Eradicating fraud & fraudulent activities through the whistle blowing policy: The accountants' perspective

The concept of fraud is a cankerworm that has deeply eaten into our system, cutting across our various homes, schools, worship centres, governance structures, and, most importantly, the corporate world. Undoubtedly, fraud is an ill wind that blows no one any good. Ironically, the banking public suddenly woke up a couple of weeks ago to discover a massive fraud perpetrated in one of our major financial institutions. The amount involved is alarming and worrisome, leading one to wonder about the motive behind such a wrongful act.

Fraud defined:

Fraud is defined as “a wrongful or criminal deception intended to result in financial or personal gain” (Oxford Advanced Learner’s Dictionary). Ayozie (2016) defines fraud as a deliberate deception to obtain an unfair or unlawful benefit. For simplicity’s sake, fraud can be grouped under two major headings, given that it can cause material misstatements in financial statements. These include fraudulent financial reporting and misappropriation of assets.

Fraudulent financial reporting:

Fraudulent financial reporting involves intentional misstatements, including omissions of amounts or disclosures in financial statements, to deceive financial statement users. It includes manipulation, falsification, or alteration of accounting records, intentional misapplication of accounting principles, and the misrepresentation or omission of events or transactions in the financial statements.

Misappropriation of assets:

Misappropriation of assets involves the abstraction of assets for personal gain and can take various forms, such as embezzling receipts of cash and checks, causing an entity to pay for goods not received, using an organisation’s assets for personal purposes, stealing physical assets, altering invoices, making false declarations, paying ghost workers, over-invoicing, teeming and lading, suppressing credit notes, and issuing double payments of invoices.

Effects of fraud:

As previously stated, fraud is an ill wind that blows no one any good. Often, its effects are disastrous to the individuals concerned, the organisation in question, and society at large. These negative implications are enormous, especially considering the financial loss, erosion of public trust and confidence, reputational damage, diversion of revenues to unwanted destinations, and the potential for corporate failure, as was globally reported in the cases of Enron, WorldCom, Tyco, Lehman Brothers, and others. Both fraud and fraudulent activities are harmful to society at large.

Whistleblowing policy:

Deni Elliot defines whistleblowing as “an action taken by an agent to bring any purported illegal or unethical behaviour to the attention of those in authority.” To illustrate the concept of whistleblowing practically, a dog barking during the wee hours of the night at the sight of an unwanted guest could be seen as a form of whistleblowing. Similarly, a fire alarm system going off during a fire outbreak in a house or office could also depict whistleblowing. The whistleblowing policy is a form of anti-corruption program that encourages individuals or groups to willingly disclose information regarding fraud, bribery, looted funds, government assets, financial misconduct, and any type of corruption or theft to Nigeria’s Federal Ministry of Finance.

To promote and fortify the concept of whistleblowing with the required statutory backing, the Nigerian government enacted and signed into law the Whistleblowing Act (WBA) of 2017, as amended. This Act provides legal cover for individuals who voluntarily expose acts of fraud, bribery, looted government funds and assets, financial misconduct, and other forms of corruption. It also provides a reward for whistleblowers who provide information about financial mismanagement or stolen funds to the ministry’s portal, with 2.5 percent to 5 percent of the funds recovered by the Nigerian Government.

Permit me to report the giant strides made by the Institute of Chartered Accountants of Nigeria (ICAN) in supporting the concept of whistleblowing. ICAN, as part of its strategy to ensure high moral, financial, ethical, and legal standards among its members, established a whistleblower protection fund. The fund, which has an initial take-off capital of Fifty Million Naira (#50m) only, is geared towards protecting all ICAN members and the public from any form of reprisals or victimisation when an alarm is raised on financial impropriety by public or private establishments, individuals, or groups within the country. The fund assists whistleblowers with litigation expenses reasonably incurred in the course of discharging their duties.

The Council of ICAN considers whistleblowing a crucial instrument for detecting and reporting all forms of corrupt practices, fraud, and mismanagement in the public, private, and not-for-profit sectors. The institute recognises the critical role whistleblowers play in promoting public interest. The establishment of the institute’s whistleblower fund is part of ICAN’s mandate to protect public interest, promote integrity, and ensure accountability, which are crucial conditions for democracy, the rule of law, and sustainable development. In addition to ICAN’s efforts in promoting whistleblowing, it is important to note that the US Sarbanes-Oxley (SOX) Act of 2002, Subtitle 8 (Corporate and Criminal Fraud Accountability Act), provides certain protections for whistleblowers. Section 1107 of the SOX Act also provides criminal penalties for those who retaliate against whistleblowers.

The Accountant’s role in promoting the whistleblowing policy:

A lot is expected of us in this regard, as we are the ones to propagate the gospel of the whistleblowing policy to the general populace. We are also required to embark on advocacy programs related to this concept. As professional accountants, we are expected to foster public support through public enlightenment programs on the whistleblowing policy, ensuring strict adherence to the Whistleblowing Policy/Act. We should also actively engage in whistleblowing and continue to fund the institute’s whistleblower protection fund. Collectively, we must ensure that the identities of whistleblowers are not revealed to the public; their identities should be kept secret. Above all, there should be mechanisms for sanctioning those indicted, especially if they are our members, as this will serve as a deterrent to others who may want to follow the same path.

Benefits of the whistleblowing policy:

There is no doubt that if properly instituted and implemented, the whistleblowing policy will attract numerous benefits, both individually and collectively as a nation. These benefits include promoting the integrity and reputation of Nigerian government institutions, bringing to public attention incidents of abuse of office and mismanagement of government funds, which can be redirected towards providing basic infrastructure, helping to prevent the manipulation of government financial records, and promoting the principle of public interest in all aspects. The policy also guarantees public trust and establishes a high level of confidence among government institutions, assists in bringing to the forefront allegations of misappropriations, and exposes money laundering and terrorist financing activities, thereby making the corporate world a safer place, free from theft, mismanagement, corruption, embezzlement, and fraud.

In conclusion, I urge and challenge all of us as professional accountants to rise to the occasion by wholeheartedly embracing the concept of the whistleblowing policy. It is one of the antidotes that will help us combat the menace of fraud and fraudulent activities within our domain, workplaces, religious centres, and even in governance.

Kingsley Ndubueze Ayozie MSc (Finance) Lagos; MBA; KJW ; ACSI (UK) ; FCTI; FCA – a Public Affairs Analyst cum Chartered Accountant by profession, writes from Lagos.