State agency orders audit of sugar outgrowers

Farmers cue to sell their sugarcane at Ekerorano market in kisii county, August 7th ,2016. The produce which is grown locally is produced in surplus and sold to middlemen who transport it to major towns.a bundle of 10 sugar canes is sold at ksh 80.traders buy only mature and brown sugar canes from the farmers.the remaining is sold locally .[photos sammy omingo/stanadard]

The Government has ordered a forensic audit of sugar outgrowers companies in Western and Nyanza to establish what led to their collapse.

The sugar outgrowers companies sunk with Sh400 million, which the Sugar Directorate gave them.

Yesterday, Sugar Directorate boss Andrew Osodo said the forensic audit would also find out the whereabouts of several missing machinery.

Preliminary investigations have revealed that in some farmers outgrowers institutions, money that should have been paid to the company directly was paid to individuals against the statutory law.

According to the industry regulator, the outgrowers companies were placed under receivership after they failed to show proof of prudent financial management.

 

 UNSERVICED LOANS

The companies under receivership are South Nyanza Outgrowers Company (Soc), Nzoia Sugar Outgrowers Company (Noco), Muhoroni Sugarcane Outgrowers Company (Moco), among others.

The institutions were found to have secured loans running into millions of shillings which to date remain unpaid.

In March 2008, Soc, for instance, was put under receivership by the defunct Kenya Sugar Board (KSB) due to its high debt.

At the time, the company had a Sh423,280,000 debt from a loan it failed to service for years.

The principal loan of Sh359,411,204 had been used to buy tractors. However, things went out of control when the company failed to service the loan accruing to an interest of Sh46,821,000.

With Soc unable to honour repayments,  the then KSB had to place it under receivership. Similar fete faced Noco and Moco, which the directorate says would pursue the culprits.

“After carrying out the forensic audits, we are going to ask the culprits to account for the monies lost or face disciplinary action,” Osodo told The Standard in an interview.

A spot check by The Standard within some of the companies precincts revealed grounded tractors with several parts of the machines rusting in the grass.

The last audit in outgrowers institutions was done in 1998. An independent audit report conducted by a team of internationally recognised certified public accountants unearthed massive corruption at the companies.

In Soc, the recommendations by Kassim Lakha Sam Vir Abdulla were not made public.

The report found the balance sheet of the company had excess current liabilities over current assets amounting to Sh114,708,730 million with an accumulated loss of Sh36,095,730 million, making the company insolvent.

The auditors were unable to verify inventory of motor vehicles, tractors, motorcycles and trailers with a net book value amounting to Sh20,184,785 million.

 

 FRAUD CLAIM

Five tractors and three trailers with a net book value of Sh10,764,732 were registered in the name of a third party, the auditors found out.

The auditors were also unable to verify the absence of a register containing details of trailers with a net book value of Sh25,470,264 million yet their logbooks existed.

Also unclear was the company’s other inventories and cash at hand, amounting to Sh6,256, 937 and Sh116,256,607 million respectively.

Authenticity of transactions of payment of Sh2,625,444 on discount given by Farm Engineering Industries was capitalised.

Donation of Sh3 million by the Swedish Government for feasibility study carried by Agro Systems Limited was not reflected in any of the released financial statements of the company.

Payments of transport sub-contractors amounting to Sh2,989,367 could not be traced. Also missing was the listing of loans given to farmers amounting to Sh74,165,968 million.

Further investigations revealed that individual loan accounts were not maintained in the ledger book.

Auditors also reported a fraud by company workers amounting to about Sh10,460,000 million while the then KSB (now Sugar Directorate) loan was not reconciled with ledger account.

A difference of Sh3,575,514 was detected in the flawed transaction as per the audit report. Some cheques payable to the company were paid to individuals.

Osodo said they plan to give a comprehensive state of the companies upon completion of the audit.