By Michael Eboh
Experts in the Nigerian financial system have disagreed over callsÂ for appointment of banksâ€™ auditors by theÂ Â Â Central Bank of Nigeria (CBN).
The experts, who spoke with Vanguard differed on the adoption of the Indian model of banking supervisionÂ as proposed for Nigeria by Mr. Fabian Ajogwu, Managing Partner, Kenna & Associates and Senior law lecturer,Â Lagos Business School, Pan African University.
According to the model, the Reserve Bank of India, the equivalent of the CBN, appoints three separate auditors for all the banks, with each of the auditors auditing the books of the banks separately on a monthly, quarterly and yearly basis.
Ajogwu, speaking on a paper titled, â€˜Towards all round corporate governance best practiceâ€™ at the Third annual Eurofinanceâ€™s conference on Treasury, risk and cash management, held in Lagos, advocated the India model of banking supervision, a situation whereby the CBN appoints three separate auditors for all the banks, with the CBN paying the bills of the auditors while it deducts the funds from the accounts of each bank with it.
He stated that the appointment of auditors for the banks by the CBN becomes necessary following the widespread irregularities witnessed in the banking sector in the recent past, which almost led to the collapse of some banks before the intervention of the CBN.
He noted that this model will bring about transparency in the banking system, forestalling a recurrence of activities that led to the crisis in the sector.
He said, â€œIt is interesting to look at the Indian model. India has not had any problems with any of their banks.
The regulator there, the CBN equivalent, appoints the auditors to audit the banks, acting under their capacity as custodians of debt equity providers of the banks, that is the depositor, to say that they appoint the auditors, three separate auditors.
One audits annually, one audit quarterly another audit monthly. While they do it that way is to give them the opportunity to supervise effectively and efficiently.
â€œIf the report given by any of the auditor isÂ different from the onesÂ given by the others, authority wouldÂ call for an investigation to be sure.
â€œThis is better than what we have in Nigeria presently, where the auditors appointed by shareholders become too comfortable with management. They tend to turn a blind eye, when they should not, and this is what is largely responsible for all the failure that we have seen in the banking sector.
â€œAll these banks that failed the CBN audit and stress tests had auditors, how come the auditors did not detect these things, how come they did not spot these problems and alert the authorities.
â€œThat is why I said; even if we yield to â€˜He who pays the piper dictates the tuneâ€™ principle, then, at least, let it be the regulators, be the one paying the piper. The regulators can debit the account of the banks for the cost of the audit.â€
Supporting the adoption of the India model, Mr. Seye Adetunmbi, Chief Responsibility Officer, Value Investing Limited, said that the peculiar nature of the Nigerian economy makes it necessary for peculiar approaches to be undertaken so as to ensure sanity and growth of the system.
He said, â€œLet me start by recalling what one of the bosses I have passed through in the past once said: if an auditor does not do my bidding or accommodate my preferences, would I give him the job in the next financial year?
This is to buttress the fact that, when a bank appoints an auditor, the company that is going to pay the bill would always have some influence over the auditor.
â€œThis is why it is not out of place if the CBN that issues the license to banks which the banks use to make money says that they need to appoint auditors or have a say in the appointment as part of its strategy to make surveillance more effective! Nigeria is a peculiar nation and it requires peculiar approach to sanitise the sectors that are prone to fraud.
â€œWhat is important is that, there must not be double standard in the implementation. Ordinarily, if a bank does not have anything to hide, there shouldnâ€™t be any cause for panic if an independent party appoints the auditors.
Another approach is to say that a bankâ€™s Auditor cannot be fired without the consent of CBN, this may help the firm to be more upright in the discharge of their duties as external auditors.â€
Speaking in the same vein, a stockbroker, Mr. Amaeze Olisaemeka noted that the fact that the action will be seen as over_regulation by the banksÂ should not hinder its introduction.
He said, â€œNo regulator that knows his onions would fold his hands and allow a repeat of what happened in the recent past. Especially as the CBN has tried to rescue some of the banks from the distress situation they were plunging themselves into.
â€œSo, any action that is taken in the interest of the public, the depositors, to safeguard these banks and make sure that their health is preserved, is a step in the right direction.
This is especially so, as such a proposed practice is based on a case study; it is not just coming from the air or from nowhere, but is based on a case study of what is happening in India.â€
On the contrary, Mr. Chinenyem Anyanwu, Managing Director, Dependable Securities Limited, kicked against the adoption of the model in Nigeria, stating that it negates proper corporate practices.
He said, â€œThe truth is that the CBN appointed auditors are at best examiners. Whatever they produce is for them.
â€œAs per requirement in corporate practice, the company should appoint their auditors. The company can go on and appoint their auditors; CBN can go ahead and appoint their own, which are called inspectors or consultants. These people help the CBN look into the book of the bank, but definitely for CBN to take over the appointment of auditors, it is not right.â€
Mr. Olufemi Awoyemi, Managing Director, Proshare Nigeria, stated that the CBN has failed in the discharge of certain of its duties in the past, and that giving it the responsibility of appointing auditors for banks may not achieve the desired results.
According to him, â€œThis is not a new practice and not just in India. The European Union (EU) uses same within context.
The challenge we have in Nigeria is that auditors have lost, like so many institutions in Nigeria, the regulatory oversight the professional bodies/associations once had since the polarisation of accounting bodies. |
â€œThe question of whether having CBN therefore take over the task is highly suspect, as the CBN has shown itself incapable of moving ahead of the game in terms of its oversight responsibilities as well. Not until recently have we seen the institution rise up to the challenge.
â€œI do believe that the CBN can however set qualifying rules for auditors and make detection of anomalies for which they ought to have picked up a sanctionable offence.
Indeed the CBN must make rules governing the audit of banks to raise the current standards and bring it at par with the expectations from an improved regulatory regime. The auditors are part of the value chain in the discharge of that regulatory role and as such must be made to understand the increasingly high standard of the duty of care now in place.â€