems. The goal of forensic accounting is to provide crucial information about governance and ethical policies to both internal and external stakeholders, helping to uphold and enhance the organization’s reputation while fostering effective communication and transparency.

Forensic Accounting Techniques, Purposes and Methods

There is various forensic accounting techniques commonly used to undertake frauds, corruption and embezzlements and other related cases. Some of these forensic accounting techniques range from Benford’s law, ratio analysis, forensic documents examinations, tracing funds and life style analysis. Benford’s Law, also known as the First Digit Law, is an intriguing statistical phenomenon that has proven to be a useful tool in forensic accounting for detecting anomalies in financial data. The law posits that in many naturally occurring datasets, the leading digit is likely to be small. Specifically, the first digit ‘1’ appears about 30.1% of the time, much more frequently than the digit ‘9’, which appears only 4.6% of the time (Benford, 1938). This distribution is counterintuitive but has been consistently observed across various datasets, including election results, street addresses, stock prices, and importantly, financial accounts (Nigrini, 2012). In the realm of forensic accounting, Benford’s Law is employed to scrutinize large sets of numerical data to identify irregularities that may indicate fraud, errors, or other discrepancies. The application of Benford’s Law can be particularly effective in detecting fraudulent financial reporting and tax evasion, where the manipulation of figures might disturb the expected distribution of leading digits (Durtschi et al., 2004).

Forensic accountants utilize Benford’s Law by first collecting and sorting the relevant numerical data, such as account balances, transaction amounts, or expense figures. They then calculate the frequency distribution of the leading digits of these numbers and compare the observed distribution to the expected distribution as predicted by Benford’s Law. Significant deviations from the Benford distribution may suggest potential manipulation or fraud (Durtschi et al., 2004). For instance, if a series of transactions is fabricated, the forger might not be aware of Benford’s Law and could distribute the numbers uniformly or cluster around certain preferred numbers, thus creating an anomaly when checked against the expected Benford distribution (Nigrini & Mittermaier, 1997). Several studies and real-world cases highlight the efficacy of Benford’s Law in forensic investigations. For example, a study by Nigrini (1996) applied Benford’s Law to detect anomalies in accounting data from corporations, demonstrating that fraudulent companies often failed the Benford test across multiple datasets. Similarly, forensic accountants routinely use Benford’s Law as a preliminary screening tool to identify areas of financial statements that warrant further investigation (Watrin et al., 2008).

Furthermore, Benford’s Law has been recognized legally in the United States court system as a method for identifying fraudulent activity within business environments, lending judicial credibility to its practical applicability (Nigrini, 2012). While powerful, Benford’s Law is not without limitations. It is crucial for forensic accountants to understand that not all datasets conform to Benford’s distribution, and benign reasons might explain deviations, such as inherent data constraints or industry-specific factors (Watrin et al., 2008). Therefore, findings from Benford’s Law should ideally be corroborated with additional investigative techniques to strengthen the case.

Ratio analysis is a foundational tool in the field of accounting, commonly used for analyzing financial statements to assess an organization’s performance, financial health, and operational efficiency. Within forensic accounting, ratio analysis serves as a critical diagnostic tool, helping forensic accountants detect unusual fluctuations that may indicate fraudulent activities or accounting irregularities (Wilson, 2017). Forensic accounting integrates accounting, auditing, and investigative techniques to examine financial statements and related documents for evidence of fraud or embezzlement. Ratio analysis, in this context, is deployed to scrutinize the consistency of financial data over time and compare it with industry norms (Brown, 2019). This technique can highlight discrepancies that merit further investigation, such as sudden changes in gross profit margin or unusually high inventory turnover rates, which might suggest overstatement of revenues or manipulation of inventory, respectively. Forensic accountants often employ a variety of ratios, including profitability ratios, liquidity ratios, and leverage ratios. For instance, the current ratio and quick ratio are used to evaluate short-term liquidity risks, whereas the debt-to-equity ratio provides insights into the company’s debt management (Davis, 2021). By tracking these ratios over time, forensic accountants can detect deviations that diverge from historical patterns or industry averages, thus flagging potential areas of concern.

