Memorandum Responding to THE FRCN ALLEGATIONS on Sanusi. 1. Corporate Governance Briefing Note Allegation 1:that there is weak corporate governance at the CBN on account of the fact that the office of the Governor is fused with that of the Chairman of CBN’s Board of Directors. Response: i.This allegation ignores the fact that global best practice is that the Governor of the central bank is the Chairman of the Board of Directors of the central bank. See Annexure A, which shows the composition of the Board of Directors of central banks in over 55 different countries. 2. Alleged Fraudulent Activities Payments to NSPMP Briefing Note Allegation 2:that the CBN’s breakdown of “Currency Issue Expenses” for 2011 and 2012 indicated that it paid the Nigerian Security Printing and Minting Plc(NSPMP) N38.233 Billion in 2011 for printing of banknotes, whereas the entire turnover of NSPMP was N 29.370 Billion. Response: i. The expense item of N38.233 Billion to NSPMPwas made up as follows: a. N28.738Billion payment to NSPMP in 2011; b. N6.587Billion accrued liability in 2011 but paid in 2012 when deliveries were received; and c. N2.829Billion audit adjustment journal entry into the account at the end of 2011 in respect of prepayments to NSPMP. ii. See Annexure Bfor the evidence of payment to the NSPMP. Evidently, the difference between the numbers in the financial statements of CBN and NSPMP is a simple reflection of timing differences between recognition of expenses by the CBN and income recognition by the NSPMP, with both entities applying conservative accounting policies. 3. Charter Fees Briefing Note Allegation 3: that the CBN made fictitious payments to (a) Emirate Airlines: N0.511 Billion which allegedly does not fly local charter in Nigeria; (b) Wing Airline: N0.425 Billion which allegedly is not registered with the Nigerian Civil Aviation Authority (NCAA); and (c) Associated Airline: N1.025 Billion which allegedly did not have a turnover of up to a billion naira in 2011. Response: i. The CBNneither engaged, paid nor claimed to have paid Emirates Airlines. Rather, the CBN engaged andentered intoan Air Charter Services Agreementwith Emirate Touch Aviation ServicesLimited, which is a local Nigerian charter service company.A simple enquiry by FRCN would have clarified and avoided this misrepresentation. ii. With respect to Wings Aviation Limited,the CBN contracted Wings Aviation Limited,which changedits name to Jedidiah Air Limited on 21August 2009 but only notified the CBN of the change on 28 February 2012.Please, see Annexure C for the letter from Jedidiah Air Limited notifying the CBN of the change of name.Here also, a simple enquiry by FRCN would have made this clear. iii. With respect to Associated Air Limited,the CBN did in fact pay a total of N1.025 Billion to Associated Airline Limited.See Annexure D for the schedule of payments made to Associated Airline Limited.It is worth stating that the CBN is not responsible for how the company reports its turnover. 4. Deposit for Shares in Bank of Industry (BoI) Briefing Note Allegation 4: that the CBN is yet to receive the share certificate for investments made in the Bank of Industry (BoI) since September 2007 and that the leadership of the CBN was not worried about the delay. Response: i. On 20 August 2009, shortly after I assumed office, I directed that a reconciliation exercise be carried out by the CBN on all its investments in parastatals and companies. Thereafter, the CBN wrote various letters to the Bank of Industry requesting for its share certificates. See AnnexureE for the letters from the CBN requesting for the certificate. ii. On 20 September 2009, the BoI wrote to the CBN explaining that the delay in the issuance of the share certificates was as a result of the BoI seeking a concession on the payment of stamp duty and other statutory fees from the Corporate Affairs Commission and the Federal Inland Revenue Service (FIRS) with respect to the investment by the CBN and the FMF. See Annexure F for the letter from the BoI.Also find attached the letter dated 21 February 2013 forwarding the Share Certificate asAnnexure G as well as the certificate for the Debenture as Annexure H. iii. It is evident that as at the time theFRCN Briefing Note was written, the share certificate and debenture certificate were already in the possession of the CBN. A simple check by the FRCN would have answered the query. 