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Audit Report: PAYE of Security Personnel, Abuja Residents Not Remitted to Treasury

The financial statement on the accounts of the federation for the year ended December 31, 2015, has shown that the personal income taxes of Armed Forces personnel, the Nigeria Police Force, Ministry of Foreign Affairs and residents of the Federal Capital Territory (FCT) Abuja, were not captured in the Consolidated Revenue Fund (CRF) for that year.

This was the position of the Annual Report of the Auditor-General of the Federation on the Accounts of the Federation of Nigeria for the year ended December 31, 2015, the second part of which was submitted to the National Assembly by the Auditor-General of the Federation, Mr. Anthony Mkpe Ayine, recently.THISDAY had exclusively reported the submission of the second part, the first having been submitted earlier before Ayine’s appointment early this year.Parts 1 and 2 of the audit report covered 87 ministries, departments and agencies (MDAs) of the federal government, which submitted their accounts for scrutiny.In the report obtained , the auditor-general observed in Note 4 of the financial statements that ‘NIL’ revenue was paid in respect of personal income taxes.“It means that all personal income taxes paid by the personnel of the Armed Forces of the federation, the Nigeria Police Force, the ministry or department of government charged with responsibility for Foreign Affairs, and residents of the FCT Abuja were not remitted to the Consolidated Revenue Fund,” the audit report said.According to the report, “This non-disclosure of personal income taxes received during the year contravenes Section 162 (1) of the Constitution of the Federal Republic of Nigeria, 1999, which 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 from the Personal Income Tax of the personnel of the Armed Forces of the federation, the Nigeria Police Force, the ministry or department of government charged with responsibility for Foreign Affairs, and the residents of FCT Abuja’.”The Federation Account and CRF are two different accounts.

The Federation Account belongs to the entire federation, but is however kept in trust on behalf of the three tiers of government by the federal government.On the other hand, the CFR is the main account of the federal government into which all revenues are paid and is exclusively managed by it.Due to this constitutional breach, the Accountant-General of the Federation was required to explain why the proceeds from the personal income tax of the personnel of the Armed Forces, the Nigeria Police Force, the Ministry of Foreign Affairs and the residents of the FCT was not paid into the CRF Account.The report also pointed to several other infractions, including omissions and discrepancies in closing balances, non-inclusion of vital details and documents, among others, and directed the accountant-general to explain.For instance, the report picked holes in the non-disclosure of federal government foreign reserves and Federation Accounts in the financial statements.It noted that the value of the federal government and Federation Account foreign reserves were not disclosed in the financial statements as part of the assets of the federal government.Also, the omission and discrepancies in closing balances in the Trust and Special Funds were flawed.The audit report revealed that an examination of the records indicated that the closing balances of the Trust Fund Accounts (as listed in the Trial Balance) of N201,589,195,828.25 differed from the figure of N208,573,367,707.90 captured by records provided by the accountant-general, resulting in a difference of N7,351,388,476.22.Such trust funds included National Export Supervision Scheme (NESS) Oil Pool Account, 2% Education Levy, Cement Levy Pool Account, and 65% Wheat Flour Levy.

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According to the audit report, the omission and discrepancies in closing balances resulting in the difference of N7,351,388,476.22 implied that the figures disclosed in the financial statement were doubtful.The accountant-general was therefore required to reconcile the figures in order to arrive at the true position of the figures that should be reported in the financial statement.On the CRF, the report said from available records for audit, the sum of N2,530,677,683,299.78 was computed as Statutory Revenue Allocation for the year 2015, while the budget for the same year was N2,867,539,000,000.00, thereby resulting in a negative variance of N336,861,316,700.22.It also commented on the four per cent cost of collection to the Federal Inland Revenue Service (FIRS), noting that in the financial statement, no figure was given in respect of the four per cent cost of collection for FIRS as well as figures for expenditure in respect of the service personnel and overhead costs, because the financial report of the organisation was not available for consolidation.“Further examination of allocation from 2015 Federation Account and Value Added Tax (VAT) account by Federation Account Allocation Committee (FAAC) revealed that a total of N41,603,967,673.02 and N31,149,117,659.90 were allocated to the FIRS as four per cent cost of collection from Federation Account and Value Added Tax respectively in 2015.“This figure did not include other sources of four per cent cost of collection enjoyed by FIRS, such as four per cent on FCTA and others. This same situation occurred in the 2010, 2011, 2012, 2013 and 2014 financial statements, and no action had been taken to have complete transactions of the federal government agency’s revenue and expenditure.“This action has resulted in the understatement of the financial statement by N72,753,085,332.92. This resulted in the non-completeness of transactions in the financial statements contrary to IPSAS full disclosure requirements,” the audited report noted.

