Effects of corruption on the Nigeria Economy as it also relate to Nigerian Accountants, who in one way or the other monitors economic growth, organization account records and cash records.
Definitions of Corruption
The Advanced Learner’s Dictionary defines corruption as: Dishonest or illegal behaviour, especially people in authority.
To Waziri (2010), etymologically, the word “corruption” comes from the Greek word “corruptus” meaning an aberration or we may say a misnomer. The United Nations Global Programme against Corruption (GPAC) defines it as “abuse of power for private gain”.
Transparency International has chosen a clear and focused definition of the term as “the abuse of entrusted power for private gain”. It can also be defined simply as a perversion or change from the general accepted rules or laws for selfish gain.
According to The New Webster’s Dictionary of the English Language (1995), an accomplice is an active partner in a misdemeanor or a crime.
According to Babatunde(2010), in the immediate post independent period, agriculture was the mainstay of the economy as it provided the financial resources that were employed in propelling the economy, particularly in executing the country’s development plans and in laying the foundation for industrial activities. Yes, Palm produce in the East, Coca in the West and Groundnut pyramid in the North.
The advent of crude oil and the massive inflow of petro-dollar in the early 1970’s, changed the fiscal landscape and the structure of the economy. The revenue windfall attendant to the oil booms of the 1970’s and 1980’s not only resulted in ambitious investment programs that were not well thought through, but also engendered the ‘Dutch diseases’ syndrome that adversely affected other sectors, particularly agriculture which became un-competitive as a result of exchange rate misalignment and thus, culminating in its neglect.
Not surprisingly too, public expenditure spiraled out of control during these periods of booms and created considerable market distortions and macroeconomic instability.
Indeed, the dominance of oil created extensive reliance of the sub-national governments on the federation revenue allocation for their budgetary operations. The subsequent bursts, most often, were typically followed by forced and painful adjustments.
From 2003 to 2007, Nigeria attempted to implement an economic reform program called the National Economic Empowerment Development Strategy (NEEDS). The purpose of the NEEDS was to raise the country’s standard of living through a variety of reforms, including macroeconomic stability, deregulation, liberalization, privatization, transparency, and accountability. A related initiative on the state level is the State Economic Empowerment Development Strategy (SEEDS).
The trends and the prospects of Nigeria’s economy were beautifully summarized by Carrington (2013), thus:
At Independence in 1960, Nigeria’s yearly agricultural crop yields were higher than those of Indonesia and Malaysia. Today, they have dwindled to half as much. The fact that Nigeria’s current yield per hectare is less than 50 per cent of that of comparable developing countries dramatically demonstrates how much Nigeria has abandoned its once promising agricultural sector.
Until Nigeria is able to rely less on capital-intensive sectors of the economy and more on labour-intensive ones, it will be difficult to see how it will meet its ambitious goals to make the country one of the world’s twenty most important economies.
The latest Human Development Index of the United Nations Development Programme better known as the UNDP was released in March this year and lists the world’s 46 lowest ranked countries. Thirty-seven of them are in sub-Saharan Africa.
All of the bottom26 are African with the single exception of Afghanistan. All rates lower even than Haiti. Out of 187 countries surveyed, oil-producing Nigeria is ranked 153, the lowest, by far, of any non-African member of OPEC. Indeed, with the exception of Angola (which ranks 5 places higher than Nigeria), all other members, including war-ravished Iraq (107), are included in the ranks of the more developed. Your neighbor, Niger, at 187 has the dubious distinction of coming in last.
The Impact of Corruption on our Economy
Agbi (2010), quoting the former Secretary-General of the United Nations, Kofi Annan, provided a beautiful summary of the effect of corruption, thus:
Corruption hurts the poor disproportionately by diverting funds intended for development, undermining a government’s ability to provide basic services, feeding inequality and injustice and discouraging foreign investment and aid. Corruption is an insidious plaque that has a wide-range of corrosive effects on society; it undermines democracy and the rule of law, leads to violation of human rights, distorts market values; the quality of life and allows organize crime, terrorism and other threats to human security to flourish.
