ABSTRACT

This project has been carried out to empirically examine Forensic Accounting And Fraud Detection In Nigerian Public Sector. A research survey design was used for the purpose of this paper with a sample size of thirty (30) respondents which comprises of auditors and accountants of four (4) ministries selected from Edo state in Nigeria. The statistical tool used to test the hypotheses was Analysis of variance, (ANOVA). From our findings we found out that forensic accounting in Nigeria’s public sector is effective in detecting fraud, there is a significant relationship between forensic accounting and litigation support service in Nigeria’s court and lastly the application of forensic accounting in the public sector is effective in preventing fraud. We therefore recommended that the public sector should build a continuous improvement in the internal control system and initiate effective and efficient internal check, they should adopt a sound accounting system in principal and effective practices, forensic accountant should acquire proper training on forensic accounting skills and procedures and officials in the public sector should embrace integrity, objectivity, fairness, accountability as a moral duty to reduce the level of fraud.

 

CHAPTER ONE

INTRODUCTION

Background to the Study

Corruption, fraud and other financial and economic fraud and crimes has made it difficult for Nigerian’s to meet her welfare and social responsibilities to citizenry, these evil have assumed alarming proportions and pervasive mismanagement of resources have become the order of the day in public sector. (Okunbor & Obaretin, 2010). According to Okolo (2007), financial crime has become really pervasive and the likelihood of corporate fraud occurring has also become more severe. High level of financial abuse was hindering tax collection, making and enforcement of Law difficult and discourages foreign investment. The wide spread of fraud in public sector have made traditional auditing and investigation inefficient and ineffective in detecting fraud. Oyejide (2008) opined that fraud is a subject that has received a lot of attention both globally and in Nigeria.

According to Karwai (2002), he maintains that the increase wave of fraud is causing a lot of havoc in the Nigeria public sector. This is because fraud has penetrated into every aspect of Nigeria public sector. Okunbor & Obaretin (2010), reported that the spates of corporate failure have placed greater responsibilities and functions on accountant to equip themselves with skills to identify and act upon indicators of poor corporate governance, mismanagement, frauds and wrong doings.

 

Statement of the Problem

The failure of auditor to prevent, detect and reduce modern frauds like white collar crimes such as security fraud, embezzlement, bankruptcies, contract disparate, money laundering and other financial crime in the public sector has put pressure on professional accountant and legal practitioners to find better ways of exposing fraud in public sector. (Owojori & Asaolu, 2009).It has now become pertinent to introduce and practice forensic accounting which is one of the approaches that can be used for the prevention and detection in public sector since external auditor do not or may not have the required knowledge to be able to detect, prevent or reduce fraud in Nigeria’s public sector.

The research questions

On the premise of the above problems, this study seeks to specifically address the following research questions:

1. Is the application of forensic accounting service effective in detecting fraud in Nigerian’s public sector?
2. Is there significant relationship between forensic accounting and litigation support service in Nigerian’s court?
3. Is the application of forensic accounting service effective in preventing fraud in Nigerian’s public sector?

Objectives of the Study

The main objectives of this study is on Forensic Accounting And Fraud Detection In Nigerian Public Sector

  Hypotheses

H1: The application of forensic accounting service in public sector is not effective in detecting fraud.

H2: There is no significant relationship between forensic accounting and litigation support service in Nigerian’s court.

H3 : The application of forensic accounting is effective in preventing fraud in Public Sector.

 

Significance of the Study

• Significance of the Study

The findings of this work will be of immense significance to the banking sector in Nigeria. It will go a long way in enlightening them on the concept of  forensic auditors as well as its role in the management of fraud. It will also benefit other organizations. The findings from this study will aid them to apply better forensic accounting strategies or effective control mechanisms in checking fraud in their diverse organizations.

It will as well benefit the general populace. They will be enlightened on the concept of forensic auditing  as well as its roles.

Students and researchers will as well benefit from this study. They will widen their scope from the information contained in this study.

• Definition of Terms

Auditing:Auditing is a branch of accounting concerned with the efficient use of resources to achieve a previously determined objective or set of objectives contained in a plan (Obazee, 2012).

Internal Audit:Internal auditing is the whole system of auditing, financial and otherwise, intended to secure management information and reliability of accounting records (Gbenga, 2011).

Bank Fraud:Bank fraud is defined as the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution (Daniel, 2012).

