The Financial Reporting Council of Nigeria (FRC)
has suspended the Chairman of Stanbic IBTC
bank, Mr. Peterside Atedo and the Managing
Director, Mrs. Sola David-Borha from the board of
the bank for alleged fraudulent activities.
Specifically, FRC said the two were involved in
accounting irregularities, and improper disclosures
in the bank’s 2013 and 2014 financial statements.
Also suspended were KPMG’s Arthur Oginga, Dr.
Daru Owei and Ayodele H. Othihiwa for their
alleged roles in the breach.
The FRC in a statement on Monday said they
remained suspended “until the investigation as to
the extent of their negligence in the concealment,
accounting irregularities and poor disclosures in
the said financial statements is completed in
accordance with Section 62 of the Financial
Reporting Council of Nigeria Act No. 6, 2011.
Accordingly, they are not allowed to vouch the
integrity of any financial statements issued in
Nigeria.”
Below is full statement by the FRC.
REGULATORY DECISION IN THE MATTER OF
FINANCIAL STATEMENTS OF STANBIC IBTC
HOLDINGS PLC FOR YEARS ENDED 31ST
DECEMBER 2013 AND 2014
Pursuant to Provisions of the Financial Reporting
Council of Nigeria Act No. 6, 2011 (“FRC Act”) and
Regulation 3 of the Financial Reporting Council of
Nigeria
– Guidelines/ Regulations for Inspection and
Monitoring of Entities, 2014 (“the Regulation”)
some matters came to the fore from the review of
the financial statements of Stanbic IBTC Holdings
Plc (Stanbic IBTC) and major subsidiaries of the
holding company for the years ended 31st
December 2013 and 2014.
Material irregularities of the said entities were
also brought to the attention of the Council by
some minority shareholders of Stanbic IBTC
relating to the Financial Statements of the said
entity for years ended 31st December 2011, 2012,
2013 and 2014.
The issues raised by the minority shareholders
were also addressed to some other regulatory
agencies such as the National Office for
Technology Acquisition and Promotion (NOTAP),
Securities and Exchange Commission (SEC) the
Central Bank of Nigeria (CBN), among others.
The Council met with NOTAP on 1st September,
2015 and have also exchanged several
correspondences on the matter thereafter. A
number of issues, even well beyond the complaint
of the minority shareholders, which also bordered
on the financial reporting of Stanbic IBTC for the
relevant years, became manifest.
The Council wrote to the Securities and Exchange
Commission on 3rd September, 2015 informing
them that from the preliminary report from the
documents at the disposal of our Council and the
meetings held with Stanbic IBTC, there will be
material adjustments required in the financial
statements of Stanbic IBTC that may affect the
decision of stakeholders.
The Council requested SEC to consider withholding
her authorisation of any request made by Stanbic
IBTC on Rights Issue and Scrip Issue until the
matter that is brought to our joint attention is
resolved and the relevant financial statements
corrected.
At the time, Stanbic IBTC’s attempt to enhance its
operations by way of Rights Issue and Scrip Issue
were publicly available. SEC graciously acceded to
this request and issued a Public Notice on 7th
September, 2015 suspending Stanbic IBTC’s Rights
Issue pending the conclusion of the investigation
by our Council.
Stanbic IBTC Holdings Plc is a company domiciled
in Nigeria.
Stanbic IBTC is made up of the following eight
subsidiaries:
Stanbic IBTC Bank (including Stanbic Nominees
Nigeria Limited)
Stanbic IBTC Pension Managers Limited
Stanbic IBTC Asset Management Limited
Stanbic IBTC Stockbrokers limited
Stanbic IBTC Trustees limited
Stanbic IBTC Ventures Limited
Stanbic IBTC Capital Limited
Stanbic IBTC Investments Limited.
Stanbic IBTC Holdings Plc is a member of
Standard Bank Group with headquarters in South
Africa and with a controlling stake of 53.25% in
Stanbic IBTC Holdings Plc.
The Inspectorate Unit (the Panel) had a number of
meetings with representatives of Stanbic IBTC
between August 3, 2015 and October 16, 2015. In
the meetings, representatives of the KPMG
Professional Services, Stanbic IBTC’s External
Auditors, were in attendance. Various
correspondences were also exchanged between
Stanbic IBTC and the FRC.
The final meeting held on October 16, 2015
between FRC panel of inspectors and a team
representing Stanbic IBTC made up of Stanbic
IBTC’s Chief Executive Officer, Legal Adviser, as
well as the Engagement Partner at KPMG
Professional Services (Stanbic IBTC’s External
Auditors) and six other staff of both Stanbic IBTC
and KPMG.
The purpose of the meeting was to afford Stanbic
IBTC Directors a final opportunity to provide
factual information regarding the discrepancies
observed in its Financial Statements and general
financial reporting, ensure fair hearing for the
directors and reach an agreement for a resolution.
