Kenya: Audit - Managers Looted Sh4 Billion From Muhoroni Sugar Company

28 November 2020

Managers brought to resuscitate Muhoroni Sugar Company misappropriated billions of shillings allocated to revive the company and plundered its resources in the two decades it was placed under receivership, leaving the firm in a worse position.

A special audit by the Office of the Auditor General has revealed massive theft of sugar from the factory, irregular procurement and corruption in staffing as well as misuse of funds over the last seven years, with at least Sh4 billion not clearly accounted for.

The report tabled in parliament found Sh1.7 billion in sales were not traceable in the company finances, the expenditure of the Sh447 million borrowed for factory upgrades remained in doubt and Sh1.4 billion worth of sugar was sold irregularly to suspicious distributors most of whom did not exist in the list of those prequalified to buy sugar from the factory. More millions were lost in payroll fraud, and loss of company assets, according to the audit tabled by Auditor-General Nancy Gathungu.

"The Special Audit established that Financial Operations at Muhoroni Sugar Company (MUSCO) for the period under review were characterised by inefficient and ineffective financial, procurement and human resource practices. Consequently, the company's financial health has significantly deteriorated and the existing machinery have worn out due to inefficient and ineffective maintenance coupled with unqualified technical staff," Ms Gathungu wrote in the report.

Sh447 million

The Sh447 million given by the government to repair the factory in 2016 was for example largely misappropriated and has not been repaid years later, gathering more interest beyond the 24 months it was allowed for repayment to the Agriculture and Food Authority (AFA).

The two managers, Asa Okoth and Fredrick Kebenei, who were forcibly evicted by employees in 2018 and returned to AFA where they work to date were found to have irregularly mixed the factory repair funds with other funds of the company in a move that allowed easy misappropriation and removed audit trails on the loan, which left the factory machinery worse than it was according to the audit.

"Whereas improvement was expected after the factory maintenance, the quantity of sugar produced decreased from 29,362 metric tonnes in 2016 to the lowest recorded of 15,876 metric tonnes in May 2018, according to the managers' handover reports," the auditors wrote.

The managers never paid taxes and the bill had hit Sh1.1 billion when they left and a demand notice from KRA together with an agency notice on the banks hung over, which had to suspend operations in May 2018 and only resumed in September when a new set of receiver managers were called in.

Credit sales

The list of distributors who largely benefited from the cheap and sometimes free sugar consisted of staff members, a conflict of interest the auditor also found in the list of farmers. So skewed were the sales in sugar that in some cases, auditors sampled 13,995 bags that were loaded onto trucks and delivered to customers after and the orders later cancelled, essentially wiping them out of the system which also showed that sugar worth more than Sh10 million had been supplied more than what had been ordered.

The distributors who had picked sugar worth Sh68.3 million in credit between 2013 and 2017 had not paid more than Sh34.8 million. The documents showing the credit sales were no longer available, according to the company's acting Sales and Marketing Manager Evaline Ruto.

Three customers, according to the sampled sales, had ordered 16 bags of sugar and got 116 instead with one who ordered just two bags getting 98 bags.

The several years of mismanagement has seen several managers sent packing by workers, the latest being the June 2019.

The seven are factory manager Walter Odum, general manager Nashon Osieko, Rachael Mayaka (human resources) as well as accountant Raphael Muyonga who continued to draw salaries which had hit Sh6.3 million in the first six months they were out of office.

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