In the application of ratio analysis, forensic accountants often begin with a horizontal analysis, assessing trends over several periods, followed by a vertical analysis that dissects the financial statements of a single period (Clark, 2018). For example, a forensic examination might reveal that despite a company’s reported increase in revenues, its cash flow from operations is declining—a potential red flag for revenue manipulation. The well-documented Enron scandal, showcase how ratio analysis could be utilized to signal discrepancies. In Enron’s case, had ratio analysis been applied more rigorously, discrepancies in profitability and debt ratios might have indicated the financial inconsistencies that were later revealed to be symptomatic of fraud (Khan, 2019). Despite its utility, ratio analysis does have limitations in the forensic accounting context. It is largely dependent on the quality of the underlying financial data; hence, if the data is itself a product of fraudulent manipulation, the ratios might not reveal true anomalies (Taylor & Johnson, 2022). Moreover, ratios can vary significantly by industry, which means forensic accountants must be well-versed in sector-specific benchmarks and contexts.

Forensic document examination is an essential component of forensic accounting investigations. Financial crimes often involve the manipulation or falsification of documents such as invoices, contracts, checks, and financial statements. The role of the forensic document examiner is to authenticate these documents and identify any signs of tampering. Techniques used in FDE include handwriting analysis, ink and paper analysis, and the examination of digital metadata (Adams, 2019). In cases of fraud, altered documents can obscure the true financial situation of an entity. For instance, a company might forge invoices to inflate expenses and reduce taxable income. Forensic accountants, equipped with findings from document examiners, can then track these false entries through the company’s books, uncovering the fraudulent scheme (Jones, 2020).

Handwriting and signature analysis is a fundamental aspect of forensic document examination. This technique is particularly useful in verifying the authenticity of checks, contracts, and endorsement signatures. Forensic document examiners compare questioned handwriting samples with known samples to identify inconsistencies that may indicate forgery (Kelly & Lindblom, 2006). This analysis supports forensic accountants in identifying fraudulent authorizations and endorsements. The analysis of ink and paper is another critical method in forensic documents examination (FDE). Different inks and papers have unique chemical compositions and physical characteristics. By using techniques such as chromatography and spectroscopy, forensic document examiners can determine whether a document has been altered post-signature or if multiple documents purported to be from different times were created using the same ink batch (Ellen, 2018). This information can corroborate the timeline of financial transactions and expose backdated documents.

In the digital age, forensic document examination has evolved to include the analysis of digital documents. Metadata analysis involves examining the properties and history of digital files to uncover alterations. For instance, the metadata of a PDF financial statement might reveal that it was edited after its purported creation date, raising red flags for forensic accountants (Harrison, 2021). Techniques such as hash value comparisons and the use of specialized software to detect document editing tools are crucial in this context. Case study integration in the context of forensic document examination is very important in fraud examination. An illustrative case is the Enron scandal, where both forensic document examination and forensic accounting were pivotal. Document examiners identified altered financial documents and emails that indicated fraudulent activities, while forensic accountants traced the financial transactions that covered up Enron’s true financial state (McLean & Elkind, 2003). This integration of disciplines provided comprehensive evidence that was instrumental in the prosecution of those involved.

Tracing funds is a critical process in forensic accounting, involving the systematic tracking of financial transactions to uncover fraud, embezzlement, or other financial crimes. Forensic accountants employ various techniques to trace funds, ensuring the integrity and accuracy of financial information.  Tracing funds often involves document analysis, data mining and analysis, interviews and interrogations and bank reconciliation.  Document analysis is a fundamental technique in forensic accounting. It involves examining financial records, such as bank statements, invoices, and receipts, to identify discrepancies and irregularities. By meticulously reviewing these documents, forensic accountants can trace the flow of funds and detect anomalies. According to Hopwood et al. (2012), document analysis is essential for uncovering fraudulent activities, as it provides tangible evidence of financial transactions.

