AUDITOR GENERAL’S REPORT REVEALS THAT NEW KCC IS INSOLVENT

The New Kenya Co-operative Creameries (KCC) limited has been fingered by Auditor-General Nancy Gathungu for failing to declare in its financials that it is technically insolvent and that its survival is dependent on the government and creditors.
The revelations of the New KCC’s dire financial situation, are contained in the report of the Auditor-General on the accounts of the state agency for the 2021/22 financial year tabled in parliament.
The audit notes that New KCC’s financial position reflects Sh4.02 billion in current liabilities against the assets balance of Sh3.3 billion, resulting in a negative working capital of Sh711.71 million.
“The company is, therefore, technically insolvent and its ability to continue as a going concern is dependent upon support from the national government and its creditors.
However, this material uncertainty has not been disclosed in the financial statements,” the audit says.
Mr Nixon Sigey was the New KCC Managing Director for 10 years at the time the issues raised by the Auditor-General happened before leaving last year.
This means that the company may be unable to meet its short-term liabilities as and when they fall due including paying suppliers among them the farmers who supplied milk among others.
The revelations by the Auditor-General casts doubts on the financial viability of an agency that the government has pumped in billions of shillings to boost it back to its feet.
The government has been pumping in billions of hard-earned taxpayers’ money in the New KCC to make it efficient and enable it compete with the private dairies
On January 10, 2024, President William Ruto announced that the government is spending north of Sh5 billion to modernize New KCC to enhance its efficiency to meet the needs of farmers.
“From July 1, 2024, farmers will be paid every 15 days. This is how we will eliminate milk hawking, which arises when farmers are not paid for two to three months,” President Ruto spoke when he commissioned the upgraded New KCC facility in Nyahururu town, Laikipia County.
Other than New KCC, a state co-operation being bankrupt, the audit report has also cast doubts about the safety of its 18 parcels of land valued at Sh853.9 million as the ownership documents were not provided for audit verification as required, despite constant reminders.
This even as it emerged that the value of six other parcels of land, two of which are disputed properties in Nairobi and claimed to have been transferred to third parties, were not disclosed in the financial statements. Another 23 disputed parcels of land which had not been valued were registered in the names of third parties.
“The legal status of the properties has not yet been determined,” the audit reveals. The audit also casts doubts on New KCC’s seriousness to recover the parcels of land
“Although the New KCC management explained that it had initiated legal proceedings besides engaging the National Land Commission (NLC) and Ministry of Lands on the matter “with a view to recovering the disputed properties, no tangible change in status of the parcels of land has been attained so far.”
The audit also notes that out of the 32.94 acres of the parcel of land on which the Miritini Milk Processing Factory is located, a five acres parcel of land has been encroached by informal settlers “some of whom have already built residential and other structures.”
“As a result, ownership of the occupied parcels of land by the Ne KCC as well as those registered in the names of third parties is at risk.
The audit also noted that New KCC’s statement of financial position reflects net trade and other receivables balance of Sh1.9 billion, which includes trade receivables balance of Sh1.5 billion.
However, review of the trade receivables analysis and related records, the Auditor-General says, revealed the anomalies.
The anomalies flagged by the audit include balance includes trade customers amounting to Sh954.67 million, receivables from salesmen long outstanding debts of Sh31.14 million, receivables from agents of Sh3076 million and exports receivables of Sh1.5 million, which have been outstanding for 120 days.
The audit further reveals that Sh175.1 million has been for more than a year due from a company which has since ceased operations.
Whereas New KCC has made a provision of bad and doubtful debts of Sh334.51 million, “the basis for the provision was made, was not provided.”