This study examined the effect of financial statement fraud on organisational performance. Specifically, in actual fact, dependence on the information provided in financial statements constitutes one of the greatest global challenges for businesses. Return on Assets (ROA) was obtained from the financial statements of Nigeria Banks from year 2000 to 2015 in order to measure their financial performance,multiple regression analysis model was used to determine the effect of independent variables on the dependent variable. All the above findings on the classification of causes of fraud are caused by management, technological, legal, personal and social.The study found out that the Y-intercept was 0.426 for all years. It was recommended that Deposit money banks management should come up with a policy which clearly indicates steps to be taken on any staff found committing fraud.This will help reduce internal fraud which is more elaborate in the bank than external.

















Title Page                                                                                                                                i

Declaration                                                                                                                              ii

Certification                                                                                                                            iii

Dedication                                                                                                                              iv

Acknowledgements                                                                                                                v

Abstract                                                                                                                                  vi

Table of Contents                                                                                                                   vii

List of Tables                                                                                                                          ix

List of Figures                                                                                                                         x


  • Background of the Study                                                                                          1
  • Statement of the Problem             2
  • Objectives of the Study 4
  • Research Question             4
  • Statement of the Hypothesis             4
  • Significance of the Study             5
  • Scope of the Study                         5
  • Justification of the Study 5
  • Definition of Terms             6


2.1       Introduction                                                                                                                7

2.2       Conceptual Framework                                                                                               7

2.3       Theoretical Framework                                                                                               14

2.4       Literature Review                                                                                                       21


3.1       Introduction                                                                                                                46

3.2       Research Design                                                                                                         46

3.3       Population of the Study                                                                                              46

3.4       Sample of the study                                                                                                    46

3.5       Data Collection and Research Instruments                                                                47

3.6       Data Analysis                                                                                                              47

3.7       Limitations of the Study                                                                                             48


4.1       Introduction                                                                                                                49

4.2       Data Analysis and Interpretation                                                                                50

4.4       Discussion of Findings                                                                                               53


5.1       Summary of Findings                                                                                                 55

5.2       Conclusions                                                                                                                 55

5.3       Recommendations                                                                                                      56

5.4       Suggestions for Further Studies                                                                                 57

Reference                                                                                                                    58

Appendix                                                                                                                    65



Table 4.1: Fraud and Forgery cases and amount of money lost by Nigerian Banks

(2000-2015).                                                                                                   49

Table 4.2: Model Summary.                                                                                                    51

Table 4.3: Summary of One-Way ANOVA results of the regression analysis

between financialperformance of Nigerian Banks and its determinants.       51

Table 4.4: Regression coefficients of the relationship between financial performance

ofNigerian banks and the four predictive variables.                                       52

















Fig.1:   Application of Routine Activity Theory in crime                                                       16

Fig 2:   Fraud Triangle Theory                                                                                    18

Fig 3:   Fraud Diamond Theory                                                                                              20























1.1       Background of the Study

As a countermeasure to high profile accounting scandals and business collapses, among the most notable being Enron in 2001, the Sarbanes Oxley Act was passed by the United States of America congress in 2002. The purpose of the Act is to add strength to a public company’s internal control mechanism and financial reporting, which in turn will lead to greater transparency in financial statements (Agami, 2012). In Malaysia, corporate financial scandals such as those committed by Transmile Group Berhad, Tat Sang Holding and Megan Media Holdings Berhad, (2007) have diminished the firms’ value and shareholders’ wealth. This has possibly had a negative impact on foreign direct investments. Concomitant with the financial and nonfinancial damage, the faith and reliance of the public in the accounting and auditing profession will be destroyed by financial statement fraud (KPMG, 2012).

PricewaterhouseCoopers (2011) discloses that one of the most challenging issues for businesses globally is fraud. Notwithstanding the imposed regulation and legislation or the control mechanisms implemented by the companies, the intensity of economic crime and the concomitant financial and non-financial damage remains unchanged. In fact, as reported by PricewaterhouseCoopers (2007), out of every two companies worldwide, one had been a target of economic crime within the preceding two years.

In response to the aforementioned crisis, the improvement of financial statement fraud controls and the integrated strategies of prevention, detection and action to response to financial statement fraud are important for reducing financial statement fraud. These strategies need to be practised at all levels in corporations and supported by a board of directors, audit committee oversight, executives, chief executive officer, chief financial officer, chief operating officer and accountants through internal audit, compliance and monitoring functions (KPMG 2007).To date, most discussions have stressed prevention and detection strategies that can be used to mitigate financial statement fraud. Although previous academic researchers did not examine the actual practices of financial statement fraud controls in commercial companies, it is suggested that an improvement in such control is required. Johl et al. (2013) studied the actual practice of internal control that is related to financial statement fraud. By using Malaysian evidence, Johl et al. (2013) found little attention had been given to examining internal audit’s contribution towards financial reporting quality. In relation to this, the present research focuses on the practices of financial statement fraud control in the context of Malaysian commercial companies and provides qualitative evidence of qualitative aspects of financial statement fraud control.