The Panel was mindful of the fact that it is the
duty of the directors to prepare financial
statements for an entity; as provided for by
Sections 331 to 334 of the Companies and Allied
matters Act CAP C20 LFN, 2004. By virtue of
Section 334 of the Act, the authors of the financial
statements (of Stanbic IBTC) under review are its
Directors.
TECHNICAL ISSUES
a) SALE, PURCHASE AND ASSIGNMENT
AGREEMENT
On 6th July, 2012, Stanbic IBTC issued a final
signature version of a Sale, Purchase and
Assignment Agreement between Standard Bank of
South Africa Limited and Stanbic IBTC Bank Plc on
a banking Application Software. The said
Application Software was developed by Stanbic
IBTC Bank Plc, Nigeria. The Source Code was
disclosed without a NonDisclosure Agreement
signed by both parties.
It should be noted that Standard Bank of South
Africa operates in 17 (seventeen) countries in
Africa and claim that they engage in shared use of
banking software wherein the developer gets
annual fee from the others in the group as long
as the banking application software is in use.
Accordingly, Stanbic IBTC Bank Plc (a subsidiary of
Stanbic IBTC Holdings Plc) and the Group, as the
developer of the software, are expected to
disclose its expenses on Research and
Development costs relating to the development of
the software in the Statement of Profit or Loss
and Other Comprehensive Income and carry a
figure for its intangible asset in its Statement of
Financial Position for the capitalised portion of the
expenses (as contained in the accounting policy
on intangible asset in the Stanbic IBTC financial
statements for year ended 31st December 2014).
Instead, on 3rd July, 2013 (one year after) Stanbic
IBTC submitted the said Sale, Purchase and
Assignment Agreement between Stanbic Bank Plc
and Standard Bank of South Africa Limited to
NOTAP requesting NOTAP to approve and register
that the application Software is sold to Standard
Bank of South Africa for a fee of ZAR 151,586,277
and that the Nigeria bank has ceded all its rights
to the software to the purchaser and now have
the Nigeria bank become one of those in the
seventeen countries paying annual license fees for
the use of the software. NOTAP declined the
application and advised that Stanbic IBTC license
the application software in Nigeria instead.
This was not adhered to by Stanbic IBTC but went
ahead with their plan anyway and neither reported
the sale of the said software nor showed any
annual fee income relating to it in their Statement
of Profit or Loss and Other Comprehensive
Income nor carry the intangible asset in their
Statement of financial Positon in the financial
statements for years ended 31st December 2013
and 2014.
b) STATUTORY AUDIT AND AUDITOR
INDEPENDENCE
It was disclosed in the financial statements that
the auditors earned “Fees for other services” in
addition to the audit fee as follows.
2014: N7,000,000; 2013 –N5,000,000; 2012: N
37,000,000; 2011: 13,000,000;
The Council was interested in knowing the nature
of these non-audit services, the fees actually
earned and the possible impact on auditor
independence and objectivity. The schedules
supplied to the Council by Stanbic IBTC revealed
that the total fee paid to KPMG Professional
Services for non-audit services was inconsistent
with what was disclosed in the financial
statements for the years under review.
c) PRESENTATION OF INFORMATION
Current and Deferred Tax Assets and Liabilities –
Stanbic IBTC contravened the presentation
requirements of taxes in IFRS. IAS 1 requires
current and deferred taxes assets and liabilities to
be presented separately in the Statement of
Financial Position since they are not of the same
substance. However current and deferred tax
assets and liabilities were lumped together and
presented as a single line item in the statement of
financial position.
d) CONCEALMENT OF INFORMATION
OTHER OPERATING EXPENSES
Upon a preliminary review of the financial
statements of Stanbic IBTC, the Council
discovered that the group’s “Other Operating
Expenses” contained line items that required
further explanation. Consequently, the bank was
directed to provide schedules showing the
composition of each of the line items in Other
Operating Expenses for all financial years from
2011 to 2014. Notable among these was the line
item “professional fees”.
Professional Fees
As disclosed in the group’s financial statements,
professional fees were incurred as follows:
– 2014: N6,083,000,000; 2013: N4,467,000,000;
– 2012: N6,057,000,000; 2011: N4,041,000,000.
The schedule submitted to our Council by Stanbic
IBTC revealed that professional fees which was
simply a line in the financial statements contained
several expenses that are unrelated to
professional fees and which required separate
disclosures on their own to give users of the
financial statements good understand on the
transactions and events of the bank.
These include:
Franchise Fee – Included in professional fees for
2014 and 2013 were franchise fees of N2.3 billion
and N1.9 billion respectively which were
provisions made for franchise fee to be paid to
Standard Bank of South Africa. See section below
for more discussion of this matter.
