Why CBN should be audited

SINCE 2020, Lebanon has been embroiled in continuous pull and push attempts to audit its 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. It was the same for Mozambique when it audited its Central Bank. Probably, this has been the fear of Nigeria’s 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 IMF as a requirement for Nigeria to access $3.4 billion financial  assistance  in 2020.  The CBN Act mandates the audit of the CBN by the Accountant General of the Federation’s office.  The CBN has failed to publish the report since  2019, when it stopped the publication of the crucial documents.

With regard to the CBN Act 2007, sections 48 to 50 makes very important stipulations on the audit and publication of such report by the Apex body.   Section 48:  “The financial year of the bank shall begin 1st of January and end on 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  Account 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 kind by. The. Bank. And the bank shall provide all. Necessary facilities for the purpose of the. Examination.  50(1): “The bank shall within. Two months  after  close  of each  financial year, transmit to  the national assembly  and  the president a copy of it’s. 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 makeup end 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 International Monetary Fund made the external audit report of CBN as a pre-condition for Nigeria to access financial assistance. CBN gave it 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 for adequate and appropriate checks and balances in the colonial financial system.  A forensic audit of the CBN 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 efforts for accountability. The CBN is not a secret society. It is a government agency which must operate within the democratic dictate of openness and accountability. An effective audit will enable the public know the country’s financial status.   It will  expose the colossal financial losses disguised by irregular accounting practices for years. An effective and timely audit will show accumulated loss incurred by the apex bank, which will save the country from stealth bankruptcy.

It will help repose confidence in the country’s financial system. If the apex bank of a country is playing hide and seek with it’s account audit, then Institutional. Investors can only interpret that in the negative.  In 2005, IMF warned that “losses need to be recognised 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 to recognize such losses and plug it.  Finally, external audit helps to  find out exactly where the losses come from and who benefited from them, the government also required a forensic audit.

Difference between internal audit and external audit

The 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  internal audit is  an  assessment  that  provides objective information on the management,  the 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. However, unlike internal audit, external audit is  carried  out by an organisation 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   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 CBN 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 seen as a key element of accountability. This hide and seek that CBN is doing with it’s account will only lead the. Country into. Further economic woes. The apex bank should make public its audited account or expose itself to the rigours of financial audit, especially when it has nothing to hide.

• Victor is a legal practitioner and Secretary, Association of Law and Economics Studies.