The desire to falsify financial statements by publicly traded companies has been a constant theme in the Nigerian newspapers lately. In October 2006, Mr. Patrick Olayele Akinkuotu, former Group Managing Director of Afribank Nigeria Plc claimed that some figures in the fiscal year ended March 31, 2006 financial statements were “doctored�. Mr. Akinkuoto’s claims were later refuted by Afribank’s management and the bank’s external auditors, Akintola Williams Deloitte. In November 2006, an internal review of Cadbury Nigeria PLC revealed that the company’s revenues were overstated between N13 and N15 billion over the past 3 fiscal years. Are these the only companies guilty of these shenanigans or is this just a tip of the iceberg?

This is beginning to look like a throw back to the year 2000 in the United States where companies like Enron and WorldCom presented falsified financial results that led to their eventual downfall and liquidation that cost shareholders and employees millions in invested funds and retirement savings and benefits. How can the Nigerian investment community (domestic and foreign) be protected from these types of corporate fraud? What active role should the legislature, Federal government, NSE, SEC, and Central Bank of Nigeria play to curb these types of financial misstatements by quoted companies?

It is very obvious that Cadbury’s external auditors (Chartered Accountants) were either inefficient, or were active participants in the perpetrated fraud. If the auditors participated in the fraud, then they should be penalized by paying some kind of financial remuneration to the shareholders that would lose money as a by product of the Cadbury debacle. As noted in my previous article (Methods Investors can use to determine Accuracy of Quoted Companies Financials – October 2006), after the Enron scandal, the United States Congress and the President worked to restore confidence in the capital markets by enacting the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud.

As a consequence of the financial fraud at Cadbury Nigeria Plc, the Managing Director and Chief Executive Officer, Mr Bunmi Oni, and the company’s Finance Director, Mr. Ayo Akadiri, were on Monday, fired by the board of the company. Dr. Itsueli, Chairman of the Company, stated that the company had ordered a complete review of its business model and is embarking on the process of rebuilding the business, and would issue its final results for fiscal year 2006 in February 2007. Dr. Itsueli assured shareholders that the company would continue to take necessary steps to protect their interests. While I do not doubt the Chairman’s assertion that the company would continue to take the necessary measures to protect shareholders interest, the investment community should not forget that the first obligation of a company’s management is to protect the interest of the company and its survival. That is why the shareholders will need an external body to work on their behalf to keep quoted companies in check.

There is absolutely a need for the Federal Government, Central Bank of Nigeria, Nigeria Stock Exchange, and Securities & Exchange Commission to implement shareholders protective measures to prevent this type of gross misstatement of financial information by quoted companies. It is absolutely necessary that some type of shareholder protective legislation be passed in light of these types of corporate financial frauds. We cannot allow too many of these fraudulent occurrences within the system because the public will lose faith in the Capital Markets. How do we attract and encourage Nigerians domestically, internationally and foreigners to invest in our capital markets if strong measures are not put in place to prevent these types of financial frauds by quoted companies.

Chukwumah Biosah, is the President of CEBABL Audit Group, based in Los Angeles, California