At last, Oando’s forensic audit to proceed as SEC gives final directive

Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) has directed forensic auditors to proceed with the audit of Oando Plc. Akintola Williams Deloitte, a professional audit and accounting firm, will conduct the forensic audit.

Acting Director General, Securities and Exchange Commission (SEC), Dr. Abdul Zubair, on Tuesday said the auditors have been mandated to proceed with the forensic audit of Oando following the dismissal and the striking out of the suits filed by Oando and some shareholders against the audit.

Oando withdrew its lawsuit against SEC by an application heard and granted by the Court of Appeal on March 05, 2017.  Also the application for withdrawal by shareholders was heard and granted by the Federal High Court on February 21, 2018.

“The Commission is committed to its primary mandate of protecting investors and will take all necessary steps to fulfil that mandate and uphold the integrity of the capital market,” Zubair said.

According to him, audit of Oando will proceed in a transparent and thorough manner and it will be completed within the shortest possible time.

Zubair said the auditors have been directed to fast track the audit in a professional way adding that their terms of reference have been given to them.

“We expect that the outcome will be such that all will be satisfied,” Zubair said.

The external auditors to Oando, Ernst & Young, had its last audit, raised concerns over the ability of the company to continue as a going concern.

“We drew attention to note 45 in the financial statements, which indicates that the company reported a comprehensive loss for the year of N33.9 billion ( 2015: loss N56.6 billion) and as at that date, it’s current assets exceeded current liabilities by N14.6 billion (2015: N32.8 billion net current liability). The group recorded a comprehensive income of N112.4 billion for the year ended December 31, 2016 (2015: loss N37.8 billion) and as at that date, its current liability exceeded current assets by N263.8 billion (2015: N260.4 billion). As stated in the notes, these conditions, along with other matters, indicate that a material uncertainty exist that may cast significant doubt on the company (and Group’s) ability to continue as a going concern,” Ernst & Young stated.

Following preliminary investigation into petitions by two shareholders of Oando, SEC had indicated that Oando allegedly manipulate its share prices through creative accounting profits amidst several contraventions of the extant rules and laws at the capital market. The apex capital market regulator ordered suspension of Oando’s share price movement and directed a forensic audit of the company.

Oando then obtained an interim court order on Monday October 23, 2017, restraining the Nigerian Stoc Exchange (NSE) and any other party working on their behalf from giving effect to the directive of the SEC to implement a technical suspension of the shares of the company pending the hearing and determination of the motion for injunction and also an order restraining the SEC and any other parties claiming through or working on behalf of the Commission from conducting any forensic audit into the affairs of the company pending the hearing and determination of the motion for injunction. However, both the NSE and SEC were served with the enrolled court order on Tuesday, October 24, 2017 after the technical suspension was carried out by the NSE on Monday, October 23, 2017.

The documents indicated several violations of the Investment and Securities Act (ISA), Rules and Regulations of SEC and the Code of Corporate Governance.

According to the reports, Oando had allegedly engaged in creative accounting by reporting unrealized sales as profit, declared dividend on the basis of this, floated a rights issue with the misleading information and subsequently restating its accounts to reflect the unrealized sale, leading to its historic loss of N184 billion in 2014.

In 2013, Oando had undertaken the disposal of Oando Exploration & Production Limited (OEPL) to Green Park Management Limited. However, it did not record such divestment with SEC, which has approving authorities over divestments, mergers and acquisitions. While it has not secured the necessary approvals to validate such divestment, Oando went ahead to report the unrealized earnings from the sale in its 2013 and 2014 audited financial statements.

With the reporting of the OEPL uncompleted transaction as part of the group earnings, Oando recorded  profit of about N6 billion from the sale of OEPL that erased the operating loss of N4.68 billion leading to a profit of N1.4 billion in 2013. With this, Oando quickly undertook a rights issue in 2014, using same unrealized earnings to boost its report. In 2015, Oando turned round to restate the accounts for 2013 and 2014, after the uncompleted transaction of OEPL failed to scale through.

SEC has also discovered manipulation of dividend payment by Oando as the company failed to remit dividends en-bloc to Registrars, one of the many reasons for growing unclaimed dividends. According to SEC Rules and Regulations, Rule 44(1), dividends declared shall be paid en-bloc by the issuance of a check or transfer of funds to the registrar not later than seven working days after the annual general meeting where the dividend was declared.

