Risk Management Techniques and Potential Fraudulent Financial Reporting in Nigeria

This study investigated the influence of risk management techniques on potential fraudulent financial reporting in Nigeria using an Error Correction Modeling (ECM) technique. The study adopted an Ex-Post-Facto research design to identify causal relationships based on existing historical data, which could not be manipulated by the researcher. Secondary data were sourced from the published annual reports of listed Deposit Money Banks (DMBs) on the Nigerian Exchange Group (NGX). A total of fourteen (14) DMBs met the inclusion criteria, but applying purposive sampling and excluding banks that entered receivership or were listed after 2014, the final sample consisted of nine (9) DMBs. The study covered a ten-year period (2015-2024), and data were analyzed using descriptive statistics and panel regression. The long-run findings reveal that Credit Risk Management (CRM) has a negative and statistically significant effect on fraudulent financial reporting (coefficient = -0.66725, p = 0.0325), indicating that improved (CRM) technques deter financial misreporting over time. Operational risk management is positively signed and significant (coefficient = 0.05864, p = 0.0030), suggesting that enhanced operational risk controls promote financial transparency. Risk committee size is also negatively signed and significant (coefficient = -1.04629, p = 0.0014), demonstrating that larger committees improve oversight and reduce fraud. In the short-run dynamics, the error correction term is negative and highly significant (coefficient = -0.768869, p = 0.0002), indicating that approximately 77% of short-run deviations from the long-run equilibrium are corrected annually. Short-run changes in CRM are insignificant (coefficient = 0.495008, p = 0.4429), while ORM remains significant (coefficient = 0.18193, p = 0.0019). Changes in RCS are statistically insignificant (coefficient = -0.00676, p = 0.9934). The study concludes that risk management techniques specifically CRM, ORM, and RCS significantly influence the pattern of fraudulent reporting in Nigeria, especially in the long run. The study recommended that should banks strengthen their risk control systems and that regulators should enforce forward-looking governance policies to mitigate financial fraud in the banking sector.