Waiting for Oando forensic audit

Court arrests Oando’s oil rigs over N4.7bn debt 

Bashir Ibrahim Hassan

The Indian branch ofPriceWaterhouseCoopers(PwC) has beenbanned for two years, effective31st March 2018,by the Indian Securities and ExchangeCommission, the apex regulatorof the Indian capital market.

According to reports, the ban wasas a result of the fraud committed bySatyam Computers in 2009 in whichthe shareholders of the company lostmore than $2billion. This is believedto be the biggest fraud at a listed company.It created a major shock in theIndian IT industry, one of the biggestin the global IT industry.

Price Waterhouse, the Indianarm, PW Bangalore were Satyamsauditors during the periodand ByrrajuRamalingaRaju, theformer Chairman and GMD ofSatyam Computers Services, admittedto embezzlement of the company’sfunds to the tune of aboutUS$2.5billion. He was convicted offraud in 2015.

Recall that the Nigerian arm ofPwC was also the auditor of OandoPlc from 2004 to October 2014, 10years before Ernst and Young wereappointed.

Based on the receipt of petitionsfrom some shareholders of Oando,alleging financial mismanagementand corporate governance issues bythe top management of Oando, theSecurities and Exchange Commission(SEC) of Nigeria conducted aninvestigation last year.

The report of the SEC investigation identified gross insider dealings, misstatements in the 2013 and 2014 audited financial statements of the company, related party transactions and other unwholesome practices. This necessitated placingthe company’s shares on technicalsuspension at the Nigerian StockExchange (NSE) and constituting anindependent team of professionalsto carry out a forensic audit of thecompany’s activities. The financialinfractions included suspiciousrelated party transactions with directorsand interests of directors ofOando plc.

OandoPlc’s annual accountsthrew up disclosures that revealedthat the company engaged in a webof related party transactions, whichran into several billions of nairaannually. These transactions raisedconcerns about issues of conflict ofinterests which was heightened bythe fact that the Group ManagingDirector (GMD), AdewaleJibrinTinubu, featured prominently inseveral of the transactions.In fact, there are over twenty five(25) related identified party’s transactionsand below are six transactionsthat clearly stand out betweena period of 4 years (2012 to 2016),where Oando, within 2012 to 2016,paid approximately N300 billion toTinubu or companies related to him.

These are summarized thus:

  1. Acquisition of 100% of theshare capital of Churchill FinanceC300-0462 Limited from the ManagingDirector

On 29th November 2012, OandoPlc acquired 100% of the share capitalof Churchill Finance Limited (acompany incorporated in Bermuda).Churchill’s sole shareholder was theGMD of OandoPlc, AdewaleTinubu,and its main asset was a BombardierChallenger 300 aircraft. OandoPlcrecognized goodwill from acquisitionin the sum of N2.34 billion from thistransaction, on the date of acquisition(29 November 2012).

The goodwill from the acquisitionrepresented the excess of the“purchase consideration” over thetotal value of the assets and liabilitiesof Churchill Finance Limitedand 32 days after the acquisition (asat year ended December 31, 2012),OandoPlc recognized an impairmentloss of N1.23 billion on thecapitalized goodwill on acquisitionof Churchill. The act of acquiring an asset (the aircraft) from the GMD of the Company (AdewaleTinubu) and 32 days later recognizing a loss in value of the asset raises serious conflict of interest issues and points to a failure of governance structures and internal control. As it wouldappear that the asset may not havebeen worth the value attached to itab initio.

Further impairment losses ofN838 million and N493 millionon goodwill from acquisition ofChurchill were recognized in Oando’saccounts for the years 2013and 2014 respectively.Impairmentnormally occurs when there is asudden and large decline in the fairvalue of an asset below its carryingamount and the impairment write-downcarried out by the companyfrom 2012 to 2016 amounted to approximatelyN202.7 billion.

  1. Payments to Triton AviationLtd, a company incorporated inNigeria whose sole shareholder wasAdewaleTinubu. Triton was paid thesums of N921.8 million, N409 million,N656 million and N8.3 millionrespectively for 5 years between theyears 2012 to 2016 amounting to atotal of N2.83 billion.

iii. Brol Properties Ltd owned byAdewaleTinubu provided facilitymanagement services to OandoPlcat a total cost of about N572.1 millionwithin a period of five (5) years.

