1.1 BACKGROUND OF THE STUDY
The recent global financial crisis, which had its roots in the banking sector, highlighted, except from the existing regulatory gaps, the lack of proper and efficient internal audit functions within the banking institutions in order to mitigate the resulting negative effects. The burst of the credit crunch and the following financial recession resulted in the dramatic increase of bank frauds all over the world, a fact that strengthened the need for the implementation of internal audit techniques.
Moreover, the internal audit function plays a crucial role in the ongoing maintenance and assessment of a bank’s internal control, risk management and governance policies thus, adding value and assisting in the achievement of the management’s goals.
In the intermediation, banks mobilize savings from the surplus units of the economy and channel these to the deficit units, particularly private business enterprises for the purpose of expanding their productive capacity (Adeyemo, 2012). Levi (2001), asserts that corporate financial scandals in the USA such as Enron and Tyco debacles send shockwaves in the corporate world, regulatory authorities, audit fraternity and the economic world society at large. These have led to the erosion of investor confidence in the financial markets.
The incidence of fraud and misappropriation of funds in recent time poses a threat accounting profession because of its perennial nature. This has resulted to questions as to whether accountants actually play any significant role towards the attainment of accountability and prevention of fraud especially that which is currently happening in our major or key financial institutions.
With an upsurge in financial accounting fraud in the current economic scenario experienced, financial accounting fraud detection has become an emerging topic of great importance for academic, research and industries. In this age of high technology, fraud investigators can no longer be satisfied with just auditing or accounting skills, these investigators should be trained as forensic accountants and this training should include an extensive knowledge of accounting information.
Fraud imposes numerous costs to organizations that experience it. The banks might suffer loss in terms of monetary, reputation, human capital as well as the exposure to the risk of bankruptcy. In a wider scope, fraud does not only threaten our country’s economic condition with the loss of investors and resources, but it is in fact endangers the serenity and political stability of the nation. Nevertheless, while banks are active in the quest to reduce costs of fraud, it is important to make sure that they do not immensely deteriorate the effectiveness of current functioning key fraud controls.
Having committed a large sum of funds and resources as a shareholder to financial institutions, the expectation is to generate a high level of profitability but this has been thwarted by the high index of fraud perpetrations in the industry. Financial statements produced can no longer be relied upon except audited.
1.2 STATEMENT OF THE PROBLEM
Fraud is a challenge in organizations regardless of which type. Research has shown that inability of assessing fraud risk with accuracy can cause fraud not being detected, also improper recording of financial statement have accounted for the rise of irregularities and some acts usually perpetrated by some staff and members of management in a financial institution (Olowookere, 2001).
Furthermore, despite the independence of auditors, fraud is still in the increase and most organizations has internal control system that checkmates the operations of the organization but fraud still exist within the organization. In order to protect our banking sector, it is crucial to examine the level of assessment of fraud risk with respect to financial statement audits.
1.3 OBJECTIVES OF THE STUDY
The main objective of this research work is to evaluate audit as a tool for fraud risk assessment in a financial institution.
The specific objectives are stated as follows:
i. Determine whether independence of auditors reduces fraud risk.
ii. Evaluate the effect of managerial integrity in reduction of fraud risk.
iii. Examine internal control framework in reducing fraud risk.
iv. Identify the constraint faced in minimizing fraud risk in commercial banks.
v. Suggest possible recommendation for auditors in combating fraud risk in commercial banks.
1.4 RESEARCH QUESTIONS
The following research questions were answered based on the stated objectives of the study.
i. Does the independence of auditors reduce fraud risk?
ii. What is the effect of managerial integrity in reduction of fraud risk?
iii. What are the internal control frameworks in reducing fraud risk?
1.5 HYPOTHESES OF THE STUDY
Based on the research questions and for the purpose of this study, the following hypotheses were formulated.
Ho1: Independence of auditors has no significant relationship with fraud risk reduction.
Ho2: There is no significant relationship between managerial integrity and fraud risk reduction.
Ho3: Internal control framework does not significantly correlate with fraud risk reduction.
1.6 JUSTIFICATION OF THE STUDY
The impact of auditing in the assessment of fraud risk cannot be over emphasized. As such a lot of research works have been carried out on it both internationally and nationally which include assessment of the adequacy of external auditing in disclosing fraud in Nigerian commercial banks (Zachariah, Musa & Ibrahim, 2012), however the researcher is not aware of any research work carried out on this topic in Kwara State. This research will be of significance to the banking sector in Ilorin, Auditors and students who are willing to carry out further research in this area.
1.7 SCOPE OF STUDY
The study is on auditing as a tool for fraud risk assessment in commercial banks within Kwara State. However, due to time and financial constraint, the study focused on some selected banks within Ilorin metropolis, Kwara State, Nigeria.
1.8. DEFINITION OF TERMS
1. Auditor: Auditor is a qualified accountant who also passed a professional examination. Such a person must be of good conduct and have a vast knowledge and able to understand a practical business, endeavor always to grasp the technicalities and business, methods of any concern whose account he undertakes to audit.
2. External Audit: This is an audit carried out by an independent person who is not an employee of the enterprise.
3. Audit: Audit can be define as the independent examination of a financial statement and expression of opinion on the financial statement of enterprise by an appointed auditor in pursuance of that appointed and in compliance with any relevant statutory obligation.
4. Objectivity: refers to the need to maintain impartial judgment (e.g. not developing analysis to support a decision that the accountant knows is not correct.
5. Qualified Opinion report is issued when the auditor encountered one of the two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented.
6. FRAUD is an act or course of deception, deliberately practiced to gain unlawful or unfair advantage; at the detriment of another, it is also defined as a conscious premeditated action of a person or group of persons with the intention of altering the truth and or fact for selfish personal monetary gain
7. FORENSIC AUDITING: as the utilization of specialized investigative skills in carrying out an enquiry conducted in such a manner that the outcome will have application to the court of law.
8. TRADITIONAL AUDITOR or statutory auditor is appointed to carry out statutory audit
OTHER SIMILAR ACCOUNTING PROJECTS AND MATERIALS