Internal Control System: This is defined as the whole system of control, financial and otherwise established by management in order to carry on the business of the enterprises in an orderly and efficient manner (Beattie, 2006).

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ENHANCING FINANCIAL ACCOUNTABILITY AND TRANSPARENCY IN NIGERIAN PUBLIC SECTOR (A case study of selected Public Sector Organizations in Enugu State)

ABSTRACT

The Nigerian public sectors like their counterparts in the private sector have neglected fundamental principles that should be adhered to in ensuring accountability and transparency in their various sectors. This research work is aimed at looking at the various ways in which the Accounting officers: – Chief Executives, Accountants, Auditors and in fact the Financial controllers in our country help to enhance financial accountability and transparency in the public sector. A framework for understanding the relationships between the major financial administrators and their subordinates in Public sector financial accountability and transparency was established. A questionnaire, interviews and research methodology was adopted for this research. Each question was examined as a whole to obtain an understanding of the opinions and perspectives of the respondents from each individual, organization as to what are considered to be the important factors in this study. Then, chi-square was used to test the five hypothesis propounded. The results suggested avenues of enhancing financial accountability and Transparency in the public sector. The major findings from the survey are: (1) Public Financial Managers do not enhance the implementation of financial accountability and transparency in the Nigerian public sector. (2) Financial accountability and transparency is not yet improved in the Nigerian public sector and. (3) Public financial managers do not adhere to the laid down rules for the management of accountability and transparency in the Nigerian public sector. Finally the research concluded with the following major recommendations: The Nigerian value system must be changed so as to stamp out dishonesty and the use of double standard in handling government matters and that Regular workshops, seminars and trainings should be organized on regular basis for those public accountants who rose through the ranks. This will make them fit into the accounting duties properly.

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Grand corruption is a cancer that has eaten deep into the fabric of the Nigerian polity. The general global perception about graft in Nigeria is that it is a pervasive phenomenon. It is generally acknowledged that corruption and corrupt practices are endemic and systemic in both the public and private sectors of Nigeria. Corruption has surely had debilitating effects on the country as it has had elsewhere. It is encountered in the routine processes of governance both in public and private sectors, and it pollutes the business environment generally. It equally undermines the integrity of government and public institutions.

Nigerian poverty in the midst of plenteous natural resources is as a result of bad leadership, Leadership without skill and character. In formal democracy bad leadership is to a long extent a product of flawed electoral system. So an incredible electoral system is the beginning of poor leadership. Thus good governance is identified as a critical ingredient of political stability. However at the heart of good governance i.e. transparent governance is accountability. That is the idea that the governed retain the real opportunity to know what the governors do and call them to order when they derail. A country’s journey towards good governance in reality is measured by how much the management of the public policy is open to the scrutiny of the people the people are always disconnected with the leaders because of the institutional deficiencies of liberal democracy. The culture of accountability and its institutions are strong protection against conflicts and instability.

Nigeria like the rest of African countries is caught in cusps of many conflicts including conflicts over political power. The real nature of political conflicts in these societies is that the norms and procedures for attributing between varying claims to power are incapable of restraining the tendency the overall system. Conflicts over access to political power are compounded by the oil economy which has created the resource course as a content of corruption, means that most politicians are interested in access to political powers as a pretext for access to the resources tap, weak accountability framework therefore makes it easy for leaders to gain personal control of public fund and utilize same for personal needs. The main problem with Democracy in Nigeria is lack of accountability and transparency, both cannot be easily separated.

From a relatively mild manifestation at Nigeria’s independence, this cancer grew rapidly at an alarming rate through the Second Republic (1979-1983). During the epoch of military misrule, it became institutionalized and assaulted every facet of Nigerian socio-political life. In the words of Gboyega (1996:3), “it was as if the government existed so that corruption might thrive”. Corruption have accounted for the distortion and diversion of government welfare programmes and undermined the goals and vision of development. Indeed, it has continued to undermine the effectiveness of the political process, especially the capacity of the elections management body, the Independent National Electoral Commission (INEC) to achieve and institutionalize free and fair elections.

Accountability is a concept deeply rooted in political power and democracy. It is the bridge linking the People or the electorate with the Executive to whom enormous power has been entrusted. Accountability is the public servants report card on how public money is spent and used on behalf of the people. It therefore goes without saying that the notion of accountability and good governance are very connected. In fact, the first evidence of bad governance is the absence of accountability. In other words, it means saying what you mean, meaning what you say and doing what you say you are going to do – taking responsibility for words and actions.