Tax advisory fee and provision for tax liability
assessment – Also included in the 2014
professional fees figure was N711million for “tax
advisory fee and provision for tax liability
assessment”. The Council was concerned that
provisions for tax liability were included in
professional fee.
iii. Provision for litigation –In 2014, the sum of
N752 million which the schedule revealed included
“provision for litigations” was also included in
professional fees when there is a financial
reporting standard which requires separate
disclosures of issues relating to litigations.
ü Provision for Contingent and Other Known
Losses
Another major line item under “Other Operating
Expenses” was provision for contingent and other
known losses of N972m. Included in this amount
was another N340.8 million also described as
“provision for litigation”. The Council is concerned
that the group did not seem to have a systematic
method of recognizing and classifying its expenses
as similar and related items were found under
several expense categories.
ü “Others” in Other operating expenses
The Council has always made it stance known to
reporting entities and their external auditors that
descriptions in the financial statements such as
“others”, “sundries” and “miscellaneous”,
especially when these were substantial and
material, was poor disclosure and should be
avoided at all cost.
“Others” in Other Operating Expenses of Stanbic
IBTC were as follows:
2014: N1,907,951,000; 2013: N2,477,201,000;
2012: N1,632,000,000; (whereas N1,946,000,000
was disclosed in the 2013 financial statements as
2012 comparative)
2011: N2,685,000,000.
The Council therefore investigated the balances
further and discovered the following:
ü Donations – Several donations were concealed
in “Others”. The group disclosed its donations in
the annual report in compliance with the
requirement of CAMA CAP C20 LFN. However, just
one line item of donations in “Others”,
N275,000,000, far exceeded the aggregate
donations disclosed in the annual report
(N162,468,098). They also could not confirm the
entity that this amount was donated to when
questioned further at the meeting of 16th October
2015.
ü Directors’ fees and expenses – Also concealed
within “OTHERS” was directors’ fees and expenses
of N223,000,000 (2013: N218,000,000). This is
aside the directors’ fees and emoluments
disclosed in a separate note in the financial
statements. All fees, remuneration and
emoluments of directors should have been
disclosed as part of related party disclosures in
the group’s financial statements. This is the only
way users of general purpose financial statements
who are unable to demand for additional
information (schedules, analysis etc) can have
relevant and reliable information for decision
making.
ü Several expenses with their individual and
separate classifications in the financial statements
were also found within “OTHERS”
Pension administration expenses – 2013:
N227,000,000
Penalties and fines – 2014: 34,000,000; 2103:
29,000,000
Pension commission paid to agents & sales
executives– 2014: N99,000,000; 2013:
N514,000,000.
VAT- 2014: N308,000,000; 2013: N148,000,000
Loss on disposal of fixed assets – 2014:
N42,000,000; 2013: N33,000,000.
e) TRANSACTION WITH HOLDING COMPANY –
MISLEADING DISCLOSURE
One of the “transactions with holding company”
was simply disclosed in the financial statements
as “information technology and professional fee”.
Stanbic IBTC’s submissions to our Council
however revealed that these are franchise fees
and royalties paid to Standard Bank of South
Africa. The Council is concerned about the
group’s disclosure to users of the Financial
Statements in this regard as it does not reflect
fairness and faithful representation of the
transactions to stakeholders.
f) INTANGIBLE ASSETS
The Council is concerned that the group does not
recognise intangible assets like computer software
in its financial statements despite the technology
driven banking business that its runs and the
huge IT infrastructure that drives it and the fact
that Stanbic IBTC Bank Plc, Nigeria, developed a
banking Application Software.
This may not be unconnected to the issue of
franchise fees and royalties paid to the South
African parent (see below). The bank, rather than
own its software, pays royalties to Standard Bank
South Africa perpetually.
g) FRANCHISE FEES/ MANAGEMENT FEES (NOTAP
RELATED MATTERS) –
The Council’s Concerns are as follows:
The Group makes yearly provisions and
remittances to Standard Bank South Africa as
Management/Franchise fees. This is despite the
fact that Stanbic IBTC could not secure relevant
registration from NOTAP.
Standard Bank does not trade in Nigeria under
the name, “Standard” Bank.
Stanbic IBTC could not prove to the Council how
and where the “branding” benefit lies for the
Nigerian group that trades under a different name
and in another jurisdiction such as would warrant
making provisions and payments of huge
franchise fees annually to the parent company.
Since the amounts of provisions and remittances
to Standard Bank South Africa are concealed in
other balances in the financial statements, the
Council requested for schedules showing details
of the provisions and remittances.
