Secrets Reporters
The Federal Airports Authority of Nigeria (FAAN) has been directed to recover and remit N75.42 billion to the Federal Government after an audit uncovered what it described as an underremittance of the agency’s operating surplus.
The amount, precisely N75,422,812,743.29, represents the operating surplus the auditors said FAAN ought to have remitted after its revenue and expenditure were recalculated in line with the provisions of a Federal Government financial circular.
The finding is contained in an audit issue titled “Underremittance of Operating Surplus”, which examined FAAN’s compliance with the computation of operating surplus under Finance Circular FMFBNP/OTHERS/IGR/CFR/12/2021.
The circular, according to the audit report, provides guidelines for government agencies on how their operating surpluses should be calculated and remitted to government.
The auditors said their review focused on whether FAAN complied with the circular, particularly the harmonised template issued by the Fiscal Responsibility Commission for the computation of operating surplus.
The audit identified FAAN’s total or gross revenue during the period under review as N196,787,465,664.
Under the applicable framework, 50 percent of the agency’s total revenue amounted to N98,393,732,832.
However, the auditors’ examination of FAAN’s accounts showed that the agency’s computation of its operating surplus was significantly affected by expenses that the auditors said should not have been treated as allowable deductions when determining the amount payable to the government.
How the N75.4bn was arrived at
The audit schedule showed total expenses of N158,592,804,070, which initially resulted in a negative operating surplus of approximately N60.20 billion.
The auditors, however, adjusted the calculation by adding back the amount identified as extra budgetary expenses.
The figure of N60,199,071,238 was added back to the computation.
The auditors also added back other expenditure items, including N42,412,873,956.22 in depreciation, N199,605,849.86 in subscriptions, and N446,396,924.62 in donations and gifts.
These adjustments substantially changed FAAN’s operating surplus position.
Following the adjustments, the audit schedule arrived at an operating surplus of N103,257,947,968.70.
The auditors then deducted N27,835,135,225.41 as permitted expenses.
That left an operating surplus of N75,422,812,743.29.
It is this amount that FAAN had underremitted and must recover and remit to the Federal Government.
The audit therefore rejected the agency’s treatment of some of the expenses used to reduce its operating surplus, arguing that the applicable financial guidelines did not permit such deductions in the computation.
Auditors fault depreciation, donations and subscriptions
One of the major concerns raised in the audit was FAAN’s treatment of depreciation, donations and subscriptions as expenses in determining its operating surplus.
The auditors specifically identified N42.41 billion in depreciation, N446.40 million in donations and gifts, and N199.61 million in subscriptions as amounts that had been added back to the computation.
According to the audit, allowing such expenditure to reduce the operating surplus would have the effect of lowering the amount of revenue ultimately remitted to government.
The auditors stressed that the financial circular was designed to ensure uniformity in the computation of operating surplus across government agencies and to prevent agencies from using expenses that were not recognised under the applicable rules to reduce their remittances.
The audit stated that the relevant circular demands “strict compliance” with the prescribed guidelines for calculating operating surplus.
It further noted that the Fiscal Responsibility Act and associated financial regulations were intended to ensure that revenue due to the government is properly accounted for and remitted.
N75.4bn represents government revenue, auditors say
The auditors warned that the issue was not merely an accounting difference but had implications for government revenue.
According to the audit, the failure to remit the full amount could reduce the funds available to the Federal Government through the Consolidated Revenue Fund (CFR).
The audit explained that the framework for operating surplus remittance is aimed at ensuring that government agencies do not retain or spend revenue that should ordinarily return to the government’s central revenue pool.
Under the auditors’ calculation, 80 per cent of the N75.42 billion operating surplus amounts to approximately N60.34 billion, while the remaining 20 percent amounts to approximately N15.08 billion.
The audit schedule identified the 80 percent component as the amount payable to the Consolidated Revenue Fund, while the 20 percent component was identified as the General Reserve Fund.
This means that the auditors’ calculation places more than N60 billion of the disputed amount within the portion expected to support the Federal Government’s central revenue account.
Audit warns of revenue leakage and misappropriation
The auditors identified several risks associated with FAAN’s handling of the operating surplus.
Among them was the possibility of difficulty in funding the Federal Government’s budget, particularly where agencies fail to remit revenue due to the government.
The audit also identified non adherence to the Finance Circular and appropriation requirements enacted by the National Assembly as a risk.
Another concern was the possibility of revenue leakage, which could occur when money due to the government is not fully captured and remitted.
The auditors further listed the risk of deliberate acts capable of leading to the misappropriation or diversion of government funds.
The concerns are significant because operating surpluses generated by government agencies constitute part of the revenue available to the government for financing public expenditure.
Any reduction in the amount remitted therefore has a direct bearing on the amount of money available to the government through its consolidated revenue arrangements.
FAAN ordered to recover N75.4bn
Following its findings, the audit made specific recommendations to the management of FAAN.
First, the Managing Director was asked to provide justification for deliberately reducing the amount to be remitted as operating surplus by N75,422,812,743.29.
Second, the auditors directed FAAN to recover the entire N75.42 billion and remit the money to the Treasury.
Third, the agency was instructed to provide evidence of the recovery and remittance for further audit scrutiny.
The fourth recommendation was for FAAN to strengthen its internal control system to prevent similar issues from recurring.
Questions over management of government agency revenues
The audit finding raises broader questions about how government owned agencies calculate and remit revenue generated from their operations.
FAAN is responsible for managing airport infrastructure and related services, making the agency a major public institution with substantial financial transactions.
The audit’s calculation suggests that the manner in which expenses are classified and deducted can have a major impact on the amount ultimately available for government remittance.
In this case, the auditors’ adjustments transformed an initial negative operating position into an operating surplus of more than N103 billion before the deduction of permitted expenses.
After the auditors applied what they considered the appropriate treatment of expenses, they arrived at N75.42 billion as the amount FAAN should have remitted.
The finding therefore places the responsibility on FAAN management to explain the basis for its original computation and to comply with the auditors’ directive to recover the disputed amount.
Until the money is recovered and evidence of remittance is presented for audit verification, the N75.42 billion remains a significant financial issue identified against the agency.
The audit ultimately shows the importance of strict compliance with government financial regulations, particularly in the management and remittance of revenue by publicly funded institutions.
For the auditors, the issue goes beyond a disagreement over accounting treatment. Failure to correctly calculate and remit operating surplus, they warned, could contribute to revenue leakage, weaken government finances and undermine the financial controls established to protect public funds.
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Source: Secretsreporter