Transparency and accountability are critical for the efficient functioning of a modern economy and for fostering social well-being. In most societies, many powers are delegated to public authorities. Some assurance must then be provided to the delegators that is, society at large that this transfer of power is not only effective, but also not abused. Transparency ensures that information is available that can be used to measure the authorities’ performance and to guard against any possible misuse of powers. In that sense, transparency serves to achieve accountability, which means that authorities can be held responsible for their actions. Without transparency and accountability, trust will be lacking between a government and those whom it governs. The result would be social instability and an environment that is less than conducive to economic growth.

Accountability is therefore the requirement that officials answer to stakeholders and publics on the disposal of their powers and duties, act and criticisms or requirement made of them and accept some responsibility.

Accountability is an ethical concept – It concerns proper behavior, and it deals with the responsibility of individuals and organizations for their actions towards other people and agencies. The concept is used in practical settings, notably in describing arrangements for governance and management in public services and private organizations. The term is often used synonymously with concepts of transparency, liability, answerability and other ideas associated with the expectation of account giving.

Accountability has two (2) forms. There is Vertical Accountability – which is the accountability of government to the voting public through the ballot box. This is closely allied with the capacity of the electorate to remove a government that fails to account to them or deliver services. It assumes the existence of a political culture where the individuals vote counts. The other form of accountability is Horizontal Accountability – which is the accountability of government institutions to anti-corruption and anti-graft agencies. It also includes the accountability of the public sector to statutory auditing agencies; oversight committees of the state assemblies and the National Assembly; human rights agencies and the media. From the foregoing, it is clear accountability is basically a feature of democratic governance. It is characterized by answerability and openness.

Accountability requires a system to monitor and control the performance of government officers and organizations particularly in relation to quality inefficiencies and abuse of resources. Financial accountability and transparency are interrelated concepts and mutually reinforcing a more effective approach to address the challenge of corruption in Nigeria.

According to MSN Encarta, Transparency is a state or quality of being transparent.  Transparency in its broadest term literally means something that can be seen through. Therefore when we talk of             Transparency in terms of government spending, we are referring to government at all levels opening its books to the public so that tax payers can see exactly where the money is going or being spent. It also ensures that the citizens’ funds are spent efficiently by making all decisions in the open and on the record.

Transparency means that citizens can review and question policy makers’ decisions, examine document root out inefficiency and hold officials accountable for the way revenue are spent.

Therefore, transparency is characterized by the following – a disclosure system; access to information; openness to public participation; absence of undue secrecy; readiness to face and accommodate legitimate scrutiny and humility on the part of Executive office holders through readiness to answer questions raised by citizens. Transparency is impossible or very difficult where freedom of or access to public information is not guaranteed in law or statute.

 

The issue of financial accountability and transparency in Nigeria is one that cannot be readily             grossed over, since they constitute pivotal features of a respectable government. Besides grand corruption that has eaten deep into the fabric of the Nigerian economy. It is generally acknowledged that corruption and corrupt practices are endemic and systematic fraud, corruption and the likes have seriously affected the level of accountability and transparency in Nigeria. The cry of the majority of the common man had been, “What is the problem of the financial management system” that government officials can defraud the local, state or national treasury and not held accountable until their regimes have ceased to exist.

In the recent years, fraudulent activities, economic mismanagement, corruption, lack of accountability and transparency have been the bane of the economy. More so, it is evidenced and undoubted that crimes such as embezzlement, over invoicing, cyber crimes, fraudulent and over production and diversion of product, currency counterfeiting, illegal capital transfer, illegal currency manipulation, large scale banking and corporate crime have now dented Nigerians international image and tagged her a financial terrorist consequent upon this the federal government adopted a strategy to extinguish completely its further perpetration.

