THE DEMISE OF SKYE BANK( FINAL PART)

Suffice to say, that there are many factors that led to the demise of Skye bank, but I want you to know that SkyeBank as a Company WAS NOT LIQUIDATED. The CBN issues a license to a bank to operate.

The CBN revoked the license of Skye bank to operate as a bank. The CBN did not dismantle the bank and nail the bank to the coffin or else that would have been disastrous to our fragile economy because Skye bank has over 260 branches in Nigeria with thousands of workers.

Skye bank also owns subsidiaries banks in West African countries such as Gambia, Guinea, Equatorial Guinea, Liberia, Angola and Sierraleon and imagine the impact of liquidating the bank on these ‘small’ economies.

The spillover effect of the bank liquidation would have a multiplier effect on all banks and financial institutions.

This might lead to panic withdrawals and erodes investor confidence in the banking sector and more importantly will lead to massive unemployment and loss of deposits by customers. CBN was incisive and immediately with AMCON appointed a bridge institution-Polaris to take over the management of Skye bank.

 Having said that, it doesn’t mean that investor confidence in Skye bank has not been dented. Let us look at two reasons for the demise of Skye bank. The first one is low liquidity ration and financial health/unethical practices by the company.

The bank has low liquidity ratios. Calm down! I will explain it to you.

Bank liquidity ratio: Any time you deposit to the bank, the bank collect your money and keep it safe for you. Who owns the money? It is you, but to the bank, that your money is a liability and anytime you come to the bank to withdraw your money, the bank is obligated to hand over your money to you. All the deposits in the bank are liabilities to the bank.

Liquidity ratio is the ratio of a banks liquid assets (cash or assets that can be turned to cash) to its liabilities (Mostly your deposits in the bank). In Nigeria's banks are supposed to have a liquidity ratio of 30%( The bank totals liquid assets is expected to exceed all the liabilities by 30%)

Skye bank liquidity ratio was very bad and it was a worrying sign because customers could want to withdraw their money and the branch WILL NOT BE able to hand over the customer money to him/her. So they resort to borrowing from the CBN to mitigate the embarrassment. The CBN governor said ‘’ The result of our examinations and forensic audit of the bank has, however, have revealed that the Skye bank requires urgent recapitalisation as it can no longer continue to live on borrowed times with indefinite liquidity support from the CBN. The shareholders of the bank have been unable to recapitalize it.’’

The financial health and position of a Company are very important. How much profit is the Company making? How much cash does the Company have? How much debt is outside and who owes them? Does the owner of the Company withdraw money from the company at will? What is the level of drawings of the company investment and assets? Is their growth?

The Fiscal health of the bank was really worse. The Company loss in 2015 of N40.726 billion.was really bad and the downtrend continues unabated.If you are in a business like an ‘ajo’(credit thrift) business and you made a persistent loss in 4/5 years, something is wrong somewhere?

 Interestingly the bank did not deem it fit to institute cost-cutting measures to buck the trend. The bank employee benefits and emoluments increase by 95 per cent in 2015 and the general and administrative expense increased by 17%.  That year, bad loans jumped up by 47 per cent to N27.53 billion from N18.99 billion in 2014. Just imagine that?

 The lifestyles of the directors and key men leave more saliva to swallow.  The then chairman of the bank, Tunde Ayeni was indebted to the bank in excess of N70 billion. He used his position as the chairman of the bank to obtain loans well above the regulatory limits. (You see why I wrote my book ‘PREVENT YOUR EMPLOYEES FROM DEFRAUDING YOU’’)

The massive unethical and fraudulent practices in the bank leave much to be desired.

Blatant, Unethical, Criminal Mismanagement.

In 2017, despite Nigeria’s ailing recession and Skye bank woes and despite the debt and corruption scandals supposed to be hovering over his head, Tunde Ayeni threw a lavish 50th birthday party for his wife Biola Ayeni, filled with many who’s who, lots to drink, lots to eat and lots of lavish gifts..

