Why the Forensic Audit of Oando is Essential

Olujobi Akanni posits that the sure way to instill investors’ confidence in Nigeria is for President Muhammadu Buhari to direct a full scale investigation into the crisis that led to the suspension of SEC DG, Munir Gwarzo and ensure an objective audit of Oando Plc

Anyone who thinks the crisis rocking Oando Nigeria Plc is over deludes himself. Last week, some groups of shareholders consisting of the Trusted Shareholders Association of Nigeria (TSAN), Proactive Shareholders Association of Nigeria (PROSAN) and the Oando Shareholders Solidarity Group (OSSG), marched from Eagle Square in Abuja to the National Assembly Complex, demanding the removal of the Group Chief Executive of Oando Plc, Mr. Wale Tinubu from office.

The shareholders complained that it would be impossible to achieve an objective forensic audit of the financials of Oando with Tinubu still overseeing the affairs of the company.

The shareholders, in their hundreds, chanted various slogans and carried different placards decrying what they called the poor handling of the Oando crisis by the present management of the Securities and Exchange Commission (SEC).

PROSAN National Coordinator, Mr. Taiwo Oderinde, accused the Minister of Finance, Mrs. Kemi Adeosun and the Acting Director-General of SEC, Dr. Abdul Zubair, of shielding the management of Oando from scrutiny. The situation, he said, is dangerous for the Nigerian capital market as it has continued to erode investors’ confidence in the market.

Oderinde, who also submitted a petition on behalf of the protesting shareholders to the House Committee on Capital Market and other Institutions, said the malfeasance in Oando and the attempt by Adeosun to shield the company leaves a sour taste in the mouth.

“The management of Oando Nigeria Plc led by Wale Tinubu should step aside until the forensic audit is released to the public so as to pave way for an unhindered forensic audit,” Oderinde had said.

The Oando storm gathered momentum late last year after several months of petitions and allegations of financial mismanagement and insider trading, culminating in the suspension of the shares of the company on the Nigerian Stock Exchange (NSE) and the Johannesburg Stock Exchange (JSE) on October 19, 2017. The Nigerian capital market regulator also ordered a forensic audit of Oando in view of several allegations of untoward practices leveled against the management.

In its preliminary findings, SEC said it established cases in which Oando Plc allegedly declared dividends from unrealised profits and released false financial statements to the public. The commission also said that it discovered that the oil firm’s 2014 Rights Issue Circular ”contained misleading information.”

In a letter dated October 17 and signed by Braimoh Anastasia, Head of Legal department of SEC, the regulator also claimed that the oil company’s disposal of Oando Exploration Production Limited (OEPL) to Green Park Management Limited was done in contravention of the Investment and Securities Act (ISA) 2007 because the regulatory body was not informed.

In 2013, following the structuring of the OEPL transaction in a way SEC said contravened the ISA 2007, Oando recorded a profit of about N6 billion that erased a loss of N4.68 billion which made the company declare a profit of N1.4 billion for the same financial year. SEC said since the transaction was done in contravention of ISA 2007, Oando Plc restated its 2013 and 2014 audited accounts which contained “…material false and misleading information contrary to section 60(2) of the ISA 2007.”

The SEC letter also revealed that the 2014 Rights Issue Circular of the company contained information on the profit reported by the company in 2013 arising from the sale of the OEPL, which the commission considered “false and misleading”. This action, it said, amounted to a violation as contained in sections 85, 86 and 87 of the ISA 2007.

Similarly, the commission noted that the corporate governance return submitted by the company in December 2016 showed that the renumeration of the Group CEO, Mr. Wale Tinubu, and his deputy were approved by the board while the GCEO approved the renumeration of other executive directors, a clear violation of part B 14.3 of the SEC Corporate Governance Code.

SEC also said that its preliminary findings revealed that the last audit of the Oando was done by KPMG in 2012, a development it also said contravened the SEC regulations. The commission’s letter also said that the firm paid dividends to its registrar in piecemeal, also a clear violation of the SEC regulations, even as independent auditors reported the going concern status of the company in 2016.

Further checks by SEC, as detailed in its letter, also revealed that certain persons classified as ‘insiders’ within the provision of section 315 of ISA, 2007, and were in possession of confidential price sensitive information not generally available to the public, had between January and October 2015 traded on Oando shares prior to the release of the company’s 2014 financial statement, in which the company reported a loss of N183 billion.