The non-reporting of the receipts and expenditure of FIRS in the financial statements, the report further observed, was very material and therefore called for immediate action by the affected authorities.“Also in the computation of four per cent cost of collection, figures should be holistic to include other sources outside the share from Federation Accounts and VAT,” the report added.The accountant-general was therefore requested to provide explanations on why the funding and corresponding expenditure of the FIRS were not reported in the financial statements.Audit examination of records relating to repayments of external loans also revealed that the deductions by FAAC from 2015 federal government shares of revenue allocations in respect of external debt servicing was N67,705,546,712.47 “whereas, Note 36 reported N74,679,041,429.59 and schedule of total external loans of the FGN reported N74,694,520,000.00 (being total loan repayment of N20,543,160,000.00 (US$104,280,000.00) plus exchange loss difference of N54,151,360,000.00 (US$274,880,000.00)”.Similarly, the report also highlighted the failure of the Office of the Accountant-General of the Federation to provide underlying records covering the sum of N2,978,801,068.64 under the Integrated Payroll and Personnel Information System (IPPIS) Operation Transaction Account.

IPPIS is under the purview of the Office of the Accountant-General.
According to the audit report, the bank statements, cash book, mandates and statement of affairs of IPPIS Operation Transaction Account in the Central Bank of Nigeria (CBN), were not provided for audit, in spite of repeated demands, “except the last page of the bank statement showing the closing balance of N2,978,801,068.64 as at 31st December 2015”.The report further pointed out that the inability of the accountant-general to produce these documents despite official requests vide the letters reference No OAuGF/TAD/VOL.1/166 dated August 16, 2016 and reference No OAuGF/TAD/VOL.1/169 dated August 25, 2016, which had denied audit in forming an opinion about the true position of the operation of the account.According to the report, there was also failure to deduct withholding tax of N378,879,674.99 from Webb Fontaine Ltd.“In the payment for Destination Inspection Services fees of N3,788,796,749.91, examination of the mandates for payments of service fees in respect of five companies on a sample basis revealed that four of the companies had withholding tax deducted at source before payments, with the exception of Webb Fountain Ltd.“The sum of N3,788,796,749.91 was paid to Webb Fountain Ltd vide mandate no. FD/ED/LS/0177/11/6941/DF of 3rd March, 2015, without deduction of withholding tax. This action led to the loss of tax revenue of N378,879,674.99 and possibly more from companies not covered by the sampled test,” the report added.

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The report also observed that there was a non-provision of the federal government’s Signature Bonus Account.
It pointed out that the bank statements, cash book and mandates in respect of the FGN’s Signature Bonus Account for the year 2015 were not provided for audit.Signature Bonus represents fees and charges collected by the Department of Petroleum Resources (DPR) from companies that are prospecting for hydrocarbon resources in Nigeria before a final mining concession is granted to those companies that won the bid round.The fund is for the development of the petroleum industry and the manpower (capacity building) and other requirements of the industry.The main beneficiary of the signature bonus is the Petroleum Development Trust Fund (PTDF) and it is often used to fund the annual budget through transfers to the CFR.Similarly, the report stated that the examined records from the FAAC secretariat revealed that the total revenue inflows to the Federation Account from the various collecting agencies as per CBN component statements amounted to N6,001,031,479,562.62 for the year 2015.It revealed that the analysis of the records revealed that from the total revenue of N2,442,895,781,050.53 payable to the Federation.

