PwC's FORENSIC REPORT ON NNPC – A JOB WELL DONE

The PwC report on the investigative forensic investigation into allegations of unremitted funds into the Federation Account by NNPC, recently released by the Office of the Auditor-General of the Federation has generated a lot of discussion.  A key component of the interest has been the caveat included by PwC in its report, and the impact that it might have on the applicability of the findings in the report.

I have read some of the comments in the papers challenging the manner of reporting by PwC and the inclusion of the caveat.  I had initially dismissed some of these articles as being largely pedestrian and lacking in depth until I realized that some the writers have quoted “reliable sources” including in some cases senior partners in small and medium firms of auditors (SMP's). Could these partners in some of these small and medium firms of accountants then be this ignorant or was this a deliberate attempt to misinform the public? We know that the big four firms are sometimes seen as unequal competition. Either way, these comments are capable of undermining our noble profession that we have worked so hard to build. Hence as a seasoned accountant having trained with PwC myself years back and now running my own practice, I feel constrained to educate the public as well as my fellow accountants on certain basic reporting concepts provided by the International Federation of Accountants in its various publications.

What PwC stated in its report
PwC stated in its report that “the procedures we performed did not constitute an examination or a review in accordance with generally accepted auditing standards or attestation standards. Accordingly, we provide no opinion, attestation or other form of assurance with respect to our work or the information upon which our work was based.”

What is an Opinion, Attestation, Assurance?
According to the International Framework for Assurance Engagements contained in the International Federation of Accountants (IFAC) Handbook of International Quality Control, Auditing, Review, Volume II 2014 Edition Volume II (which is available to all accountants) an assurance engagement is one where a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject against criteria. The framework specifies that five elements exhibited by assurance engagements as three party relationship, a subject matter, criteria, evidence and an assurance report.  There are two forms of assurance engagements  based on the form of conclusions. Firstly a limited assurance engagement in which the accountant expresses his conclusion in the negative form for example  “Based on our work described in this report, nothing has come to our attention that causes us to believe that internal control is not effective, in all material respects, based on XYZ criteria”. Limited assurance is used for example in review engagements such as review of interim financial information. The second form is a reasonable assurance engagement in which the accountant asserts his conclusion in a positive form for example “In our opinion internal control is effective, in all material respects, based on XYZ criteria..” The Audit opinion is included in an Audit report.

IFACs Assurance Engagements other than Audits or Reviews of Historical Financial Information, defines Attestation engagements as an assurance engagement in which a party other than the practitioner measures or evaluates the underlying subject matter against the criteria.

Why I think NNPC did not contract PwC to provide Assurance 
An accountant cannot provide assurance until all five elements that I have enumerated above are present. From just a casual review of the report, I can conclude that a three party relationship (1.Practitioner:PwC, 2. Responsible party:NNPC, 3. Intended user:Auditor General's office),  existed and that there is a definite subject matter (Crude Oil revenues generated by the NNPC). I’m certain though that NNPC would have struggled to provide a clear criteria to PwC. For engagements reporting on compliance, relevant criteria would be things like applicable laws, regulations and contracts, those criteria have to exhibit all characteristics of; relevance, completeness, reliability, neutrality and understandability. From the PwC report, I can see NPDC did not provide access neither was Kerosene subsidy regulation clearly available. Limitations around access to NPDC would have limited the ability to generate complete reliable evidence so I can readily see why NNPC could not have contracted an Assurance engagement with PwC as they could not guarantee the presence of all five elements of Assurance engagements.


Why structuring the investigation as Forensic Audit makes sense
The free online business dictionary that I regularly use defines Forensic Audit as “The application of accounting methods to the tracking and collection of forensic evidence, usually for use in the investigation and prosecution of criminal acts such as embezzlement or fraud. It is also called forensic accounting.

I found that the US Public Company Accounting Oversight Board (PCAOB) Strategic Advisory Group panel discussion observed in 2007 that “Although forensic audits may examine financial reporting and internal control matters, the objective of a forensic audit is not expressly articulated in an established set of standards. Rather, users of forensic audits (e.g., audit or special investigative committees, management, and regulators) establish their objectives on a case-by-case basis.”

It therefore makes sense to me that the probable reason the engagement was structured by the Auditor General as a Forensic Audit which is a type of Non assurance engagement was to give NNPC the flexibility to establish its objectives for the PwC Forensic Accountants as is expected in an investigation of this nature.

