Consumable goods worth Sh72 million that were ordered by Nzoia Sugar Company nine years ago are yet to arrive, an audit has revealed.
Auditor General Nancy Gathungu, in the 2023/2024 Financial Year report, revealed that the company’s financial statement indicates that the goods worth Sh72,106,497 have been in transit.
Nzoia's records, as per the audit, indicated that Sh268.13 million related to consumables.
The audit also revealed that the company is insolvent and its operations depend on support from creditors and the government.
Nzoia Sugar’s current liabilities balance of Sh4,336,227,000, as per the report, exceeds the current assets balance of Sh1,288,135,000, an indication that it is unable to meet its financial obligations as and when they fall due.
Further, the Company had accumulated losses totalling Sh4,258,724,000.
“The company is technically insolvent, and its existence as a going concern is dependent on the financial support from its creditors and the government,” read the report in part.
The company’s investment of Sh303.9 million in a residential property situated in Kileleshwa, Nairobi, was also indicated as idle.
The property, according to the Auditor General, has not been occupied for the last 11 years, translating to a loss of rental income totalling Sh9.9 million.
The auditor also raised concerns about the company’s low yields, which are below its standard set by the industry. The company, it was revealed, milled 162,294 tonnes of sugarcane during the year under review to produce 10,406 tonnes of bagged sugar, resulting in a yield of 6.4 per cent of the produced sugar, which is below the 10 per cent yield as per Regulation 21(a) of the Crop Sugar Regulations, 2020.
A review of the company's staff complement for the month of June 2024 showed that five of the 13 board members of the company, 10 of the 14 top management, and 514 of the 554 permanent employees were members of the dominant ethnic community.
This contravened Section 7 of the National Cohesion and Integration Act, 2008, which provides that all public establishments shall seek to represent the diversity of the people of Kenya in the employment of staff and ensure that not more than one-third of its staff are from the same dominant ethnic community.
The company also failed to remit statutory deductions, including the National Social Security Fund, the National Hospital Insurance Fund, pension, and Pay as You Earn (PAYE), amounting to Sh998,001,002.
Further, the auditor faulted the company for incurring millions on what should have been avoided.
Gathungu stated that had the company followed due process in the termination of the employment contract of a former managing director, the amount spent on legal fees and compensation would have been avoided.
The company, as per the audit, spent Sh13.3 million on legal and professional fees, amounting to Sh13,311,000. This included Sh7,601,400 paid to a former managing director who was appointed in the year 2016 for a period of 3 years.
However, the managing director was suspended due to allegations of corruption and paid half salary, entitled to the position of finance manager.
The court decree of January 9, 2024, stated that the payment of salary was unfair and ordered the company to pay the former employee a terminal due totalling Sh7,601,400 as the cost of the suit and interest.
“In the circumstances, the Board's failure to follow due process of termination of employment contract led the Company to incur avoidable costs awarded to the plaintiff by the Court,” stated the Auditor General.
The company was also faulted for failing to comply with the executive order on procurement.
The company, it was revealed, procured goods and services outside e-procurement since bid documents were issued and delivered manually, contrary to the Presidential Executive Order on Procurement of Public Goods and Services, which requires that all public procurement be undertaken through the electronic platform of the Integrated Financial Management Information System (IFMIS).