Account by the Nigerian National Petroleum Corporation (NNPC), the corporation deducted the sum of N865,448,552,694.78, representing the Joint Venture Cash Call (JVC) before paying the resulting net figure of
N1,577,447,228,355.75 to the Federation Account.“The net figure of N582,932,3,582.84 was paid to the Federation Account from the total amount of N608,083,591,121.01 collected by the Department of Petroleum Resources (DPR) after deducting N25,151,211,538.17 as excess proceeds on royalties.“From the sum of N2,403,882,419,922.32 payable to the Federation Account by the Federal Inland Revenue Service, a sum of N26,150,008,184.05 being excess proceeds from PPT (Petroleum Profit Tax) was deducted to arrive at the net figure of N2,377,732,411,738.27 paid into the Federation Account.“It should be noted that NNPC made deduction of the sum of N865,448,552,694.78 from the revenue collected contrary to the provisions of Section 162(1) of the 1999 Constitution which stipulates that ‘all revenue proceeds should be paid to the Federation Account’.”The report added: “These had been a regular subject of the auditor -general’s previous years’ reports without any positive response, from NNPC management.”

IT therefore recommended that the management of NNPC should henceforth desist from further violation of Section 162 of the Constitution.“In this regard, the management of NNPC is to ensure that all money accruing to Federation is promptly paid to the Federation Account without any deduction in line with above constitutional provision.“The federal government should agree on a percentage to be given to NNPC as cost of collection as it is being done to NCS (7%) and FIRS (4% of non-oil revenue).“The cost of collection and any other deductions being made presently by NNPC should only be administered monthly by FAAC as it is being done to other revenue collecting agencies,” the audit report recommended.It also noted that an examination of the record of collections into the Non-Federation Account by Nigeria Custom Service (NCS) revealed a net difference of N28,139,988,122.85 between amount collected into Special Accounts by the NCS and amount stated in the trial balance.“The implication is that the revenue record of the Accountant General has been understated by the above amount. In his response, the accountant-general maintained that the difference was as a result of the cut-off date between Nigeria Customs Service and CBN; that Revenue and Investment Department of OAGF relied on the balances from CBN’s bank statement.“However, due to the fact that the difference is a reasonable amount, audit is constrained to report on it,” the report stated.The accountant-general was equally required to give reasons for the non-collection of levies into the Police Reward Fund, 10% Cocoa Levy, Service Charge Pool Account, IMPL Committee on FGN Landed Property, Cheque Operational Account, Monetisation (Motor Vehicle) and Privatisation Proceeds Account.

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On the federal government share of trust funds for the period between 2011 and 2015, the report noted that the inflows into the funds had recorded mixed fortunes, even as it questioned the non-investment of the amounts in Ecological, Stabilisation and Development of Natural Resources as required by law.“It has been observed over the years that the amounts in the following funds i.e. Ecological, Stabilization and Development of Natural Resources were never invested.“Audit evidence showed that the funds always have favourable balances at the end of each year. It will be economically beneficial to invest the amounts in these funds and the interest accruing there from would reduce the level of domestic debts that had escalated to trillions of naira.“In the same vein, if these funds were invested, the amounts of federal government bonds floated with the accrued charges and the effect on CRF balances would have also reduced; also, the interest accruing from investing the balances would result in more funds for the three tiers of governments,” the report observed.It also alluded to the non-establishment of an agency to administer the Ecological Fund, saying the audit revealed that amounts totalling N596,137,481,709.94 were deducted from the Federation Account to the Ecological Fund between June 1999 and December 2015.“Meanwhile, contrary to the provisions of Section 5(4) of Revenue Allocation Act which requires that an agency be established to manage the funds, no agency had been established.“Currently, the National Committee on Ecological Problems (NCEP) is the body responsible for handling ecological problems in the country.“This committee is located in the Office of the Secretary to the Government of the Federation (SGF) and its chairman is the honourable Minister of Environment, Housing & Urban Development.“This observation has been a subject of the Auditor General’s report over the years without any positive response,” the audit report said.

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