Much uncertainty grips the Central Bank of Nigeria as the Presidency probes alleged irregularities in the audited financial statement of the bank for the 2015 financial year, — even in the midst of the institution’s curious foreign exchange transactions
The love of money, the good book says, is the root of all evil. And so has it been at the Central Bank of Nigeria, CBN, in the last couple of years. In 2014, for instance, Nigerians were treated to an unusual and breathtaking drama, starring former President Goodluck Jonathan and Sanusi Lamido Sanusi, then Governor of the CBN and now Emir of Kano. It was a drama that culminated in the end of Sanusi’s turbulent era at the CBN.
Sanusi had, unprecedented, written Jonathan alleging that about $49.8 billion oil money was missing from the federation account. What actually rattled the government was that the letter was leaked to the media and they became agog with sensational headlines. Deeply worried by what appeared to be a huge scandal confronting his administration as elections drew near, the government set up a reconciliatory committee of stakeholders including officials of the Nigeria National Petroleum Corporation, NNPC, which was the principal suspect, and the leader of the Economic Management Team, Ngozi Okonjo-Iweala, who was also the Finance Minister, among others. There, Sanusi was expected to present the facts of his claim, but no sooner had the committee settled down to business than Sanusi withdraw his claim. He told the committee that he was misled by the Reserve Department of the CBN.
Again, when he appeared before the Senate Committee on Finance, Sanusi presented a different figure, claiming that what needed to be reconciled was $12 billion but Okonjo-Iweala insisted that $10. 8 billion needed to be reconciled. The drama went on until an apparently livid Jonathan ordered a review of the accounts of the CBN so as to get a clearer picture of payments made to the Federation Account. At that point, the image of the Jonathan administration had been seriously dented. Opposition parties feasted on the information made available by Sanusi to castigate the government. However, the review of the financial statements of the CBN under Sanusi’s watch in 2012 marked a turning point of some sort.
Twice, he was queried by the President to explain the huge donations he made to certain institutions with government money. He could not offer satisfactory reasons and appeared to be on a warpath with the government of the day. A review carried out by the Financial Reporting Council, FRC, indicated that the CBN, under Sanusi, spent about N1.257 billion on lunch for policemen and private guards in one year. The report also said he made bogus payments to airlines for currency distribution and held an account balance of N1.423 billion for an unidentified customer from 2008 till the time of the report.
Again, the FRC reported that the CBN under Sanusi included ambiguous payments referred to as ‘Centre of Excellence’ and Contribution to Internal National Security. It was also said to have paid N38.233 billion to the Nigerian Security Printing and Minting Company, NSPMC, in 2011 for the printing of bank notes. Curiously, the turnover of the entire NSPMC group was N29.370 billion for the period. In a nutshell, the FRC equally accused the then CBN governor of violating financial regulations and carrying out activities with financial implications that were not related to the mandate of the apex bank. He was subsequently suspended and that was the end of his era.
The replacement of Sanusi with Godwin Emefiele, who was until then, the Group Managing Director of Zenith Bank, one of Nigeria’s most successful banks, among several eminently qualified contenders to the post, was considered by some people to be the beginning of an era of modesty and strict adherence to rules of managing public finance. Emefiele is largely known to be an urbane fellow, not just within the banking circle. The Institute of Directors saw his emergence as a “refreshing dawn at the CBN.” He was expected to return the apex bank to its traditional mode of conservatism and, unlike his predecessor, direct the affairs of the bank without making a public show of issues of serious national importance. For a while, that mode subsisted. Ever since he became Governor of the CBN, not much has been heard of reckless spending at the CBN. Financial statements have been presented without rancour and frowns of reservations.
Not anymore, at least since the apex bank’s 2015 financial report came into being. Now, recent developments indicate that the Presidency has taken steps to put the CBN in check following mind bugling irregularities discovered in the books of the apex bank. The 2015 financial report of the CBN was audited by two reputable auditing firms – PriceWaterhouseCoopers and Ernst & Young. Although the auditing firms when contacted by TELL, declined comment on the CBN report, the magazine found out that questions were raised because certain details were not made available by the CBN for the 2015 financial statement. For instance, under the subhead, “Advances to the Federal Government”, the CBN claimed that they had transactions with the Federal Government and its subsidiaries that are exempted from their account. A schedule of the government agencies and how much was given to each of them needed to be disclosed. So also, the approving authority for the monies and how the monies were sourced was also not stated. Even more curious, the amount the CBN claimed were material, among these transactions came to “N1.959.730 trillion” of which “N1.367.729 trillion” was used in 2015 alone. These are excluded from the accounts.