In 2003, President Olusegun Obasanjo established the Economic and Financial Crimes Commission (EFCC) prior to the promulgation in 2002 by an act of the National Assembly. The EFCC acts as law enforcement Agency to investigate financial crimes such as advance fraud (419 frauds) and money laundering. The EFCC investigates people in all sectors who appear to be living above their means and is empowered to investigate and prosecute money laundering and other financial crimes. The EFCC was later amended in 2004 to sanitize the Nigerian Economic environment by enforcing all economic and financial crime laws. In June 2009, the Senate Committee on Drugs, Narcotics and anti-corruption moved to amend the act by setting up the Independence Corrupt practices Commission (ICPC). Both the EFCC and ICPC was to act independent of the Executives

Corruption and looting of public treasury was a major problem in the public sector accounting. Report from office of statistics Lagos show that our accounting records are balanced in arrears and our financial records are hardly balanced daily, weekly, quarterly, half-yearly and yearly basis as appropriate. This was evidenced by Chief Olusegun Obasanjo during his first maiden address to the nation immediately he was sworn-in as the President of the federal republic of Nigeria on the 29^th day of May 1999. He stressed that accountability, probity and transparency has suffered a lot set-back especially in the civil service. He therefore suggested that some of the best ways to eliminate this ill in the Nigerian public service are;

• The effective use of public accounts;
• The use of effective legislation;
• The effective implementation of government policies and programmes;
• The effective use of auditors of the federal republic of Nigeria among others.

He therefore concluded by saying “when we consider how the public accounting and auditing can grow and develop, we are concerned not only with helping the public accountant or the auditor fill their position, but also with helping the whole economy and the organizational structure grow and develop” (Obasanjo). The concept should therefore make it wise for us to look more closely at the relationship between Nigeria and other countries of the world. And for Nigeria to be recognized as a corrupt-free economy, the accounting profession must be in a position to balance the financial records of the federal government daily, weekly, monthly, quarterly, half yearly or yearly basis. This is because members of the public and the international community want to see results, see the economy grow and the professions produce the final output.

 

• Statement of the Problem:

Public sector accounting in a corrupt society is a very big problem to the economy of the nation. This is because the financial records do not reflect the true and fair view of the accounting records. There are lots of collaborations in the utilization of public funds to the extent that funds allocated through the budget are not properly utilized. The annual for the public (government) income and expenditure are at times late. Whatever is the position with timeless of delivery, these budget are never reviewed in time and deviations are not investigated to ensure prompt remedial action which will re-direct and re-orientate plans towards budgeted levels.

Another shortcoming is the threat to continually of production of qualified accountants who will replace older retiring hands. This systems form a number of factors like inadequate infrastructures (for example, training materials, computers, library facilities etc) necessary for such programmes. This point drives to a large extent from the very poor and unrealistic remuneration paid to the practicing accountant in form of salary.

Public accountants are placed on government determined salary scales, unlike their professional chartered counterparts whose fees for auditing and other professional services rendered are self determined. The implication of the forgoing deliberation is that while a professional body like Institute of Chartered Accountant and its various programmes aimed at monitoring more closely the curriculum of their counter-parts in the government employment are poorly taken care of.

Another shortcoming is the quota system in the federal service. The quota system has introduced mediocre and unethical practices in the accounting profession. In a bid to fill in vacant positions in the federal civil services, most of the unqualified personnel (mainly from certain ethnic group of the country) are employed to the detriment of the job, hence giving loopholes for embezzlement and financial misappropriation. Merits were thrown to the winds.

In fact, meritocracy has given way to mediocrity. All this, helped the administrators and some members of the society to look down on the accountants as mere “house helps” and “rubber stamp” in the system.

 

• The Objective of the Study:

The principal objective of this research is targeted towards determining the ways of enhancing financial accountability and transparency in the Nigerian Public Sector. The objectives of the study can be sub divided as stated below:

1. To determine the degree of implementation of financial accountability and transparency in the public sector especially in the federal civil service.
2. To determine the best way to improve on financial accountability, and transparency in Nigeria Public Sector.
3. To determine the actual role of the public financial managers in the enhancement of financial accountability, and transparency in Nigeria Public Sector.
4. To determine whether public accountant in collaboration with their chief executives utilize judiciously all the allocations made from the budget.
5. To supervise the extent at which the financial controllers or Supervisors checkmate the Executives who the funds are allotted to.

 

 

• Research Questions:

The research question is poised to provide answers to the following questions.

1. Do the financial managers enhance the implementation of financial accountability and transparency in the public sector?
2. Are their ways of improvement in financial accountability and transparency in the Nigerian public sector?
3. Do public financial managers adhere strictly to the laid down rules for the management of accountability and transparency in the Nigerian public sector?
4. Do public financial managers and their Executives utilize judiciously all the allocations made from the budget?
5. Do the Supervisors adequately checkmate the activities of the financial managers and the Executives?

 

 

• Research Hypothesis:

HO_{1 –}    Public Financial Managers do not enhance the implementation of financial accountability and transparency in the Nigerian public sector.

