Sometime last year, President Uhuru Kenyatta announced the transfer of the Kenya Meat Commission (KMC) from the Agriculture Ministry to the Defence Ministry in a move that caught many by surprise.
Uhuru said the transfer of the parastatal was on the back of mismanagement that had ground it to a halt, costing taxpayers millions of shillings in past turnaround attempts.
“Past administrations have made efforts to jump-start the Kenya Meat Commission, but unfortunately, for very known reasons which I do not wish to get into here, these attempts never succeeded, and a lot of public funds went astray,” said the President.
“As a key stakeholder and also a consumer of KMC products, the stewardship provided by the Ministry of Defence will provide the commission with enormous scale, predictable product demand, better focus on efficiency and diversification of its product lines,” he said. Over the last year, the military has assumed full control of KMC factories and sales outlets country-wide. Recent changes, including the introduction of digital payments at its outlets, have reportedly seen daily sales rise to Sh1 million, with the commission eying the export market.
But a new report by the Office of the Auditor General released last month paints a picture of the dire situation at meat processor, where legacy debt, mismanagement, embezzlement and irregular sale of its lucrative real estate holdings may have pushed the government to place it under new management.
Among the key issues are a massive Sh681 million in pending bills owed to farmers, statutory bodies and other suppliers. However, the latest financial report indicates the commission’s current liabilities stood at Sh514 million as of June 30 last year, resulting in an unexplained variance of Sh166 million.
According to Auditor General Nancy Gathugu, the government’s allocation of Sh256 million to KMC for the settlement of pending bills in the second Supplementary Budget was received and paid out in the year under review.
However, this is not reflected as grants in the statement of comprehensive income or as deferred income in KMC’s books alongside key sales data.
According to the report, KMC made Sh126.6 million in sales for the year ended 30th June 2020, a 32 per cent drop from the Sh188 million recorded the previous year. “Although the sales amount included both meat and other by-products like hides and skins, no documentary evidence was provided to support the sales amount,” said Auditor General Nancy Gathungu in her report.
“Further, no reason was provided for the continued reduced sales for the fourth consecutive year.”
The report further queries the funds KMC received from the government in the last financial year as the transition between the two ministries took place.
KMC reportedly received Sh97 million from Treasury and another Sh190 million from the State Department of Livestock in the 2019/20 financial year.
The funds, which were meant for drought mitigation and factory modernisation, were not reported in the parastatal’s financial statements.
“Under the circumstances, the accuracy and completeness of grants from National Government for the year ended June 30, 2020 could not be confirmed,” said Ms Gathungu.
According to the Auditor General, the significance of the issues raised by her audit led her to give a “disclaimer of opinion,” further stating that her office was unable to obtain enough evidence.
A disclaimer of opinion is a statement made by an auditor that no opinion is being given regarding the financial statements of a client. This disclaimer may be as a result of the auditor not being allowed to complete all planned audit procedures.
As of June 30, last year, KMC reported a balance of Sh50 million under inventories, including Sh3.3 million of meat and meat products, Sh36.7 million under engineering, and Sh9.9 million in stationery and general stores. Inventories of KMC’s by-products like hides and skins were however omitted for unexplained reasons. In addition to this, the parastatal was found to hold Sh797,492 worth of expired stock in its stores.
Other issues raised include dormant accounts that are yet to be closed despite a 2019 board resolution as well as different values of cash flow on the parastatal’s financial statements. “The statement of cash flows reflects cash and cash equivalents at the beginning of the year of Sh306 million, while the statement of financial position reflects a balance of Sh176 million,” explained the Auditor General.
“Further, the statement of cash flows reflects cash and cash equivalents at the end of the year of Sh456 million, which differs with the balance of Sh161 million reflected in the statement of financial position,” she said.
According to the Auditor General, these differences were not explained or reconciled and thus the accuracy of the Sh161 million in cash and bank balances as of June 30, 2020 could not be confirmed.
KMC also owes the Kenya Revenue Authority (KRA) Sh173 million in outstanding tax remittances, and according to the report, has never made a provision to pay back a Sh334 million loan given by Treasury in 2009 at an interest rate of 2 per cent.
“The principal amount was to be repaid in twenty semi-annual consecutive instalments commencing June 30, 2010,” explained Gathungu.
The audit also found the parastatal had no approved ICT strategic plan and had only two employees in its IT department. KMC’s branch network is also not fully integrated into the ICT network.
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