Data mining and analysis are crucial in the digital age, where vast amounts of financial data are generated. Forensic accountants use specialized software to analyze large datasets, identifying patterns and trends indicative of fraudulent activity. This technique allows for the efficient processing of complex data, facilitating the tracing of funds across multiple transactions and accounts. As noted by Albrecht et al. (2016), data mining enhances the accuracy and speed of forensic investigations. Data mining involves the process of discovering patterns and correlations within large datasets by using various statistical methods, algorithms, and software (Wells, 2017). In the context of forensic accounting, data mining aids in the detection of fraud by identifying unusual transactions, outlier data points, and inconsistencies that might suggest manipulative or illegal financial practices. As noted by Codabux and Williams (2018), forensic accountants leverage data mining to efficiently scan through thousands of entries to detect anomalies that would be impractical to identify manually. Data mining and analysis significantly enhance the forensic accountant’s ability to detect and investigate fraud in a timely and efficient manner. By leveraging advanced statistical and analytical techniques, forensic accountants can dissect complex datasets to unearth hidden schemes and ensure financial transparency and integrity. The aim of data mining is to identify patterns, anomalies, irregularities, or suspicious transactions in large datasets that could indicate fraudulent activities.

Forensic accountants employ several data mining techniques, including clustering, classification, regression, and association rule learning. For example, clustering helps group similar data entries together, which can highlight unusual clusters that deviate from normal business operations (Ratley, 2019). Association rule learning helps uncover relationships between variables in large databases, potentially revealing fraudulent schemes such as kickbacks or unusual patterns of transactions between related parties (Cleary & Quinn, 2021). A notable application of data mining in forensic accounting is the use of Benford’s Law, which predicts the frequency distribution of digits in naturally occurring datasets. Forensic accountants apply this law to identify deviations from expected digit patterns in accounting data, which can be indicative of deliberate manipulation (Nigrini, 2012).

While data mining and analysis offer powerful tools for detecting fraud, they also present challenges such as the risk of data overload, where the volume of flagged anomalies can overwhelm investigators (Kranacher et al., 2019). Moreover, sophisticated fraudsters with knowledge of data mining techniques might alter their strategies to evade detection, necessitating continuous advancements in forensic methodologies (Jans et al., 2020). As technology evolves, the future of forensic accounting and data mining looks toward integrating more advanced artificial intelligence and machine learning techniques. These advancements promise to enhance the predictive capabilities of forensic tools, making it increasingly difficult for fraudsters to succeed undetected (Smith & Mason, 2021).

Conducting interviews and interrogations is another vital technique in tracing funds. Forensic accountants interview key personnel to gather information and corroborate findings from document analysis and data mining. These interviews can reveal insights into the motives and methods of financial crimes. Singleton and Singleton (2010) emphasize the importance of effective interviewing skills in obtaining critical information that may not be evident from documents alone.  Bank reconciliation involves comparing an entity’s financial records with bank statements to ensure consistency and accuracy. Discrepancies identified during reconciliation can indicate unauthorized transactions or misappropriation of funds. Forensic accountants use this technique to trace the movement of funds and verify the legitimacy of financial activities. According to Wells (2014), bank reconciliation is a straightforward yet powerful tool in detecting and tracing financial discrepancies.

Tracing Funds in the context of forensic accounting have been aided by the use of advanced technologies, ranging from artificial intelligence and machine learning and forensic data analytics. The advent of advanced technologies has significantly enhanced the ability of forensic accountants to trace funds. Technologies such as blockchain, artificial intelligence (AI), and forensic data analytics are transforming the field. Blockchain technology provides a transparent and immutable ledger of transactions, making it an invaluable tool for tracing funds. By utilizing blockchain, forensic accountants can track the history of transactions with unprecedented accuracy and security. Tapscott and Tapscott (2016) argue that blockchain’s decentralized nature ensures the integrity of financial data, reducing the risk of tampering.

