NNPC’s Forensic Audit Vs PwC’s Independence

RISK –The Dangers of Engaging PwC to Audit Revenue Generating Agencies.

On Friday 14 August 2015, several national newspapers and news portals reported that the National Economic Council’s ad-hoc committee on the management of the Excess Crude Account proceeds and accruals into the Federation Account had hired two firms, KPMG and PriceWaterHouseCooper (PwC) to audit the accounts of all Federal Government’s revenue earning agencies.

The agencies whose accounts would be audited were named as the Nigerian National Petroleum Corporation (NNPC), the Central Bank of Nigeria (CBN), Securities Exchange Commission (SEC), Nigerian Maritime Administration and Safety Agency (NIMASA), Department of Petroleum Resources (DPR), Federal Inland Revenue Service (FIRS), Nigeria Customs Service (NCS), the Nigerian Petroleum Development Company (NPDC), Revenue Mobilisation Allocation and Fiscal Commission (RMFAC), Nigeria Extractive Industry Transparency Initiative (NEITI), Federal Ministry of Finance (FMF), and Office of the Accountant-General of the Federation (OAGF), among others.

Whereas the Government is at liberty to engage the services of any firm so qualified to audit the account of its agencies, it must as a matter of duty engage only the services of a competent and strongly independent auditor.

Generally Accepted Auditing Standards (GAAS) are the effective pronouncements of the American Institute of Certified Public Accountants (AICPA) which sets the standards against which the quality of audits and other attest work are performed and may be judged. These standards are generally mirrored by those of the Institute of Chartered Accountants of Nigeria (ICAN) and several other national accounting bodies. These pronouncements cover Statements on Auditing Standards (SASs), Statements on Standards for Attestation Engagements (SSAEs) and Statements on Standards for Accounting and Review Services (SSARSs).

All extant accounting and auditing standards generally agree that “Independence is the true cornerstone of the auditing profession.” Auditors must be independent –not only in fact but in appearance as well. Independence in fact is demonstrated when the auditor is able to maintain an unbiased attitude throughout the engagement.  It is generally accepted that, “independence is proved when it clearly manifest that an auditor has not subordinated his judgment to others and his actions/inactions are free from any extraneous influences.”

The Case against PwC
PriceWaterHouseCoopers Nigeria (PwC) by its previous conduct with respect to its handling of the NNPC’s forensic audit/review between 2014 and 2015 has not demonstrated appreciable independence that gives us confidence that it is qualified to issue an independent opinion on the accounts of any of the Federal Government’s Revenue Generating Agencies (RGAs).

The premises of my assertions are as follows:

In April 2014, following allegations by the former Central Bank of Nigeria, Lamido Sanusi, that about $20 billion oil revenue was not remitted by the NNPC to the Federation Account, the Federal Government through the auspices of the office of the Auditor General of the Federation and the Federal Ministry of Finance handpicked PwC to undertake a forensic audit of the NNPC.  It was widely reported at the time that the assignment will be for 12-16 weeks.

In February 2015, PwC proceeded to submit its report to the President of Nigeria several months behind the original schedule without any explanation to the Nigerian public on the reasons for the delay. The report was submitted in a televised event at a time of serious and tenuous electioneering campaigns in a move that appeared designed to sway public opinion in favour of the government at the time.

The report submitted by the firm at the time was later held out by the same firm as not constituting a forensic audit but a forensic “review” contrary to the purpose for which they were hired.

The report never categorically confirmed the exact amount of funds missing from the federation account but rather curiously in its executive summary declared that “excess remittance of $0.74 billion was funded from proceeds of PMS sales for which the suppliers of the PMS are yet to be paid in cash or crude oil.”

In May 2015, the Senator representing Lagos West Senatorial District and former Chairman of the House of Representatives Committee on Public Accounts, Solomon Adeola, called on the incoming Federal Government and relevant financial and auditing regulatory bodies to appropriately sanction the auditing firm. He surmised that from the disclosures by PwC on its work, there was no audit report on the missing money much less a ‘forensic’ audit report.

PwC conveniently left out publicly available information that could embarrass the previous Government in its report thus demonstrating beyond reasonable doubt that it lacked the requisite independence and strength of character needed to audit any of our Revenue generating agencies.  The firm even admitted to Governor Adams Oshiomhole’s led committee that “the audit it carried out on the NNPC, under the administration of former President Goodluck Jonathan, was done under a political environment that was not favourable.” This is a direct admission by the firm that it could not exercise the necessary independence to issue an unbiased report thus failing the most important test for a public auditor.

KPMG in an Unfavourable Political Environment
It should be noted that under the same conditions, a firm that understood the meaning of independence – KPMG – confirmed to the committee that it declined to carry out the exercise under Jonathan because of the political environment at that time. The meaning of this is that the firm refused to be a rubber stamp unlike PwC.

There have been too many instances of the firm refusing to exercise its independence in the interest of the public in our recent history for us to continue to excuse their inadequacies. For example, the firm had consistently certified the books of the defunct Bank PHB, Oceanic Bank, and Intercontinental Bank, as true and fair until a Central Bank of Nigeria audit in 2009 revealed that the banks had eroded their shareholder funds to the extent that they could no longer carry out business as a going concern. Clearly, the firm was unable to assert its independence in the face of senior bank executives at the time.

Engaging Firms with Requisite Integrity
In view of the above, it is of national interest that the Presidency, National Economic Council, and the National Assembly immediately prevail upon Governor Oshiomhole and his committee to rescind the appointment of PwC. In their stead, firms with the requisite integrity that will inspire public confidence should be appointed.

Whereas, PwC, as one of the oldest accounting firms in the world had a reputation for quality in the past, recent events has demonstrated beyond reasonable doubt that the Nigeria member firm of PwC does not possess the necessary strength of character needed to perform any attest service whatsoever on the accounts of any of the revenue generating agencies in Nigeria.

It is my hope that the current government, as the true champion of the people, will continue to serve in the temple of justice and equity.

Eben Joels is the Country Partner of Stransact, a transaction and tax advisory firm.