In a related study, Ahmed and Ajaz (2010) observed that:
Developing countries receive a very low amount of revenue from taxation because these countries face a number of institutional problems in the process of revenue generation. One of the main problems is corruption in tax administration. The two important components of revenue generation are tax administration and tax system reforms (Brondolo et al (2008)). The main objective of these is to increase the efficiency of tax administrations, specifically by reducing corruption and evasion. The second main problem of low revenue generation is political instabilities in developing countries.
One of the important characteristics of the political instability is unstable and shifting behaviors of government, which hinders the process of long-term reforms in the system.
International Corruption Perceptions Index
According to the annual survey by the Berlin-based organization Transparency International, Finland, Denmark, and New Zealand are perceived to be the world’s least corrupt countries, and Somalia and Myanmar are perceived to be the most corrupt.
The index defines corruption as the abuse of public office for private gain and measures the degree to which corruption is perceived to exist among a country’s public officials and politicians. It is a composite index, drawing on polls and surveys from 12 independent institutions, which gathered the opinions of businesspeople and country analysts.
Only 180 of the world’s 193 countries are included in the survey, due to an absence of reliable data from the remaining countries. The scores range from ten (squeaky clean) to zero (highly corrupt). A score of 5.0 is the number Transparency International considers the borderline figure distinguishing countries that do and do not have a serious corruption problem.
On a 5-piont scale, Nigeria scored 2.20? This translates to 44% (2.20/5.00 x 100). This is a mere pass mark. In terms of relative performance, Nigeria came 149th in a class of 180! Surprisingly, the following African countries were ranked better than Nigeria: Tanzania, Algeria, Burkina Faso, Egypt, Uganda, Niger Republic, Libya, Cameroon, Ethiopia, Gambia, Guinea Bissau….. Yet, we claim to be the “Giant of Africa?”
Relying heavily on the WORLD FACT BOOK (as at 3rd August, 2010), Nweze (2010) in Azinge (2010) established that:
Amongst the 12-member OPEC, Nigeria came first in Population, HIV/AIDS Adult Prevalence Rate, People Living with HIV/AIDS, HIV/AIDS Deaths, Labour Force, and Mobile Telephone; second in Birth, Death Rates, Infant Mortality, Total Fertility, GDP Real Growth Rate, Investment (Gross Fixed), Oil Imports, Internet Users and Merchant Marine, Last-but-one in Life Expectancy at Birth, Educational Expenditures and Natural Gas Exports and finally came last GDP Per capital. What a paradox?
In a related study, Nweze (2010) in Aduba (2010), quoted the then Presidential Candidate of the PDP (now the President of the Federal Republic of Nigeria), thus:
“I stand before you today, humbly seeking your support for me, Goodluck Ebele Azikiwe Jonathan, to run for the office of the President of Nigeria with Architect Namadi Sambo as my running mate. We will fight for JUSTICE! We fight for all Nigerians to have access to POWER! We will fight for qualitative and competitive EDUCATION! We will fight for HEALTH CARE REFORMS! We will fight to create jobs, for all Nigerians! We will fight corruption! We will fight to protect all Citizens! We will fight for your rights! My dear countrymen and women, give me your support, give me your votes and together we will fight to build a great nation of our dreams!”
No wonder Nweze (2010) inferred that Nigeria (as a Nation) has not done so well economically, since fifty (50) years after Independence; the basic necessaries of life are still campaign issues.
What has the Government Done/is Doing to Fight Corruption?
Waziri (2010) observed that it is therefore noteworthy to list some of the efforts made by both past and present Nigerian Governments to curb corruption. These include:
• The “Corrupt Practices Decree” of 1975 promulgated by the regime of Murtala/Obasanjo
• War against Indiscipline by Buhari/Idiagbon regime
• Code of Conduct Bureau of 1990
• Advance Fee Fraud & Other Related Offences Decree of 1995 by the Abacha regime which was later re-enacted as the Advance Fee Fraud and Other Related Offences Act, 2006 by Chief Olusegun Obasanjo administration.
