CBN Fails To Account For $4.5 Billion In Foreign Reserves — Audit Report

The sum of $4.5 billion cannot be accounted for in Nigeria’s Foreign Reserves between 2018 and 2019, an audit report of the Office of the Auditor-General of the Federation (OAuGF) has revealed.

The annual audit report details the expenditures and finances of the government’s ministries, departments, and agencies within a financial year.

According to the report, Foreign Reserves, which stood at US$42,594,842,852.75 in December 2018, decreased to US$38,092,720,200.72 in 2019. By a simple calculation, US$4,502,122,652.03 could not be accounted for.

The infraction happened in the wake of the COVID-19 pandemic, under Godwin Emefiele, former governor of the Central Bank of Nigeria (CBN), who is currently facing corruption charges.

Shaakaa Chira, the Auditor-General of the Federation, called on the CBN to provide justification for the ‘missing funds’ noting that CBN’s ability to maintain a stable exchange rate is at risk.

“This violates Section 25 of the Central Bank of Nigeria Act, 2007 mandating the Bank to endeavour to maintain external reserves at levels considered to be appropriate for the economy and the monetary system of Nigeria.”


More diversions, less accountability

The report also revealed an ‘unsubstantiated’ decline of over $8 billion in foreign reserves between 2019 and 2020. According to the Auditor-General, as of the close of business on 30 June 2020, total reserves stood at $35.7 billion as against $44.7 billion recorded in the corresponding period of 30 June, 2019.

“The above anomalies could be attributed to weaknesses in the internal control system at the CBN, particularly its inability to effectively manage economic variables that could impact negatively on the reserve”, he said.

In addition to these infractions in the Foreign Reserves, the CBN failed to account for the total funds recovered from the Economic and Financial Crimes Commission (EFCC) between 2016 and 2019, despite the Commission’s continuous activities in relation to forfeitures of looted funds to the federal government.

The Recovered Funds component of the foreign exchange inflow of $40,502,645.06 was last reported in 2015. There were no reports of Recovered Funds between 2016 and 2020.

“This violates Section 14(3) EFCC Act, 2004, which states that all money received by the Commission under the provisions of subsection (2) of this section must be paid into the Consolidated Revenue Fund of the Federation”, Mr Chira noted.

According to the Auditor-General, no compelling explanation was given for the depletion of the Reserves, as this could lead to loss of public funds and inability to fund the budget.


CBN’s response

In response to these infractions discovered by the Auditor-General, the CBN noted that the Bank has constantly communicated with the Federal Government through its Monetary Policy communique on ways to boost the reserves. One of the engagements gave birth to the Presidential Artisanal Gold Mining Initiative (PAGMI), where gold will be purchased in local currency and added to the reserve.

“The Bank has intervened heavily in the agricultural sector of the economy to boost the production of certain commodities that could be exported to earn foreign exchange and reduce pressure in the reserves,” the CBN response said.

According to the CBN, these interventions in the forex market were necessary to maintain a stable exchange rate that would lead to macroeconomic stability in line with the bank’s mandate.

Foreign exchange reserves are assets held on reserve by a monetary authority in foreign currencies to ensure that a government or its agency has backup funds if their national currency rapidly devalues. Foreign exchange reserves are also called international or external reserves.


‘CBN’s credibility at stake, erodes trust from citizens and investors’ — Experts

Lukman Rahim, an Associate Chartered Accountant and lecturer at the University of Jos said that the CBN’s inability to account for missing funds has far-reaching implications that affect the lives of ordinary citizens in practical and tangible ways, as well as undermines the overall integrity of Nigeria’s financial institutions.

“Firstly, the Central Bank’s credibility is at stake, eroding the trust that citizens and investors have in the financial system. This lack of confidence can lead to a decrease in foreign investment, hindering economic growth and stability,” he said.

According to him, the depreciating value of the national currency, coupled with rising inflation rates, directly impacts individuals’ purchasing power.

“Everyday essentials become more expensive, making it challenging for families to meet their basic needs.”

“On a broader scale, the missing funds hinder the government’s ability to invest in crucial sectors such as education, healthcare, and infrastructure. These sectors are vital for the long-term development and well-being of the nation”, he added.

Emmanuel Yoko, Director at the Nigerian College of Accountancy, shares the same concern. To him, the missing funds will lead to increased debt collection and servicing, negatively impacting the masses.

“The missing funds would have forced the government into debt collection to meet with her essentials, thereby plunging the economy into more debts and the attending complexities that come with its payment”, he said.