• She says the company is technically insolvent and its continued existence as a going concern is dependent on the financial support from its creditors and the government.
• The auditor says the statement of financial position of the company reflects borrowings balance of Sh42.1 billion as at June 30, 2020.
Nzoia Sugar Company debts have exceeded Sh53.2 billion putting the firm on its deathbed, a report by Auditor General Nancy Gathungu says.
In her 2019-20 audit report on the Bungoma-based sugar firm, Gathungu says the company has assets valued at Sh1.6 billion and with its level of debt, the company has acute financial liabilities that cannot be redeemed.
She said the company’s financial state of affairs is an indicator of its acute financial challenges, which raises significant doubts about its ability to operate as a going concern.
“The company is technically insolvent and its continued existence as a going concern is dependent on the financial support from its creditors and the government,” Gathungu says.
The auditor says the statement of financial position of the company reflects borrowings balance of Sh42.1 billion as at June 30, 2020.
According to the company’s loan movement records, the Sh41.2 billion amount is the balance carried forward over the years from a principal loan amount of Sh12.1 billion. It has attracted interest totalling Sh29.8 billion which is approximately 237.85 per cent of the principal.
Gathungu notes that although it was explained that the loan balance is as per the National Treasury records, no additional supporting records were availed on the details of the terms and conditions of the loans including source, repayment terms, any guarantees provided and recourse rights if any.
“In addition, the accumulation of interest on the loans beyond 100 per cent of the principal amount from the date of default by the company is against Section 44A of the Banking Act,” she says.
Gathungu says the inclusion of such balances in the company records and accumulation of interest on the same not only distorts the financial position of the company but also reflects that the company is technically insolvent.
The Auditor General says the statement of comprehensive income reflects an operating loss of Sh3.5 billion.
She says that as at June 30, 2020, the company had a shareholder funds deficit of Sh45 billion, while the current liabilities stand at Sh53.2 billion.
“This demonstrates that the company is unable to meet its financial obligations as and when they fall due,” Gathungu says.
During the year under review, she says the company had budgeted revenue of Sh5.1 billion against the cost of sales of Sh3.3 billion and operating expenditure of Sh1.3 billion.
This would have resulted in a profit after tax of Sh34.8 million.
However, Gathungu says the actual performance of the company resulted in a loss after tax of Sh3.5 billion or a budget under-performance of 10,106per cent.
The reasons given for this state of affairs include low production volumes due to prolonged maintenance; failure to realise other targeted income and cashflow constraints.
Gathungu says the operating costs exceeded the budget by 64 per cent despite the targeted results of operation being missed by 10,106 per cent of the budget.
“The failure to achieve targeted performance while using more resources than planned puts more strain on the liquidity of the company and threatens its existence as a going concern,” she says.
Edited by A.N