FRAUD DETECTION AND CONTROL IN PARTIAL DEPARTMENTS

(A CASE STUDY OF MINISTRY OF AGRICULTURE ENUGU STATE)

By

GBUFOR IFEOMA .T

Presented To

Department of Accountancy

ABSTRACT

This research paper fraud detection and control in payroll department the aim of conducting this research work is to investigate into the causes of alarming rate of fraud and its control in our payroll of our various ministries.

Identify the effects and suggest possible solution towards achieving fraud free in our organization payroll.

In otherwords, the aim of the study is also ascertain, investigate and highlight the reason for frauds in payroll department and the organization in generally. How can it be detected checked and controlled?

An investigation and the analysis of the data collected the following problems were identified. Using of incompetent staff to carryout the job require in the payroll, absence of good internal control and internal check employing of dishonesty staff or cooks in payroll section, non - motivation of staff.

Further more because of the ghost workers exercise done by the Enugu state government in the ministries and department in 1995 is one of the thing that inspired me to carryout this investigation on how fraud can be controlled or at least reduced to the lowest base minimum, but in the case the introduction of variation control is one of the check.

Finally to suggest solution to the problems and make recommendation for future prospects of payroll departments. The following recommendation should be based on the analysis of the questionnaire and oral interview.

TABLE OF CONTENT

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ACKNOWLEDGEMENT V

ABSTRACT VII

TABLE OF CONTENT IX

CHAPTER ONE

1.0 Introduction 1

1.1 Statement of problem 3

1.2 Objective of the study 5

1.3 Significance of the study 6

1.4 Research hypothesis 7

1.5 Scope of the study and 8

Limitation of the study 9

1.6 Definition of terms 9

CHAPTER TWO

2.0 Review of related literature 17

2.1 Definition of fraud in payroll department 17

2.2 Types of fraud in payroll department 18

2.3 Causes of fraud in payroll department 22

2.4 Detection of fraud in payroll department 29

CHAPTER THREE

3.0 Research design and methodology 39

3.1 Sources of data 39

- Primary data 39

3.2 Method of collection data 44

CHAPTER FOUR

Data presentation and analysis 50

4.0 Introduction 50

4.1 Test of hypothesis 69

CHAPTER FIVE

5.0 Summary of findings, conclusion and recommendation

5.1 Findings 75

5.2 Conclusion 77

5.3 Recommendation 77

BIBLIOGRAPHY 80

APPENDIX 82

CHAPTER ONE

10 INTRODUCTION

In recent times fraud in ministries dominates front page of our Newspapers, radio announcements and television announcements This fact is indisputable in the minds of the readers, listeners and observers These fraud stories should be on a matter of greater concern to a patriot worthy of the name The deeper study and increased analytical approach to ghost workers had led to an over growing realization of the frauds and control in the ministries and autonomous departments and the influence on the success or other wish of government of Nigeria

According to the research made, it is the impact fraud has on government revenue, big organization, banks, ministries etc that led into writing this topic

Furthermore, the ghost workers exercise by the Enugu state government in the ministries and autonomous department in 1995 and the introduction of various control that inspired to carryout this survey and investigation on how fraud can be controlled to at least be reduced to the lowest bares minimum

According to the oxford advance learners Dictionary of current English, the word fraud simple means criminal deception

Perhaps the meaning and explanation which consider more is the definition offered in Hamlyn Encyclopedia world dictionary According to this great master dictionary, the word fraud means deceits, trickery, sharp practice or breach of confidence, by which it stands to gain more some unfair or dishonest advantages over others

In other words on these definition put forward above, it means that the act exhibited by some one which is pursed towards gaining under and non - meritorious credits at the detriment of the right beneficiary construct an act of fraud is never committed, unless the intention of the perpetrator was present the time the execution of the dubious plan Therefore any alleged fraud which does not meet this test must be construed and interested as aiding and betting fraud

Another definition of fraud by the college dictionary of the Random house if simply "a deceit, trackery or breach of confidence use by one person to gain unfair and dishonest advantage over others

This two definition rather appropriate and adequate for this project because they contain the main element of fraud, which include the following:

1 There must be decent, trickery or breach of confidence

2 There must be unfair and dishonest advantage based on the concept of one man's loss is another man's gain

11 STATEMENT OF THE PROBLEM

The recently reported waves of fraud in the ministries is to say the least, very unfortunate frauds, no doubt are being perpetuated in various sub - sectors of the economy but those committed in government organization going by previous and recent reports, are most disconcerting

A situation as we are experiencing now where incessant care of frauds of the ministries payroll are being reported which could not immediately check erode our future economy Fraud has continued to cause untold hardship to our people collectively and individually To capture all fraud has significantly contributed to what is happening in the ministries and departments lapses in the government of Enugu state

Fraud which may be discovered in payroll department include:

i Salary defalcation

ii Over easting of salary sheet

iii Inflation of figure

iv Dummy names or non existence expenses

v Preparing of supplementary voucher

In effect of this problems posed by fraud in almost every payroll system in Nigerian organization that gave the researcher the impetus to go into research to investigate and find out the rational behind these frauds in payroll How they are detected checked and control

In recognition of the above facts, the type of frauds committed and other possible effects of frauds in the payroll system

The researcher also hopes to make useful recommendations and suggestions that will help completely to a large extent eliminate fraud in ministries payroll

12 OBJECTIVE OF THE RESEARCH

Fraud in payroll system in most Nigeria organization is comparatively high and this has disturbed the growth and development of certain organization The main aim of the study is to ascertain the reasons for fraud in payroll, how they are detected, checked and controlled

1 To find out the different types of frauds committed in the payroll

2 To find out causes of fraud in the payroll system

3 To find out the step that can be taken to eliminate fraud in the payroll

4 To find out the category of workers committing fraud in the payroll system

5 To make recommendations based on the finding of the study

6 To determine the nature and scope of these fraud in payrolls ie whether they are fundamental or material

7 Finally to suggest solution to problems and make recommendation for future prospect

13 SIGNIFICANCE OF THE STUDY

The study is meant to aid payroll system in detecting fraud since the interest of both government and worker are at a risk if unprotected The study would also aid all other organization that may have a need for assistance in checking fraud, since fraud and some other malpractices are not limited to the ministries alone

It is hoped that the recommendation and suggestion made in the study would help in the growth and development of government ministries as well as business organization and if necessary replace most of their ineffective internal control checks with more effective and perhaps less dangerous one's

The elimination of the payroll would restore the corporate image of the ministries payroll

Finally, the study would be of immense help to all those who wish to carry out further study of fraud in the ministries payroll or in any other related field

14 RESEARCH HYPOTHESIS

Hypothesis is a proposition out forward as a basis for reasoning a supposition formulated from proved data and presented as temporary explanation of occurrence as in science, in order to establish a basis for future research

Osuala EC defined it as "a conjectural statement of the relationship between two or more variables"

In order to determine the effects of fraud detection and control in payroll departments and Nigerian ministries, the following hypothesis are formulated

HYPOTHESIS I

Ho: Fraud does not exist in the payroll departments of ministries

Hi: Fraud exists in the payroll department of ministries

HYPOTHESIS 2

Ho: Fraud does not have any adverse effect in the progress of an organization and country's economy

Hi: Fraud have adverse effect in the progress of an organization and country's economy

HYPOTHESIS 3

Ho: Poor motivation of employees in ministry does not cause fraud

Hi: Poor motivation of employees is the cause of fraud in the ministry

15 SCOPE OF THE STUDY AND LIMITATION

The scope of the study has been limited to the payroll system in Enugu state due to time and proximity

Secondly, due to the sensitive nature of the topic most payrollers are generally not disposed to help for the simple reason that the researcher may have been sent by the internal auditors of the payroll system It tool time to convince the staff to corporate and this was even possible because the researcher was able to prove that he was a student of Institute of Management and Technology (IMT)

Thirdly, since most of the payroll systems have the same methods of operations, it is believed that the needs of the researcher would still be met from the study of the samples from Enugu state

16 DEFINITION OF TERMS

1 Corporate image: This refers to the goodwill and public image created by an entirely It could be as a result of making good quality products, offering efficient services and maintain a satisfied work force

2 Internal control: the plan of an organization and all the co-ordinate method and means adopted within a business to safeguard its assets, check the accuracy data, promote operational efficiency and encourage adherence to prescribed managerial policies