Artificial intelligence and machine learning and machine learning algorithms do analyze vast amounts of financial data to detect anomalies and predict fraudulent behavior. These technologies enhance the efficiency of tracing funds by automating the detection of suspicious patterns. Vasarhelyi et al. (2015) highlight that AI-driven forensic accounting tools can identify complex fraud schemes that might be overlooked by traditional methods. Forensic data analytics involves the application of statistical and analytical techniques to financial data. This approach helps forensic accountants identify outliers and trends that may indicate fraudulent activity. Kranacher et al. (2011) state that forensic data analytics is essential for uncovering hidden relationships within financial data, facilitating the tracing of funds.

Lifestyle analysis is a critical tool in forensic accounting, employed to detect inconsistencies between an individual’s known income and their spending patterns. This technique is pivotal in identifying fraud, embezzlement, and other financial discrepancies. By scrutinizing lifestyle indicators, forensic accountants can unearth hidden assets, unreported income, and illicit financial activities. Lifestyle analysis involves a thorough examination of an individual’s or organization’s spending habits, asset acquisitions, and overall financial behaviour. The primary goal is to identify discrepancies that may suggest financial misconduct. This method is rooted in the principle that individuals’ lifestyles generally reflect their financial circumstances; any significant deviation can be a red flag indicating potential fraud (Albrecht et al., 2016).

Forensic accountants use various techniques to conduct lifestyle analysis, including expenditure analysis, net worth analysis and bank deposit method. Expenditure analysis involves reviewing credit card statements, bank transactions, and other financial records to assess spending patterns. Any significant expenditures that cannot be accounted for by declared income are flagged for further investigation (Crumbley et al., 2019). Net worth analysis method calculates the change in an individual’s net worth over a period, considering known income sources and expenditures. An unexplained increase in net worth may indicate undisclosed income or assets (Hopwood et al., 2012). By examining deposits made into an individual’s bank accounts, forensic accountants can detect discrepancies between reported income and deposited amounts. Large or frequent deposits that do not align with reported income sources can be indicative of financial misconduct (Wells, 2013).

Lifestyle analysis is applied in various scenarios within forensic accounting such as fraud detection, litigation support and tax evasion investigation. In the context of fraud detection, if an employee or executive is suspected of embezzlement, lifestyle analysis can reveal discrepancies between their standard of living and their official income, suggesting misappropriation of funds (Singleton & Singleton, 2010). During divorce proceedings or business disputes, lifestyle analysis can provide evidence of hidden assets or income, supporting claims of financial misconduct (Pacini et al., 2010). Tax authorities use lifestyle analysis to detect undeclared income. A lavish lifestyle that does not match reported earnings can trigger further tax audits and investigations (Kranacher et al., 2011). Against the backdrop of the literature explored in this sub-section, the specific goal of this study is to investigate potency of forensic document examination, tracing fund and life style analysis as critical components of forensic accounting techniques in the examination and management of frauds among ministries, departments and agencies (MDAs) in the Nigerian public sector.

Theoretical Framework

The study is based on the Fraud Triangle Theory and the Fraud Diamond Theory. The concept of the “Fraud Triangle” was first introduced by Edwin Sutherland in his 1949 book, “White Collar Crime,” and further developed by Donald Cressey in 1953. The theory identifies three essential elements that contribute to fraud: pressure, opportunity, and rationalization. Cressey’s insights were based on interviews with convicted fraudsters, leading him to conclude that fraud occurs when these three factors align. Pressure, or motivation, often arises from personal or professional circumstances such as financial difficulties, unrealistic job expectations, or the lure of rewards for meeting certain targets. However, even if the pressure exists, fraud is unlikely without the opportunity to commit it. This opportunity typically presents itself through weaknesses in an organization’s internal controls, lack of accountability, or insufficient oversight, allowing fraudsters access to resources. The remaining element which is rationalization, involves the fraudster justifying their deceitful actions. This self-justification can make the act seem acceptable or even necessary under the circumstances. According to the theory, all three components—pressure, opportunity, and rationalization—must be present for fraud to occur, providing a framework to understand and prevent fraudulent activities.