What were PwCs Terms of reference?
The report quotes the terms of reference per their engagement letter of  5th June  2014 as follows:
a) Analyse and comment on submissions made by various parties in respect of  alleged remittance shortfalls.
b) Analyse all submissions made by key stakeholders in relation to these unaccounted funds
c) Produce an independent forensic investigation report

Given the enormous findings by PwC in this report despite obvious constraints, my personal view is that PwC adequately discharged their duties under the terms of reference given to them. This exercise should not be a one- off, but should be done regularly by them every few years and at least once during every administration perhaps targeting other areas not investigated in the current exercise. Indeed a Public Company Accounting Oversight Board (PCAOB) in the US November 2006 paper posited the idea of regular forensic audit as a way to improve detection of fraud at public companies and enterprises.  Indeed the new administration should re-engage PwC with wider terms of reference and with unlimited access and if so desired commission an “assurance” engagement.

Fuss over the Caveat …Much ado over absolutely nothing…
Accountants are in fact required to include such caveats when reporting on non assurance engagements. International Framework for Assurance Engagements paragraph 15 on 'reports on non-assurance engagements', states that a practitioner reporting on an engagement that is not an assurance engagement within the scope of this Framework, clearly distinguishes that report from an assurance report. So as not to confuse users, a report that is not an assurance report avoids, for example:

• Implying compliance with the International Framework for Assurance Engagements, International Standards on Auditing, International Standards on Review Engagements and International Standards on Assurance Engagements.
• Inappropriately using the words “assurance,” “audit” or “review.”
• Including a statement that could reasonably be mistaken for a conclusion designed to enhance the degree of confidence of intended users about the outcome of the evaluation or measurement of a subject matter against criteria.

I am convinced that all responsible Accountants worldwide producing forensic audit reports or any other type of non assurance report are expected to (and presently actually do) include similar caveats so as not to misinform the public. This does not take anything away from the content, value and applicability of the report themselves but only protects users in compliance with IFAC provisions.


Conclusion
In conclusion and in line with the terms of reference, readers of the report should be asking

a) Did PwC analyse and comment on submissions made by various parties in respect of alleged remittance shortfalls? The answer is an obvious “Yes”
b) Did PwC analyse all submissions made by key stakeholders in relation to these unaccounted funds? The answer is an obvious “Yes”
c) Did PwC produce an independent forensic investigation report? The answer is an obvious “Yes”

Given the views communicated by some senior audit partners in some of these SMP's, I think this underscores the need for continuous education on accounting, auditing and reporting and I  have cause to thank God once again for my quality training and background.

I believe this piece lays to rest the matter of the caveat which is in my view, probably a deliberate, needless diversion of the unassuming public away from the core issues raised in the PwC report - Issues that along with the passage of the Petroleum Industry Bill (PIB) should be on the fore-front of everyone’s mind at this time of dwindling revenues.

By Ijeoma Rita Obu (FCA)
Managing Partner 
IRO & Partners Chartered Accountants
Lagos
www.iro-accountants.com

Bank of Industry (BOI) appoints Clement Ashley Consulting as approved Business Development Support Provider (BDSP) in the Zonal category

In a bid to address challenge of access to credit for SMEs, and to hasten the credit delivery process, the Bank of  Industry (BOI) has signed service agreements, engaging 122 Business Development Service Providers (BDSPs) to increase SMEs’ capacity to apply for and secure financing from the Bank.

Speaking at the event, the Managing Director/CEO, Bank of Industry, Mr. Rasheed Olaoluwa stated that this move had become imperative because even though SMEs  account for over 90% of the companies in Nigeria, account for half of the nation’s GDP, and provides employment for more than 30% of its populace, many SMEs have not been able to attract funding because of poorly packaged and non-bankable business plans and proposals submitted to secure funds.

He added that this strategic partnership with BDSPs was in furtherance of the Bank’s core mandate “of providing long-term financial and business support services to large, medium and small projects”. He also pointed out that this would also help the Bank fulfill its obligations towards the success of the National Enterprise Development Programme (NEDEP), of which the Bank is a key stakeholder.

Mr. Olaoluwa revealed that the selection process that brought about the 122 BDSP firms was rigorous and that the selected companies were placed in three categories, based on their capacity and preferred areas of coverage. BDSPs with a national coverage totalled 28, regional coverage BDSPs were 74 (of which Clement Ashley Consulting is one of the seventy four, and covering the South West, South South and South East zones), while state-focused BDSPs were 20 in number. "

If you are located in the South West, South South and South East Regions and wish to make any enquiries about access to funding please send mail to robu@clementashleyconsulting.org

Best Regards
The Business Development Team
Clement Ashley Consulting
017925490, 08080642478

Managing the Risks of Recruiting

Introduction

On the 15^th of March 2014, the Nigerian Immigration Service (NIS) carried out a pre-recruitment aptitude test nationwide. Over 500,000 (five hundred thousand) job seekers were attending these tests to compete for less than 5,000 (five thousand) vacancies. This means that the ratio of applicants to jobs was more than 100 to 1. At this test there were stampedes at several centres and as at the last count eighteen young Nigerians had lost their lives with scores wounded. Several others lost their lives in traffic accidents on the way to and way from the test venues. I surmise that there is a better way for the Government to recruit while managing the risks of recruitment.

