Dr. Richard Mayungbe, CPFA
Introduction:
"Forensic,"
according to the Webster’s Dictionary means, "Belonging to, used in or
suitable to courts of judicature or to public discussion and debate."
The
word accounting is defined as "a system of recording and summarizing
business and financial transactions and analyzing, verifying, and recording the
results."
The term ‘forensic accounting’ refers
to financial fraud investigation which includes the analysis of accounting
records to prove or disprove financial fraud and serving as an expert witness
in Court to prove or disprove the same. Thus, basically, forensic accounting
aims at using accounting report in a form suitable for legal battle/purpose.
In most forensic accounting cases, the
Cruz of the matter is either of a financial or economic dispute(s). There must
have been a loss of value (asset) over a period of time. Both parties in the
disputes would usually be contesting the figures, i. e. You are owing me this
amount and the second party would say No, this is what am owing or am not even
owing at all!
For almost all the cases I have
handled in Nigeria, especially banking disputes between lenders and borrowers,
the patterns were the same.
1.
Issues
for Determination
Like the lawyers would most of the
time do, we have to formulate the issues for determination as follows:
a)
Does
a relationship exist between the two parties?
b)
What
are the responsibilities of each party in the relationship?
c)
What
Covenant, Agreement or Contract has lead to the dispute?
d)
What
is the Regulators blue print concerning
(c) above?
e)
What
does the Ethic of the profession outline to practitioners?
The role of the Forensic Accountant is
to assist the court to arrive at the truth, and in doing just that, some
procedures have been developed so that the flow of the Forensic Accountants’
evidence would connect truthfully and logically.
2.
The
Contentions
The most contentious aspect of any
financial dispute are:
i.
The
Principal Amount
ii.
Rate
of Interest Agreed (for lending or deposit as the case may be)
iii.
Rate
of Interest Implemented (for lending or deposit)
iv.
Other
Charges i. e, C.O.T, Management fees etc.
v.
Period
Covered
vi.
Compounding
Effect on (i-v) above
3. Richard’s Procedure In Forensic
Accounting Calculations
This is a combination of academic and professional
procedure.
Determine the:
i.
Agreed
Principal or sums lent to the borrower
ii.
Effective
Date of Commencement
iii.
Agreed
Rate
iv.
Implemented
Rate
v.
Other
Charges, i. e. C.O.T, Management fees, Processing fees etc.
vi.
Find
the rate differentials between Agreed and Implemented rates
vii.
Convert
the Annual Rate to Monthly rate because interest is usually served and
compounded monthly
viii.
End
Time, i. e, Date of the Dispute. This is where your calculations end.
ix.
In
some cases, C.O.T are above the rate prescribed by the Regulators while some
charges are completely unknown to the agreement/contract. You have to fish out
all the infractions.
x.
Relate
Deposit Slips to Credit entries in bank statement
xi.
Relate
Drawings through cheque Stubbs to Debit entries in bank statement
xii.
Relate
all debit and credit advices to the bank statement
xiii.
Where
foreign transactions are involved, obtain the debit advice to justify the
exchange rate used by the lender against your instructions
xiv.
Where
capital market instruments are involved, i. e. Buy or Sell transactions, obtain
the brokers contract notes and relate the contract notes to the Stock Exchange
DOL (Daily Official List). Take a step further to test the brokers charges with
the SEC approved rates
xv.
Issues
of banking and finance move with time, as N100 today would translate to a
higher amount in the next 24 months or more. With the aid of MS Excel, create
the following headings:
a) Date - date of transactions
b) Details – details of Agreed Charges as
listed in Offer Letter
c) Percent Charged – this column contains
the % per month only
d) Amount Charged – amount debited into
the statement of account
e) Agreed Charges – the % Agreed per
month
f) Excess Commission – amount of
commission debited in excess to the statement
g) Wrong C.O.T - charges above the rate approved by the
regulators
h) Excess Charges Refundable – amounts
debited, less agreed amount
i) Number of Months Involved – number of
months from the date of transactions to the date that either party disputes the
outstanding amount
j) Compounding todate – amount at the
monthly rate of interest, raised to the number of months involved.
k) The formulae to be imputed in your
Excel is =PV*(1+.r)^n As explained in
paragraph 4 (a-m), this procedure would appear like this =h*(1+.c)^i ENTER.
·
Where
h = figure in column h on your Excel Spreadsheet, as explained,
·
* = star key on your computer keyboard,
·
() = brackets open and close on your computer
keyboard,
·
1 = digit 1 and ‘plus’ sign on your computer
keyboard
·
^
= lambda key on your computer keyboard
·
.c
= interest rate as broken down to monthly percentage on your excel column c
·
i=
number of months involved
·
ENTER = result of procedure. Just strike the
Enter Key on your keyboard
l)
The
result would show how much the Excess Charges has grown on the first transaction.
If there are 10,000 transactions, please follow the procedure all through.
m) At the end of the procedure, shade the
results from the top to the bottom and press the summation command. This would
give you the summary of the results
4. Revelations
A
bank debtor was alleged to be owing N100 million and the bank went to court.
This procedure revealed that the debtor had suffered excess charges and
compound interests to the tune of N150 million. What the lawyers need in most
of their legal battles is a meticulous and articulate procedure like this to
enable them file a Counter-Claim.
5. Conclusion
The
legal community in Nigeria is gradually seeing and accepting the roles played
by the Forensic Accountants. This has greatly aided legal victories in courts
of law, and this writer is proud to be associated with some of the legal
victories..
(Richard's Procedure was developed by Dr. Richard Mayungbe)
Dr. Richard Mayungbe
Nigeria Country Representative,
Institute of Certified Forensic Accountants, Canada
E-mail: forensicnigeria@gmail.com
Tel: +2348033467639