Two different submissions were made at two
different times. One signed by a Finance staff of
Stanbic IBTC and another signed jointly by the
same finance staff and Stanbic IBTC Holding’s
Chief Executive Officer. The Council was however
alarmed to discover that there were material
discrepancies in the two submissions made by
them.
IAS 37 specifies conditions for making provisions.
One of such conditions is that there must be “a
present obligation arising from a past event.” A
key “obligating event”, which creates a legal
obligation, is the NOTAP approval/registration.
Lack of approval/registration of application made
to NOTAP, the regulatory authority in Nigeria,
makes any agreement between Stanbic IBTC and
its parent company, Standard Bank of South
Africa and other countries, null and void as far as
provisioning is concerned. There is therefore no
basis for accruing management/Information
technology/franchise/royalties fees etc.
Even if it were authorized and legal, the Council
questioned the following disclosure matters as
follows:
ü Why is the company concealing the
management/franchise fees under professional
fees and royalty fees under information
technology?
7 ü Why was it not properly disclosed in the
financial statements for users to be well informed
of the transaction between the Nigerian subsidiary
and its South African parent?
ü Why is there no distinct and clear information
whatsoever (yearly charge, accrued liability,
beneficiary, basis for computations etc.), disclosed
anywhere in the annual reports since 2011 when
provisions started?. Not even in the “Business
Review Section” of the annual report.
ü Why is Stanbic IBTC not complying with the
disclosure requirements of International Financial
Reporting Standards on provisions and extant laws
and regulations applicable in Nigeria?
h) Regulatory Breaches
The Council observed that Stanbic IBTC regularly
flouts CBN regulations. In 2014 for instance, a
total penalty of N28,000,000 was imposed on the
group.
Among the contraventions was improper
disclosure of public sector deposits in 2014.
Stanbic IBTC seems to have a penchant for poor
disclosures which further corroborates the
findings in this report.
REGULATORY DECISION OF THE PANEL
a) The Directors of Stanbic IBTC are hereby
directed to withdraw the Financial Statements of
Stanbic IBTC Holdings Plc for years ended 31st
December 2013 and 2014 and restate them in
accordance with the provisions of Section 64 (2) of
the Financial Reporting Council of Nigeria Act No.
6, 2011 and Regulation 21 of the Financial
Reporting Council of Nigeria – Guidelines/
Regulations for Inspection and Monitoring of
Entities, 2014.
b) The FRC number of the following persons who
attested to the misleading Statements of Financial
Position of Stanbic IBTC Holdings Plc for years
ended 31st December 2013 and 2014 are hereby
suspended until the investigation as to the extent
of their negligence in the concealment, accounting
irregularities and poor disclosures in the said
financial statements is completed in accordance
with Section 62 of the Financial Reporting Council
of Nigeria Act No. 6, 2011. Accordingly, they are
not allowed to vouch the integrity of any financial
statements issued in Nigeria.
The persons are:
Atedo N. A. Peterside FRC/2013/
CIBN/00000001069;
Sola David-Borha FRC/2013/CIBN/00000001070;
Arthur Oginga FRC/2013/IODN/00000003181;
and Dr. Daru Owei FRC/2014/NIM/00000006666.
c) The Council shall require evidence of a second
partner review and auditapproach that the
external auditors of Stanbic IBTC (KPMG
Professional Services) adopted on quality control
on the said financial statements that could not
reveal these infractions. Accordingly, the FRC
number of Ayodele H. Othihiwa (FRC/2012/
ICAN/00000000425) the Engagement Partner of
the audit of Stanbic IBTC Holdings Plc for years
ended 31st December 2013 and 2014, is hereby
suspended until the investigation as to the extent
of the negligence of KPMG Professional services is
ascertained.
d) The Central Bank of Nigeria is requested to
assist in this effort by taking regulatory
disciplinary actions against those whom the CBN
expects to guarantee the integrity of the
aforementioned financial statements in order to
safeguard the interest of stakeholders of Stanbic
IBTC. We are convinced that once the monies are
properly accounted for and used to shore up their
Tier 1 capital, the institution shall become
stronger.
e) The Federal Inland Revenue Service is
requested to ensure that the related taxes are
paid and the government is not unduly short
changed.
f) The Economic and Financial Crimes Commission
is requested to assist in this effort by questioning
those involved in the concealment and sale of the
banking application software that was developed
in Nigeria which, other than the financial
implication, has also robbed Nigerians of national
pride.
The FRC requires entities in Nigeria, and their
directors, to exercise all due care to ensure that
the information contained in the financial
statements they provide to stakeholders are not
misleading, false or deceptive but, communicate
economic information that will permit informed
judgment and decisions by the users of such
information.
The FRC is committed to
ensuring that our capital
market is fair, efficient
and transparent and that public entities comply
with high standards of financial reporting,
applicable rules, regulations and relevant
legislations in Nigeria.
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