5. Currency Issue Expenses Briefing Note Allegation 5:that the expenses made by the CBN on account of currency issues and sundry currency charges for the years 2011 and 2012 were identical and therefore difficult to understand. Response: i. It is incorrect to say that the expenses in 2011 and 2012 were identical. The sundry currency charges amounted to N1.68 Billion in 2011 and N1.87 Billion in 2012. This expense related to amounts paid to Travelex under an agreement to import foreign exchange for licensed BDCs. On the other hand, Currency Issue Expenses totalled N1.15 Billion in 2011 and N1.28 Billion in 2012, relating to expenses borne by the different branches and currency centres of the CBN in the movement and handling of cash. 6. Facilities Management Briefing Note Allegation 6: that the CBN’s leadership uses this head of expense (Facilities Management) to capture what ordinarily should have been accounted for as their benefits-in-kind for tax purposes. It also alleges that this head of expense is used for ‘fraudulent activities’ based on the inclusion of items such as “Profit from sale of Diesel”. Response: i. The CBN outsources the management and maintenance of its landed properties across the 36 States of the Federation and the FCT. This involves three service areas: engineering services, building services and environmental services. These are operational costs relating principally to head offices, branches, currency centres and training institutes. ii. On the specific allegation of ‘fraudulent activities’, based on profits from the sale of diesel,it should be noted that the CBN’s Facilities Management Agreements clearly include the supply of diesel for the operation of generators to power CBN offices in 51 locations across the 36 States and the FCT. The Diesel is paid for at pump price, while overhead and profit at 10% is paid to the service providers. This overhead and profit is presumably what the FRCN erroneously regarded as “profits from the sale of diesel”. These profits do not go to the CBN but to the service providers, which is why they are an “expense item”. The CBN does not operate in any sector of the petroleum industry. 7. Fixed Assets Clearing Account Briefing Note Allegation 7:that the expenses under the Fixed Assets Clearing Account comprise properties acquired by the CBN without any expectation to derive future economic benefits and are written off by the CBN on a yearly basis. Response: i. Fixed Assets Clearing Account is used by the CBN to record the procurement of fixed assets, physical items and projects-related expenditure for the CBN, using the IT application Oracle ERP. However, some items, which do not qualify as fixed assets under the capitalisation policy of the CBN, are sometimes posted into this account. ii. The transactions are periodically reviewed for the purpose of capitalizing those which qualify under the Capitalization Policy and posting such to the respective Fixed Asset Account and Fixed Asset Register with tag numbers. All other assets which do not qualify are expensed through income and expenditure accounts at the end of the year. 8. Operation of Foreign Bank Accounts Briefing Note Allegation 8: that foreign bank accounts that were closed down were still operational in the General Ledger for over six months after the accounts had been confirmed closed by the offshore banks. Response: i. The balances on these accounts simply reflected the fact that the process of the transfer of gains and losses on them had not been concluded, hence their existence in the General Ledger. The process of closing the accounts has since been concluded and the journals evidencing closure are available in the CBN. 9. Unreconciled Real Time Gross Settlement Clearing Account Briefing Note Allegation 9:that the Real Time Gross Settlement (RTGS) Account had longstanding unreconciled items which could not be substantiated. Response: i. These items resulted fromepileptic operations of the RTGS system due to frequent system downtime, which in turn resulted in failure to seamlessly effect funds transfer. These items have since been reconciled and we have put in place an upgraded and more robust RTGS system, which would minimise reoccurrence. 10. Missing Stockpiles of Foreign Currency Briefing Note Allegation 10:that the external audit revealed debit/credit balances of sundry foreign currencies without the physical stock of foreign currencies at the CBN Head Office. Response: i. Generally, losses or gains may arise out of the account balances, which in turn, may be occasioned by exchange rate differentials. In either event, once crystalized, the net position is then posted to the Foreign Assets Revaluation Account. As such, as at 20 February 2014, there was no physical stock of currency missing at the CBN.
Posted on: Sun, 16 Mar 2014 16:53:50 +0000
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