Factor analysis of financial crime-related issues
| DOI | https://doi.org/10.1108/JFC-11-2017-0120 |
| Date | 07 January 2019 |
| Published date | 07 January 2019 |
| Pages | 113-130 |
| Author | Gabriel Babatunde Iwasokun,Richard Olufemi Akinyede,Catherine Folake Fadamiro,Oniyide Alabi Bello |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Factor analysis of financial
crime-related issues
Gabriel Babatunde Iwasokun,Richard Olufemi Akinyede and
Catherine Folake Fadamiro
Federal University of Technology, Akure, Nigeria, and
Oniyide Alabi Bello
Afe Babalola University, Ado-Ekiti, Nigeria
Abstract
Purpose –The purpose of this paper is to propose indices that were freely considered as relevant for the
analysis of financial crime-relatedissues in Nigeria and list them in the questionnaire that was administered
across the six geo-political zones of the countryto obtain relevant data that are useful for factor analysisof
financialcrime-related issues.
Design/methodology/approach –The research methodology involved data survey, preparation and
normalization. Followed by principal component analysis-based factor analysis and then, results and
interpretation.
Findings –The results of factor analysis placed high premium on government policies and regulations,
responses and management,capacity building and awareness and litigation as the major issues for safe and
secure financial system in Nigeria. Findings from the research also established that systemic ways of
ensuring that citizens adopt technical know-how for national development rather than committing crimes
should beintroduced and enforced by the Nigerian government.
Originality/value –The researchformulated some indices and establishedsome models for the analysis.
Keywords Financial crime, Factor analysis, Nigeria, Extracted factor
Paper type Research paper
Introduction
Financial crime is a nonviolent but intentionalcrime committed for illicit monetary or other
unlawful gain from individuals, corporations, government bodies and financial institution
(International Monetary Fund, 2001;Ladan, 2005). It constitutes a very serious threat that
manifests itself in virtually all aspects of national life. It is widely spread and involves
Internet-based cheque issuance, cash deposit, wire transfer and automated teller machine
(ATM) withdrawals performed by institutions, government and individuals on daily basis.
Notable financial crimes include theft, scams, embezzlement, identity theft, money
laundering, bribery, smuggling, forgery, counterfeiting, tax evasion and bribery (Ibrahim
et al., 2015). Financial crimes are characterized by deceit, concealment or violation of trust
and can be committed with every form of dynamism, subtleness and camouflage (Agus
et al., 2010b). Considerably, financial crime may lead to colossal loss of money as well as
undermining the integrityof financial institutions and markets. It may also subvert national
growth and development (Spencerand Pickett, 2002;McDowell and Novis, 2001;Okoye and
Gbegi, 2013;Ejiofor et al., 2017). Financial crimes may lessen the ability of a country to
attract foreign investmentand subverts the growth and developmentof local manufacturing
industries (International Monetary Fund, 2001;Spencer and Pickett, 2002;Yusuf, 2009).
Financial crime may manifestinform of corruption, fraud and theft. Corruption is any illegal
act such as kickbacks, embezzlement and extortion and other misuse of entrusted funds
Factor
analysis
113
Journalof Financial Crime
Vol.26 No. 1, 2019
pp. 113-130
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-11-2017-0120
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
and power for private gain or improper and unlawful enrichment (Gottschalk, 2010;
Ksenia, 2008). Fraud is an act of deceptionaimed at achieving a personal gain or creating a
loss for another through concealmentof illegal act and it is a significant and growing threat
to several organizations (Golden et al.,2006;Edelherz, 1977). Most prominent financial
frauds are conversion of public money into personal use, granting of unauthorized loansor
overdraft, fraudulent transfer or withdrawals, misrepresentation of quality and quantity
during procurement and pyramid trading schemes. Others are posting of fictitious credits,
cheque counterfeitingor forging, payroll padding (ghost workers), contract over billings and
over invoicing among others (Okoye and Gbegi,2013). Theft of cash, intellect, art or identity
is said to take place if it is carried out unlawfully and out of all proportions. Several
strategies and measures for combating financial crimes include use of technology and
establishment of agencies and commissions. Technological tools offermore holistic view of
data and highlight potential areas of risk to organizations therebyreducing the incidence of
fraud (Deloitte, 2014). Big data and text mining, machine learning and forensic accounting
are some of the existing technologies for combating financial crimes (Adegbie and Fakile,
2012;Shai and Shai, 2014;Agus et al., 2010a;Raghavendra et al.,2011;Kitten, 2016). Impact
of criminal personality, opportunity structures, corporate identity, values on crime, and
business ethics have been identified as causes of financial crimes (Bussman, 2003). These
causes could be traced to bio-genetic factorssuch as genetic mutation and heredity (Horton,
1939), psychological factors such as personality disorders and sociological factors such as
learning environment (Sutherland, 1939). The fundamental techniques for combating
financial crime still requirea good understanding of its causes and dynamics as all technical
and scientific proof have yielded unsatisfactory results (Ayoola et al., 2015). Existing
techniques for presenting the understandingof the causes and dynamics of financial crimes
include some baseline and dimension-reduction tools such as missing values ratio, low
variance filter and high correlation filter. Others are random forests ensemble trees,
backward feature elimination, forward feature construction, principal component analysis
(PCA) (Silipo, 2015) and factor analysis (FA). FA is a method for investigating whether a
number of variables of interest N
1
,N
2
,...,N
m
, are linearly related to a smaller number of
unobservable factors F
1
,F
2
,... ,F
k
. It is used to identify dimensions underlying response
(outcome) for a set of variables such that the observed values for the variables are
determined as manifest variables. Some standardized variables are typically used and the
correlation matrix is modeled such that its dimensions correspond to the factors. Several of
manifest variables can be used but more appropriate if they have more than a few distinct
values and an approximate bell-shaped distribution. FA based on principal components
uses weights and scores to produce factor loadings and scores. These attributes informed
that its choice for the analysis of the financial security-related issues in Nigeria. The main
objective of the study is to take a holistic view of the conceptualization of the main issues
that relate to financial crime and provides data that servethe basis for the determination of
their impact in Nigeria. In addition,the study also provide data that is relevant for drawing
conclusion based oncomparison between results from current and some related works.
Related works
An exploration of the statistical methods for fighting financial crime by financial
institutions is carried out in Agus et al. (2010b). Issueson the growing losses of revenue by
governments, financial institution and individuals to the variousforms of financial crime as
well as the review of some statistical techniquesfor investigative studies of financial crimes
were also discussed. The research formulated the necessary steps for account opening,
described some visualization, description, analysis and computational tools for big
JFC
26,1
114
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