SEC’s investigation also showed that Oando’s Group Chief Executive Officer, Wale Tinubu was the one fixing the remunerations of the other executive directors which is in violation of Part B, 14.3 of the SEC Code of Corporate Governance. The last board evaluation of Oando was also done by KPMG five years ago in 2012, a violation of Part B, 15.1 of the SEC Code of Corporate Governance.

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The Commission also discovered insider abuse as certain persons classified as insiders within the provisions of Section 315 of the Investment and Securities Act (ISA), 2007 and who were in possession of confidential price sensitive information not generally available to the public, had between January-October 2015 traded on Oando’s shares prior to the release of the company’s 2014 Financial Statement, where the company reported a loss of N183 billion.

In a statement made available on Tuesday, Oando accused SEC of bias alleging that the contraventions were not weighty enough to warrant forensic audit or suspension of the company’s shares.

“Each of the alleged infractions has a penalty as prescribed by the respective provisions of the ISA, SEC Code, SEC Rules and Regulations, NSE Listing Rules and CAMA; none of them whether singularly or together warrants the suspension of free trading in the securities of the Company or the institution of a forensic audit,” Oando stated.

According to the company, the company has always been above board and steadfast in its submissions to the SEC with respect to its Annual Corporate Governance Report filings regarding its compliance with the requirements of the Code prior to and post May 2014. The SEC has never until now communicated to the company the specific areas of non-compliance with the code from a review of our filed annual reports and the actions needed to remedy the non-compliance.

Oando noted that although a formal annual board evaluation was not carried out for the 2015 and 2016 reporting years, the board did carry out an internal appraisal of its effectiveness as part of the investigation initiated by the Nigeria Stock Exchange in 2015-2016 and prior to that, as part of its successful participation in the pilot of the NSE’s Corporate Governance Rating System (CGRS) in 2014.

“The company is of the position that even if it had breached provisions of the SEC Code, SEC is under obligation under s.1.3 (d) of the said code to notify the company “specifying the areas of non-compliance or non-observance and the specific action or actions needed to remedy the non- compliance or non-observance.” The company only received such formal notification from SEC requiring compliance with the SEC Code on these matters on October 18, 2017, five months after the commencement of its investigation. The company has since put remedial actions in place to cure this breach,” Oando stated.

Oando argued that the penalties for breach of the provisions relating to payment of dividends are prescribed in Rule 44 (4) (a) and (b) of the SEC Rules and do not require a forensic audit, noting that no shareholder or whistleblower, has petitioned SEC or complained about not having received dividends due to them from the company.

Oando stated that it has clear and robust insider trading policies which it has communicated to all known insiders of the company, pointing out that the question as to whether insider dealing occurred in the shares of the company is a matter for the SEC to raise with any affected insider since the company cannot be guilty of insider dealing since it only issues securities and is not involved in the trading of its own securities.

“Furthermore, as a public company with fully dematerialized shares, listed on both the Nigerian Stock Exchange and the Johannesburg Stock Exchange all trading in the securities of the company takes place on the floor of both exchanges through the respective depository, clearing and settlement agencies. Any investigation into whether or not there has been a breach of Insider trading rules is a question of fact which would be better addressed through an inspection of trading records of the Exchange rather than through a forensic audit of the company,” Oando noted.

According to Oando, it reversed the sale of OEPL when it became obvious that certain conditions subsequent could not be satisfied within the period stipulated in the Sale and Purchase Agreement (SPA), namely ministerial consent.

“The 2013 and 2014 position had to be restated in the 2015 audited financial statements to show that the transaction, previously recorded as a sale had been reversed in line with IFRS. The treatment of the transaction in 2013 as a sale and its subsequent reversal in the 2015 financial statements were in full compliance with the accounting treatment under IFRS,” Oando stated.

According to the company, the latest actions taken by the SEC are prejudicial to the business of the company as it would hinder the ability of the company to enter into new business transactions and affect the confidence that existing stakeholders have in transacting business with the company.

Oando noted that it has received numerous queries from critical stakeholders, including its lenders as a result of the SEC’s actions and an indefinite technical suspension of its shares as well as an open-ended forensic audit will negatively impact the ability of the company to conduct its day-to-day business and meet the expectations of all its stakeholders.

Oando pointed out that by two letters dated August 24th and August 28^th, the chairman of Oando petitioned the DG of the SEC alleging bias and lack of due process in the way and manner in which the SEC has conducted this investigation.

“The current action by the SEC, despite its internal findings, confirms that the SEC appears to be working to its own conclusion rather than looking at the facts before it and acting in the best interest of the company and the minority shareholders whom it claims it seeks to protect,” Oando stated.

 

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