Audit report: Nigeria’s state-owned oil company’s many unanswered financial, product mismanagement queries

In August 2021, when the Nigerian National Petroleum Company (NNPC) posted a N287 billion profit-after-tax for 2020 after 44 years, this was widely commended by all and sundry, but a month after, the Office of the Auditor General of the Federation released the 2019 audit report for all Ministries, Departments and Agencies (MDAs). ADETOLA BADEMOSI writes on NNPC’s audit.

Official documents from the Office of the Auditor General of the Federation (OAuGF) has revealed how the Nigeria National Petroleum Company Limited (NNPC), spent over N1,925,388,991.70 on 17 charter hire contracts in 2019 without adequate supporting documents.

Charter hire is a contract in which the shipowner hires out the ship to the charterer for the carriage of an agreed quantity of cargo from a specified port or ports to another for a remuneration called freight.

The latest OAuGF 2019 annual report indicated that the Company had no supporting documents like evidence of vessels transhipment of products, clearance certificate from appropriate inspection agency, among others to show that the payments made for the contracts were valid charges against public funds.

Checks by the Nigerian Tribune reveals that the NNPC contravened Paragraph 603(i) of the Financial Regulations (FR) which states that: “All vouchers shall contain full particulars of each service, such as dates, numbers, quantities, distances and rates, so as to enable them to be checked without reference to any other documents and will invariably be supported by relevant documents such as local purchase orders, invoices, special letters of authority, time sheets, etc.”

The document blamed the anomalies of the weaknesses in the internal control system at the NNPC stating that this may amount to illegitimate payments as well as payments for services not rendered.

Interestingly, the Corporation, according to the document, gave no response to the query.

As a result, the OAuGF had recommended that the NNPC’s Group Managing Director (GMD) Mele Kyari provide reasons why such payments were made without adequate supporting documents.

Also, it requested that the Company apart from account for the sum should furnish evidence of vessels transhipment of products, clearance certificate from appropriate inspection agency for the contractors to the Public Accounts Committees of the National Assembly.

“And otherwise, apply sanctions relating to irregular payments in paragraph 3106 of the Financial Regulations,” it stated.

NNPC’s consolidated financial statements 2019

This development is not only peculiar to the NNPC as in time past, different probes and panels committees have uncovered that the country’s petroleum industry is shrouded in secrecy, opaque revenue retention practices, corruption and mismanagement.

But majorly, mismanagement of the nation’s petroleum wealth has been traced to the state -owned oil company for one, and Ministries, Departments and Agencies (MDAs) responsible for regulation, development and revenue collections in the sector.

Agencies and parastatals, responsible for revenue collections have over the years created several loopholes through which revenues are diverted away from the Federation Account.

For instance, the AOuGF’s Annual Report on the Federal Government of Nigeria (FGN) Consolidated Financial Statements for the year ended 31st December, 2019 found that discrepancies existed between the NNPC-NAPIMS audited account and the amount recorded by the AGF as remittance for 2019.

Also, the Company failed to provide complete information on allocation of crude oil to refineries in 2019.

The document revealed that 107,239,436.00 barrels of crude oil was lifted as domestic crude while allocation of products to refineries for a billing date of 9th January to 29th May 2019 was 2,764,267.00 bbls valued at N55, 891,009,960.63.

However, it said Information on sale of unutilised crude oil by refineries for 2019 and information on crude oil allocations from May 30 to December 31, 2019 was not provided for scrutiny.

Within the period, it said over N2 trillion sum was released by NNPC without being paid into the Federation Account in accordance with the provisions of Section 162(1) of the Constitution

A breakdown showed that $6,410,998,922.19 (N1,955,354,671,268.66 at N305/US$1) was spent for funding Joint Venture Cash Calls (JVCC) and other federally funded upstream projects such as Gas Infrastructure Development, Brass LNG, Crude Oil Pre- Export Inspection Agency Expenses, Frontier Exploration Services, EGTL Operating Expenses and NESS Fee.

Also N55,157,702,848.74 was spent on Pipeline Security and Maintenance a summation of this gave a total of N2,010,512,374,116.7.

Apart from this, the report also accused the NNPC of irregular transfer to Federal Inland Revenue Service (FIRS).

It said the:”Audit examination on ‘Schedule of Inflow of Revenue’ by NNPC to Federation Account obtained from the Office of the Accountant General of the Federation revealed that: the Domestic Gas Receipts of N4,572,844,962.25 was transferred to FIRS Petroleum Profit Tax (PPT)-Gas in the month of January 2019.”

But it said the transfer was not made in the subsequent months of the year stating that, “This transfer reduced the amount due to the Federation Account for the month of January, 2019 to the tune of N4, 572,844,962.25.”