Financial experts who took a look at the CBN report expressed concern that the total income of the CBN for 2015, was far less than this amount, meaning that the monies were printed. The questions, therefore, arose as to who authorised the printing, how much was printed and who authorised the spending. However, in their notes to “Consolidated and Separate Financial Statements, the auditors explained that the bank’s “transactions with the federal government and fellow subsidiaries, under the control of the Federal Government, are exempted due to their nature. However, material transactions and balances are disclosed.”
Under the subhead, “Interventions”, the CBN also claimed that they intervened in certain circumstances, including sending monies to countries where there was an important need for the fund. The total amount came to N117.059 billion, and another N154.305 billion as (expenses for intervening in the financial sector) and another N17.951 billion (for Centre of Excellence). However, in the report, the breakdown and schedule of countries, the entities and institutions that benefitted from the intervention were not provided. There was also no information on who authorised the disbursements.
But the auditors explained in the financial statement that “financial sector intervention expenses represent the amortisation prepaid interventions arising from the fair valuation of below-market interest rate loans to financial institutions for the purpose of onward lending to the agricultural sector, the AMCON notes, and the long-term notes to AMCON and other banks.” These loans, the auditors further explained, were extended as part of the CBN activities in promoting economic growth, development and financial markets stability. The loans are for periods ranging from two to 10 years. In the financial statement, “Centres of Excellence” was simply explained as expenditure incurred by CBN on various structures in universities across the country. But the beneficiaries were not stated.
Under another subhead, “External Reserves”, financial experts have suggested that a forensic audit of the Foreign Reserves of the country needs to be carried out in view of the fact that it has been dropping since 2013. For instance, it dropped to N5.263.831 trillion in 2015 from N5.837.660 trillion in 2014; a difference of N573.829 billion. Coincidentally, the CBN reported a non-cash Foreign Exchange Revaluation gain of N565.803 billion which they claimed they also spent on personnel cost (N164.251 billion), Financial Sector intervention expenses (N154.305 billion) and other operating expenses (N230.766 billion) whereas, the total profit of the CBN from its core business was only N136.307 billion. The suspicion and fear raised by financial analysts who were privileged to sight the report is that the CBN must have been spending directly from the external reserves.
Extracts from the financial statement also indicate that under another subhead, “Other Assets”, the CBN included sundry receivables of N1.334.304 trillion. Here, the CBN claims that the sundry receivables include prepaid staff expenses of N14.5 billion and prepaid intervention expenses of N1.305 trillion arising from below market interest loans to staff members and loans to the financial services sector respectively. Again, the apex bank failed to make available to auditors the schedule for all of these monies to staff and financial service sector participants, thereby raising much suspicion of unauthorised spending.
Mind-boggling as this appears to be, the joint auditors to the CBN declined comment to TELL on the financial statements on the ground that it is unethical for them to discuss the job they carried out for a client with a third party. Understandably, this appears to be a global practice for reputable auditing firms. However, it was gathered from Presidency sources that the President and the National Security Adviser received a 15-page review of the 2015 financial statement of the CBN shortly before the President embarked on his last trip to Germany. The magazine could not ascertain the source of the review (said to be “very authoritative”) but it was judged to be yet another chronicle of allegedly phoney figures and claims by the CBN. After a careful study of the observations and recommendations, the Presidency was said to have issued a query to the CBN Governor based on the conclusion of the reviewers that the financial statement contained spurious and misleading claims that cannot be relied upon for any serious policy pronouncement.
