Kenya Airports Authority kicked out Kenya Reinsurance Corporation from a prime land near Jomo Kenyatta International Airport, sparking an audit query.
Auditor General Nancy Gathungu has flagged the events which detail how Kenya Re is staring at a possible loss of Sh1.6 billion worth of investment in properties that are subject of disputes.
Kenya Re owns a parcel near JKIA valued at Sh720 million but was barred from accessing the property.
“Kenya Re management disclosed that it has restricted access to the land as imposed by the KAA mainly due to security reasons,” the auditor said in her review of Kenya Re’s books of accounts as of December 2021.
“The corporation is not realising the full potential of the investment,” Gathungu said.
“My opinion is not modified in respect of these matters.”
The JKIA parcel is among several properties the corporation is unable to utilise owing to the attendant ownership disputes.
Among them is a parcel of land along Ngong Road measuring about 60 hectares (148 acres), which Kenya Re invested Sh350 million.
Gathungu has queried the inordinate delays in resolving the dispute over the property, which is also claimed by the Kenya Forest Service.
The dispute is before the National Land Commission and hence the query remains unresolved until the agency adjudicates and provides its verdict.
“The corporation may not be realising the benefits that accrue from ownership of land and the management may not be in a position to make long-term investments plans unless the matter is resolved,” the auditor said.
Gathungu said it was regrettable the situation has prevailed yet the corporation had obtained confirmation from the director of surveys that the Kenya Re land is distinct from that of the Kenya Forest Service.
Also highlighted is the dispute involving some land of about 100 hectares (247 acres) along Kiambu Road which is valued at Sh563 million.
Kenya Re is in dispute with one of the directors of the vendor of the land and the case is in court, a situation the auditor said has stopped the corporation from earning income from the asset.
“The corporation is, therefore, not realising the full value of funds invested in the property,” Gathungu said.
She further flagged the agency’s risk of losing 17.3 hectares (42 acres) of land located in Shanzu, Mombasa, valued at Sh23 million.
The corporation is in dispute with the Kenya Prisons Service, subjecting the entity to possible loss of the investment.
“As a result, the property is not being utilised to generate income and therefore not realising the full value for money of the funds invested in the property,” Gathungu said.
Also flagged in the Kenya Re audit is the lack of budgetary provision for a tax claim dispute between the corporation and KRA.
The taxman has demanded Sh3.2 billion from the corporation “for an assessment done from the year 2009 to 2012 and for 2013 to 2017”.
The demands relate to the withholding tax on acquisition costs and brokerage fees, with Gathungu saying the corporation could be exposed as it has not set aside funds for settling the claim should KRA win.
“The outcomes of the contingent tax liability remains uncertain, even though the discussion to resolve the contentious matter continues between the corporation and KRA.”
“No provision has been made for this contingent liability,” Gathungu said, adding that there are other key audit matters the corporation needs to address.
The auditor said there were risks to valuation of reinsurance contract liabilities as the corporation uses external actuaries to value such claims.
“The matter was considered significant to our audit because of the sensitivity of valuation of reinsurance contract liabilities to changes in the key assumptions,” Gathungu said.
She said there was a ‘risk that revenue is inappropriately reported to achieve desired financial results.’
“We assessed the opportunity to manipulate revenue creates a heightened risk in the area of recording premium income in the improper period by not observing proper cutoff procedures,” the auditor said.
Other issues were raised on how the corporation values its property and the provision of liabilities arising from tax-related matters.
