FAAN Spent N158.59bn against N98.39bn Limit, Audit Demands N60.2bn Refund

Secrets Reporters

The Federal Airports Authority of Nigeria (FAAN) exceeded the expenditure limit prescribed for self funded federal government agencies by N60.2 billion in the 2023 financial year, according to an audit report that flagged the agency for violating a federal finance circular on expenditure control.

The audit, contained in an examination of FAAN’s financial activities, revealed that the agency spent N158.59 billion during the year, despite being permitted to spend no more than N98.39 billion based on its gross revenue for the period.

The auditors consequently directed FAAN to recover and remit N60.19 billion to the Treasury, describing the expenditure as an excess over the amount approved under the applicable financial regulation.

The audit titled “Violation of Finance Circular on Expenditure Limit of Self-Funded Agencies and Parastatals,” which examined FAAN’s compliance with the provisions of Finance Circular FMFBNP/OTHERS/IGR/CFR/12/2021, particularly Items 3 and 4.

According to the audit report, the circular provides spending and revenue control rules for self funded federal government agencies and parastatals organizations that do not receive allocations from the federal budget.

The regulation stipulates that such agencies should limit their annual budgetary expenditure to not more than 50 per cent of their gross revenue.

The remaining portion of their revenue is subject to specified remittance arrangements. The circular provides that 80 percent of the remaining 50 per cent should be paid into a sub recurrent account on a quarterly basis as interim or advance payment of operating surplus, while 20 per cent should go to the general reserve of the agency, in line with the applicable financial provisions.

The auditors said they reviewed FAAN’s compliance with these provisions as part of their examination of the agency’s 2023 financial year.

Their review of FAAN’s management letter for the year showed that the agency recorded N196,787,465,664 in gross revenue.

Based on the 50 percent expenditure ceiling prescribed by the circular, FAAN’s allowable expenditure should therefore have been N98,393,732,832.

However, rather than keeping its expenditure within that limit, the agency spent N158,592,804,070.

The difference between the amount FAAN was permitted to spend and what it actually spent amounted to N60,199,071,238.

The auditors therefore concluded that FAAN had exceeded the approved expenditure threshold by more than N60 billion.

“FAAN spent N158,592,804,070 exceeding the approved,” the audit report stated, adding that FAAN was required to refund N60,199,071,238.

The finding raises questions about the level of financial control exercised over one of Nigeria’s key aviation agencies, particularly given that the expenditure ceiling was established by a federal finance circular specifically designed to regulate spending by self funded government agencies.

How the breach occurred

The financial regulation cited in the audit was intended to prevent self funded agencies from consuming an excessive proportion of the revenues they generate on their own operations.

Under the rule, only half of the gross revenue of a self-funded agency should be available for annual budgetary expenditure.

For FAAN, the 50 percent calculation translated to approximately N98.39 billion from its N196.79 billion gross revenue.

Instead, its actual expenditure reached N158.59 billion, meaning that the agency spent roughly 80.6 per cent of its gross revenue during the financial year significantly above the 50 percent ceiling identified by the auditors.

The excess expenditure, according to the audit computation, represents N60.2 billion that should be recovered and remitted to the Treasury.

The report also stated that at the end of the financial year, the audited financial statements or management account of a self funded agency should be reviewed using the approved template for computing operating surplus.

Following that reconciliation, the remittable portion of the adjusted operating surplus is expected to be determined and paid into the appropriate sub-recurrent account.

The audit further explained that the final payment to be made to the sub recurrent account for the year should represent 80 per cent of the adjusted operating surplus.

The auditors’ concern, therefore, was not simply that FAAN spent a large amount of money, but that its expenditure allegedly went beyond the specific financial ceiling imposed on self funded federal agencies.

Auditors warn of revenue leakage, diversion

Beyond the financial implication of the breach, the auditors identified several risks associated with FAAN’s failure to comply with the expenditure regulation.

Among the risks listed in the report was the potential difficulty in funding the federal government’s budget.

The auditors also warned that non adherence to the finance circular and appropriation related provisions enacted by the National Assembly could undermine government financial controls.

Another risk identified was the possibility of steps towards revenue leakage, while the report further warned of deliberate acts geared towards the misappropriation and diversion of government funds.

The warnings underline the importance of compliance with spending limits in agencies that generate revenue independently of direct federal budgetary allocations.

Where such agencies spend beyond approved limits, less revenue may be available for remittance to government accounts, potentially affecting the government’s ability to deploy those resources for other public purposes.

Audit demands recovery of N60.2bn

To address the breach, the auditors made four key recommendations to FAAN’s management.

First, the managing director was asked to provide justification for the expenditure above the prescribed limit, amounting to N60,199,071,238.

Second, FAAN was directed to recover the excess amount and remit it to the Treasury.

Third, the agency was instructed to provide evidence showing that the money had been recovered and remitted for further audit scrutiny.

The auditors also called on FAAN to strengthen its internal control system to prevent a recurrence of the breach.

The recommendation effectively places the burden on FAAN’s management to explain why the agency exceeded the expenditure ceiling and to account for the N60.2 billion identified as excess spending.

It also means that the audit expects the agency to demonstrate, with documentary evidence, that the amount has been recovered and transferred to the Treasury.

A broader accountability question

The finding comes at a time when government owned agencies are under increasing pressure to demonstrate prudent management of public resources and compliance with financial regulations.

Although FAAN generates revenue from its operations, its status as a federal government agency means that its financial activities remain subject to government regulations governing revenue, expenditure and remittances.

The audit’s calculation presents a straightforward comparison: FAAN generated N196.79 billion in gross revenue, was allowed to spend N98.39 billion under the 50 per cent ceiling, but ultimately spent N158.59 billion.

That left an excess of N60.20 billion over the prescribed expenditure threshold.

The auditors have consequently called for the recovery and remittance of the entire excess to the Treasury, as well as an explanation from FAAN management.

Whether the agency will be able to justify the additional expenditure, recover the amount and provide evidence of remittance will determine the next stage of the audit process.

For now, the report has placed a N60.2 billion question over FAAN’s 2023 expenditure and raised concerns about compliance with financial regulations governing self-funded federal agencies.

The audit’s recommendation is clear: FAAN must account for the expenditure above the approved limit, recover the N60.199 billion identified as excess, remit it to the Treasury and strengthen its internal controls to ensure that future spending remains within the limits set by government financial regulations.