The Fraud Diamond Theory is an expansion of the earlier Fraud Triangle Theory, developed by David Wolfe and Dana Hermanson in 2004. They introduced a crucial new element—capability—emphasizing personal traits and abilities that determine whether fraud will likely occur. Unlike the Fraud Triangle, which focuses on incentive, opportunity, and rationalization, the Fraud Diamond Theory adds a fourth dimension: the capacity or ability of the potential fraudster. Wolfe and Hermanson argued that even with opportunity, pressure, and rationalization present, fraud is unlikely to be committed without the necessary personal capabilities. This theory seeks to provide a more comprehensive framework for understanding the precipitating factors of fraud by incorporating this additional element

Factors Affecting Forensic Accounting and Fraud Management in Nigerian Ministries, Departments and Agencies (MDAs)

Despite the importance of forensic accounting in Nigeria, there is a notable shortage of trained forensic accountants in Nigeria. This skill gap hinders effective fraud detection and management within MDAs (Adeyemo, 2017). The existing legal frameworks in Nigeria often lack the specificity and strength needed to support forensic accounting activities effectively. This results in challenges in prosecuting offenders and recovering misappropriated funds (Oyedokun, 2018). Corruption is pervasive within many levels of government, which can stifle efforts to implement effective forensic accounting practices. There is often a lack of political will to rigorously pursue cases of fraud within MDAs (Lawal, 2019).

The deep-seated corruption in Nigeria poses a substantial barrier to effective fraud management. Corrupt practices can often go unchecked due to collusion among officials (Ibrahim, 2020). There is a critical need for advanced technological tools to aid in fraud detection and investigation. Many Nigerian MDAs lack the necessary technology, which impedes their ability to identify and address fraudulent activities effectively (Chukwuemeka, 2021).  Often, cultural norms that tolerate or even encourage patronage and nepotism can undermine efforts to manage and control fraud. Changing these cultural norms is a significant challenge that Nigeria faces (Adebayo, 2018).

EMPIRICAL REVIEW

Numerous studies have examined the role of forensic accounting in businesses and its effectiveness in detecting and preventing fraud both in Nigeria and around the world. Research conducted by Ewa et al. (2020) demonstrated a significant positive correlation between the use of forensic accounting techniques and the detection and prevention of fraud in the Nigerian banking sector. Another study by Izedonmi and Ibadin (2012) which explored forensic accounting and financial crimes, identified basic and common financial crimes in Nigerian enterprises and pointed out that the drivers of financial crimes include pressure, opportunity, and rationalization faced by fraudsters.

Enofe, Omagbon, and Ehigiator (2015) research suggests that regular use of forensic auditing significantly aids in detecting and preventing fraud and reducing dishonest activities. Okoye and Gbegi (2013) study indicate that forensic accountants effectively helped to review audit scope and methods in high-risk scenarios, recommending early involvement of forensic accountants in audits of vulnerable enterprises to enhance training and auditing techniques. Bassey’s 2018 research found that forensic accountants’ robust use of litigation support and forensic examinations in Microfinance banks markedly decreased fraud, playing a critical role in deterring crime and corruption.

