The Financial Reporting Council Report that got Sanusi suspended

President Jonathan's decision to suspend CBN
Governor, Sanusi Lamido Sanusi yesterday Feb.
20th was based on a report of the Financial
Reporting Council of Nigeria, FRCR dated June
7, 2013. In the report, FRCR ripped apart the
2012 audited financial statement of CBN and
exposed what it termed as 'fraud', 'clear display
of incompetence',and 'excesses and
wastefulness of Sanusi and the CBN.'
The 13-page report claimed a whooping N1.257
billion was spent for 'lunch for policemen'. There
were also bogus payments to airlines to
distribute currency nationwide. The FRCR also
claimed CBN has held an account with a
balance of N1.423b for an unknown customer
since 2008. The report had recommended the
sack of Sanusi and his deputy.
You can read the full report here or continue to
read a breakdown of the report..
Culled from Punch
The report read: The particulars of the
infractions against Sanusi are:
Persistent refusal and/or negligence to
comply with the Public Procurement Act in
the procurement practices of the Central
Bank of Nigeria.
(A) By virtue of Section 15 (1)(a) of the
Public Procurement Act, the provisions of
the Act are expected to comply to ‘all
procurement of goods, works and services
carried out by the Federal Government of
Nigeria and all procurement entities.’ This
definition clearly includes the Central Bank
of Nigeria.
(B) It is however regrettable that the
Central Bank of Nigeria, under his
leadership, has refused and/or neglected to
comply with the provisions of the Public
Procurement Act (PPA). You will recall that
one of the primary reasons for the
enactment of the PPA was the need to
promote transparency, competitiveness,
cost of effectiveness and professionalism in
the public sector procurement system.
(C) Available information indicates that the
Central Bank has over the years engaged in
procurement of goods, works and services
worth billions of Naira each year without
complying with the express provisions of
the PPA.
(D) By deliberately refusing to be bound by
the provisions of the Act, the CBN has not
only decided to act in an unlawful manner,
but has also persisted in promoting a
governance regime characterised by
financial recklessness, waste and impunity,
as demonstrated by the contents of its
2012 Financial Statements.
Unlawful expenditure by the Central Bank
of Nigeria on ‘Intervention Projects’ across
the country
(A) the unacceptable level of financial
recklessness displayed by the leadership of
the Central Bank of Nigeria is typified by
the execution of ‘Intervention Projects’
across the country. From available
information, the bank has either executed
or is currently executing about 63 such
projects across the country and has
committed over N163billion on them.
(B) it is inexcusable and patently unlawful
for any agency of government to deploy
huge sums of money as the CBN has done
in this case, without appropriation and
outside CBN’s statutory mandate. It is trite
that the expenditure of public funds by any
organ of government must be based on
clear legal mandates, prudent costing and
overriding national interest.
Financial infractions and acts of financial
recklessness committed by the Central
Bank as reflected in its audited financial
statements of 2012
(A) pursuant to Section 50 of the CBN Act
2007, a copy of the audited financial
statements of the CBN for the year ended
31st December 2012 was sent to Mr.
President. Based on the issues raised in the
financial statement, a reaction was
requested from you to enable a proper
appreciation of the nation’s economic
outlook.
(B) the response to this query was further
referred to the Financial Reporting Council
of Nigeria. The review by the council,
rather than allay the fears of government,
further confirmed concern bout the untidy
manner in which you have generally
conducted the operations of the CBN.
Some of the salient observations arising
from the review are;
(A) in a most ironical manner, it has
become obvious that the CBN is not able
to prepare its financial statements using
applicable International Financial Reporting
Standards (IFFS) whereas Deposit Money
Banks that the CBN is supervising have
complied with this national requirement
since 2012.
Undoubtedly, this laxity on the part of our
apex bank, apart from calling to question
its capacity for proper corporate
governance, is capable of sending wrong
signals to both domestic and international
investors on the state of the Nigerian
economy.
(B) the provisions of the Memorandum of
Understanding (MOU) signed by the CBN
and other Deposit Money Banks on Banking
Resolution Sinking Fund have been
breached in a material manner. For
example, a Board of Trustees (BOT) to
manage the Fund has not been constituted
since 2010 when it was established. The
CBN has however continued to utilise the
Fund for certain operations without
approval of the said BOT.
