The audit found "large differences ... between what oil majors say they paid in taxes and royalties and what the government said it had received... . [It] showed a system that could easily fall prey to unscrupulous operators."
The probe, conducted under a law enacted last year, the Nigerian Extractive Industries Transparency Initiative (NEITI), said that weaknesses in financial controls allowed multinationals and other operators to report paying different sums than the government said it received in oil taxes, a report Thursday from French news agency Agence France-Presse said.
"It was also found that companies were allowed to calculate their own tax and royalties liabilities and pay them, even if the tax authorities and industry regulators disagreed over production and export figures," the news agency said.
With an investigation sure to follow, oil majors like ExxonMobil and Anadarko - who indirectly are believed to have sponsored the probe of the 2004 Licensing Round of the Nigeria-Sao Tome and Principe Joint Development Zone awards by Tulsa University's R. Dobie Langenkamp, may soon face an even more embarrassing investigation that, unlike the Sao Tome probe, will turn up hard evidence of wrongdoing as the Sao Tome probe did not.
"It cannot get worse than this," said NEITI's executive secretary, Bright Okogu.
Here is the AFX story:
Audit turns up serious flaws in Nigerian oil accounts
ABUJA (AFX) - The first independent audit of Nigeria's oil and gas industry has revealed serious weaknesses in the way government accounts for the industry's profits, officials said.
Unveiling interim results from a probe of the oil business in Africa's biggest oil producer, the minister leading the Nigerian Extractive Industries Transparency Initiative (NEITI) said it had found no direct evidence of fraud.
But Obi Ezekwesili warned that large differences found between what oil majors say they paid in taxes and royalties and what the government said it had received showed a system that could easily fall prey to unscrupulous operators.
"We have some weak systems of accounting control which lead to an environment which allows corruption," she told reporters in the Nigerian capital Abuja at the unveiling of the interim audit.
As Africa's biggest oil producer and the world's sixth biggest exporter - currently pumping more than 2.6 mln barrels per day - Nigeria ought to have had enough capital to begin to lift 130 mln people out of poverty.
Instead, the proportion of people living under the World Bank's poverty line of less than US$1 per day has more than doubled - to 75 pct - in the five decades since Royal Dutch Shell drilled its first Nigerian well.
UK audit firm, the Hart Group, yesterday released a financial audit of payments in 2003 and 2004. Accounts for 1999, 2001 and 2002 and a physical audit of production and export facilities will follow next month.
Hart revealed for the first time that Nigeria earned US$41bln from taxes and royalties paid by foreign oil majors and from selling its own crude in 2003 and 2004. But the report also recorded some odd shortfalls.
For example, the Central Bank of Nigeria reported receiving several hundred mln usd more from the companies than they themselves recorded paying.
It was also found that companies were allowed to calculate their own tax and royalties liabilities and pay them, even if the tax authorities and industry regulators disagreed over production and export figures.
NEITI's executive secretary Bright Okogu, said that the report showed the need for Nigeria to strengthen accounting controls, but added that the results would allow the country to start its oil accounts from a clean sheet.
"It cannot get worse than this," he told a stakeholders' committee.
Update, 1/14/06, 1:16am EST:Here is a second story elaborating on many of the details of the multi-hundred-million-dollar discrepancies found on the books by the NEITI team:
NEITI Queries NNPC over $933m Cash-Call Fund
Describes accounting procedure as ‘opaque’
From Onyebuchi Ezigbo in Abuja, 01.13.2006
The interim report of the financial audit of Nige-ria’s petroleum sector, sponsored by the Nigerian Extractive Industry Transp-arency Initiative (NEITI), was released yesterday and among other observations, frowned at the Nigerian National Petro-leum Corporation (NNPC), for holding up Joint Venture Cash-Call funds totaling $933m in transitory account.
The amount was said to be part of the $3.43 billion approved Cash Call for 2004, but which was not ploughed into operations as at the end of the budget year.
The audit report which covered operations of the oil and gas industry within two years (2003-2004) made startling revelations concerning weak and loose accounting systems existing among federal government institutions connected with the operations of the petroleum industry.
The report titled “Financial Audit Report”, focused on flows of money between the public sector entities that are responsible for generating, assessing and collecting various types of revenues and the repository of such funds.
Prominent among findings of the report, was the discovery that oil companies routinely use different prices for calculation of royalties and taxes other than that prepared by the Crude Oil Marketing Department (COMD) of the NNPC.
Minister of Solid Minerals Development and Chairman of NEITI, Dr. (Mrs.) Obiageli Ezekwesili, while presenting the audit report to members of the public, said the holding up of such significant amount meant for the execution of JV work programme is very unhealthy.
She stated that from the “point of view of capital budget implementation, leaving so much cash until the last month of the year would normally raise concerns about the quality of spending”.
The Minister said the report of the auditors (The Hart Group) which was submitted to NEITI secretariat last December is the first phase of the three-pronged exercise containing verified accounts of all payments and receipts as recorded in the account books of oil companies and relevant government institutions.
Ezekwesili disclosed that the auditors have till mid February 2006, to conclude other aspects of the audit process, which would deal with the Physical and Process audits. According to the report, the total amount oil companies claimed to have paid the Federal Government in 2003 and 2004 amounted $4.719bn and $8.614bn respectively, while at the same period, Central Bank of Nigeria (CBN) record showed the receipt of $4.822bn and $8.932bn.
The report also showed some discrepancies in the amount paid out as cash calls to JV operations as follows, $2.561bn (2003) and $1.903bn (2004) as contained in the accounts books of JV companies as against $1.30168bn and $1.32483bn found in CBN accounts for the same period.
In presenting the audit account, the leader of the group, Mr. Chris Nurse, said there are potential weaknesses in government regulatory oversight as regards the way in which the Department of Petroleum Resources (DPR) assesses royalty on oil and gas as well as gas flare penalty.
He also noted significant flaws in the manner in which the DPR and Federal Inland Revenue Service (FIRS), executed their mandate in the area of fixing appropriate royalties and Petroleum Profit Tax (PPT), payable by oil companies operating in the country.
“Our findings reveal that there is no functioning system of government regulatory control over calculations. These weaknesses are attributable to lack of clear accounting system and the capacity and technical facilities to operate such system”, he said.
The auditors also saw the manner in which the Central Bank records incoming funds, analyses and controls them as not providing solid basis for internal control and financial management.
The report pictured the helpless position of the Accountant General of the Federation, in his inability to monitor or control amounts deposited in the Federation Account.
“We therefore propose that FG’s internal procedures should be strengthened, to improve control as regards both regulatory oversight and management of finances received from the oil and gas sector”, it said.
Earlier, the British High Commissioner to Nigeria, Mr. Richard Grozney who chaired the ceremony, said the initiative to embark on the audit process as an entirely Nigerian government effort aimed at re-aligning the country’s oil industry to the ideals of global transparency practices.
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