Preliminary audit report slams Lebanon central bank, governor
Former central bank governor Riad Salameh, who stepped down late last month, is widely viewed as a key culprit in Lebanon’s economic crash
Beirut – A preliminary forensic audit of Lebanon’s central bank by professional services firm Alvarez & Marsal (A&M) has painted a damning picture of the institution under long-serving former governor Riad Salameh.
Since late 2019, Lebanon has been mired in an economic crisis that the World Bank has dubbed one of the worst in modern times, but officials have largely failed to take action to stem the collapse or implement reforms demanded by creditors.
An audit of the central bank has been among the top demands of creditors as Lebanon seeks bailout funds.
The financial position of the central bank (BdL) “deteriorated rapidly” between 2015 and 2020, according to a leaked copy of the preliminary report which was seen by AFP on Friday.
“However, this deterioration was not reported in BdL’s balance sheet presented in its annual financial statements, which were prepared using unconventional accounting policies,” it said.
Those policies allowed the central bank “to overstate assets, equity and profits while understating liabilities — and to close each year-end in amounts specified by the governor without explanation for the amounts chosen,” it said.
Former governor Salameh, who left his post at the end of last month, is widely viewed as a key culprit in the country’s dramatic economic crash.
On Thursday, Britain, Canada and the United States announced sweeping sanctions against the 73-year-old who is wanted for alleged financial crimes in several European countries.
Salameh launched so-called financial engineering measures aimed at increasing central bank reserves, in measures that some have compared to a Ponzi scheme.
The preliminary audit report said the central bank’s “accounting policy in respect of financial engineering was exceptional in the extent of personal, unscrutinised discretion given to the governor to determine accounting estimates”, it said, calling the measures “costly”.
“We consider the authority concentrated and exercised by the governor goes beyond what is reasonably expected in central banks, with insufficient scrutiny over the use of such authority,” it said.
It recommended “immediate action” to “introduce further governance, oversight and scrutiny measures to mitigate any further risk arising from BdL’s misconduct”.
It also recommended “implementing a proper governance mechanism” as well as “strong internal controls across BdL’s risk taking departments”.
A&M had agreed to complete its work in 12 weeks, the preliminary report said, but “the review was in fact completed 49 weeks after mobilisation due to the frequent delays in receipt of data”.
It cited “many challenges in conducting the forensic audit, including that we have not been allowed access on site at BdL, nor have we been permitted to conduct interviews with BdL staff or leadership.”