(C) contrary to section 34 (b) of the CBN
Act 2007 which provides that the CBN shall
not, except as provided in Section 31 of the
Act, inter alia, purchase the shares of any
corporation of company, unless an entity
set up by the approval or authority of the
Federal Government,m CBN in 2010,
acquired 7% shares of International Islamic
Management Corporation of Malaysia to
the tune of N0.743 billion. This transaction
was neither brought to Mr. President’s
attention nor was a board approval
obtained before it was entered into.
(D) the CBN has failed or refused to
implement the provisions of the Personal
Income Tax (Amendment) Act 2007.
Accordingly the Pay-As-You-Earn (PAYE)
deductions of its staff are still being
computed in accordance with the defunct
Personal Income Tax Act 2004, thus
effectively assisting its staff to evade tax
despite the generous wage package in the
CBN, relative to other sectors of the
economy.
(E) the CBN had an additional brought
forward to General Reserve Fund of
N16.031bn in 2012 but proceeded on a boy
age of indefensible expenses in 2012
characterised by inexplicable increases in
some heads of expenditure during the year.
Examples include:
1. The bank spent N3.086bn on
“promotional activities” in 2012 (up from
N1.084bn in 2011). The bank spent this
sum even when it is not in competition
with any other institution in Nigeria;
2. The CBN claimed to have expended
N20.202bn on ‘Legal and Professional
Fees’ in 2011 beyond all reasonable
standards of prudence and accountability;
3. Between expenses on ‘Private Guards’
and ‘Lunch for Policemen’, the CBN
claimed to have spent N1.257 billion in
2012;
4. While Section 6(3)(c) of the CBN Act
2007 provides that the board of the CBN is
to make recommendations to Mr.
President on the rate of renumeration to
Auditors, the bank has consistently
observed this provision in breach and even
went to the extent of changing one of the
Joint External Auditors without notifying
the office of the President.
5. In the explanations offered by the CBN
pursuant to presidential directives, it
offered a breakdown of ‘Currency Issue
Expenses’ for 2011 and 2012. Interestingly,
it claimed to have paid N38.233bn to the
Nigerian Security Printing and Minting.
Company Limited (NSPMC) in 2011 for
‘Printing of Banknotes.’ Paradoxically
however, in the same 2011, NSPMC
reported a total turnover of N29.370bn for
all its transactions with all clients
(including the CBN).
6. It is significant to note that the external
audit revealed balances of sundry foreign
currencies without physical stock of foreign
currencies in the CBN Head Office.
Questionable write-off of N40bn loans of a
bank
The above issues are only a few of the
infractions highlighted by the review and
which point to the gross incompetence and
recklessness which characterised the
operations of the CBN in the period under
review.
However, the CBN also claimed that it
paid Air Charter, such as payments to
Emirate Airline (N0.511bn), Wing Airline
(N0.425bn) and Associated Airline
(N1.025bn) to distribute currency by air
nationwide. Emirate Airline does not fly
local charter in Nigeria, Wing Airline is not
registered with Nigeria Civil Aviation
Authority and Associated Airline does not
have a billion turnover for 2011 because
upon enquiry, the management claimed
that they have no financial statements and
have not had any significant operations for
the past two years that will warrant
preparation of financial statements.
The breakdown also include “Currency
Issue Expenses” of N1.158bn and Sundry
Currency charges of N1.678bn under
“Currency Issue Expenses.” As they are in
2011 so are similar expenses in 2012.
These are difficult to understand.
Other areas of fraudulent activities include
1. Facility Management N7.034bn in 2012
(N5.751bn in 2011.
2. Foreign Bank accounts that have been
closed offshore were still operational in the
General Ledger for over six months after
they have been confirmed as closed
accounts by the offshore banks.
3. The “Know Your Customer” policy is not
properly followed by the CBN to the extent
that the CBN has unknown customer with
account balance of N1.423bn since 2008.
The CBN claim that it is taking steps to
obtain the required details regarding the
address of the customer.
Wastefulness
1. Training and travel expenses N9.24bn in
2012 up from N7.65bn in 2011.
2. Expenses on “ATM offsite policy change”
came to N1.045bn.
3. Expenses on “Non Interest Banking”
N1.359bn in 2012 up from N0.977bn in
2011.
The CBN is still very heavy on expenses on
“Project Eagles” spending N0.606bn in
2012 up from N63m in 2011.
Expense on newspapers, books and
periodicals (excluding CBN’s publications)
is N1.678 billion in 2012 up from N1.670bn
in 2011,