Modugu and Anyaduba (2013) findings reveal a significant agreement among stakeholders on the effectiveness of forensic accounting in monitoring fraud, improving financial reporting quality, and strengthening internal control systems within organizations. Enofe, Agbonkpolor, and Edebiri (2015) emphasized the critical need for fraud examiners in Nigeria’s banking sector, identifying forensic accounting as key to curbing financial misbehavior. Ezejiofor, Nwakoby, and Okoye (2016) research demonstrated the effectiveness of forensic accounting in combating fraud and enhancing transparency in the banking sector. Enofe, Okpako, and Atube (2013) research also showed that forensic accounting had a significant impact on reducing fraud levels in the organizations studied.

METHODOLOGY

The study utilized a survey research design and targeted accountants, including directors, internal auditors, and professional accountants working in the internal audit department, account, and finance department of selected Federal-owned ministries, departments, and agencies (MDAs) in Benin City, Edo State as the population of the study. These individuals were chosen because of their expertise and knowledge of forensic accounting in managing frauds among MDAs. A sample size of one hundred (100) of the respondents was selected using random sampling method for the purpose of administering the research instrument. The research instrument basically consisted of a likert-type scale. The scale ranged from strongly agree to 1 strongly disagree, with higher values indicating positive responses and lower values indicating negative responses. To ensure the reliability of the research instrument, the Alpha Cronbach reliability technique was employed and it yielded a value of 0.737, indicating satisfactory internal consistency of the research instrument. The collected data was analyzed using descriptive statistics, including frequency distribution, percentage, mean, and standard deviation. Additionally, the study employed a multivariate regression estimation method for further analysis and hypothesis testing. The stochastic regression model employed is specified as follows:

Where FM represents fraud management; FDM represents fraud management; TF represents tracing fund; LSA represents life style analysis while β0 is the intercept and ε is the error term in the model.

DATA ANALYSIS AND INTERPRETATION OF RESULT

This sub-section relates to the analysis of the data generated from the respondents’ responses in the field. It shows the descriptive statistics; correlation matrix and the ordinary least squares regression results respectively.

Table A: Demographic Information of the Respondents

Source: Field Survey (2023)

Table A shows the analysis and results of the demographic information of the respondents in the study.  The result indicates that 17% are between 41 to 50 years and 22% are between 51 to 60 years age bracket. The analysis revealed that about 51% of the respondents were male while 49% were female. In the context of professional qualification among the respondents, about 57 (57%) of them are accountants from the Institute of Chartered Accountants of Nigeria (ICAN).  The responses of the respondents with respect to educational qualification showed that 57 (57%) of them obtained Bachelor’s degree and higher national diplomat certificate respectively. The investment experience of the respondents points out that 27 (27%) of them have working and professional experiences for over sixteen years.  This obviously demonstrates the capacity of the respondents to meaningfully respond to each of the question items posed in the questionnaire administered.

Table B: Descriptive Analysis 1

Table B represents the analysis of the responses of the respondents in the field over each of the question items. Responses to question one item showed that the respondents strongly were of the opinion that handwriting analysis software is used by them to aid fraud examination and investigations in their ministries, department and agency. Only 10 (10%) strongly disagreed to the item, with a mean value and standard deviation of 2.92 and 0.85 respectively. Similarly, 42% of the respondent agreed to question item two that they are very skilled at distinguishing between natural and disguised handwriting in fraud examination and management in ministries, department and agency. Only 12 (12%) strongly disagreed to the responses with a mean value of 3.02 and standard deviation of 0.82. With regards to item number three, 40 (40%) of the respondents agreed to it that they easily identify different types of inks used in document creation in fraud examination and management in your ministries, department and agency while 12 (12%) disagreed to it, with the mean value of 2.91 and standard deviation of 0.84.  Responses of the respondents to item 5 showed that the respondents agreed that they are well experienced in conducting forensic accounting investigations that involve critical document examination in fraud examination and management in your ministries, department and agency. The response rate was 38 (38%) with a mean value of 2.98 and 3.02 as well as with standard deviations of 0.86 and 0.81 respectively.  The grand mean and standard deviation to the items by the respondents were 2.96 and 0.84 respectively.  The descriptive responses from the respondents, on the overall depicts that forensic document examination (FDE) is a key forensic accounting practice often used by accountants in the examination and management of frauds and fraud related issues.

