AN
EVALUATION OF THE EFFECT OF FRAUD AND RELATED FINANCIAL
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CRIMES ON
THE NIGERIAN ECONOMY
ABSTRACT
The
objective of this study is to determine the impact offraud and related
financial crimes on the growth and development of Nigerian economy. Data for
the study were collected from secondary sources only. The research analyzed the
data generated using regression analysis. The research findings revealed that,
fraud and related financial crime has significant effect on the Nigerian
economy while fraud and financial crime have no significant effect on
inflation. The research therefore recommends that Auditors and Accountants in
organizations and financial institutions should be trained on how to carry out
forensic investigation since the fraudsters are now sophisticated in their act.
Also internal control systems should be strengthened to block opportunities
that attract fraud perpetrators and oversight function of the National Assembly
be strengthened to make public office holders accountable.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Economic and
financial crimes in whatever form and nature have potentially devastating
impacts on economy, security and social wellbeing of the people. It is perhaps
pertinent to stress that as modern financial system encourages and facilitates
local and international commerce, antithetically, financial criminals are also
enabled by modern financial global liberalization to transfer millions of
dollars around the world instantly through available information communication
infrastructures such as internet, electronic money transfer (wire transfer) and
the rest.
Money
laundering among other forms of economic and financial crime requires existing
financial system and operation. Money is laundered in Nigeria through currency
exchange houses, stock brokerage houses, casinos, automobile dealership, and
trading companies. These institutions are capable of masking proceeds from
illegal criminal activities. The overall effects of these activities on the
socio-political lives and economic wellbeing of the people of the developing
countries and Nigeria in particular could be well imagined (Ribadu, 2004).
In the
developed economies of the West, evidence emerged (which was at first difficult
to believe) that the criminal manipulation of Company balance sheets created a
much more favourable picture about their finances than was the reality. The
Enron Company which unexpectedly went bust is probably the best known example
of accounting books manipulation in our time. Here in Nigeria, the Lagos state
government funds are trapped while there was also crisis in US in the
management of mortgages which were inflated. It was a boom and investors made
huge profits on their mortgage investments. This encourages people and
financial institutions all over the world to finance mortgages in the USA
hoping to earn profits which proved both unrealistic and unsustainable. With time,
there were massive defaults in payments leading to foreclosures which caused
chaos, doom and gloom in housing market. Since the world is a global village,
investors in the business were world-wide; the financial crisis in the US had a
contagion effect on the world economy.
Webster’s
collegiate dictionary of current English defines fraud 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”. This definition
more specifically focuses 419ners, or con-men and other forms of commercial
dishonesty. We can then characterize fraud by the following elements: (i)
Intent to commit a wrongful act or to achieve a purpose inconsistent with law
or public policy; (ii) Disguise of (purpose): falsifications and
misrepresentations employed to accomplish the purpose; (iii) Reliance by the
offender on the ignorance or carelessness of the victim (s); (iv) Concealment
of the violation.
The most
prominent of frauds in banks and agencies of government detected in Nigeria in
the recent times includes: Fraudulent transfer and withdrawals; Use of
unauthorized overdraft;; Posting of fictitious credits; Presentation of forged
cheques; Conversion of banks money into personal use; Granting of unauthorized
loans; Abuse of medical scheme; Insider abuse; Illegal conversion of pension
funds in various agencies and ministries; Ghost workers fraud resulting into
millions of naira paid into private pockets; Abuse of political office leading to
contract over billings and over invoicing.
Commer
(2008) noted that motivations for corporate fraud include: Personal greed;
Possibility of getting away; Low prosecution rate; societal pressures;
Opportunity; Staff morale problems and Anti-institutional posture.
However,
Nigerian government like many other governments of developing countries until
recently has been very slow in putting in place strict policy measures and
legislative framework in combating the effects of economic and financial
crimes. As a result economic and financial crimes have eroded the integrity of
Nigerian financial institutions since sizeable numbers of them were actively
involved in money laundering and other financial crimes on the economy and
sociopolitical development of Nigeria as a developing nation. It is
instructive to stress from on set that this study is not intended to delve into
details legal discussion on the concept of economic and financial crimes and
the relevant provisions of Nigerian law regulating same. This of course will
not obviate occasional reference being made to various forms of economic and
financial crimes as known to Nigerian law and relevant statutory laws
regulating those forms of crimes.
This study
aims at evaluating the effect of fraud and related financial crimes on the
economy of Nigeria.
1.2 STATEMENT OF THE PROBLEM
There have
been concerns about the management of the country’s resources, particularly oil
and its revenues, has been on the operation of the Excess Crude account by the
government because it does not comply with relevant provisions of the 1999
constitution. Section 162 of 1999 constitution specifically stated that
“internally Generated Revenues (IGR) of the federal government of Nigeria must
be paid into the federation Account”, but the operation of the Excess Crude
Account (ECA) by the Federal Government violates this provision. Apart from
concerns over the mismanagement of the Excess Crude Account, there are also worries
about revenues from the sale of gases.
Falana
(2010) noted that facts have continued to emerge daily on huge sums of money
that have either been looted, misappropriated, shared, mismanaged or committed
into white elephant projects. It is worrisome to observe the highest level of
profligacy and irregularities by all tiers of government in the management of
the country’s resources and wealth of the nation. In view of the above
development, the researcher is interested to investigate the impact of fraudulent
fiscal practices and financial crimes on the growth and development of Nigeria
economy.
1.3 OBJECTIVES OF THE STUDY
The main
objective is to determine the impact of fraud and financial crimes on the
growth and development of Nigerian economy. The specific objectives include the
following:-
i. To examine the effect of
fraud and related financial crime on Gross Domestic Product.
ii. To examine the effect of fraud
and related financial crime on inflation in the economy. RESEARCH QUESTIONS
i. To what extent do fraud and related
financial crime affect Gross Domestic Product?
ii. To what extent do fraud and related
financial crime affect inflation in the economy?
1.4 STATEMENT OF THE HYPOTHESES
Hoi: Fraud
and related financial crime have no positive and significant effect on the
Gross Domestic Product.
Ho2: Fraud
and related financial crime have no positive and significant effect on
inflation in the economy.
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