An audit has revealed that a Sh180 million shipment of consumer goods ordered by Nzoia Sugar has yet to arrive from abroad after eight years, raising questions over the company’s claims that the shipment was on its way.
Auditor General Nancy Gathongo said the state-owned mills based in Bungoma purchased consumer goods in the 2014/15 financial year but continue to report they have been on the road since then.
“The statement of financial position reflects a balance of Sh494.901 million in respect of inventories, which includes a balance of Sh430.076 million in respect of consumables of which Sh179,410.294 million in respect of goods in transit,” it said in a report for the financial year to June 2023.
“Available records indicate that the goods have been on their way abroad for the past eight years. No explanation has been given as to how long the goods have been on their way abroad and whether the goods are still there.”
The missing goods were part of consumables valued at Sh430 million, which the company reported as part of inventories during the financial year.
The audit raises doubts about the existence of the goods, suggesting that Sh179 million may have been withdrawn from the company, under the guise of being used to purchase the goods.
An earlier report showed that undelivered goods by the end of June 2020 were worth Sh216.6 million, and included sugarcane chains and conveyors (Sh6.7 million), pipes (Sh135.9 million), boiler discharge valves (Sh2.3 million) and services such as juice filtration and vacuum (Sh36.9 million).
In 2020, the Auditor General noted that the management of Nzoia Sugar cited port clearances as the reasons why goods worth Sh170 million were not delivered after being purchased in 2014/15, and goods worth Sh34.4 million were in transit.
It is not yet clear how the goods remained under shipment or clearance at the port for eight years.
The Auditor General added in his report on the 2019/2020 fiscal year that “the company did not receive the value of the goods, and the money spent is at risk of being lost.”
The current audit, signed in February this year, indicates that the management of Nzoia Sugar has not provided auditors with an explanation for the goods missing during the audit process as of September last year, after citing customs clearance operations at ports and being under shipment in 2020.
In addition to merchandise, the audit also questioned the mills’ continued idle property, which continues to deprive them of revenue, even as they struggle financially.
Among its long-term assets estimated at Sh9.5 billion, the mills reportedly own a Sh304 million residential property in Kileleshwa, Nairobi, which has been idle for the past 10 years.
“The property attracts annual land prices of Sh112,600 and has a monthly market rental income of Sh75,000. However, as previously reported, the property has not been occupied for the past 10 years, implying a loss in rental income of Sh9,000,000,” the review states.
The Auditor General’s red flag on the dormant housing estate comes just two years after an audit revealed that the mills were not using a Sh290 million sugarcane crushing plant it bought in 1993 to expand its production.
The machines were intended to help expand the factory’s sugarcane processing capacity from 3,000 tonnes per day to 7,000 tonnes. However, after nearly three decades, the machines are gathering dust somewhere in the factory premises in western Kenya, at risk of being rendered obsolete by advancing technology.
In the year ended June 2023, Nzoia Sugar incurred a loss of Sh4.2 billion, taking its total accumulated losses to Sh63 billion.
“This situation indicates a severe financial challenge facing the company, which raises serious doubts about its ability to operate as a going concern,” says Ms. Gathongo.
The audit also indicates that the mills have failed to repay two loans totalling Sh46.3 billion to the Treasury and the Agriculture, Food and Fisheries Authority (AFFA), and owe the Kenya Revenue Authority (KRA) Sh13 billion in unpaid taxes.