Emefiele, the magazine was told by a number of sources — shortly after he received the query — began to make consultations with highly placed individuals he considered capable of intervening on his behalf. Eventually, he met with the President before whom he pleaded for leniency. If that is true, then it means an admission of guilt on the part of the CBN governor. Will his plea be taken? Buhari, according to our sources, in turn, advised him to first respond to the query. “You know Buhari is no longer as harsh as he used to be in his (military) service years, maybe due to age. He is now becoming more considerate as he grows older,” the source opined. That notwithstanding, ever since the deadline for the reply to the query elapsed on November 9, there has been much apprehension at the CBN as Emefiele awaits the outcome.
The magazine could not lay hands on the CBN governor’s reply, to enable this publication to have his response to the query and associated issues. But Isaac Okorafor, Acting Director, Corporate Communications at the CBN, thinks the query is nothing to worry about. He told the magazine that the questions being raised in respect of the financial statement are a bit unusual. “There is a fundamental misunderstanding of advances to the Federal Government. Central banks all over the world create what is called virtual money. If the government is running out of cash, CBN prints money and gives to the government. The only consequence is that it creates inflation,” he explained.
According to Okorafor, advances to the Federal Government (which they pay back to the CBN) “are not like the money we budgeted and kept. It is not the kind of money you put in your bank account and go and take. Advances to the government are not our income. Once we make an advance to the Federal Government, in order to maintain a stable price level, we will mop up an amount that is equal to that; otherwise, inflation will be high. They pay interest on those advances just like we pay interest, when we mop up, to those people we sell Treasury Bills to. But the interest usually is very marginal.”
What Okorafor considers “unusual questions” are part of “a campaign to get Emefiele out of office”. In recent times, there have been occasional protests at the CBN headquarters in Abuja with protesters carrying placards and demanding the resignation of Emefiele. One of the groups, which CBN officials believe was sponsored by those who were hurt by Emefiele’s foreign exchange restriction policy, had cited rising inflation, falling naira and the general economic recession as their reasons for demanding the sack of the CBN governor.
While stressing that the interest groups that want Emefiele out are all over the place with all kinds of spurious allegations, Okorafor affirmed that “I am sure that there are accountants in the National Assembly, there are Committees on Banking and Finance in the House of Representatives and the Senate; if they found any problem there, they would have raised it. There is the office of the Accountant General of the Federation; there is the office of the Public Account Committee…”
Even though the CBN governor has responded to the query raised by the Presidency, Okorafor told the magazine that he is not aware of any such development. However, he explained that normally, if there are observations in an account, every year when accounts are prepared, auditors will raise issues. “After the review, the President will send something and the Governor answers back. The only time there was a serious issue, which was, of course, politically generated, was the Sanusi era.”
At the Financial Reporting Council, FRC, the statutory body that regulates accounting, auditing and valuation standards as well as corporate governance in the country, the magazine could not ascertain the level of anomalies in the books of the CBN but Jim Obaze, chief executive officer of the agency, said the review was in progress. He told the magazine that “as far as we are concerned, the financial statement has been sent to us and we are currently reviewing it. Once we complete the review, we will definitely draw their attention if there are issues that we have observed. The first point in our review process is to invite the organisations, to discuss the issues so that if there are schedules that we need, we will definitely request for them. So that is where we are for now. Once we progress to finality, we will make that known.”
But Obaze was evasive in responding to specific questions on the inability of the CBN to provide schedules for some areas considered to be ambiguous in the financial statement. He rather contended that “We are not their auditors; they have joint auditors and if they were not able to provide those details, I don’t think the auditors will sign off from the account. For us to review a financial statement, it must have been approved by the external auditors before it got to us.” However, like several other experts in auditing that the magazine spoke to, he admitted that signing off by the auditors does not mean that the account is okay.
He stressed further that the FRC reviews financial statements in line with section 11(d) of the FRC Act, which says that the agency is to ensure accuracy and reliability of financial statements and corporate disclosures pursuant to various laws and regulations currently in existence in Nigeria. “So we may be seeing more than what the external auditors are expected to see. We have the force of law to request for information that the external auditors may not be able to request for because they are doing a statutory audit. We go beyond statutory audit; we could do an investigation.” Whether the review of the CBN financial statement for 2015 will get to that level and whether the FRC will apply the rules like it did in the Sanusi case remains to be seen…
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