[Essay] The Effect of Fraud & Irregularities on Banks Performance in Nigeria and its Control

Introduction

Bank organizations in Nigeria perform a variety of tasks and responsibilities not only for transformation agenda but also to enable it to function in an effective manner. These tasks and responsibilities are distributed among teams, which are assigned to fulfil their duties in a specific organisation. All designated tasks are equally important in Nigerian Banks, thus, making all employees and staff crucial to the operations of the bank. One of the crucial functions in these organizations is the process of auditing especially in the cases of fraud and irregularities..

It has been reported that an audit is an evaluation of an organization, system, process, project or product, which involves the independent and fair assessment of the financial statements of the organization (‘Audit’ 2011). Knowledgeable, independent, and objective individual or group of individuals, known as auditors or accountants, makes a report based on the results of the audit. In addition, this function is performed to determine the reliability and validity of financial information, and to present an evaluation of a specific company or an internal control of a particular business system, for these systems must comply with the generally accepted standards laid down by national governing bodies for regulation (Power, Walsh, & O’Meara, 2001). Because of such importance, this paper seeks to consider the effect of fraud and irregularities on banks performance in Nigeria and its control.

Discussions

In accordance to fraud and irregularities on banks performance in Nigeria, auditing and financial evaluation are crucial since it reflect on how their respective administrators manage the flow of their income, assets and transactions. For this reasons, banks in Nigeria should hire several experts to do the auditing and financial evaluations. Aside from hiring accountants and auditors that will work for them internally, they also need to seek help of other experts to avoid biasness and also in order reveal the genuine stability of the entity being audited (Jones & Pendlebury, 2000). According to Arter, (2002), these people are called independent auditors expert or sometimes called external auditors. Basically, external auditors/accountants are audit experts who perform an audit on the financial statements of a government, company, individual, or any other legal entity (Cameron, 1982). As stated previously, these people are working independently to present an unbiased and independent evaluation on such entities. In comparison to internal auditors, external auditors’ primary responsibility is assessing the risk management practices and strategy, management and governance processes of an entity. These experts are usually does not express any opinion on the entity's financial statements, they just evaluate and never do such recommendations. Similar to internal auditors, independent auditors are considered by the public service sector and other organisations to take a look at financial statement to confirm they are free of errors and obvious misstatements (Arter, 2002).

Basically, Fraud & Irregularities occurring among banks in Nigeria created significant effect. This event may result to business failure or worst bankruptcy. Aside from this, fraud & irregularities could also have significant effect to capital market, capital structure, Efficiency Market Hypothesis and credit ratings. In accordance to the impact on control environment and internal controls within Banks in Nigeria, the independent auditor has a number of affirmative responsibilities. According to the Jones & Pendlebury (2000), firstly, the independent auditor must be precise in strategies to find out and report the bank's genuine financial position. Secondly, as a representative for the public, the independent auditor must stay independent of the management of the bank. The independent auditor owes the independence duty to the shareholders of the bank, the public and the board of directors. Thirdly, the independent auditor must completely reveal all material features of the financial condition of the bank. The independent auditor duty of disclosure requires them to reject an improper engagement, report cheating, and place a caution on statements pertaining to the ability and liquidity of the company to continue as a going concern.

In independent auditor experts’ affirmative duty to discover irregularities and material errors, including fraud, the independent auditor fulfils a function that the public considers the independent auditor's most significant role (Monaghan 1989). According to Harvey, (1990), fraud does not become visible on the face of bank's records, but frequently signs of it will likely in the form of irregularities, and, hence, the auditor can only divulge fraud by closely examining irregularities. Whereas the Statements of Auditing Standards (SAS) according to Arter, (2002) asserts the independent auditor's clear liability to identify management fraud, that same SAS does not oblige the auditor to guarantee the accuracy of the firm's financial statements.

Conclusion

From the previous discussion, we may argue that auditors whether from internal or external, audit committees and the management of Banks in Nigeria play important roles. The importance reflects on the fact that they should have good teamwork and communication in order for them to organize and protect the relevant information in any public service sector since it has significant impact on the control environment and internal controls within the banks sectors in Nigeria. With this, their role and work must be reviewed including the idea of improvement. In the case of financial fraud, auditors with respect to management assurances should be aware to the significant laws and protocol concerning their work.

As indicated, the most important role of auditors is to convey an outlook on whether an entity's financial statements are free of material misstatements. The independence of auditors is vital to an accurate and thorough assessment of an entity's financial statements and controls. Meaning, any connection between the entity and the auditors, other than maintenance for the audit itself, must be divulged in the report of auditor. This rule also forbid the auditor from having a stake in public clients and harshly confines the kinds of non-audit services they can offer.

References:

Arter, D. (2002) Quality Audits for Improved Performance. ASQ Quality Press; 3 edition

Audit (2011) Encyclopedia.com, viewed 16 March 2011, < www.encyclopedia.com/topic/auditing.aspx >.

Cameron, E.D. (1982) Report of the Independent Auditor on an Efficiency Audit of the Auditor-General's Office under the Audit Act 1901, 5 March, AGPS, Canberra.

Harvey, F. (1990) ‘Detecting and Investigating Fraud in the Public Sector’, AIC Public Sector Auditing Conference, September, Sydney.

Jones R. & Pendlebury M. (2000) Public Sector Accounting, Financial Times/Division of Pearson Education. ISBN: 0-273-64626-5. pp.288. 5th Edition.

Monaghan, C.T. (1989) ‘Comprehensive Auditing for Efficiency’ in Selected Addresses on Public Sector Auditing, no. 5, AAO, Canberra.

Power T. Walsh S. & O’Meara P. (2001) Financial Management: an Irish text, Gill and McMillan, Dublin.