Obazee Implicates EY, KPMG In Alleged CBN Irregularities

Ernst & Young (EY) and KPMG, two of the Big Four accounting firms, have been implicated in alleged malfeasance at the Central Bank of Nigeria (CBN) during Godwin Emefiele’s tenure as governor.

This development adds Nigeria to the growing list of countries with complaints or sanctions against these firms for audit failures and professional misconduct.

Both EY and KPMG—global leaders in audit and accounting—have previously faced sanctions and suspensions across Europe, Asia, the US, and Africa due to lapses in their auditing practices.

Testifying before Justice Hamza Muazu of the Abuja High Court, Special Investigator Jim Obazee accused the two firms of complicity in the alleged irregularities that plagued the CBN under Emefiele.

Obazee, appointed by President Bola Tinubu in July 2023 to investigate alleged malfeasance within the CBN and other government entities, claims his investigation uncovered that Emefiele approved a $6.23 million payment without proper documentation, resulting in significant losses for the bank.

Obazee further alleged that the audit firms failed to disclose this transaction in their domestic reports and omitted it as a material post-reporting event in the CBN’s 2022 audited financial statement, which was signed in May 2023.

He stated: “The CBN’s financial statement omitted a $6.23 million withdrawal from the ‘Event after the Reporting Period’ (December 2022 to the signing of the 2022 account), which, per section 50 of the CBN Act 2007, should have been included in the audited account to be presented to the President.”

Section 50 (1) of the CBN Act 2007 provides “The Bank shall, within two months after the close of each financial year, transmit to the National Assembly and the President, a copy of its annual accounts certified by the Auditor.”

Obazee also highlighted further irregularities: the 2022 financial statement was signed in May 2023, missing the statutory February 28 deadline. He contended that the fraudulent withdrawal on February 8—occurring within this delay—should have been disclosed as a post-reporting item.

He added: “Secondly, the withdrawal of the $6.23 million and the resulting negative balance should have appeared in the Domestic report from the External auditors to the apex bank, but it was missing. It also does not appear in the Domestic report from the Internal auditor to the defendant.”

InsideBusinessNG’s review of item 35 in the Notes to the Consolidated and Separate Financial Statements for the year ended December 2022 in the CBN’s audited account corroborated Obazee’s testimony.

Note 35, “Events after the Reporting Date,” in the 2022 audited statement reads: “No significant events occurred between the reporting dates and the sign-off dates requiring disclosure in, or adjustments to, the consolidated and separate financial statements for the year ended 31 December 2022.”

Track Record of Sanctions and Suspensions

Both firms have faced regulatory actions internationally for audit failures. KPMG has faced sanctions in Oman, South Africa, United Africa and Nigeria, U.K, the United States and in Chile. Ernst & Young (EY) on its own has been sanctioned in Germany, Japan, U.K, the US and in Canada.

In Oman in 2018, the Capital Market Authority suspended KPMG from new audit engagements for one year over professional negligence related to significant financial irregularities, while in 2018, the Auditor-General of South Africa stopped awarding new public-sector audit work to KPMG after concerns about its audits of Gupta-linked companies and VBS Mutual Bank.

In the United Arab Emirates in 2022, the Abu Dhabi Accountability Authority removed KPMG from the approved list of audit firms for certain entities following the Abraaj audit scandal. In Nigeria, Obazee, while at the Financial Reporting Council of Nigeria as its Executive Secretary, suspended the Council’s number of the KPMG partner Ayo Othinwa (Stanbic IBTC’s auditor), along with Stanbic IBTC’s managing director, Shola David-Borha and the chairman, Atedo Peterside over fraudulent financial reporting in 2015. The bank also paid N1 billion to the FRC and N100 million to FRC lawyers after both the bank and KPMG lost separate court cases challenging the suspension.

KPMG has also faced fines, reprimands, and disciplinary actions in jurisdictions including the UK (Carillion and Co-operative Bank cases), the US (PCAOB and SEC enforcement actions), and Chile.

Ernst & Young (EY) was banned by Germany’s regulator in 2023 from accepting new audit engagements for listed companies for two years and fined the firm €500,000 over its role in the Wirecard scandal. Previously, Japan’s Financial Services Agency in 2015, following the Toshiba accounting scandal, suspended EY’s Japanese member firm from new audit business for three months, fined the firm, and disciplined several auditors.

EY has also faced significant fines and disciplinary sanctions in the UK (e.g., Thomas Cook and Stagecoach Group audits) and the US (SEC and PCAOB actions). In Canada, audit inspections identified deficiencies, but regulators did not issue a ban. (Inside Business Online)