  1. TSL Logistics Ltd controlledby the same AdewaleTinubu wasengaged by OandoPlc to supplyproducts and services and was paidthe sum of N67.03 Billion within aperiod of five (5) years. Noxie Ltdcontrolled by AdewaleTinubu alsosupplied various office equipment ata total cost of N10.2 Billion between2012 and 2016.
  2. Lagoon Waters Ltd ownedby AdewaleTinubu supplied petroleumproducts to the companyworth N9.6 Billion within a periodof five years.
  3. There is also the case of suspiciousInsider Trading in the Sharesof OandoPlc by the Company’sDirectors/Insiders. Ocean and OilDevelopment Partners (OODP), amajor shareholder in OandoPlc,sold a total of 1.210 billion units ofOandoPlc ordinary shares worthN21.455 billion at the Nigeria StockExchange (NSE) in six (6) dealsout of a total turnover of 2.406 billion(valued at N38.756 billion in43,374 deals) recorded between thebeginning of the year and the dateof release of the 2014 results of thecompany in October 2015. This represented20.29 percent of the totalvolume sold and 55.35 percent ofthe total value sold within the periodunder review. It is instructive to notethat all the six (6) deals executed byOODP (owned and controlled bydirectors of OandoPlc) in 2015 wereexecuted before the result for 2014(which revealed a loss in excess ofN180 Billion) was released to themarket. The manner in which thetransactions were structured andexecuted would suggest that eitherthe Directors of OandoPlc deliberatelydelayed or took advantage ofthe delay in release of the company’s2014 results to dispose of some oftheir shareholdings, by virtue of thefact that, they were insiders and inpossession of material price sensitivenon-public information.

 

Going concern threat

The annual reports of OandoPlc(listed in Nigeria and South Africa)were compared with the annualreports of its major subsidiary, OER,listed in Canada. The Board andManagement of OER within thefinancial years of 2012 and 2015 hadconsistently disclosed in the auditedannual reports, the existence of materialthreats to OER’s going concernstatus due to negative working capitaland high indebtedness.

This was not the case with OandoPlc, as its management avoided reportingany threat to the company’sgoing concern status although it alsoconsistently faced the challenge ofnegative working capital. Even afterposting a historic loss for the financialyear end December 31st, 2014,the directors of OandoPlc did notexpress concern about the impactof the loss on its future operations.It was only in 2015 and 2016 thatthe company acknowledged the factthat it’s going concern status wasthreatened.

In the report of the IndependentAuditors of OandoPlc in its 2016 AnnualReports and Accounts, Ernst &Young stated as follows: “The Groupreported a comprehensive incomeof ₦112.4 billion for the year ended31 December 2016 (2015: loss ₦37billion) and as that date, its currentliability exceeded current assets by₦263.8 billion (2015: N260 billion).”

As stated in the note to the Accounts,these conditions, along withother matters, indicate that a materialuncertainty exists that may castsignificant doubt on the company(and Group’s) ability to continue asa going concern. Our opinion is notmodified in respect of this matter”.

Going Concern is the assumptionthat a company or other entity willbe able to continue operating for aperiod of time that is sufficient tocarry out its commitments, obligations,objectives and so on. Theauditors of Oando are thereforeof the opinion that the company’scontinued survival for at least oneyear is threatened.

And in a situation where the auditorsof a company have expressedtheir concern on the going status ofa company, it means there is a threatof liquidation of such an entity suchthat its goodwill value is gone, worthof any tangible assets is tied to liquidation,and debts are due and mustbe paid in full immediately.

 

Conclusion

Despite the above listed allegationsof financial mismanagementand corporate governance lapses byOandoPlc and the fact that stakeholdersare anxiously awaiting theoutcome of the forensic audit of theembattled oil firm, it is worrisomethat the forensic auditors are yetto commence their work. Insidersources have confirmed that thecost of conducting the audit, put atN160.0 million, had since been approvedby the Board of the CapitalMarket Development Fund (CMDF).

In addition, the Federal High Courthas ruled that Oando should approachthe Investment and SecuritiesTribunal because the court hasno jurisdiction to hear the matter.Although Oando has appealed thedecision at the Court of Appeal, thematter is yet to be heard thus thereis no order restraining the conductof the forensic audit.Concerned stakeholders in theNigerian capital market are of theview that the management of OandoNigeria Plc led AdewaleTinubumust step aside to allow for theunhindered forensic audit intothe weighty allegations against thecompany. If the company truly doesnot have a hidden agenda and hascomplied responsibly within theprovisions of the laws of the land, itshould allow its books to be lookedinto. They stated that OandoPlc is apublicly listed company with almostThree Hundred Thousand (300,000)shareholders who have the right toknow the current financial status oftheir company.

The forensic audit is the most objectiveand viable option to protectminority shareholders in the company.The forensic audit will alsohighlight the quality of performanceof PwC Nigeria in the auditing of theaccounts of Oando Plc. Has OandoPlc become the Nigerian SatyamComputers Services and AdewaleJibrinTinubu the Nigerian ByrrajuRamalingaRaju?

Indeed, will the acting DG of theNigerian Securities and ExchangeCommission (SEC), Dr. Abdul KemiZubairon, ensure that this audit isconducted? Just how soon can thisit be conducted? 

Copyright 2017 Ships & Ports Ltd. Permission to use quotations from this article is granted subject to appropriate credit given to www.shipsandports.com.ng as the source.