• Corrupt Practices The Money Laundering Act, 2004
• The Economic & Financial Crimes Commission (Establishment) Act, 2004
• The Procurement Act, 2007
These have come alongside the establishment of Anti-Corruption agencies
• The Nigerian Extractive Industrial Transparency Initiative (NEIT)
• The Independent Corrupt Practices and Other Related Offences
• The Technical Unit on Governance & Anti-Corruption Reforms (TUGAR)
• The Economic & Financial Crimes Commission (EFCC)
• Budget monitoring and price intelligence unit (BMPIU) which later transformed into Bureau for Public Procurement.
Having discussed the efforts being made by the government to discourage her citizens from getting involved in corrupt practices, let’s now look at what the accounting profession has provided to make sure that members of the profession do not accommodate corruption, at all.
The most proactive and ebullient set of tools, put in place by the accounting profession world-wide, to prevent the occurrence of corrupt practices are Accounting Ethics and the internationalization of accounting standards, both for the public and private sectors.
“When people need a doctor, or a lawyer, or a certified public accountant, they seek someone whom they can trust to do a good job — not for himself, but for them. They have to trust him, since they cannot appraise the quality of his ‘product’. To trust him they must believe that he is competent, and that his primary motive is to help them.” —John L. Carey, describing ethics in accounting.
According to the New Webster’s Dictionary (1995: 324), ethic is a system of ethics and the adjective is: ethical, meaning, conforming with the accepted standard of good behavior, example, in a profession or trade. Ethics, in itself is a moral philosophy or moral science, that is, that branch of philosophy which studies the principles of right or wrong in human conduct.
Also, According to the New Webster’s Dictionary (1995: SA-18), the synonyms of ethical are: decent, good, honest, honourable, just, moral, principled, righteous, scrupulous and virtuous while the antonyms are: amoral, corrupt, dishonest, licentious and unethical.
Luca Pacioli, the “Father of Accounting”, wrote on accounting ethics in his first book Summa de arithmetica, geometria, proportioni, et proportionalita, published in 1494. Ethical standards have since then been developed through government groups, professional organizations, and independent companies. These various groups have led accountants to follow several codes of ethics to perform their duties in a professional work environment. Accountants must follow the code ethics set out by the professional body of which they are a member.
What are the major ethical issues in Accounting Profession?
In this age of globalization, internationalization and Information Communications Technology, it may be too narrow to discuss Accounting Ethics within the local environment. Rather, it is better to discuss same at global perspective. Accordingly, the Chartered Institute of Management Accountants’ (CIMA) Code of Ethics based on the International Federation of Accountants (IFAC) Handbook of the Code of Ethics for Professional Accountants, of the International Ethics Standards Board of Accountants (IESBA), published by IFAC in April 2010 and used with permission by IFAC, is discussed hereunder:
CIMA Code of Ethics for Professional Accountants
As Chartered Management Accountants CIMA members (and registered students) throughout the world have a duty to observe the highest standards of conduct and integrity, and to uphold the good standing and reputation of the profession.
They must also refrain from any conduct which might discredit the profession. Members and registered students must have regard to these guidelines irrespective of their field of activity, of their contract of employment or of any other professional memberships they may hold. (CIMA Preface)
The fundamental principles of ethics in Accounting: A professional accountant shall comply with the following fundamental principles:
5.31: Integrity – to be straightforward and honest in all professional and business relationships.
The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness.
A professional accountant shall not knowingly be associated with reports, returns, communications or other information where the professional accountant believes that the information:
(i) Contains a materially false or misleading statement;
(ii) Contains statements or information furnished recklessly; or
(iii) Omits or obscures information required to be included where such omission or obscurity would be misleading.
When a professional accountant becomes aware that the accountant has been associated with such information, the accountant shall take steps to be disassociated from that information.
Objectivity – to not allow bias, conflict of interest or undue influence of others to override professional or business judgments. The principle of objectivity imposes an obligation on all professional accountants not to compromise their professional or business judgment because of bias, conflict of interest or the undue influence of others.
A professional accountant may be exposed to situations that may impair objectivity. It is impracticable to define and prescribe all such situations. A professional accountant shall not perform a professional service if a circumstance or relationship biases or unduly influences the accountant’s professional judgment with respect to that service.
