Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No.11, 2012 24 Combating Corruption and Fraud for Sustainable Development: Beyond Audit Procedures and Rules Essien Akpanuko University of Uyo, P. M. B. 1017 Uyo, Akwa Ibom State, Nigeria E-mail of the corresponding author: essien.ekerette@yahoo.com Abstract Fraud and corruption have devastating effects, especially on the poorest citizens of developing countries and have spread even to countries once considered “clean.” Public sector bribery, fraud, and other forms of corruption have become leading concerns for legislators around the globe, as the diversion of public funds undermines control of the public purse and robs public policies of resources to ensure sustainable development. This paper discusses the different theories and strategies adopted by fraudsters, identify the different methods of combating this “cancer” in developed and developing countries outside the external audit approaches, and evaluate the external audit approach. It proposes strategies that are beyond compliance to external audit procedures and rules that will empower the citizens (principal) to demand for and enforce accountability from the public officials (agents). Thus, allowing for sustainable development. It argues that for these strategies to work effectively, a change in audit emphasis and a given level of decentralization is required. The principles and strategies presented in this paper can be considered by donor agencies to countries where fraud and corruption interfere with good governance. Keywords: corruption and fraud, accountability, audit and governance 1. Introduction Sustainable development depends largely on the provision of public goods and services. Over the years, considerable expenditures and investments have been made by governments, institutions and concerned agencies to ensure sustainable development. This development has remained a mirage because the goods and services are failing; falling short of the potential to improve outcomes. They are often inaccessible or prohibitively expensive. However, when accessible they are dysfunctional, extremely low in technical quality and unresponsive to the needs of diverse clientele (World Bank, 2004). Internationally corruption is known to be responsible for these failures and is a daunting obstacle to the sustainability of developmental activities. Given the growing evidence of the detrimental impact of corruption on sustainable development, concerns about corruption have mounted in recent years (World Bank, 2004). The list of this evidence is long and deserving of the attention given. Corruption slows GDP growth (Abed and Davoodi 2000; Mauro 1995) and adversely affects capital accumulation (Lambsdorff 1999a, 1999b). It lowers the quality of education (Gupta, Davoodi, and Tiongson 2000), public infrastructure (Tanzi and Davoodi 1997) and health services (Tomaszewska and Shah 2000; Treisman 1999). It reduces the effectiveness of development aid and increases income inequality and poverty (Gupta, Davoodi, and Alonso-Terme 1998). Bribery, often the most visible manifestation of public sector corruption, harms the reputation of and erodes trust in the State. Corrupt and poor governance make it more difficult for the poor and other disadvantaged groups and minorities, to obtain public services. Corruption affect macroeconomic stability, when, for example, the allocation of debt guarantees based on cronyism or fraud in financial institutions leads to a loss of confidence by savers, investors, and foreign exchange markets. The Bank of Credit and Commerce International (BCCI) scandal, uncovered in 1991, the corrupt practices at Mehran Bank in the Sindh Province of Pakistan in the mid-1990s, the Oceanic and Intercontinetal Bank Nigeria scandals uncovered in 2009, the Nigerian pension fund and oils subsidy Fraud uncovered in 2012, are few examples of corruption with dare public consequences. Sad to note that often time this crimes are not uncovered in the accounting and auditing process. For example, the BCCI scandal led to the financial ruin of Gabon, the corrupt practices at Mehran Bank in the Sindh Province of Pakistan and the Oceanic and Intercontinetal Bank Nigeria led to loss of public confidence in these countries banking system. The Nigerian pension fund and oil subsidy fraud led to loss of confidence and trust in the government. The numerous consequences of corruption are summarized by Cavil and