There are other reasons why the bank license was revoked but the aforementioned issues outlined above shows that the CBN acted drastically to save depositors money but the CBN retain the old management and directors to continue to manage the company under the Polaris brand.

 I am of the view that as CBN has taken over the bank, it ought to have sacked both Board and Management and reconstitute a new Board and Management. The Directors and management of the bank were responsible for the collapse of the financial institution and so The Directors of Skye Bank must be held accountable; their properties should be sold to offset the debts and not the ordinary shareholders that entrusted the companies to them.”

LESSONS TO BE LEARNT

-Do not live beyond your means. Skye bank as an entity tried to grow beyond their means and it backfired.

-Workplace fraud is critical to the management of any company whether big or small. Keep your eagle eye on your company and ensure that you conduct an audit exercise on your financial operations on a regular basis.

-Spread your money. Do not deposit all your savings in one bank. Spread the risk by banking with 2/3 banks.

-Be interested in the financial health of your bank. Don't display don’t care attitude’.It will not help you. Contact me on my FB page(fb.me/baasinat) on how to go about it.

-Shareholders will definitely bear the brunt of the demise of Skye bank. Meet a professional stockbroker before making any decision to invest in shares of any company.

-Do a thorough feasibility/business plan before embarking on any project and ensure that the plan is followed systematically and any deviation must be properly analysed.

-Do not steal from your business. Most entrepreneurs are found wanting on this. They steal from their company. Remember the entity concept. Your Company is a corporate person and you are different from your company... Contact me on my FB page(fb.me/baasinat) on how to go about it.

Thanks for reading.

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Why do we audit

An appointed auditor defines Auditing as an independent examination and expression of opinion on the financial information of an enterprise in pursuance of that appointment and in compliance with any relevant statutory obligation and ethical requirement.

 An auditor is not an officer of the organization. He is an independent person who is appointed by owners of the Company to examine the account and determine whether the account is true and fair(The Financial activities is free of fraud, error, irregularities that can distort the view of stakeholders)

 Auditing is conducted in Nigeria only by qualified chartered accountants who must be members of the Institute of Chartered Accountants of Nigeria (ICAN).

It is statutorily(A must) required that all public companies'(Companies quoted on the Nigeria stock exchange) financial statements are audited at the end of the company's accounting year.

Auditing is borne out of the fact that incorporated limited liability companies are managed by persons separated and different from the owners.

The managers are expected to render their account of stewardship to the owners. An account of how the owner's money was utilized is usually prepared annually and rendered in the performance of the business enterprise to the owners.

The account called financial statement prepared by managers may be deliberately or inadvertently misleading or it may contain errors or fail to disclose fraud or it may fail to disclose relevant information.

Therefore to lend credence to the account, owners appoint an independent person to look through and consider the account technical so as to determine how true and fair they are in relation to the underlying transaction, books and records.

 

The Demise of sky bank(Part 1)

THE DEMISE OF SKYE BANK

Skye bank collapse sends shock waves to all of us especially for those ‘related' with Skye bank. Some of us are customers, shareholders, employees; know someone who works with them.

It's a panic period for customers who are seen in droves trying to withdraw their money from Skyebank. Some life savings and investment savings are shored up with Skye bank. However, if you deposit money with Skyebank, do you need to worry?

The Banking industry is one of the most regulated industries in Nigeria. We will discuss in another piece why you should not press the ‘panic button' yet.

 This is Lagos state bank. That is the bank used by Lagos state.

Let us take a close look at one of the problems that affected Skye bank.

Skye bank acquired Mainstreet Bank(Formerly Afribank) in 2014. Skye bank used short-term funds for the acquisition. Mainstreet banks was a long-term investment and indebted and its executives engaged in sharp practices, no wonder, former Mainstreet bank MD is alleged to have embezzled N1b naira.

Skye bank bided N126 billion to acquire the entire issued and fully paid-up ordinary shares of Mainstreet bank with short-term funds.

