Discretionary Financial Reporting Status of Not-For-Profit Organizations and Fight Against Terrorism Financing in Nigeria

Abstract

Nigeria’s not-for-profit (NPO) sector operates within a predominantly discretionary financial reporting regime that generates significant accountability gaps, creating conditions in which illicit financial flows, including terrorism financing (TF), can go undetected. This paper examined the financial reporting status of NPOs in Nigeria and its implications for the country’s efforts to combat terrorism financing. The study adopted a library-based, ex-post facto research design involving the systematic review and thematic synthesis of peer-reviewed literature, regulatory reports, legislative instruments, and international policy frameworks. Drawing on Agency Theory and Credibility Theory as complementary analytical lenses, the paper found that the absence of mandatory, standardized financial reporting requirements for Nigerian NPOs produces information asymmetries that weaken regulatory oversight and heighten the sector’s vulnerability to TF exploitation. The review further found that while significant legislative progress has been made through the enactment of the Terrorism (Prevention and Prohibition) Act 2022, the Money Laundering (Prevention and Prohibition) Act 2022, and the Companies and Allied Matters Act 2020, the operational effectiveness of the counter-TF framework as it applies to the NPO sector remains constrained by weak enforcement, low NPO registration compliance with SCUML, and inadequate cross-agency information sharing. The paper recommends mandatory NPO financial reporting legislation, enhanced capacity of the Corporate Affairs Commission to review NPO returns, tiered risk-based AML/CFT guidelines for the NPO sector, and strengthened interagency data-sharing mechanisms. These findings contribute to the limited but growing literature on NPO financial accountability and counter-terrorism financing in Nigeria and sub-Saharan Africa.