Nathaniel
Global Integrity's Kepher Otieno has been busy muckracking in Kenya. Here he details a distressed company's creative bookkeeping that should be all too familiar to readers familiar with Enron, Worldcom and the like. Corruption & fraud: it's not just a Western-nation problem.
Livelihood threatened at troubled Sony
By Kepher Otieno
The Sony Sugar Outgrowers Company (Soc) in Awendo is in trouble.
This follows massive corruption allegations that have plunged the company into financial crisis. It has been put under receivership.
Other than missing machinery, funds running into millions of shillings cannot be accounted for. In some cases, money that should have been paid to the company directly was paid to individuals.
Parts of a grounded tractor at the Outgrowers Company. Picture: Kepher Otieno.
While the firm has been placed under receivership, what is indicated on the books is completely different from what is on the ground.
Loans running into millions of shillings remain unpaid, leaving the company heavily indebted.
In March last year, Soc was put under receivership by the Kenya Sugar Board (KSB) due to the high amounts of debt.
At the time, the company owed KSB Sh423, 280, 000 from a loan it failed to service over the 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, KSB had to place it under receivership. This was part of a solution to salvage the company from collapse after suggestions to auction it failed, owing to its low asset value.
Valuers said the company was too indebted to be auctioned and even KSB would not meet the requirements. Auctioneers are paid as per the Auctioneers Act and to auction Soc would require a 21 days notice. The headache in this case has been sourcing for money to effect the services which include putting up an advertisement in the newspapers.
The last option, therefore, was to place the company under receivership. A receiver manager, Mr Maurice Selebwa, was seconded by the sugar board to help revive it.
But Selebwa is not a happy man. The ghost of corruption at the company keeps haunting him.
For instance, tractors bought through a loan have not been operating. They have been parked at the company grounds. Reviving them has proved difficult.
Some of the tractors have been immobile for the last 20 years yet Selebwa’s task as spelled out by KSB was to revive the stalled machineries.
"I hardly sleep as I ponder over the best remedy to pull Soc from its financial troubles. The Herculean task has been to make the company viable and more responsive to the farmers’ increasing needs," says Selebwa.
A spot check by The Sunday Standard within the company precincts revealed grounded tractors with several parts of the machines rusting in the grass.
These include engines, trailers, tyres, shells of motorbikes and scattered parts of the machines and number plates strewn all over the parking yards.
Some parts of the machines are alleged to have been looted by former workers and senior managers. However, investigations are yet to close in on the chief suspects.
"KSB assumed that the machines only needed to be serviced and put back on road but when I called the company from which they were bought to carry out an evaluation, we found out that only 13 out of 41 tractors could be resuscitated," Selebwa explains.
The logbook that Selebwa received indicates there were 41 tractors yet in actual sense, only 13 could be verified. But even these had suffered mechanical breakdown.
Asked about the other tractors, Selebwa says: "I can only talk about what I received. I cannot tell you where the other tractors are although I have the logbooks."
Greatest challenges
While records indicate that former managers handed over intact tractors, Selebwa says he only found scrap metals and assorted parts of the tractors.
"Records show that the tractors are intact, but what is on the ground is completely different," he explains.
When he took over the company assets, KSB gave Selebwa tough terms of reference. One of the terms was to come up with a good business plan in 60 days, which he did. He then brought in a team of evaluators from the Ministry of Public Works.
The total asset value of every single machinery evaluated totalled Sh8.9 million but the company had spent Sh165, 376, 000 million to purchase the machines over the years.
"This is one of the greatest challenges that I had to settle at this giant institution," he says.
The latest audit was done in 1998. An independent audit report conducted by a team of internationally recognised certified public accountants then established massive corruption had taken place at the company.
Unfortunately, the recommendations by Kassim Lakha Sam Vir Abdulla were not exposed.
The report indicates that June 30, 1998, the balance sheet of the company had an excess of 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 motor vehicles, tractors, motorcycles and trailers with a net book value amounting to Sh20,184,785 million.
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 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 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 KSB 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.
Farmers now want the auditors report to be acted upon before Soc is handed over to them.
Originally published in The Sunday Standard. Republished with permission of the author.
Read more in the Global Integrity Report: Kenya.
Showing posts with label Kenya. Show all posts
Showing posts with label Kenya. Show all posts
Thursday, June 5, 2008
Nuts and Bolts of a Scandal in Kenya
Tuesday, May 13, 2008
Was the APRM process in Kenya a waste of time?
A new paper analyzes the performance of the African Peer Review Mechanism, as experienced in Kenya.
From the NED email newsletter:In a recent position paper on the current political crisis in Kenya, Bronwen Manby, Senior Programme Advisor with AfriMap at the Open Society Institute, discusses what can be learned from both the successes and failures of the African Peer Review Mechanism (APRM) country review report on Kenya presented during the July 2006 African Summit. The author argues that observations made at the time regarding the political climate are just as valid today as they were then. Areas of concern noted by the APRM in 2006 include the role of prominent members of the ruling party and high ranking government officials in fuelling ethnic clashes, corruption regarding land allocation, economic and social inequality, and an implementation gap between policy and action. According to the paper, a major weakness of the APRM report was an inability to formulate a concrete program of action. The author also blames failures of the APRM on a lack of subsequent monitoring mechanisms, sanctions, and, in general, political will.
Was the APRM process in Kenya a waste of time? (PDF)
Monday, May 5, 2008
Kenya: Linking Violence & Corruption
An analysis of recent political violence in Kenya posits that corruption and failures of the democratic process, not ethnicity, are driving the conflict. While few readers here will be shocked by this conclusion, the authors do a fine job of assembling the supporting evidence.