Let me break it down for us. You work with a company and earn N50,000 per month. You saw an advert to buy land somewhere for N600,000. You approach your MD for a loan but he approves the loan under a condition you will pay back in 12 months. You know what that means? Your N50,000 salary will be used to pay for the loan every month. If you agree, how will you take care of yourself? How will you feed? How will you meet up with other obligations?

If you take the loan, it is obvious, you need supporting activities that will earn money or help from somewhere to take care of yourself for the next 12 months or else you will break down.

Do you get the point? You cannot invest your short-term funds for a long-term investment that might likely start generating profit in the next three years.

Skye bank put the cart before the horse. They acquired Mainstreet bank with short-term funds and was illiquid(No cash) and started making efforts to raise the fund locally from investors but it proved abortive because its capital base had been decimated by inside credit, which is non-performing.

Having tried to raise the money locally and failed, the bank's management tried to convince a Moroccan bank and a South African bank to invest in it but after due diligence on the bank and its chairman, the Banks pulled out.

 An expert on Merger and acquisitions posited that  IPO(Initial public offerings)  are a good way for a company to raise money in any M&A especially when assuming the debts of the investee company.

The prospect of an upcoming M&A transaction can make investors more excited about the company's future, as it signals an ambition to expand and a long-term strategy. IPOs always attract market buzz, so by timing the IPO with an M&A transaction, companies can maximize investor interest and drive up early share prices.

Lessons:

Instead of acquiring Mainstreet bank with short-term funds, Skye bank should have issued IPO from its shareholders and the public so as to raise N126 Naira to acquire Mainstreet bank. Skyebank.

Apply matching concept that always guides accountants in their dealings. Do not use short-term funds to invest into Long-term funds. They do not match, rather invest short-term fund to short-term investment while you invest long-term funds/savings into long-term investing.

We all use one bank or the other. Always be interested in the financial decision and activity of your bank. Always read news online about your bank, request for the half-year financial statement and read. If you do not understand anything, post it to my blog (yourfreelanceaccountant.blogspot.com or go to my FB page---fb.me/baasinat. I will answer the questions about your bank.

There are other reasons why the bank is now extinct. This is just the beginning. I will unfold the other reasons for you on Friday.

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My link

https://stopbusinessfraudtoday.wordpress.com/

Why did they bolt away?

This sound ridiculous! Why did the greatest army at that time on earth unable to crush tiny Israel in 66ce. 

They bolted from them.

This is one of the most unanswered events in the history of mankind. Imagine the greatest army on earth today- the US unable to crush a nation like Seychelles. That would be the most unheard disaster in the history of the United States. I am very sure that the President at that time will be impeached or be forced to resign. There will be rancor everywhere and other nations especially the rogue countries will turn the United States into a mockery pad.

What led to the most catastrophic events in the history of the Roman army?

The Roman has directly or indirectly asserted their authority on Israel especially in Jerusalem. They ruled the countries by means of proxies who collected taxes from the citizens and remit same to Rome. However, from 63Ce, a chain of events lead to a showdown. 

Ultimately, the combination of financial exploitation through taxes, Rome's contempt and intentional disregards for Judaism, and the unabashed favouritism that the Romans extended to gentiles( which is an abomination) living in Israel brought about the revolt.

A group of people called the Zealots rose up and try to defy the continuous harassment of the Romans. Their modus operandi is to fight with all means so as to attain political and religious liberty. They fought and burn roman soldiers wherever they were found in Israel. Florus in 66ce the last Roman procurator stole vast quantities of silver from the Temple. He desecrated the temple of God in Jerusalem. According to the Jews, the temple is not only the symbol of worship among the Jews but is a sign of God 'stool' with them.

Florus fled Jerusalem and the garrison in Jerusalem was crushed and  other rebellions broke out all over Judea.

