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Poor book-keeping threatening fight against corruption, says Auditor-General

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Auditor-General for the Federation, Anthony Mkpe Ayine

* DPR, FIRS overpaid N837.082bn in 2016
Poor book keeping, particularly in the oil sector, in the areas of management of generated revenue and general expenditure, is a major challenge in the fight against corruption in public finance, the Auditor-General of the Federation, Anthony Ayine, has said.

This was contained in the 2016 Federal Government Financial Statement report submitted to the National Assembly.

According to the report obtained by The Guardian, a case of discrepancy in figures by the relevant government agencies led to the overpayment of two revenue generating agencies – Department of Petroleum Resources (DPR) and Federal Inland Revenue Service ( FIRS) to the tune of N837.082bn as cost of revenue  collection by the two bodies.

The report read in part, “Our examination of the Accountant-Generals transcript and Federation Accounts and Allocation Committee (FAAC) figures revealed that the FIRS and DPR were over paid cost of collection in the month of August 2016 to the tune of N305,922,200.48 and N531,160,436.78, respectively, totaling N837,082,637.24.

It was observed that what was captured in the Accountant-General’s transcript as payments for the month of August for FIRS and DPR as cost of collection differs from what FAAC approved in the FAAC file. It is expected that only figures approved by FAAC are to be paid by the Accountant-General of the Federation. The difference resulted in overpayments of N837,082,637.24 by the Accountant-General to the two collecting agencies.”

The audit  report  also found out that joint venture (J V) cash calls (funds injected into Joint Ventures by the Nigerian National Petroleum Corporation (NNPC) on behalf of the federation, were mired in obfuscation  as they could not be well  accounted for in the books of the OAGF and FAAC .

The report explained: “These funds are obtained out of revenues accruing to the federation that would otherwise have been paid onto the Federation Account for allocation to the three tiers of Government. Firstly, it is unclear how and where the asset values of these investments in Joint Ventures on behalf of the federation are determined and reported.

“Secondly, from the analysis and review of the Revenue and Account documents presented by the Crude Oil Marketing Department (COMD) of the NNPC in respect of sales of crude oil and gas and payment of JV cash call funding, it was observed that only a marginal sum was returned as revenue from export of crude oil and gas revenue inflows to the Federation Account for year.

“From the total receipts by the NNPC of $2,399,642,012.90 (N569,143,803,033.21 from export sales of crude oil and gas for the year, a total amount of $2,348,880,056.93 (N517,354,153,159.77) was paid out to fund JV cash calls, leaving only $72,875,099.00 (N22,423,859,671.82) which was paid to the Federation Account. It should be noted, that the above JV cash calls deducted from the proceeds from export oil and gas sales did not include an amount of N355,173,305,887.21 also paid from the receipts from domestic crude oil sales as JV cash calls.

“The implication of the above was that the bulk of the revenues received from the sales of domestic crude oil and gas by the NNPC are paid out as JV cash call payments. It is also unclear whether the JVs are profitable and how the Federation’s interest in these Joint Ventures is accounted for.

“We recommend that the situation described above is reviewed urgently, as this matter has been reported in several previous annual audit reports. We further request that all JVs are fully disclosed in annual financial statements for the federation, with clear information on the amounts invested to date into each venture, the fair values of such investments and the profitability to date or otherwise of each venture. This information should be presented for the audit of balances relating to the federation and/or the public interest.”

The report  said the analysis of the total government lifting and its relation to the total production for the year from the schedules and document presented by the crude oil Marketing Department revealed a comparably low ratio of 35 per cent. Considering the fact that government’s lowest contributory ratio (NNPC equity per cent) in all of the Joint Ventures is 55 per cent, having this low lifting ratio may indicate inappropriate lifting figure for the government.
“The downward trend in production means that the revenue accruable to the Federation Account from oil source continued to fall over the last three years (2014 to 2016).

Poor record keeping for the lifting of crude
From our review and examination of the domestic crude oil lifting sales profile presented for audit verification, it was noted that several deliveries were stated to be jointly lifted by or delivered to the Warri Refinery and Petrochemical Company (WRPC) and Kaduna Refinery and Petrochemical Company (KRPC) without necessary details or breakdown of what was delivered to the respective companies.
It explained: “From the examination carried out, a total crude oil lifting of 8,399,027bbls with a total sales value of $376,655,589.03 (N102, 659,577,632.16) was stated to have been lifted jointly by these two companies. The failure to properly separate these deliveries and charge directly to each company makes it difficult to reconcile and account for each lifting. The NNPC Group Managing Director should also ensure proper delineation of Crude oil deliveries to the Refineries for proper accountability.

Low utilisation of domestic crude allocation by refineries
The report said the audit review of domestic crude report in respect of the utilisation of the domestic crude allocation to NNPC revealed a low percentage utilisation by the local refineries (KRPC, WRPC and PRPC). From the total intake of 126,163,388bbls domestic crude oil lifting made between January – December, 2016, only a marginal 23,085,639 bbls (18 per cent) was used to service these refineries and a total of 67,386,566bbls (53 per cent) was lifted for off-shore processing.

The implication is that, the local processing of crude contributed very marginally to the domestic consumption as imported refined products from processed exported domestic crude largely account for the domestic consumption. Also, this partly explains the high cost of petroleum products domestically as the bulk of supplies were made from offshore processed products and through product exchange.