Table C: Descriptive Analysis 2

Table C relates to the descriptive analysis on tracing fund as a forensic accounting technique investigation with respect to fraud management among MDAs. 41 (41%) of the respondents strongly agreed that interviews and interrogations often yield valuable information that aids in fraud assessment, investigations and management in ministries, department and agency in the public sector. Only 9 (9%) disagreed to it. The mean value of the response is 3.10 with a standard deviation of 0.89.  About 42% of the respondents ticked that they frequently find document analysis to be an essential tool in tracing fund activities in the course of fraud examination and investigation in your ministries, department and agency. 8% of the interviewees strongly disagreeing to it. The mean and standard deviation value stood at 3.10 and 0.88 respectively.  With regards to item number three, 40 (40%) of the respondents strongly agreed that the accuracy of tracing funds through document analysis is high in your ministries, department and agency. Only 12 (12%) of them strongly disagreed to it but with a mean value of 3.10 and 0.86. 41 (41%) submitted positively to item number four that they Conducting interviews is a critical part of tracing funds in fraud examinations in your ministries, department and agency with a mean and standard deviation of 3.09 and 0.87. The grand mean and standard deviation stood at 3.07 and 0.87.

Table D: Descriptive Analysis 3

Table D concerns questionnaire on life style forensic accounting technique on fraud management. 40(40%) of the respondents agreed to item number one that by scrutinizing lifestyle indicators of a fraudster, they are able to un-earth hidden assets, unreported income, and illicit financial activities in your ministries, department and agency with a mean value of 3.00 and standard deviation of 0.88.  From the responses obtained from the respondents, 41% were of the view that comparing declared net worth with lifestyle and expenditure enables detection of discrepancies in fraud assessment by forensic accountants in ministries, department and agency under serial number two with a mean and standard deviation of 2.97 and 0.89. About 40% of the respondents agreed that high-value purchases inconsistent with income are red flags for fraud assessment and investigation by forensic accountants with a mean value of 3.01 and 0.88. The grand mean and standard deviation read 3.11 and 0.87.

Table E: Descriptive Analysis 4

Table E on descriptive analysis of the respondents from the field study revealed that ministry, department and agency do have a clear policy on managing and examining fraud given the 42 (42%) response rate. 40 (40%) of the total respondents strongly agreed that agreed that heir ministry, department and agency have robust processes in place for fraud examination.  40(40%) agreed that accountants in ministries, department and agency receive regular training on recognizing and preventing fraudulent activities while 39 (39%) of the respondents strongly agreed and affirmed that whistleblower protection mechanisms are in place to encourage reporting of fraudulent activities in your ministries, department and agency. The overall mean and standard deviation were 3.05 and 0.88 respectively.

Table F: Correlations Matrix Result

Source: SPSS Correlational Output

The result of the Pearson correlation result shows that forensic document examination is strong and positively correlated at 95% significant level (r=0.653 and P=0.000). This suggests that forensic document examination is key driver in fraud assessment and management particularly among MDAs in Nigeria.

Source: SPSS Regression Output

The goal of the regression results in table G is to determine the impact of forensic document examination aimed at unravelling fraud and fraud management in Nigeria. Table G result points out that the explanatory variable accounted for about 40% systematic variation on fraud management in Nigeria.

Table H: ANOVA^a

 Source: SPSS Regression Output

The result is statistically significant at 95% level as seen in the ANOVA result from table H.  The result portends that forensic document examination is a key contributory factor in fraud investigation and management among MDAs in Nigerian public sector.

Table I: Coefficients

Source: SPSS Regression Output

The individual coefficient of forensic document examination is positive (0.126) and statistically significant at 95% level as observed in table I. The implication is that forensic document examination is important in fraud management among MDAs public sector of Nigeria.