HO_{2 –}    financial accountability and transparency is not yet improved in the Nigerian public sector.

HO_{3 –}    Public financial managers do not adhere to the laid down rules for the management of accountability and transparency in the Nigerian public sector.

HO_{4 –}    Public Financial Managers and their Executives do not utilize judiciously all the allocations made from the budget.

HO_{5 –}    The Financial Controllers or the Supervisors do not adequately checkmate the activities of the financial managers and the Executives.

 

 

• Significance of the Study:

The significance of this study can be viewed from two major standpoints – practical and academic

1. Practical Significance:

This study will be of immense help to the policy makers in the federal civil service of Nigeria who will be able to know and assert the adequate role of the public accountant in the service with a view to showing up the programmes of financial accountability and transparency of the government administration.

The policy makers should see the public accountants as playing the role of a coach who exposes the skills and tactics and allows the players to play the game. This is because in everything an individual or a group of individuals in varying professions, do, there is a reason and purpose. For example, in a private organization this reason or purpose is referred to as an objective or goal. Therefore, government (public service) whose realm of operation is popularly referred to as the public sector has as its objective the governance of her people. This implies the tremendous responsibility to grannies resources and allocates same towards fostering economic growth and improving the standard of living of the citizens of the nation. Again government is empowered by the laws of the land (constitution) to engage in contractual arrangements for the purpose of increasing the resources available to her in order to meet the requirements of governance, since it holds the wealth of her nation in trust for that nation. To this extent, the government of a nation owes her citizens the duty to account for the stewardship in the effective disposition of the resources entrusted to her (This is accountability).

For the government or the public sector to discharge her responsibility or stewardship effectively, there is the need to maintain proper records of the value of all programmes, activities and services, synthesize and analyze the effect of government financial transaction, classify, summarize and communicate such information for purposes of future decision-making or assessment of performance.

 

 

1. b) Academic Significance

This study, its extensive literature review and recommendations it will contribute immensely to students, future researchers and academicians knowledge on the issue of enhancing financial accountability and transparency in the Nigerian Public Sector.

 

• Scope of the Study:

This study attempts to establish (i) whether the directors of departments utilize judiciously all the allocations made available to them or not; and (ii) to examine the impact of public accountants in the implementation of financial accountability and transparency in the public Sector.

Sequel to this the researcher shall investigate some Federal Ministries and Parastatals in Enugu State. Five of such Federal Ministries and Parastatals were selected and the financial accountability and transparencies of their Executives and financial officers will be investigated.

 

• Limitation of the Study:

As part of the research experience by researchers all over the globe, certain limitations and unforeseen problems hindered the effective and smooth collection of data for the work. These in specific terms include lack of time and difficulties in obtaining needed data relevant to the subject matter from top management; inadequate working fund; respondents’ poor altitude to questionnaire.

Time constraint: Time was really a big constraint in carrying out this research work as the researcher had to combine the collection of materials for the study with official government work, family and religious commitments other academic and social activities.

Financial constraints: The finance needed to carry out this work is too much and cannot be afforded by the student. Thus these to an extent hampered the success of this work.

Respondents Attitude: The Respondents as it is well known are not willing to divulge important information. Tracking of the Executives in their offices and their willingness to grant interviews due to their tight schedules all contributed.

 

• Definition of Terms:

Corruption: This is the use of entrusted powers for private gain. This is the most common crime in the public service and takes many forms. For instance, a public official asking for, accepting bribe before carrying out any activity or asking for gratification after rendering a service and a public official diverting the ownership of government property. Other forms of corrupt activities include embezzlement, nepotism, bribery/kickbacks, extortion, illicit enrichment, questionable links between government agencies and private business etc. The perpetration of corruption in the public service is facilitated through the use of money, valuable goods or gifts, favours, promises etc.

The incidence of corruption is primarily a function of greed facilitated on the strength of the incentives, range and scale of opportunities, availability of means and the risks of punishment.

Corruption is propelled by bad governance where controls are weak and decision-making is opaque, arbitrary and lacking in accountability.

 

Embezzlement: This is the fraudulent appropriation by a person to his own use of property or money entrusted to that person’s care but owned by someone else. For instance, a clerk or cashier can embezzle money from his employer; a public officer can embezzle funds from the treasury. In embezzlement, an actual conversion must occur and the embezzler must have had the right to possess the item, and used that position of trust to convert the property.