Similarly, within the period, audit also observed that 22,929.84 litres of PMS valued at N7, 056,137,180.00 pumped to the two depots were not received by the depots; Ibadan-Ilorin and Aba-Enugu.

Also, a total 239,800 bbls of crude oil valued at N5, 498,045,220.00 was received in Warri and Kaduna refineries respectively.

A breakdown showed that in April 2019, Warri-Kaduna crude oil pipeline received 149,878bbls valued at N3,346,032,345 while in September same year Escravos/Cnl – Warri Crude Oil Pipeline received 89,922 at N1,536,392,455.

However, Audit stated that the source(s) of the crude could not be validated due to absence of source documents, while the sum of N5, 498,045,220.00 was allegedly classified as crude oil losses without duly completed form 146 to be processed for further investigation.

Interestingly, for all of this mismanagement, the NNPC was not able to give adequate response to the queries.

This implies that such funds could have been diverted causing a reduction in the distributable funds to FAAC.

It is worthy to stress that because the oil sector remains the bedrock of Nigeria›s economy, monies paid into the federation account, 85 percent of which comes from the sector, is on monthly basis distributed by the Federation Accounts Allocation Committee (FAAC)to the three tiers of governments.

By implication, inappropriate remittances will no doubt affect the quality of allocation to States and Local Government Areas (LGAs).

The resultant effect of this is snail paced developments seen across all sectors of the economy-education, health, infrastructure among others, while the country keeps expanding its debt profile.

NNPC flouted several laws

For every mismanagement recorded in the consolidated financial statements for the year being reviewed, the oil giant constantly flouted various regulations and laws worthy of sanctions.

First, it flouted Section 162(1) of the Constitution of the Federal Republic of Nigeria, 1999 (as amended) states that “The Federation shall maintain a special account to be called “the Federation Account” into which shall be paid all revenues collected by the government of the federation, except the proceeds of the personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police Force, the Ministry or department charged with the responsibility of Foreign Affairs and the residents of the Federal Capital Territory, Abuja.

Secondly, for not providing complete information on allocation of crude oil to refineries in 2019, the Company also flouted Paragraph 110 of the Financial Regulations (FR) which states that: “By virtue of the responsibilities and functions of the Accountant-General and the Auditor-General or their representatives shall, at all reasonable times, have free access to books of accounts, files, safes, security documents and other records and information relating to the accounts of all federal ministries/extra ministerial offices and other arms of’ government or units.

“They shall also be entitled to require and receive from members of the Public Service such information, reports and explanations as they may deem necessary for the proper performance of their functions.”

Likewise, by pumping products from refineries without evidence of receipt at depot, NNPC contravened Paragraph 112 (i) of the Financial Regulations (FR) which states “The Functions of the Accounting Officer shall include:(a) ensuring that proper budgetary and accounting systems are established and maintained to enhance internal control, accountability and transparency; (b) ensuring that the essential management control tools are put in place to minimise waste and fraud; (c) rendering monthly and other financial accounting returns and transcripts to the Accountant -General of the Federation as required by the Financial Regulations;(d) ensuring the safety and proper maintenance of all government assets under his care.”

Lastly, for incomplete report of losses of crude oil, apart from flouting Paragraph 112 (i) of the Financial Regulations (FR) earlier stated, NNPC’s act also contravened paragraph 2604 of the FR states:“On being informed of the loss, the Head of Department or Unit shall:

(a) Forward immediately, in writing, brief details of the loss to his Accounting Officer. (b) Investigate the whole incident at the earliest possible time but not later than seven days, complete Parts II and III of Treasury Form 146 (Revised), and forward the forms in quadruplicate to his Accounting Officer.

“If the investigation is liable to be protracted, submit the reports on Treasury Form 146 as soon as possible, and follow-up with interim and final reports in a letter form…”

NNPC’s N287billion historic profit after tax in 2020

Despite being shrouded in various mismanagement of the country’s petroleum wealth, the Company under the leadership of Mele Kyari posted net profit of N287 billion in 2020 referring to it as the first in the 44-year history of the state oil company.

President Muhammadu Buhari who doubles as the Minister of Petroleum Resources, had announced that the Company’s losses were reduced from N803 billion in 2018 to N1.7 billion in 2019, leading to the eventual declaration of Net Profit in 2020.

He attributed the development to his administration’s commitment to ensuring prudent management of resources and maximisation of value for the Nigerian people from their natural resources.

Meanwhile, the House of Representatives Committee on Public Accounts, PAC, has commenced investigation into the circumstances surrounding the expenditure of about N1.93 billion by the Nigeria National Petroleum Corporation (NNPC) on charter service without any documentation to back up the expenditure.

The report is being investigated by the Public Accounts Committee of the House chaired by Hon Busayo Oluwole Oke (PDP-Osun).