Source: SPSS Correlational Output

The correlation matrix results from table K shows that tracing fund is strong and positively correlated with fraud management and is significant at 95% level.

Regression Results

Source: SPSS Regression Output

The result from table K, revealed that tracing fund using the adjusted R-square, accounted for about 32% systematic variability on fraud management among MDAs, leaving about 68% unaccounted as a result of the presence of error term in the model. The variable is significant given the F-statistics value of 1.434 and a probability value of 0.003.

Source: SPSS Regression Output

Source: SPSS Regression Output

The individual coefficient of tracing fund in table N is positive and significant on fraud management among the MDAs in public sector of Nigeria.

Source: SPSS Correlational Output

The correlation matrix results in table N shows that life style analysis is weak and positively associated with fraud management among MDAs in the Nigerian public sector.

Regression Output

Source: SPSS Regression Output

Table P indicated that life style analysis accounted for about 39% systematic variation on fraud management, leaving the remaining 61% unexplained due to the presence of error term in the regression result.  It is statistically significant at 95% level.

Source: SPSS Regression Output

Source: SPSS Regression Output

The individual coefficient of life style analysis exerted a positive effect on fraud management and is significant at 95% level.  The synergy between forensic document examination and forensic accounting is essential in thoroughly investigating and resolving financial crimes. The meticulous analysis of documents, both physical and digital, provides forensic accountants with critical evidence to uncover and prove fraudulent activities. As financial crimes become increasingly sophisticated, the collaboration between these two fields remain indispensable in maintaining the integrity of financial investigations. Tracing funds is a critical aspect of forensic accounting, requiring a combination of traditional techniques and advanced technologies. Document analysis, data mining, interviews, and bank reconciliation remain foundational methods, while blockchain, AI, and forensic data analytics represent the future of forensic investigations. The study concludes from the descriptive and inferential analysis that by integrating these techniques, forensic accountants are able to effectively trace funds, uncover fraud, and ensure financial integrity. Similarly, lifestyle analysis is an indispensable component of forensic accounting, offering a robust mechanism to detect and investigate financial discrepancies. Despite its challenges, when applied correctly, it provides critical insights into financial behaviours that may indicate fraud or misconduct. However, it is pertinent to state that forensic accountants must necessarily navigate privacy issues and data reliability to effectively utilize this technique.

CONCLUSION AND RECOMMENDATIONS

The goal of this study was to investigate impact of forensic accounting on fraud management among ministries, departments and agencies in the Nigerian public sector. Specifically, the study examined how forensic accounting techniques like forensic document examination (FDE), tracing of fund and life style analysis influence fraud investigation and management in ministries, departments and agencies (MDAs) in the Nigerian public sector.  It was found that these techniques of forensic accounting were significant on fraud management in the Nigerian public sector. It therefore implies that forensic document examination, tracing fund and life style analysis remained very potent at enhancing the investigation and management of fraud in the ministries, departments and agencies of government in Nigeria. Stemming from the study’s findings, the following recommendations are put forward:

1. The government needs to invest in regular training programs for staff on advanced forensic document examination techniques. This should include up-to-date methods for identifying document alterations, forgeries, and counterfeits. There is need to implement advanced forensic tools and software to aid in the detection of fraudulent documents in MDAs. For example, utilizing technologies such as digital forensics, data analytics, and machine learning can significantly improve the accuracy and efficiency of forensic document examination (FDE).
2. MDAs are advised to implement a system to regularly monitor and analyze the lifestyles of key officials and employees since unexplained wealth or lavish lifestyles that are inconsistent with known income levels can be red flags for fraudulent activities. MDAs should incorporate lifestyle analysis into routine financial audits to provide a more comprehensive view of potential fraud. This integrated approach can help in identifying inconsistencies between declared assets and actual lifestyles.

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