The Group Managing Director of NNPC has been advised to review the Crude oil allocation to local refineries and ensure there are no unwholesome practices in the application of the amounts surplus to local refinery requirements. The Federal Government is also advised to take all steps necessary to ensure local refining capacity can absorb the amounts of crude allocated.

Maintenance of Excess Crude Account:
The examination of records and documents presented to the audit team in respect of the Excess Crude Account, revealed that a sum of N361,230,422,517.15 summarised below and classified as PPT/Royalty was deducted from total oil and gas revenue collected before the balance was paid to the Federation Account. These deductions would appear to contravene the provisions of Section 162 (1) of the Constitution of the Federal Republic of Nigeria (1999).

Zero collection of oil revenue
It was observed from the Central Bank of Nigeria’s Components Statements that no collections were reported into the Federation Revenue Account by some revenue collecting agencies for certain months of the year. It was not clear from available records why these months recorded no revenue collections and no explanation was provided for this.

The Accountant-General has been requested to: Obtain an explanation from the Group Managing Director of NNPC and Director DPR for the non-collection of revenue during these relevant months; and ensure that any revenue found due for these months is remitted to the Federation Account, and evidence forwarded for audit verification.

Another abuse of financial regulation in the execution of the 2016 budget, according to the Auditor-General of the Federation is the illegal movement of monies from two dedicated funds to purposes other than for the mandates of the funds.

He pointed out that monies were moved from the Stabilisation Account for states and the Federal Government by the Presidency for the establishment of an Army Barracks and another sum as investment in the Sovereign Wealth Fund.

The two Acts, the report added, apart from not being tidy on framework of  recovery, are illegal, just as another case of lending out the Ecological Funds meant to strictly check ecological challenges  without records to track recovery.

The report said: “From available records, a total of N17,108,583,681.78 accrued from the Federation Account into 0.5% Stabilization Fund from January – December 2016. During the examination of central bank, bank statements for the year, we observed that the sum of N2,812,694,928.36 was funds released to the Nigerian Sovereign Investment Authority (NSIA), and N14,374,728,817.20 to the Federal Ministry of Defense from the Stabilisation Fund
“The Accountant-General has been requested to: Provide the authority for the funds invested, tenor of the investment, rate of interest payable, certificate for the funds invested and forward same for audit verification; explain the utilisation of N14,374,728,817.20 for the purpose of funding a new division contrary to the purpose for which the fund was created; and provide evidence of refund of this sum of N17,187,423,745.56 back to the Stabilisation Fund.

Ecological Fund
The Ecological Fund was set up for the amelioration of general ecological problems in
any part of Nigeria. Examination of records presented for audit revealed that the sum of N26,286,790,023.51 was credited to the Ecological Fund as the required two per cent deduction from the Federation Account in the year 2016.

Natural resources
Examination of FAAC records revealed that a total amount of N48,601,928,311.08 was received into the Ecological Fund in the year, as the required three per cent deduction from the Federation Account for the development of natural resources.

It was observed that the sum of N28,239,060,570.89 representing about 58 per cent was paid out of the fund as loan to carry out various activities that are not related to development of natural resources.
“We recommend that henceforth, the Federal Government deploys these special funds only for the stated objectives of the funds. We note that the various withdrawals from the funds by the Federal Government are stated to be borrowings. We further observed that the arrangements for the repayment of these funds or borrowings are unclear. For example, the 2017 budget did not include any appropriations for the repayment of these borrowings.
“We, therefore, further recommend that arrangements are clarified immediately, for the repayment of any funds not disbursed for the prescribed purposes of these funds.”

IPSAS Accrual Financial Statement
The Auditor-General noted that the audit revealed many weaknesses around the consolidation process and listed some of them to  include but not limited to, the controls around the process, consolidation  of unaudited trial balances, material errors in balances stated in the financial statements, the nondisclosure of certain information required under International Public Sector Accounting Standards that would have enhanced the understanding of the financial statements particularly on first-time adoption and the lack of qualitative notes to support and explain several significant balances in the financial statements.

“The submission of up to five versions of signed financial statements in response to our audit observations has shown that there were major challenges with the first-time adoption of accrual IPSAS. The process required the Accountant-General to consolidate the balances of up to 924 MDAs and self-accounting public entities.

The lack of disclosure by the Accountant-General of which MDAs could not be consolidated further affects the completeness of the financial statements,” Ayine informed the National Assembly.

He maintained that a number of shortcomings were observed whereby MDAs failed to disclose relevant financial information in line with IPSAS disclosure requirements, adding that overall, the audit found out that, the likelihood of material undetected error in the financial statements was high.

Accordingly, he advised the Accountant-General  to strengthen controls over the accounting and consolidation processes, ensure proper training of all accounting personnel responsible for preparing financial statements in the MDAs, pay particular attention to lapses observed in this first year of IPSAS adoption, and take proper advantage of the guidance within the standards on first time adoption (IPSAS 33 in particular).

Assessing consolidation process
According to the report, it was observed that the financial statements for 2016 were prepared by the consolidation of unaudited trial balances from the MDAs, as opposed to the previous good practice of consolidating audited financial or transcripts of each MDA. It added that, the controls and cut-off procedures over the consolidation process to ensure completeness of the financial statements were found to be inadequate.

As a result of weaknesses in the controls over the consolidation process, it pointed out that many MDAs were left out in the consolidated financial statements because the financial statements submitted to the Auditor-General fail to comply with certain IPSAS disclosure requirements.


In this article:
Anthony AyineFAACFIRSNNPC
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