When on July 7, 2006, I wrote an article titled “Preventing the type of fraud noted at Wema Bank and published same, not a few persons tagged the article a doomsday prediction.
As is our practice, the investors interest was paramount as well as the corporate integrity of the bank which, it was felt, ought to be protected by publishing same.
Recent developments and actions at the bank culminating in the appointment of a new helmsman has justified the foresight shown in the article now reproduced below. The question remains, why did the regulators wait for so long before acting?
More disturbing however was
The Nation report of yesterday that the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation (NDIC) disregarded the advice of the Attorney General of the Federation, Michael Kaase Aondoakaa by directing Mr Omoyeni to proceed on leave.
The bank has been going through internal wrangling since 2005 when the former Managing Director, Mr Tunde Lemo, left to take up a new job as the Deputy Governor (Financial Surveillance) of the CBN.
The Board of Director of the bank accused Lemo of meddling in its affairs. He was said to have incurred N8.13 billion debt and declared N3.1 billion profit in the 2002/2003 financial year when the actual profit was N891 million, among others. Now that is something to worry about......
I read a financial newspaper article this morning about the financial shenanigans at Wema Bank. One of the indiscretions includes N6.7 billion credit facilities to individuals that were also directors of Wema Bank. Additionally, 98 percent of this loan to directors was to a deceased director. These financial improprieties have cost the shareholders billions of Niara. Wema Bank stock which traded as high traded at N7 in 2005 is now trading at N2.79. Absolute shareholders nightmare. The article further noted that several of the insider abuses were unknown to the Central Bank of Nigeria.
It is my opinion that if the proper monitoring agencies were in place that these problems would have been uncovered a longtime ago, preventing most shareholders from losing their invested capital. The Central Bank of Nigeria, The Nigeria Stock Exchange, Securities & Exchange Commission, and the Federal Government must implement measures to protect shareholders, and prevent this type of gross misappropriation of shareholders funds from being perpetrated by other financial institutions in the future.
The Central Bank of Nigeria should create an active “Auditing Division which will perform semi-annual, or annual unannounced audits on all banks in Nigeria. Today majority of the banks in Nigeria are traded on the NSE, therefore they are “public companies and are not privately owned. These banks obtained majority of their operating capital from funds generated from the issuance of shares to the public, customer deposits and interest received on loans. I must mention that most banks operate professionally, but The Central Bank of Nigeria must put measures in place to prevent incidences such as Wema Bank since the banks represent the core of our economy. We can not allow too many of these occurrences of fraud especially with the banking system, because the public will lose faith in the financial system and the Capital Markets.
The Security and Exchange Commission should be more active and investigate these types of internal abuses of funds by publicly traded companies not just the banks. The executives or individuals responsible for perpetrating these frauds should be prosecuted and the guilty parties thrown in jail as examples to other corporate executives that take the loyalty of the pubic for granted. Executives or directors alive or deceased should forfeit assets that might have been acquired with funds obtained from the fraudulent practice.
The Federal Government and the legislature should enact legislations which will protect the interest of shareholders and the public because if investors and the public lose faith and confidence in the financial system and capital markets, the economy of Nigeria will be negatively impacted. The Federal government and the “watch dog agencies responsible for keeping these publicly traded companies honest should know that the Nigerian capital market is now part of the global financial community and a lot of people at home and abroad are watching. A few weeks ago some Nigerian stock brokers were in the United States addressing Nigerian in Diaspora about investing in Nigeria Stock Exchange. If incidences like the Wema Bank issue are not properly addressed, majority of Nigerians abroad will not be comfortable investing their hard earned funds in Nigeria. For example the Moneywise article mention that a Nigerian Living in the United States who invested N2 million in Wema stocks 3 years ago recently instructed his broker to sell his shares to cut his losses
For example, in the United States, there are several government agencies created to monitor publicly traded companies in order to reduce most of these types of frauds from being perpetrated on shareholders. Agencies like The Federal Reserve Bank Auditing Division, Security and Exchange Committee, and in some cases The District Attorney of the State of New York has recently been very active in prosecuting several publicly traded firms. Although these agencies are very active in carrying out their duties, it did not prevent the frauds perpetrated by “ERON and other companies on their shareholders and employees a couple of years ago. The frauds perpetrated by these companies threatened the stability of the United States financial markets. To restore confidence in the financial markets, the Sarbanes-Oxley Act of 2002 was signed into law by President Bush. The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession. This is to prevent Public Accounting firms and company management from providing the public with fraudulent certified financial statements.
The Federal government, the Legislature, The Central Bank of Nigeria, The Nigerian Stock Exchange, and The Security and Exchange Commission should work together to implement monitoring procedures which will prevent the types of abuses noted at Wema Bank. July 7, 2006.
Chukwumah Biosah is the President of CEBABL Audit Group, based in Los Angeles,
California and Technical Analyst partner to Proshare Nigeria.