Embezzlement sometimes involves falsification of records in order to conceal the theft. Embezzlement becomes much easier if one person is responsible for keeping track of billing, receiving and recording payments as well as managing accounts. Some of the most common methods of embezzlement are the under-reporting of income (especially for income generating public institutions) and the creation of ghost employees.

 

Bribery: This is the offering, giving, receiving or soliciting of something of value for the purpose of influencing the action of an official in the discharge of his or her public or legal duties. A bribe can consist of immediate cash or of personal favours, a promise of later payment, or anything else the recipient views as valuable.

 

Money Laundering: This is money that is made through illegal activities which needs to be placed into the Banking system so that it can be integrated into the economy and be made legitimate. Criminals have developed endless array of schemes in the process of converting ill gotten wealth from “dirty” to “clean” funds and the banks is in the potential for complicity and violation of money laundering prohibition requirements.

 

Fraud: The crime of deceiving somebody in order to collect money or goods illegally. It also means a person who pretends to have gifts and abilities, skills etc that he or she does not really have to receive others.

 

Investigation: – This means a special kind of examination of accounts or records carried on by an investigator with the predefined purpose according to the necessity of the situation (Chike Nwoha,:303, 33).

 

EFCC: This is an acronym for Economic and Financial Crimes Commission. It is a commission created by an act of the National assembly in 2002 and was amended in 2004. It is charged with the responsibility of investigating, and enforcement of crime, all laws against economic and financial crimes in its entire ramification. The commission is also designates to Nigeria Financial Intelligent Unit (NIFU) It is an autonomous central national agency, domiciled within EFCC with the responsibility of receiving and analyzing financial information

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Effect of Corporate Governance on Firm Financial Performance in Nigeria A Study of Non Financial Performance Companies Registered with Nigerian Stock Exchange NSEs

CHAPTER ONE

1.1       BACKGROUND OF THE STUDY

One feature of Modern Corporation is the separation of ownership from management. Hitherto, the typical business is owned and managed by the same individual or group of persons. Thus a firm was characterized by its numerous owners having no management function, and managers with no equity interest in the firm. Under the new dispensation, however, professional managers who are considered more competent than the owner manager are hired to run and manage the affairs of the company (Wikipedia, 2007). Thus it was important that an appropriate framework be put in place that would guarantee transparency, accountability and fairness in the management of companies (Howard, 2000)

Corporate governance is therefore about ensuring that various mechanisms are in place to guarantee that the goals pursued by managers do not different from that of the owners of the company. Tricker, who conceived the term “corporate governance” back in 1984, made the very clear distinction between management and control in taking the position that: “if management is about running business, governance is about seeing that is run properly”

Corporate governance is concerned with ways in which all parties interested in the well-being of the firm (the stakeholders) attempt to ensure that managers and other insiders take measures or adopt mechanisms that safeguard the interests of the stakeholders. Such measures are necessitated by the separation of ownership from management, an increasingly vital feature of the modern firm.

The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. Therefore, by doing this it also provides the structure through which the company’s objectives are set and the means of attaining those objectives and monitoring performance. This definition is in line with the submissions of, Wolfensohn (1999) Uche (2004) and Akinsulire (2006).

The board of directors is central to the corporate governance mechanism in market economies. The board is one of the most important and possibly beneficial internal mechanisms of corporate control (Manne, 1965; Alchian and Demetz, 1972; Bonnierand Bruner, 1989). The importance of internal control mechanisms has arguably increased following legal and regulatory developments that curtailed activity in the external market for corporate control (Jensen, 1991; Denis and Denis, 1995). The board is viewed as a primary means for shareholders to exercise control over top management, along with external markets for corporate control and institutional and concentrated shareholding.

A change in the composition of a firm’s board can take the form of a new appointment or some form of removal from the board: new appointment, resignation, retirement or death. Each of these changes may or may not be considered significant by the market. Change can also take the form of an increase or decrease in the proportion of outside directors to inside directors.

Effective corporate governance therefore reduces the “control rights” shareholders and creditors confer on managers which increases the probability that managers invest in positive net present value projects.  Thus, the relationship between the board and management, according to Al-Faki (2006), should be characterized by transparency to shareholders, and fairness to other Stakeholders. This will in effect mitigate the agency cost as predicted by Jensen and Meckling (1976) and boost corporate performance.