Professional Competence and Due Care
The principle of professional competence and due care imposes the following obligations on all professional accountants:
(i) To maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional service; and
(ii) To act diligently in accordance with applicable technical and professional standards when providing professional services.
Competent professional service requires the exercise of sound judgment in applying professional knowledge and skill in the performance of such service.
Professional competence may be divided into two separate phases: Attainment of professional competence; and Maintenance of professional competence.
The maintenance of professional competence requires a continuing awareness and an understanding of relevant technical, professional and business developments. Continuing professional development enables a professional accountant to develop and maintain the capabilities to perform competently within the professional environment.
Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the professional accountant or third parties.
The principle of confidentiality imposes an obligation on all professional accountants to refrain from:
(i) Disclosing outside the firm or employing organization confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and
(ii) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties.
A professional accountant shall maintain confidentiality, including in a social environment, being alert to the possibility of inadvertent disclosure, particularly to a close business associate or a close or immediate family member.
The following are circumstances where professional accountants are or may be required to disclose confidential information or when such disclosure may be appropriate:
a) Disclosure is permitted by law and is authorized by the client or the employer;
b) Disclosure is required by law, for example:
i) Production of documents or other provision of evidence in the course of legal proceedings; or
ii) Disclosure to the appropriate public authorities of infringements of the law that come to light; and
c) There is a professional duty or right to disclose, when not prohibited by law:
i) To comply with the quality review of a member body or professional body;
ii) To respond to an inquiry or investigation by a member body or regulatory body;
iii) To protect the professional interests of a professional accountant in legal proceedings; or
iv) To comply with technical standards and ethics requirements.
Professional Behavior – to comply with relevant laws and regulations and avoid any action that discredits the profession.
The principle of professional behavior imposes an obligation on all professional accountants to comply with relevant laws and regulations and avoid any action that the professional accountant knows or should know may discredit the profession. This includes actions that a reasonable and informed third party, weighing all the specific facts and circumstances available to the professional accountant at that time, would be likely to conclude adversely affects the good reputation of the profession.
In marketing and promoting themselves and their work, professional accountants shall not bring the profession into disrepute. Professional accountants shall be honest and truthful and not:
a) Make exaggerated claims for the services they are able to offer, the qualifications they possess, or experience they have gained; or
b) Make disparaging references or unsubstantiated comparisons to the work of others.
And so, any trained accountant and/or auditor who religiously, conducts his/her assignments, in accordance with the ethical provisions in accounting, cannot be associated with corruption.
What happens when accounting ethics are loosely in application?
“Every company in the country is fiddling its profits. Every set of published accounts is based on books which have been gently cooked or completely roasted. The figures which are fed twice a year to the investing public have all been changed in order to protect the guilty. It is the biggest con trick since the Trojan horse. … In fact this deception is all in perfectly good taste. It is totally legitimate. It is creative accounting.”
—Ian Griffiths in 1986, describing creative accounting
What is “creative accounting”?
Creative accounting is a term in general use to describe the practice of applying inappropriate accounting policies or entering into complex or „special purpose‟ transactions with the objective of making a company’s financial statements appear to disclose a more favourable position, particularly in relation to the calculation of certain „key‟ ratios, than would otherwise be the case. Most commentators believe creative accounting stops short of deliberate fraud, but is nonetheless undesirable as it is intended to mislead users of financial statements.
Why do Accountants involve themselves in creative accounting?
The likely reasons for creative accounting include:
i. Performance pressure – Companies are often under pressure to perform in order to meet expectations of their stakeholders and the public at large. Where such a company’s performance is not up to their expectation, management may be under immense pressure to embark on creative accounting in order to present a better result.
ii. Competition – The activities of competitors often put enormous pressure on their peers to perform or out-perform. This was very common in the Nigerian banking sector before the recent banking crisis. This led to some banks manipulating their accounts in order to achieve the desired results.
iii. Performance based executive rewards – Where the incentives and bonuses of executives are based on performance such as meeting profit targets, it could result in management manipulating financial results.
iv. Business combination – To resist a takeover bid or in an attempt to sell the entity at a higher value than it would have been without creative accounting.
v. To meet or exceed forecast – This is very common in many countries and it is now required by the Securities and Exchange Commission in Nigeria that companies should publish their forecast financial statements. Where the actual performance is significantly below the forecast earlier published, management may result into creative accounting to meet expectation.
vi. To satisfy shareholders who may be unhappy with the company’s performance.
vii. To manage and sustain share price and minimize volatility.
viii. To meet minimum standards especially regulatory requirements such as minimum liquidity ratio for banks.
ix. To avoid or reduce tax liability or other levies and regulatory fees.
x. To attract or woo investors (local or foreign) ‘
What happens when accounting ethics are totally ignored?
