Why CBN Should be Audited
Since 2020, Lebanon has been embroiled in continuous pull and push attempts to audit the country’s Central Bank account. The main tussle has been the fear that once the audit is made, the whole country will know the level of corruption in Government through the Central Bank — so serious was this fear that the Country’s Government withheld some documents from the auditors and also gave partial documents, citing the law of secrecy of the Country. Till today, Lebanon is still enmeshed in this quagmire. The same thing goes for Mozambique when it audited its central bank.
Probably, this has been the fear of the Nigeria Central Bank, and why it has refused to audit its account in line with the CBN Act, or published the external audit it submitted to the IMF as a requirement for the Country to access $3.4 billion in financial assistance in 2020.
The Nigeria CBN Act mandates the audit of the CBN by the Office of the Accountant General of the Federation. The CBN has failed to publish the report since 2019, when it stopped the publication of the crucial documents.
According to the CBN Act 2007, sections 48 to 50 make very important stipulations on the audit and publication of such a report by the apex body.
Section 48: The financial year of the bank shall begin on the 1st of January and end on the 31st of December.
Section 49(1): The account shall be audited by an auditor or auditors appointed in accordance with the provisions of section 6 of this Act. (2) The Accountant-General of the Federation shall conduct an examination of the accounts of the bank, and submit a report thereon relating to the issue, re-issue, exchange, and withdrawal of currency notes and coin by the bank, and the bank shall provide all necessary facilities for the purpose of the examination.
Section 50(1): The bank shall, within two months after the close of each financial year, transmit to the National Assembly and the President a copy of its annual account certified by the auditor. (2) A report required to be submitted to the National Assembly and the President shall be published by the bank in such manner as the Governor may direct. (3) The Board shall ensure that accounts submitted pursuant to this section shall as soon as possible be published in the Gazette. (4) The bank shall, as soon as may be practicable after the last day of each month, make up and publish a return of its assets and liabilities as at the close of business on that day, or if that day is a holiday, as at the close of business on the last preceding business day.
In 2020, the IMF made the external audit report of CBN a pre-condition for Nigeria to access financial assistance. CBN furnished them access to the audited report but has since refused to publish the said report for Nigerians.
The current audit system contained in the CBN Act is meant to provide adequate and appropriate checks and balances in the financial system. A forensic audit of the Central Bank would allow Nigerians to accurately assess the economic and financial situation of the country. The audit would also play a key role in uncovering systematic corruption and enabling accountability.
The CBN is not a secret society. It is a Government agency which must operate within the democratic dictates of openness and accountability.
The Urgent Need for CBN Audit
An effective audit will enable the public to know the true health of the Country’s financial status. It will expose colossal financial losses disguised by irregular accounting practices carried on for years.
As losses pile up, an effective and timely audit will show accumulated losses incurred by the apex bank, which will save the country from stealth bankruptcy.
It will help restore confidence in the country’s financial system. If the apex bank of a country is playing hide-and-seek with its account audit, institutional investors can only interpret that negatively.
In 2005, the IMF warned that “losses need to be recognized promptly so that appropriate financial buffers can be established. Ignoring such losses in the hope that they may be reversed is not good practice.” An effective and timely audit will help recognize such losses and plug them.
Finally, an external audit helps find out exactly where the losses come from and who benefited from them; the government also requires a forensic audit.
Difference between Internal Audit and External Audit
CBN, in the absence of the Auditor-General’s audit as provided by the CBN Act, has been conducting internal audit. But internal audit is not external audit. Internal audit is a special part of the internal control system — an assessment that provides objective information on management, business activities and operations, systems and built-in controls, integrity of information and procedures. Internal audit is performed by a unit which is part of the central bank.
External audit is usually a statutory or legal requirement. It is an independent assessment and usually ex post. However, unlike internal audit, external audit is carried out by an organization or person that does not belong to the central bank being audited, following certain principles and standards laid down in law or by the profession. As the external audit body is not part of the central bank, there is no authority relationship between the external auditor and the management of the central bank.
The internal audit conducted by the CBN cannot suffice for the requirement of the law that mandates external audit by the Accountant-General’s Office. The CBN, however big a body, must conform to the principles of accountability and openness. The Central Bank of Nigeria needs to balance the burden of its independence with the responsibilities of public accountability and transparency in line with democratic principles and international best practices. Transparency is a key element of accountability. This hide-and-seek that CBN is playing with its accounts will only lead the country into further economic woes.
The apex bank should make public its audited accounts, or expose itself to the rigours of financial audit — especially when it has nothing to hide.