 This victory gave the Jews the needed boost to conclude that the war against the Romans was winnable

.Cestius Gallus, the Roman ruler in neighboring Syria, sent in a larger force of soldiers. These forces include war-hardened soldiers. Their aim was to breach the wall of Jerusalem and crush the Zealots. They came with the belief that as Romans that they will crush the insurgents in no time. The stage was set for one of the finest soldiers at that time-Cestus Gallus to rekindle and reassert the dominance of the Roman Empire in Israel. The Roman never knew what awaits me.

The Zealots and their supporters have grown in the belief that the recent victory against the Romans will inspire them to victory. The Zealots supporters were growing in leaps and bounds

Though the  Romans started well as they took large areas of the north of Judaea and Galilee that had revolted without much effort. The Romans spread themselves too thin, The Zealots capitalized on the fact that the Roman was fighting in many fronts however, they ambushed and defeated the mighty Romans at the battle of Ben-Horon.

This was a shocker. A band of ill-equipped though motivated warriors defeated the mighty Romans under the guidance of Rome brilliant general. This was a bitter pill to swallow.

Their pride and honor vanished temporarily with the defeat. This emboldens the Jews to believe that God was with them and they celebrated it for days. Though the Romans came back with full force and crush, destroy and burn down Jerusalem in 70ce but this defeat in 66ce will go down as one of the most unsolved histories of world affairs.

what is Internal Control system?

Auditing is basically examining records, financial activities incurred during a period and ensuring that such record is error free, fraud free and that records are accurate, reliable and efficient. Is your firm a service organization or a manufacturing organization?

Whatever your firm is into, ensure that you install a comprehensive internal control system in your company. The basis and ways of installing a control system will be revealed in this chapter. Don't contract any accountant; you can install it in your company by following my guidelines. Please ensure that in installing this control system, it should be effectively executed/carried out. i.e. even you who is the proprietor should carry out your own part for the requirement of the control system.

You should not be found wanting in discharging your own side of the control system or else your ability to examine, scrutinize and evaluate your financial activities yourself would be defeated. You might ask, what is “a comprehensive control system”?

It's the measures taken by an organization for the purpose of protecting its resources against waste, fraud, and inefficiency, ensuring accuracy and reliability in accounting and operating data, securing compliance with organization policies and evaluating the level of performances in all divisions of the organization. With this definition, you will agree with me that this is a tool for control over the systems in an organization, because a system of accounting and record keeping will not succeed in an organization unless these known controls are built into the system.

The purposes of internal control are: a) To ensure that transactions are executed in accordance with proper general or specific authorization b) To ensure that errors, irregularities are avoided. c) To ensure that access to assets such as cash, motor vehicle, plant & machinery, stocks etc is permitted only in accordance with laid down policy d) To ensure that recorded items are properly analysed.

why conduct an audit yourself(Small scale firms)

WHY CONDUCT AN AUDIT YOURSELF(SMALL SCALE FIRMS):

 Most times there arises conflict as regards what auditors perceive as auditing and what users perceive as auditing. Users of financial statements feel that an audited account shows that the company has a clean bill of health; the company account is devoid of error, that issue concerns a public limited liability company. This book centers on small, medium scale companies. What kind of activity/activities is your company into? Don't worry; you don't need to panic about that. Audit fees is an expense that erodes the profit made in the period, most of the time, firms employ auditors because of errors, irregularities and fraud.

Audit fees are cost charged in the expense profile of a company and I want to let you know that this expense is avoidable because it's not statutorily required to have your account audited, but for accurate record system, auditors are employed but I tell you categorically that you can audit and examine your own financial records and account yourself even without an accounting, or finance background. This firm was your idea.

The firm was financed and is being managed by you. So, in spite of your background, you are in charge. You know the staffs, you understand the technicalities of the business and that is why despite the harsh business environment, your firm is still above waters. So, you are in control. You may have delegated some sensitive aspect of your business to employees who possess the expertise especially the account/finance department. You can examine your records without bias or prejudice against any of your staff.