Forensic Audit of NSE/CSCS: Matters Arising - By Babatunde Ajani

The much awaited forensic audit of the Nigerian Stock Exchange and the Central Securities Clearing System seems to be gathering dusts on the shelf. The audit investigated the alleged fraud that rocked the Exchange under the past administration

of Prof. Okereke Onyuike. The forensic report which was carried out by two renowned auditing firms, it was gathered, encountered stiff opposition from the past management of the NSE.   It is believed that the full report of the audit had been submitted to Securities and Exchange Commission. However, the commission is yet to make the content public.

The issue of the audit emanated from the former Chairman of the Nigerian Stock Exchange Alhaji Aliko Dangote who alerted the Security and Exchange Commission to check the books of the NSE. Dangote alleged that about N900 million used in running the operations of the Exchange was a borrowed plume from the Central Securities Clearing System (CSCS), the main clearing house of the bourse. He explained then that the Exchange had dipped its hands in the CSCS accounts for N900 million to support its cash deficit position.

He challenged the then management of NSE to submit itself for forensic audit by reputable auditing firms. In the petition, he urged Security Exchange Commission (NSE), to investigate the accounts and books of the Exchange, saying: 'I assure you that if it is done, the revelation in the banking industry will be a child's play when compared to the rot in the Exchange'.

Other details of his allegations were that the management did not present the 2009 audited financial statement, seven months into another financial year, neither has it been able to produce for consideration by the Finance and General Purpose Committee of the council, interim financial statements for the first and second quarters of 2010.

He added: 'At the end of 2007, NSE had a surplus cash position of over N9 billion and as of today, the Exchange is in deficit and is unable to meet its obligations as at when due. The current inter-company balances with inter-company/associated companies amount to over N3 billion, which have been built over a period of years. Similarly, investment in such companies is now in excess of N1.3 billion without any commensurate return being accounted for. According to Dangote, the NSE was so broke that it could not pay the 13th month salary of the staff for 2009 due to cash crunch and that the annual president's dinner did not hold due to fund paucity.

This serious allegation put forward by Alhaji Dangote and lack of investors' confidence led to the eventual sacking of Prof Okereke Onyuike by SEC. The Security and Exchange Commission then ordered the probe of the NSE accounts under Okereke-Onyiuke. The report of the forensic audit has been a subject of immense speculation.

The interim report of the forensic audit commissioned by the Securities and Exchange Commission (SEC) reveal that NSE Consult, a wholly owned subsidiary of the Exchange, may have been a tool for illegal trading. The report confirmed that the Exchange transferred huge sums of money to the NSE Consult for the purpose of trading and investing.

The interim report, which highlighted a series of account falsification by way of wrong classification of assets in the financial statement of the Exchange, called for the unraveling of the circumstances surrounding the huge expenditure of N1.6 billion on a Coral Properties project which was later abandoned. It stated: 'Despite the fact that the sum N1,615,000,000.00 (One billion, six hundred and fifteen million) has been expended on the Coral Properties project, the project has come to a halt'.

The report also unearthed a plethora of questionable spending on the management staff quarters, (MSQ), particularly the purchase of diesel which was all lumped together in the same ledger to conceal the amount spent and the beneficiaries. For instance, the report showed that in January 2008, diesel expense under the expense classification was N10.4 million to beneficiaries who were either former staff or non-staff of the Exchange.

The report also conducted a search on some of the companies like Progenics Corp Limited and Kingdom Securities, among others, to ascertain the real owners and to authenticate the various payments made to them. On the huge expenditure on MSQ, the forensic audit report said: 'We have conducted a detailed review of major expense items under the MSQ ledger for the years 2008 to 2009. We have also conducted an oral interview with an officer of the NSE in respect of this ledger account. Our inquiries to date reveal the following: Contrary to the title of this ledger, expenses recorded in this ledger relate to private residences of the DG, ADG and senior management.

Sometimes, the expenses (especially in respect of diesel supplies) were for houses of persons who were not officers of the NSE. Several supplies were made to the house of former staff of NSE. The sums expended and recorded in the ledger were not deducted from the allowances due to the DG or ADG or other staff members on behalf of whom the expenses were incurred. The alleged justification for these purchases is that in the DG's remuneration package, utility is free. It is however questionable whether the expense incurred can be classified as utility.'

On the findings from the Corporate Affairs Commission, the report said, 'as at date, our search of the CAC reveals the following: Progenics Corp Limited: One of the subscribers to the memorandum and Articles of Association of this company and director as at incorporation was the former DG, Ndi-Okereke Onyuike. At the time this company was incorporated in 1996, she owned 250,000 shares of the 4.4million share capital of the company. However, her name does not appear in the Form CAC 2 for 2007 as one of the shareholders of the company and CAC records indicate that she ceased to be director in 1997. We however note that Progenics Enterprises appears as owning 651,000 shares.

That Kingdom Securities Limited and KSL Consultants Limited are owned by Mr. Uzoma Henry Onyekuruhe, former General Manager of the NSE's Compliance Unit. The said company was responsible for the reactivation of the 2nd tier and creation of the 3rd tier market project between 2006 and 2007 and received the sum of N125, 750,000.00 from the NSE. We are currently reviewing the contract and investigating whether the said services were rendered by the company in question.'

The report of the forensic audit has not been given proper attention going by the hype it received from the media. The findings of the audit should not be treated as just any of the of the usual government inquiry. From what has been garnered from the audit, there were lots of irregularities during the past administration of the NSE. All these grave revelations should not be swept under the carpet.

The challenge is for the Securities and Exchange Commission who initiated the investigations not to just stop at making the full report public but also act on it. Nigerians do not need to wait forever for this to happen.