Authors Rachel Itwaru and Sarah J. Johnson:Indeed, though the killing has been mostly between members of different tribes, this tragedy is not simply a story of longstanding ethnic divisions. Instead, the conflict is a product of two political factors: Kenya’s historically corrupt government, and the willingness of some politicians to exploit the anger following the elections by encouraging violence.
Full analysis at the Harvard Political Review.
Global Integrity's take: Global Integrity Report: Kenya.
Thursday, February 28, 2008
Progress in Kenya
IHT: Power-sharing agreement is reached in Kenya
Quoting:
Kenyan political leaders ended a two-month standoff on Thursday that had plunged this country into violence, reaching a long-sought agreement to share power between the government and the opposition.
The country seemed to let out a collective hooray as Mwai Kibaki, the president, and Raila Odinga, the top opposition leader, sat down at a desk in front of the president's office, with a bank of television cameras rolling, and signed an agreement that creates a powerful prime minister position for Odinga and splits cabinet positions between the government and the opposition.
Thursday, January 31, 2008
Wednesday, January 30, 2008
Clean Elections No Guarantee of Strong Democratic Society
New Report Assesses Anti-Corruption Mechanisms and Government Accountability in 55 Countries, Including First Investigation of
(Washington D.C.) – Although elections are often touted as the linchpin of governance reform efforts around the world, a new report finds long-term benefits offered by elections are often undermined by a lack of government accountability and the absence of strong anti-corruption mechanisms. The report, a major investigative study of 55 countries, was released today by Global Integrity, an international nonprofit organization that tracks global governance and corruption trends.
“We have to stop using elections as a simplistic litmus test for a government’s commitment to democracy,” said Global Integrity’s Managing Director Nathaniel Heller. “We now know there is little linkage between elections and the much tougher reforms that must be made, especially in countries at political crossroads such as Pakistan, Ukraine, Georgia, and Kenya.”
The Global Integrity Report: 2007 covers most of the Group of 8 (G8) countries as well as dozens of the world’s emerging markets and developing nations, from Argentina to China to Zambia. Rather than try and measure corruption directly, the report investigates and assesses the government accountability mechanisms and transparency measures needed to prevent corruption and promote good governance.
Many of the findings of the report should be sobering for policy makers and investors alike. The weaknesses found in China’s anti-corruption framework, for example, raise questions as to the true risks facing investors rushing to capitalize on the country’s economic boom– and to the risks Chinese investment funds pose to Western markets. “China’s lack of strong anti-corruption mechanisms could soon be to foreign investment what subprime mortgages have been to the U.S. economy,” stated Heller. “The message from our report to investors should sound a lot like ‘buyer beware’.”
Other major findings of the report include the following:
· The US and other G8 countries suffer from many of the same corruption challenges as developing countries, especially in election and campaign financing. While many observers tend to assume that wealthier countries have developed to a point where corruption is no longer a problem, Global Integrity’s 2007 data for the United States, France, Italy, Japan, and Canada paints a decidedly different picture.
· Despite the conventional wisdom that changes in governance and anti-corruption performance take many years to manifest themselves, several countries exhibited significant improvements or backsliding from 2006 to 2007. The biggest gainers in the past year were Bulgaria, Nepal and Azerbaijan; Nigeria and Georgia were the countries that experienced the greatest declines.
· Poor ratings for several close allies of the United States highlight the challenges the U.S. faces in promoting democratic reforms in countries where it has competing security interests. The report found that countries like Pakistan and Georgia posted ‘weak’ or ‘very weak’ ratings for many of the anti-corruption, accountability and transparency indicators.
· A widespread lack of government accountability among foreign aid recipients presents serious dilemmas for Western and multilateral aid agencies. Despite a growing awareness by aid donors of the need to direct aid to non-governmental stakeholders, like civil society groups, aid agencies continue working primarily with the very same executive branches that are often hindering democratic reforms.
“This report should be a roadmap for change and a wake-up call to policy makers, investors, and aid donors around the globe,” said Global Integrity’s International Director, Marianne Camerer. “It’s also a take-action toolkit for public officials and citizens who want to fight corruption and increase government accountability.”
The report is the product of months of on-the-ground reporting and data gathering by a team of more than 250 in-country journalists and researchers who prepared more than a million words of text and 20,000 data points for their respective countries. Twenty-four countries were repeated from Global Integrity’s 2006 assessments, while 31 were newly assessed.
To access the Global Integrity Report: 2007, please visit http://report.globalintegrity.org. For more information about the organization, visit http://www.globalintegrity.org. Global Integrity is an independent, non-profit organization tracking governance and corruption trends around the world. Global Integrity works with local teams of researchers and journalists to monitor openness and accountability. Its data and reporting are used routinely by aid donors, governments, grassroots advocates, and investors to prioritize governance challenges in countries and develop roadmaps for reform.
Global Integrity is grateful to the Legatum Institute for Global Development ( www.ligd.org) for its continued support of Global Integrity’s work. LIGD is an independent policy, advocacy and advisory organisation within the Legatum group of companies (www.legatum.com). The Institute’s mission is to research and promote those principles that drive the creation of global prosperity and the expansion of human liberty and well-being, including the rule of law, transparency, and accountable government as the pillars of a prosperous and free society. Other supporters of the Global Integrity Report: 2007 were the Australian Agency for International Development, the Wallace Global Fund, and the World Bank.
Tuesday, January 29, 2008
Opposition MP killed in Kenya
Mugabe Were, a freshman parliamentarian, could have been one of the keys to unlocking Kenya’s crisis but on Tuesday he was shot dead in his driveway.
Monday, December 24, 2007
Kenya Elections Headed Towards Confusion?
The relatively solid electoral framework in Kenya could take a hit if elections in its most famous slum generate results never envisioned under the country's Constitution, reports The New York Times.
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