1.2       Statement of the Problem

In capital markets, financial statement provided by the companies should be fair, efficient, transparent and free from any misleading information. Financial statements or financial reports are supposed to be tools upon which users can rely when making investment decisions. Therefore the dissemination of financial statement information from companies should be timely, accurate, complete and free from any material misstatements. This is very important for investors to be able to determine their investment decisions and trading strategies Ravisankar, et al. (2016). However in reality, the reliability of financial statement information seems to be questioned by investors and public due to previous financial statement fraud cases. In actual fact, dependence on the information provided in financial statements constitutes one of the greatest global challenges for businesses (PWC, 2012). Thus, the research found financial statement fraud has become a serious problem and tends to be extensive and momentous which requires improvement in financial statement fraud control due to the huge impact of financial statement fraud losses.

According to ACFE (2012), financial statement fraud cases triggered the greatest median loss at $1 million despite the small number of cases involved in the research investigation.

The issue is serious as the actual level of economic crime and the associated financial and non-financial damage has been reported to be on the rise as the number of financial statement fraud cases has increased since 2003 (PWC, 2012).

ACFE (2012) revealed that globally an average organisation is estimated to lose 5% of its revenue each year due to significant frauds which also include financial statement fraud. If this rate of loss is applied to 2011 Gross World Product, this causes an anticipated fraud loss of $3.5 trillion (ACFE, 2012). The impact is that financial statement fraud cases have resulted in financial losses, a loss of shareholder value and bankruptcies (Center for Audit Quality, 2010). As such, it leads to the question what is lacking in the internal control system adopted by the companies?

Strategies in detecting and preventing fraud cases have been presented in the literature (Vaughan, 2007; Wells, 2007; KPMG, 2009; PWC, 2012; Rejda, 2013). However, the investigation of the actual practices of financial statement fraud control to provide improvement appears from the literature to be very limited. Most of the related literature is from professional bodies such as Institute of Internal Auditors (IIA), American Institute of Certified Public Accountants (AICPA), Association of Certified Fraud Examiners (ACFE), KPMG and PricewaterhouseCoopers (PWC). Hence, in this research, improvements for financial statement fraud control and the awareness of financial statement fraud control will be suggested.


1.3       Objectives of the Study

The main objective of this study is to examine the effect of financial statement fraud on organisational performance.

  • To determine the effect of financial statement fraud on organisational performance;
  • To examine the relationship between bank fraud and organisational effectiveness;
  • To investigate the relationship between bank fraud and organisational survival.

1.4      Research Questions

Specifically, the research focuses on the following questions which are related to financial statement fraud on organisational performance:

  • What are the effects of financial statement fraud on organisational performance in Nigeria Banks?
  • What is the relationship between bank fraud and organisational effectiveness?
  • What is the relationship between bank fraud and organisational survival?

1.5       Statement of Hypothesis

A research hypothesis is a generalized and verifiable statement about a state of phenomena which may be true or false. Therefore, these research null hypotheses will be empirically tested in this research work.

Hypothesis One

Ho:      There is no significant relationship between bank fraud andorganisational performance.

Hypothesis Two

Ho:      There is no relationship between bank fraud and organisationalperformance.



1.6       Significance of the Study

The recommendations in this research work will provide effective roles for company management to improve financial statement fraud control and thus provide a monitoring tool for deposit money bank.

Considering that the management of a company as well as its auditors has to play vital roles in protecting the shareholders’ interests, financial statement fraud control and strategies would create awareness within corporations of financial statement fraud. These strategies will also help businesses (1) to identify fraud in a timely manner and minimize the resulting damage, (2) to enhance the reliability of financial statements and increase shareholder value, and (3) to conduct their business ethically. The contribution of this research would enhance the upgrading of the Standard of Procedures and Internal Control System in organizations that reflect strong management practices towards reducing any financial statement fraud.

1.7       Scope of the Study

Conceptually the study covers the effect of financial statement fraud on organisational performance which is concerned in Nigeria. In which Nigeria Banks was used as a case study. However, the research was limited to Nigeria Banks in Ibadan due to the schedule of researcher is from year 2000 to 2017.

1.8       Justification for the Research

Research into fraud and financial statement fraud in particular, is difficult as fraud is usually a hidden activity. Higson (2010) found management reluctant to report suspected fraud because of its imprecise definition, vagueness over directors’ responsibilities and confusion about the reason for reporting fraud. The Committee of Sponsoring Organisations of the Treadway Commission report found that most audit reports issued in the year prior to the fraud coming to light were unqualified (COSO 2009); therefore, qualified audit reports do not adequately quantify the impact of financial statement fraud. Fraud Advisory Panel (2009) figures suggest that UK fraud involving false accounting peaked in the early 1990s, falling until 1996 when reported cases of false accounting rose again, though not to the same level. Similar data available for Australia suggest that financial statement fraud peaks in times of recession (Fraud Advisory Panel 2009).

1.9       Definition of Terms

Fraud: Fraud refers as an international misrepresentation of financial information by one or more individual among management, employees or third parties. Fraud also defined as misappropriation, theft or embezzlement of corporate assets in the particular economic environment.

Bank: It is a place where money and other things are kept.

Financial Statement: A yearly book that contains summarized information of the form’s affairs organized systematically.

Audit: A person assigned to carry-out an independent examination of evidence supporting the financial statement of an organization.

Corporate Governance: A set of process, customs, policies, laws etc affecting the way a corporate is directed, administered or controlled.

Financial Statement Fraud: The deliberate misrepresentation of financial condition of an enterprise accomplished through the intentional misstatement of amount in the financial statement to deceive financial statement users.