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February 22, 2019

Kenya Seed cannot account for Sh10 billion - Auditor General

Farmers queue to wait for seeds at the Kenya Seed Company depot in Eldoret on March 13
Farmers queue to wait for seeds at the Kenya Seed Company depot in Eldoret on March 13

Kenya Seed Company did not sufficiently account for over Sh10 billion appearing in its financial statement for the year that ended June 30, 2016, the Auditor General Edward Ouko says in a report.

The firm is also facing operational challenges that threatens to increase its contingent liability balance of over Sh842 million.

In auditing the firm’s financial statements, Ouko condemned the seed producer for failing to submit key accounting documents, flouting procurement and tax procedures and lack of ethnic balance, contrary to section seven of the National Cohesion and Integration Act 2008.

The company failed to account for more than Sh122.9 million arising from trade export accounts and other receivables, putting to question the validity of Sh7,079,101,000 included in the group statement of financial position under current assets balance.

In addition, the firm could not ascertain motor vehicle net book balance of Sh152,520,000 and that of tractors and forklifts of Sh44,745,000 due to missing log books. The audit report did not trace three vehicles and three tractors.

‘’Under the circumstances, the existence and ownership of these vehicles and tractors with nil net book value as at June 30, 2016 can not be confirmed, putting to doubt Sh3,392,074,000 reflected in the statement of financial position as disclosed,’’ said Ouko.

The report further indicates that Kenya Seed paid Sh15 million for maintenance of System Application and Product (SAP) software without deducting the 5 per cent withholding tax as required by the Income Tax Act. The firm is therefore liable to penalties and interests attributable to non-compliance which it did not provide in its financial statement.

The seed company also failed to account for over 6.8 million paid to two hotels in 2014/2015 which reflected in the financial statement as part of work in progress relating to installation of SAP and Association Management System (AMS) software.

The management did not explain the procurement procedure followed in acquiring the services yet it fall within the threshold of open tender. Further, cash totaling to Sh6,840, 886 was paid on the basis of cash receipts from the hotels and imprest drawn in the name of the hotels and not the name of Kenya Seed Company officers.

The auditor general also questioned the accuracy and completeness of the firm’s cash and cash equivalent balance of Sh139.1 million due to rampant inconsistency. Cheques totalling to Sh58,155,690, for instance, were returned as unpaid but had not been reversed in the cash book.

A review of the firm’s staff leave accrual records revealed that members of staff rarely go on leave yet the statement showed that over Sh14 million was paid for leaves. No supporting document was presented to the auditor.

Perhaps of great concern to the firm’s operations is the chilling revelation that it has no disaster recovery program for its information technology department. The auditor general warned that the company risk increasing its contingent liabilities balance beyond the current Sh842 million in case a disaster strike.

He said that the current hardware support maintainable activities are only focused on corrective actions as opposed to preventive and detective.

The audit review of ethnic composition of the company revealed that 212 out of 433 employees come from one community, representing 47 per cent, up from 41.5 per cent, the previous year. This figure is way above 33.3 per cent threshold as provided in the National Cohesion and Integration Act 2008 that states that no public establishment shall have more than one third of its staff from the same ethnic community.

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