Impact of forensic Accounting on the Profitability of Quoted Banks in Nigeria

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study

The global financial landscape has witnessed an alarming rise in corporate fraud and financial irregularities in recent years. This has raised serious concerns about the credibility and reliability of financial statements, particularly in the banking sector. Banks play a central role in economic development, and their stability depends largely on transparent financial reporting and strong internal controls.

As fraudulent practices persist, the need for advanced investigative methods beyond traditional auditing has become crucial. One such method is forensic accounting—a specialized practice that merges accounting, auditing, and investigative techniques to detect and prevent financial misconduct.

According to Okoye and Akamobi (2009), forensic accounting provides a proactive approach to identifying fraud and supporting litigation processes. It strengthens corporate governance by promoting accountability and transparency in financial management. In the banking sector, the application of forensic accounting is vital for building public trust, improving internal controls, and enhancing profitability.

In Nigeria, banks are particularly vulnerable to fraud due to weak control systems, regulatory gaps, and delayed detection mechanisms. These weaknesses affect operational efficiency and reduce profitability. Therefore, it is necessary to assess whether forensic accounting has a measurable influence on profitability indicators such as Net Profit Margin (NPM), Profit After Tax (PAT), and Dividend Per Share (DPS).

This study focuses on Guaranty Trust Bank and Access Bank Plc, two major Nigerian banks. It examines the impact of forensic accounting practices on their profitability between 2006 and 2017, offering valuable insights into the role of forensic audits in improving financial performance.

1.2 Statement of the Problem

Despite the push for transparency and stronger corporate governance, Nigeria’s banking sector continues to experience recurring cases of fraud, embezzlement, and financial misreporting. Traditional audit procedures often fail to uncover sophisticated schemes involving falsified accounts and internal collusion. This limitation creates a gap that forensic accounting seeks to fill.

Although forensic accounting has gained attention as an effective tool for fraud detection, little empirical evidence exists on its direct impact on profitability in Nigerian banks. It remains unclear whether the adoption of forensic audit practices actually leads to improved financial performance or if their effect is minimal.

Consequently, this study investigates whether banks that integrate forensic accounting achieve better profitability outcomes. Specifically, it explores the influence of forensic audits on key performance indicators such as Net Profit Margin, Profit After Tax, and Dividend Per Share.

1.3 Objectives of the Study

The main objective of this study is to assess the impact of forensic accounting on the profitability of quoted banks in Nigeria. The specific objectives are to:

1. Examine the effect of forensic accounting on the Net Profit Margin (NPM) of selected banks.

2. Determine the impact of forensic accounting on Profit After Tax (PAT) in the selected banks.

3. Assess the relationship between forensic accounting and Dividend Per Share (DPS).

1.4 Research Questions

To guide the research, the following questions are addressed:

1. What is the effect of forensic accounting on the net profit margin of quoted banks in Nigeria?

2. How does forensic accounting influence profit after tax in Nigerian banks?

3. What is the impact of forensic accounting on dividend per share in selected banks?

1.5 Research Hypotheses

The following null hypotheses are formulated for testing:

• H₀₁: Forensic accounting has no significant effect on the net profit margin of quoted banks in Nigeria.

• H₀₂: Forensic accounting has no significant effect on profit after tax in quoted banks.

• H₀₃: Forensic accounting has no significant effect on dividend per share of quoted banks.

1.6 Significance of the Study

This study provides practical and academic value to several stakeholders.

For bank management, the research offers guidance on integrating forensic accounting techniques into internal control systems. This can enhance fraud prevention and improve financial efficiency. For regulatory authorities, it provides empirical evidence that supports stronger enforcement of forensic audit practices across financial institutions.

Investors and stakeholders will also benefit from greater confidence in financial reports when banks adopt effective forensic accounting measures. Furthermore, this study enriches the academic community by contributing to the growing literature on forensic accounting and corporate profitability in developing economies.

In essence, the findings will support the formulation of policies and strategies aimed at strengthening Nigeria’s financial system through improved accountability and fraud detection.

1.7 Scope of the Study

This research focuses on two Nigerian banks—Guaranty Trust Bank (GTBank) and Access Bank Plc—listed on the Nigerian Stock Exchange. The study covers a 12-year period (2006–2017) and analyzes how forensic accounting influences profitability indicators such as Net Profit Margin (NPM), Profit After Tax (PAT), and Dividend Per Share (DPS).

While limiting the study to two banks may affect generalization, the in-depth analysis provides meaningful insight into how forensic accounting affects profitability in the Nigerian banking sector.

1.8 Definition of Key Terms

• Forensic Accounting: A specialized branch of accounting that applies investigative skills to detect, examine, and prevent financial fraud, often in support of legal actions.

• Forensic Audit (FAUD): A targeted audit conducted to investigate suspected fraud or financial crimes. It often provides evidence for litigation or regulatory review.

• Net Profit Margin (NPM): The percentage of revenue that remains as profit after deducting all expenses from total income.

• Profit After Tax (PAT): The remaining profit after all taxes have been paid, representing a company’s overall financial performance.

• Dividend Per Share (DPS): The portion of a company’s profit distributed to each outstanding share of common stock.