In 2013 and 2014, SEC revealed, Oando also declared dividends from unrealised profits even as certain Related Party Transactions were not conducted at arm’s length basis, all in violation of the SEC rules and regulations.

The commission said the findings were weighty and required further investigation by an independent team of auditors.

It is however unfortunate that almost six months after the preliminary findings, SEC has exhibited a lackadaisical attitude towards ensuring an objective closure of the Oando matter. This poor handling has further aggravated Oando’s exasperated investors, who have decided to take to the streets to express their grievances.

The shareholders believe that Zubair’s SEC has become a puppet in the hands of the Minister of Finance Kemi Adeosun.

“We believe the Minister (of Finance) is clearly working to protect her friends in Oando Plc from the impending embarrassment that findings from the forensic audit may cause them,” Oderinde said.
Referring to the suspension of the former Director-General of SEC, Dr. Munir Gwarzo as a grand ploy to pave way for the said protection bid, he said, “We also fear that the suspension of the director-general is a clear attempt to frustrate the forensic audit.’’

Similarly, the chairman, Trusted Shareholders Association, Alhaji Mukhtar Mukhtar, said the group was convinced that SEC, under the acting DG, Dr. Abdul Zubair is only buying time by foot-dragging on the forensic audit.

He expressed anger that while shareholders of the company are dying without getting returns from their investments, the company’s management members are acquiring new expensive automobiles and private jets.

“Many of our members have become victims of hypertension watching their investments tumble without any hope to salvage same in sight,” Mukhtar said.

He stated that the global practice is that when forensic audit is being carried out on a company, the management of the company will forced to step-aside to give room for thorough investigation without any interference.

Gwarzo himself had accused Adeosun of removing him from office for failing to stop the Oando probe.

Speaking on Tuesday, January 30, 2018 at a public hearing organised by the House of Representatives Committee on Capital market and Institutions, the suspended SEC Director-General said, “On one occasion, the Minister invited me and asked me the powers I had to carry on with the audit. So, I explained to her it was within the powers of my office. She said we should have mentioned it to her but no problem. But the scary aspect was that she told me she was told I should have been sacked. After that encounter, we went on with our investigations.

“On another occasion, the Honourable Minister invited me again in the company of the Permanent Secretary (of the Ministry of Finance) and said I should lift the technical suspension placed on Oando.

“Later around 4pm, another meeting was conveyed, with the Minister, Permanent Secretary, Director of Legal Services and some staff of SEC. The Minister went through all the allegations against SEC and also the recommendations. We discussed extensively with her and sought some clarifications.
“The Minister said ‘even though you did not carry us along, we have no choice than to support you’. The case was in court, so we couldn’t do anything then.

“Next, we issued a letter to Oando informing them we will continue with the audit and the next day, I was invited by the Minister.

“She said to me, ‘I want this Oando issue to be concluded’ and I replied, ‘no problem’. She then said I should stop the forensic audit of Oando and that I should constitute a committee comprising the Head of Legal of SEC, that of the Ministry and that of Oando.

“She then told me I will not be on that committee, and that they were giving me the directive as my board (members). I said okay, if that’s the case, I want it to be committed in writing.

“She went on to tell me I had two options, either I resign or I am suspended and went on to remind me of the allegations against me. I told her I am ready to defend myself against those allegations.

“The Minister then said no, that my case is similar to that of Babachir Lawal, the former SGF, which means she has already pronounced me guilty.”

These allegations of interference against Adeosun are as weighty as the ones against Oando and must not be swept under the carpet.

The Nigerian capital market is fragile and needs a strong, independent regulator to instill investors’ confidence. As a result, it is necessary for President Muhammadu Buhari to wade into this matter at this time. The allegations against Adeosun must be investigated and the Minister must be asked to step aside if found to be true. The management of Oando Plc must also step aside to allow for unhindered forensic audit. They can be reinstated if no untoward conduct is established against them.

It is also important to revisit the issue of Munir Gwarzo. If he has committed any offence, he should be prosecuted but if not, fairness demands he be returned to his position with immediate effect.

– Akanni is a Lagos-based capital market analyst