How top managers brought sugar company to its knees

An audit on Muhoroni Sugar Company has revealed a spate of theft and mismanagement of tax payer’s funds running into billions of shillings.

Malpractices include under-reporting of sales, inflation of tenders, missuse of borrowed funds, loan defaults, and remuneration of sacked employees, among others. 

The report from the Auditor-General’s office confirms that unethical practices continued unabated at the State-owned company even after the appointment of receiver managers, where more than Sh1.7 billion was lost due to under-reporting of sales. 

The company’s financials show variances between systems-generated sales figures and audited accounts worth hundreds of millions of shillings every year. 

For instance, in 2013/14, the difference between the income captured by the sales register and financial accounts is Sh396 million. The variance had hit Sh1.7 billion by the end of June, 2019.

“There was no explanation for the variances,” the auditor notes in the report.

Further, the company’s management borrowed Sh447 million from the Agricultural Finance Authority (AFC) for repairs and refurbishment, but the money was spent on unrelated expenditure. 

The management was also unable to explain how the loan was used and the auditors had to rely on bank transactions to explain the use of funds.

Out of the Sh447 million, only Sh340 million was used to pay suppliers while Sh101 million was withdrawn from the original loan account and  routed to other bank accounts of the company. 

Revenue  utilisation

The company records show that the beneficiaries included Nyando Cooperative and Muhoroni Youth Football, while the miller went on to default on the loan which was to be repaid within 24 months starting from 2016. So far nothing has been paid. 

“There was no evidence that the transferred funds were used for factory maintenance,” the reported notes.

The accounts clearly reveal that the miller’s problems are largely attributable to sheer theft rather than competition and policy environment. 

While the company is not allowed to sell sugar on credit, except for the case of supermarkets, the management sold sugar worth Sh68 million on credit, without records showing these credit sales. A total of Sh34 million was never paid after the credit sales. 

The auditor also reveals that some sale orders were delivered at a price less than the agreed price leading to a loss of Sh1.3 billion.

The audit found that due to over borrowing, the miller suffers serious cash flow problems, and hence struggled to meet its short-term obligations. 

Cumulatively, the auditor-general’s report shows that an estimated Sh77 billion cannot be accounted for in a rampant pilferage of public resources in a country that is hungry for debt and is borrowing from Peter to pay Paul. 

The audit, carried out ahead of the firm’s privatisation, says going by the revelations the government will get a raw deal during negotiations with private investors.