The unfortunate stampede which led to the deaths of several job candidates seeking to join the Nigerian Immigration Service, is a tragedy on many levels and an avoidable one at that.

Firstly it is a tragedy for the families of the young men and women who died. Families that were hoping for these young people to come home with good news of a successful interview not to be called to identify their loved ones in the morgue.

It is also a tragedy for the image of Nigeria. The most populous country in Africa with the now (re-based) largest economy in Africa. It should not be seen to be failing to provide sufficient opportunities for our young people to be gainfully employed. The sheer number of candidates in the stadia was astounding and clearly indicates that a lot more needs to be done to create jobs for our school leavers. More importantly for the subject of this paper is the fact that the exercise was conducted without any regard for risk management.

I was moved while watching the news of this sad event to hear a traumatised victim asking why in this modern times the recruitment was done in such a manner. This is a question that is no doubt being asked up and down the country and lessons need to be learned.

Problem Statement

In the past government agencies and the Nigerian military and paramilitary services have seemingly held the view that candidates need to be seen to be screened. Note that I use the word screened (not interviewed). Following from this logic; to screen 500,000 you need to see 500,000 physically. The problem is that seeing 500,000 persons at the same time is a big risk. Asking 500,000 person to physically appear which involves travel even if not on the same day also involves huge risks. These are risks that the recruiter should manage and mitigate and not pass on to the hapless job seeker. The attitude of the Nigerian Immigration Service and its “recruitment consultant” seems to be “please come at your own risk”.

Previous Options

At this last screening and recruitment exercise the Nigerian Immigration Service actually used an online platform to receive applications and collect the application fee. After this the candidates were required to report at various stadia for written aptitude tests. The question is; “why stop the use of technology at application collection?” Why not use the online platform to organize online testing.

Clement Ashley Consulting's Solution

1. Use an online platform to collect applications- this saves time, manages the risks of travel as well as missing or misplaced applications as well as the risk of wrong recording of names and other candidate details. Also aids data mining and shortlisting.
2. Abolish the practice of collecting application processing fees from candidates responding to your job advert. This is not only unethical but abolishment also removes the risk of exploitation as well as profit induced risky practices and a risk prone mindset such as “the more the merrier”
3. Use online aptitude and job knowledge tests to screen and shortlist for further screening, this addresses the risk of looking further at persons who lack the basic knowledge and intelligence for the job. It also addresses the risk of travel, queuing and crowd control. Any concerns about the sanctity of online test can be addressed by Information Security methodologies.
4. Use online psychometric and personality tests to screen and shortlist for further screening and/or interview. This addresses the risk of looking further at persons with the wrong personality or mindset. It also addresses the risk of travel, queuing and crowd control and saves the time of the interviewers.
5. Use a recruitment software application to move candidates application down the recruitment funnel from one stage to another this saves time and money (the cost of personnel) and the need for physical file carrying with the attendant risk of manipulation.
6. Only invite candidates for final interview when the ratio is down to less than or equal to: five candidates per vacancy,, anything more than that is unreasonable.
7. Only carry out medical or other physical tests during or after the interview, if a pre-condition for employment then combine with final interview to minimize travel, cost of examination and queuing.

Clement Ashley Consulting recommends that job seekers be treated with respect. As part of quality control this proposed recruitment methodology should be audited regularly for compliance.

Benefit 1

Using this approach recruitment is faster. Marking of scripts that could take weeks will be accomplished instantaneously.

Benefit 2

Using this approach recruitment is cheaper. Only a few hands will be necessary to manage an automated recruitment process.

Benefit 3

Using this approach recruitment will be less risky for the applicants as travel, queuing and the need for crowd management will be reduced or eliminated.

Benefit 4

Using this approach the recruitment process will be transparent leading to more credibility for government agencies or other large scale recruiting organisations.

Summary

Technology based recruitment in the 21^st Century is a minimum standard requirement for large scale recruitments. Anyone reading this, will be forgiven for wondering why this paper is necessary.