Furthermore, corporate performance is an important concept that relates to the way and manner in which financial resources available to an organization are judiciously used to achieve the overall corporate objective of an organization, it keeps the organization in business and creates a greater prospect for future opportunities.

Moreover, the financial scandals around the world and the recent collapse of major corporate institutions in the USA, South East, Europe and Nigeria such as Adelphia, Enron, World Com, Commerce Bank and recently XL Holidays, Pollybeck, Xerox, Cadbury, BCCI communication. Most public Nigerian corporations, such as NITEL, NNSL, NEPA, and NRC were either dead or simply drain pipes of public resources to mention but a few which have all been attributed to poor corporate governance was caused by greed, lax oversight of company board members and incompetent national body at noting the issues on time.

A review of the status of corporate governance in Nigeria from the sectorial perspectives- public, financial and real sectors reveals the absence of strong commitment to the tenets of good corporate governance. In view of the importance attached to the institution of effective corporate governance, the Federal Government of Nigeria, through her various agencies came up with various institutional arrangements to protect the investors of their hard earned investment from unscrupulous management and directors of listed firms in Nigeria. These institutional arrangements, produced the “Code of corporate governance best practices” issued in November 2003.

The code proposes that the business of a firm should be managed under the direction of a board of directors at which they delegate to the CEO and other management staff on the day to day management of the affairs of the firm. The best practices of the code also recommend that the board sees to the appointment of a qualified person as the CEO and other management staff. The directors, with their wealth of experience, are expected to provide leadership and direct the affairs of the business with high sense of integrity, commitment to the firm, its business plans and long-term shareholder value. In addition, the board provides other oversight functions. Thus there are other mechanisms of corporate governance which includes; the audit committee, shareholders rights and privileges.

The emergence of mega banks in the post consolidation era prompted the Central Bank of Nigeria to issue a new code of corporate governance which became operative in 2006. In the same vein, the Nigerian Securities and Exchange Commission (SEC), published the revised Code of Corporate Governance in September, 2009 after consultations with other regulatory bodies. The new code was issued to address the weaknesses of the 2003 code and to improve the mechanism for its enforceability.

Internationally, organisations such as UN and OECD have been advocating for levels of corporate behaviour. In UK, corporate governance is dealt with in a “combined code” report which is a combination of series of reports developed by independent committees such as the Cadbury report (1992), Greenbury report (1995), Hampel report (1998), Turnbull report (2002-2003). In USA, the Sarbanes-Oxley Act (2000), have been developed so as to reduce or avoid high scandals in corporations.

According to IFAC report (2008), “companies are mirrors of the societies in which they operate and they influence each other”, therefore all stakeholders responsible for promoting sound corporate governance such as the board, the management , audit committee and regulators are all challenged and compelled to ensure that sound corporate governance exist (Williams 2001).

1.2       STATEMENT OF THE PROBLEM

It is has been noted that the recent global events concerning high-profile corporate failures and fraud scandals in the national as well as international scene have put back on the policy agenda and intensified debate on the efficacy of sound corporate governance mechanisms as a means of increasing firms’ financial performance and their sustainability.

The issue of structure of the board of directors as a corporate governance mechanism has received considerable attention in recent years from academics, market participants, and regulators. It continues to receive attention because boards of directors have been largely criticized for the decline in shareholders’ wealth. They have been in the spotlight for fraud cases that had resulted in the failure of major corporations in the national and international scene.

Another recent issue in the corporate governance scene is the rapid change in the period from 1999 to 2006  were  hundreds of firms converted from dual CEO leadership structure to non-dual structure, while a much smaller number of firms converted in the opposite direction. This recent trend is partly due to several high-profile cases where powerful dual CEOs were found to abuse their tremendous power at the expenses of the company and shareholders.

There have also been debates on the issue of gross negligence on the part of auditors and audit committee members in discharging their duties properly. Thus, the high incident of poor corporate performances recorded in Nigeria shows audit committee members who are required to check the activities of board have failed to effectively discharge their checkmating functions. Its activities remains obscure as little or nothing is heard about the committee’s impact on sensitive corporate governance issues, particularly those that border on their regular statutory functions.

These high corporate fraud scandals and poor corporate management by directors and managers, as well as the inability of the audit committee to carry out their checkmating and monitoring roles have raised doubts  on the performance and sustainability of most Nigerian companies and brought to the fore the need for good corporate governance.