3 Liquidation: The winding up of a business, is usually as a result of insufficient funds

4 Forgery: Forgery is the act of falsely making or receiving any writing for the purpose of doing to another person Any alteration of a writing made with intent to defraud is a forgery For instance, the forgery of a staff signature

5 Dummy names: This type of fraud is in a way of including non - existence name in the wages sheets

6 Falsification of account: This types of fraud is usually committed by the payrollers who are either acting ignorantly, innocently or with proved criminal intent

7 Forged cheque: Forged cheque with forged signature remain one of the commonest source of fraud, in this case, cheque books are stolen, customers signature are perfectly forged and many successfully with draw from the bank

The above terms were defined and explained in order to lend charity to the terms

FRAUDS AND IRREGULARITIES

According to Onovo (ACA), the word fraud and irregularity can be termed as errors and this word error is used to refer to unintentional mistake in financial statements whether or mathematical or clerical nature of whether due to over sight or misinterpretation of the relevant facts

IRREGULARITIES: In a general view from the research made, the word is used to refer to intentional distortions of financial statements for whether purpose and misappropriation of assets

FRAUDS: Frauds in this aspect is one type of irregularity This word is used to refer to irregularities involving the use of criminal deception of obtain unjust or illegal advantage

MANAGEMENT RESPONSIBILITY: The primary responsibility for the prevention and detection or errors and irregularities rest with management This responsibility may be party discharged by the institution of an adequate system of internal control The responsibility of management in this regard is even higher where assets are help in a fiduciary capacity on behalf of the public in a third party as is the case with banks and insurance companies In addition, the directors of a company are regarded in law as acting in a stewardship capacity concerning the property which is under their control

Consequently they have a duty to take steps to ensure the safety of the company assets

AUDITORS RESPONSIBILITY

The legal position is that it is not the auditor's responsibility to detect or prevent frauds and other irregularities (Le: Kingston Cottons nill (1896)

The auditor's duty is to state whether a set of accounts gives a true and fair view and comply with the retent legistlation The auditor's responsibility is to design and evaluate his work a view to detecting and those errors and irregularities which might impair that truth and fairness of the financial statement Therefore in obtaining audit evidence, the auditor should satisfy himself that those errors or irregularities which may be material to the financial statement have not occurred and that if they occurred, they are either corrected or properly accounted for in the financial statement In carrying out this responsibility, the auditor should exercise reasonable care and skill and apply current auditing standards and principles In the audit of some ministries and parastatals, the auditor may be instructed to look for errors and irregularities In such case, the auditors obviously have a responsibility

The draft guidelines "Fraud and other irregularities"

Provides some general assistance to identify circumstances, which are possibly indicative of irregularities, some of these are:

i Missing vouchers or documents

ii Evidence of falsification documents

iii Unsatisfactory explanation

iv Figures trends or results, which do not accord with explanation

v Unexpected items on reconciliation or suspense accounts

vi Evidence of disputes

vii Evidence of unduly lavish by drop employees

viii Unusual investment of funds held in control is not operating as it was believe or intended to

As regard action to be taken at the discovery of potential errors and irregularities the guideline state if during the course of his work, the auditor obtains information indicating the possible existence of errors or irregularities, the following action should be taken:

a Unless it is possible to conclude that with additional testing the circumstances encountered could not give rise to an irregularity or errors having a material effects on the financial statements The auditor should perform additional test

b If after additional testing has been performed, and it appears that an error or irregularity has occurred, the cost and likely affect on the financial statement analyzing and projecting the result of his test

c Where the auditor is satisfied that irregularities are not material to the financial statement He should consider discussing it with the appropriate level of management in order to determine what further action should be taken

REFERENCES

Adekanye F "Element of Banking in Nigeria" fraud

AA Publisher, 3^rd edition 1986 page 168

Business Time: May 6 1985

National concord: April 26, 1985 front page

News watch magazine: People's bank for the people

October 5^th, 1992 page 29

Umole, JA: "Money and banking system in Nigeria"

A lecture delivered during a financial week at the

university of Lagos

Uzoaga, WO: "Money and banking in Nigeria" fourth dimension publisher, 1981