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How Stanbic IBTC Was Caught in Annual Accounts Fraud

The white-stained gloves went off. And the pretence of Best Corporate Governance was publicly muddled as Stanbic IBTC Bank Plc was caught red-handed by the Financial Reporting Council (FRC) for allegedly falsifying and manipulating its annual accounts in 2013 and 2014 to deceive regulators, tax authorities, shareholders and the general public on the true state of its financial results in the two years under review.

The sanctions against the bank included immediate suspension of Mr. Atedo Peterside, Chairman and Mrs. Sola David-Borha, CEO.

The white-stained gloves went off. And the pretence of Best Corporate Governance was publicly muddled as Stanbic IBTC Bank Plc was caught red-handed by the Financial Reporting Council (FRC) for allegedly falsifying and manipulating its annual accounts in 2013 and 2014 to deceive regulators, tax authorities, shareholders and the general public on the true state of its financial results in the two years under review.

The sanctions against the bank included immediate suspension of Mr. Atedo Peterside, Chairman and Mrs. Sola David-Borha, CEO.

The Case Against Stanbic IBTC
The abridged case against Stanbic IBTC Bank Plc by FRC is reproduced below:
REGULATORY DECISION IN THE MATTER OF FINANCIAL STATEMENTS OF STANBIC IBTC HOLDINGS PLC FOR YEARS ENDED 31ST DECEMBER 2013 AND 2014

1. 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 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.

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 Non-Disclosure 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.

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.

3. 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.

CONCEALMENT OF INFORMATION
Professional Fees:
– 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 Nigeria 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.

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.

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.

“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.

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.

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.

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:

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.

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.

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.

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.

1.REGULATORY DECISION OF THE PANEL
2.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.

The FRC number of the following persons(Atedo Peterside-Chairman and Sola David-Borha-CEO) 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 Stanbic IBTC Defence
As expected, Stanbic IBTC fired back at the FRC, insisting that the regulatory body erred in punishing the bank for the alleged infractions. In an advertorial signed by suspended Mrs. Sola David-Borha, CEO and Mr. Chidi Okezie, Company Secretary, the bank stated:

“FRC’s allegations are inaccurate and unfortunate, and the manner in which it has been chosen to make them is procedurally defective. FRC has ignored laid down process in preference for self-help and media publicity.

The matters that FRC alleges to be wrong are not wrong in any material respect and many are in any event not matters of financial reporting at all, but matters of business decision and judgement for Stanbic IBTC and its Board of Directors.

For example, the decision whether to enter into a sale and lease back, whether in relation to intellectual property or any other asset, is a business decision and entirely a matter for the Board of Directors of Stanbic IBTC and certainly not a matter for FRC. In the same vein, NOTAP’s refusal to register a franchise agreement does not render the agreement null or void, or indeed relieve Stanbic IBTC of its liability.”

The bank also claimed that the matter between it and FRC was in court.

FRC Demands Immediate Apology from Stanbic IBTC
Reacting swiftly to the Stanbic IBTC advertorial, the FRC insisted that its actions against the bank was justified, just as it debunked the bank’s assertion that the matter was in court.

The FRC stated: “The Council wishes to advise the management of Stanbic IBTC to withdraw the advertorial and immediately tender a written apology to the Council for the following reasons: First, the FRC is not aware of any court processes served on the Council with regard to the Regulatory Decision issued on Stanbic IBTC on Monday, October 26, 2015.”

The FRC insisted that the “bank must obey the regulatory decision of the Council and reverse the wrong eaccrued amounts to retained earnings.
Finally, we like to restate here that the FRC registration of the named directors of Stanbic IBTC (Atedo Peterside & Sola David-Borha) remains suspended. Accordingly, they are not allowed to vouch the integrity of any financial statements issued in Nigeria.”

Going Forward
Regardless of whether Stanbic IBTC was 100% guilty as declared by the FRC or 100% innocent as claimed by Stanbic IBTC, the White Knight reputation of the bank has been breached and dented.

It also implies that in the Nigerian banking sector, all have sinned and come short of earning the White Flag of all regulators. For Stanbic IBTC Bank Plc, it is time to clean and wipe its stable of all rotten elements (natural and man-made) and embark on the Second Missionary Journey of rebuilding its brand image on the tenets of Good Corporate Governance in all its operations.

It is the wrong time to engage a regulator in media war via newspaper advertorials and rented shareholders groups. As the wise saying goes: nobody wins against a regulator!

NB: Benjamin N. O. Adewole is an Editorial Consultant to Business Journal

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