1.3       OBJECTIVES OF THE STUDY

The main purpose of this study is to ascertain the effect of corporate governance on financial performance of companies. More specifically, this study is designed to;

1. To evaluate the extent to which the board size of a company affects its Return on Equity.
2. To ascertain the impact of Board composition structure on Profit margin and Return on Equity.
3. To evaluate the relevance of the audit committee on Profit margin and Return on Equity.
4. To ascertain the significance of CEO non-duality on Profit margin.

1.4       RESEARCH QUESTIONS

The study attempts to find answers to the following specific questions:

1. To what extent does Board size affect Return on Equity? Does the number of Outside directors significantly boost corporate Profit margin and Return on Equity?
2. Is there any contributory impact of the audit committee on Profit margin and Return on Equity?
3. To what extent does CEO duality boost or impede corporate Profit margin?

1.5       RESEARCH HYPOTHESES

In this investigation, the following hypothesis will be tested.

1. H0: There is a negative relationship between Board size and Return on Equity.
2. H0: There is no significant impact between Board composition on Profit margin and Return on Equity.
3. H0: There is no significant impact of Audit committee on Profit margin and Return on Equity.
4. H0: There is no significant impact of CEO duality on Profit margin 

1.6       SIGNIFICANCE OF THE STUDY

This study extends and contributes to the body of research using Nigerian data to investigate the likely impact of sound corporate governance on firms’ financial performance in Nigeria. The findings would be useful to;

Stakeholders in the Nigerian Stock Exchange (NSE) as it provide evidence on the relationship between board structure and firm’s financial performance.

Board of Directors and management will take a clue from this research work to review how strategic and the effective roles they play at improving firm’s performance and the dire need of eschewing sound corporate governance cultures in organisations they find themselves in.

Auditors and Audit committee members will become more enlightened of the need to uphold high professional and ethical standards expected of them in boosting corporate performance and thus contributing towards the sustainability of Nigerian companies in whole.

It will also provide information to regulatory Authorities on the expected roles they play in instilling sound corporate discipline and also the positive impacts sanctions and penalties given to corporate miscreants’ aid in enhancing sound corporate performance.

Finally, this work will be beneficial to future researchers and academicians who want to broaden their knowledge horizon in this area of study.

1.7       SCOPE OF THE STUDY

“Corporate governance and firm financial performance; a case study of Non-financial companies registered with NSE”, in view of the wide nature of this topic, the researcher limits the study to the factors or effects of sound corporate governance on the performance of non-financial companies, which are the composition of board size, the number of outside directors, CEO duality and impact of existence of audit committee in corporations. The study covers a period of five years (2010 – 2014). Viable and relevant primary information were also sought from top and senior public and private individuals in Nigeria specifically in Port-Harcourt, Lagos and Abuja to support the researcher’s findings.

 

1.8       LIMITATIONS OF THE STUDY

During the course of the research work, the researcher encountered the following limitations.

The researcher experienced initially poor-cooperation from NSE officials. But however, with constant visitations and patience, I was able to get the necessary materials needed to facilitate the successful completion of the work.

Also, this research work was not only tactful but time consuming as in most times, huge amount of time was required in pursuit of relevant data for the study.

Funds were also required to visit relevant places and make necessary travels in search of relevant materials which were limited. But with the support of guardians, the researcher has been able to make such relevant visits so as to produce a good research work.

1.9       DEFINITION OF TERMS

GOVERNANCE: The act, process, or power of governing. It relates to decisions that define expectations, grant power, or verify performance.

CORPORATION: A Company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.

FINANCIAL PERFORMANCE– Business results relating to company’s financial health, such as revenues, expenses, and profits.

OECD- ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT: An International economic organization of 34 countries founded in 1961 to stimulate economic progress and world trade i.e. assists governments to tackle the economic, social and governance challenges of their globalized economics.

SEC- SECURITIES AND EXCHANGE COMMISSION: The regulatory authority governing the Nigeria stock exchange market having surveillance over the exchange to forestall breaches of market rules and to deter unfair manipulation and trading.

NSE- NIGERIAN STOCK EXCHANGE: A markets which provides a platform by which registered companies trade their securities’- shares, stocks, bonds etc.

CAMA- COMPANY AND ALLIED MATTERS ACT (1990):  A law which provides for the formation of corporate entities and also sets a time and structure for corporate governance. It provides that every corporate entity must have a memorandum and Articles of Association which is the constitution.

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