One can hardly pick up a business publication today without noting some reference to an accounting scandal. Enron is only one dishonor to the profession, though perhaps the best known.
Their auditor Arthur Andersen, an accounting firm considered one of the “Big Five“, signed off on the validity of the accounts despite the inaccuracies in the financial statement. When the unethical activities were reported, not only did Enron dissolve but Arthur Andersen also went out of business. Enron’s shareholders lost $25 billion as a result of the company’s bankruptcy.
Although only a fraction of Arthur Anderson’s employees were involved with the scandal, the closure of the firm resulted in the loss of 85,000 jobs. Other instances abound!
What’s the situation in Nigeria?
The situation in Nigeria is a pathetic one for cases of unethical practices with their resultant collapses abound. Yes, bank failures, sick capital market, corruption, fraud, embezzlement…
Bank Failures: Between the late 1920’s (when banking operations started in this country) and today, we have had a number of bank failures, notably, the early 1950’s, late 1990’s, early 2004 and we are still counting. Significantly, the 2004 bank failure saw to the shrinkage of the number of banks from 89 to 24, via, consolidation, reconstruction and reorganization! Few years in the post-consolidation era, some banks became shaky again.
This ugly development compelled both the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) to conduct a “Joint Stress Test” in 2009. The result was damning as eight banks failed the test.
Sick Capital Market: The accusations and counter accusations by the principal actors in the Nigerian Capital Market, about price manipulations and insider abuses, have almost brought the market on its knees. A classic case in point is the alleged manipulations of the price of African Petroleum. This is most unfortunate! The decline of the capital market started in March 2008.
And, the end of 2008, the NSE (Nigerian Stock Exchange) All Share Index (ASI) had lot 45.80% of its value. Yes, from its peak of N13.50 Trillion, the market had declined to N7.00 Trillion. According to the President of Chartered Institute of Stockbrokers, Mr Ariyo Olushekun, if we exclude new listings, the market actually lost N9.00 Trillion since the crises started.
The sheer number of accounting abuses serves as prima facie evidence that something more is needed in terms of accounting ethics. Internationally, calls for teaching more ethics in accounting education have come from the American Assembly of Collegiate Schools of Business (AACSB, 1988), the American Accounting Association (AAA, 1986), the American Institute of CPAs (AICPA, 1988a), the Accounting Education Change Commission (AECC, 1990), the National Commission on Fraudulent Financial Reporting (NCFFR, 1987), and the ‘‘white paper’’ jointly written by the largest accounting firms (Arthur Andersen & Co. et al., 1989), Mary B A, J. Edward K and Dwight, O (2002).
And locally, the Institute of Chartered Accountants of Nigeria (ICAN), has requested the National Universities Commission (NUC) to officially include Accounting Ethics in the approved Curriculum for Bachelor of Science (BSc) programme in this country.
Perhaps, that explains why the position of this paper is that only the religious adherence to Accounting Ethics and wholesome adoption of both the International Financial Reporting Standards (IFRSs) and International Public Sector Accounting Standards (IPSASs) will eliminate and/or reduce drastically, the quantum of corruption in Nigeria.
The United States Generally Accepted Accounting Principles (GAAP), the standard framework of guidelines for financial accounting, is largely rule-based. Critics have stated that the rules-based GAAP is partly responsible for the number of scandals that the United States has suffered. The principles-based approach to monitoring requires more professional judgment than the rules-based approach.
Yes, when accounting ethics are religiously applied, our economy flourishes, when it is loosely applied, creative accounting takes place (to paint a false picture) and when unethical accounting practices are the order of the day, the economy collapses completely!