Subsidy probe report: Are good accountants bad auditors?
With Dan Onwukwe ( 08023022170 )
Tuesday, May 01 , 2012

Weeks after the House of Representatives, Ad-Hoc committee that probed the management of the fuel subsidy fund submitted its report, tails are still wagging. Some feathers have been ruffled. A good number of oil marketers are claiming they are innocent, contrary to the committee’s report that accused them of turning the subsidy scheme into a looting spree.

Their anger has grown so much that they have threatened to go to court to upturn the report and ensure that the recommendations never get implemented. Even the main regulator, the Nigerian National Petroleum Corporation (NNPC) that has a problem of its own before the subsidy probe began, has cried blue murder. It has accused the committee of deliberately “doctoring” its report in order to “embarrass” NNPC and the minister of petroleum resources, Mrs. Alison-Madueke, who was “saved” by the deputy speaker, Emeka Ihedioha. Some members of the House had called for her resignation.

On its own, the House of Representatives has returned fire for fire, accusing NNPC and its co-regulator, the Petroleum Products, Pricing Regulatory Agency (PPPRA), of a ground plan to discredit the report to avoid punishment. But, President Jonathan has assured he would not spare anybody found culpable in the scam. Will he make good his promise? We are waiting.

My main concern here today is not on the accusations and counter – accusations trailing the subsidy probe report. My interest is on the fall-out of the termination of the two accounting firms, Akintola Williams, Deloitte and Olusola Adekanola & Partners, that were engaged by the Federal Ministry of Finance to verify and re-compute claims submitted by Independent Oil Marketing Companies on the Petroleum Subsidy Fund (PSF). Their job was to report, cases of excess claims which could result in over – payment to some identified marketers. Before now, Akintola Williams, a doyen of accounting and auditing in Nigeria, was the company of choice by corporate organizations in Nigeria.

Commitment to corporate governance is one of its hallmarks. It was a culture cultivated by its founding father, Chief Akintola Williams, a man who is still garlanded like a prince in corporate Nigeria. Strange happenings, like cooking the books, another name for falsifying profits are rare in its chequered history. But, the subsidy report seems to have questioned that integrity. And, there is this new kid on the block, Olusola Adekanola & Co. This firm of chartered Accountants and tax practitioners have been making waves in recent years. It made its marks as a diligent revenue collector for many state governments.

Its owner and Executive chairman, Otunba Olusola Adekanola, has through this reputation carved a niche for himself that has rubbed off on the company through juicy contracts. Its appointment on 29, April 2011 to handle the verification of claims by oil marketers on the PSF, was the ultimate test of its integrity. But, by the contents of the subsidy probe report, the firm has failed on the scale of professional competence, and therefore should be blacklisted. The Minister of Finance has already endorsed that, together with that of Akintola Williams Deloittee, for a period of at least, 3 years.

If these two accounting/auditing firms are ‘guilty as charged’, it raises a pertinent question: Why are serious accounting problems plaguing corporate audits, often leading to professional in competence? I ask this question because that was central to the collapse of American energy giant, Enron some years ago and the same problem almost consumed Cadbury Nigeria Plc few years back. Interestingly, in the two companies in question, two of the world’s renowned accounting and auditing firms, Arthur Andersen and Price Water HouseCoopers, were involved.

According to a study carried out in 2002 by Max H. Bazerman, George Loevenstein, and Don A. Moore, Professors of Business Administration at Harvard School in Boston, Economics and Psychology and organisational behavour and theory, respectively, the deeper problem is more often the result of “unconscious bias” than “conscious corruption”. Such vulnerability to unconscious bias, they say, begins like the romance of a man with his mistress. Their research shows that corporate auditing such as the verification of subsidy fund, is a fertile ground for self-serving interest. Although the affected auditing/accounting firms whose services have been terminated will not accept this fact, psychological research has proved that three main structural aspects of accounting often create “ substantial opportunities for bias to influence judgment.”

These are ambiguity, attachment and approval. Ambiguities set in when an accounting/auditing firm begins to interprete information in different ways. For example, an accounting firm may have been notified that a particular vessel belonging to one oil marketer had arrived the ports, but it may decide to treat the information differently, depending on what it wants to recognize as revenue and which item in the vessel to treat as expense. But the most destructive element of this “unconscious bias”, according to experts, is when auditors get themselves too attached to their clients.

This happens often because they want to remain in the client’s good graces and as a result, wants do everything possible to approve their accounts. You may ask: why? It is so because auditors are hired and fired by the companies they audit. There are enough evidence in many corporate companies in Nigeria, particularly the banks where auditing firms that dare deliver “unfavourable” audit lose their jobs. Some of my friends who work in accounting firms do tell me that from the executive team down to individual accountants, an auditing firm’s motivation to turn in favourable audits runs deep. That they say, is the reaon why you hardly see any report of disapproval by firms auditing a particular company’s accounts. Anyone conversant with the oil industry in Nigeria knows how a smart auditor, auditing the account of an oil marketing firm can become so rich beyond his widest dreams. Same applies to big auditing firms.

That is not to say that the sacked accounting firms overlooked the obvious discrepancies, processes and practices that they should have followed to prevent excess claims which most of the independent oil marketers feasted on. But if that is proved to be the case, none of the oil firms indicted by the Ad Hoc committee should be allowed to lick their wounds. The question remains: If all those implicated in the subsidy scam are pleading not guilty, who then let the chicken out of the coop? it is clear that as far as auditing is concerned, firms that are too cozy with their clients often run into a dilemma on how to choose between harming a client accounts or itself, or better still, investors. Often, they choose the latter.

This is why many accounting firms conceal or simply explain away what they consider “minor indiscretions or oversights”, or outright denial of any wrongdoing. That’s why you find Adekanola saying in the newspaper that “clients are not in practice bound by recommendations and/or advice given” and to the best of his knowledge, his company “discharged its mandate with the highest professional standard”. No auditing firm will willingly admit any willful errors. But a study published in the Harvard Business Review in November 2002, that focused on 139 auditors employed full time by one of the big accounting firms in the USA, shade light on the professionals’ vulnerability to bias and their tendency to be influenced by their clients’ biases. The study observed that because of the “tight relationships between accounting firms and their clients, even the most honest and meticulous of auditors can unintentionally distort the numbers.”

This is why the reform in the banking sector by the CBN under Lamido Sanusi, which fixed limited contract periods for auditors, should be extended to regulatory agencies like NNPC and PPPRA. It will be good that after the dust raised on the subsidy report, the National Assembly should enact a legislation that will provide radical remedies that can check the familiarity that currently exists between auditors and their clients. America did exactly that wish the Sarbanes – Oxley Act of 2002 under George W. Bush presidency. The focus was on the serious issue of accountability that plaque corporate America.
This can happen if the House remains resolute and the courts refusing to succumb to the antics of the oil marketers and regulators, and the presidency refusing to shield those indicted in the subsidy scam. If that happens, that might be the end of probes in Nigeria.

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