Audit reveals KNTC let Sh40.6 million worth of food rot amid poor oversight and overstocking
An audit has revealed that Sh40.6 million worth of food stock, primarily rice and cooking oil, was left to rot in various depots of the Kenya National Trading Corporation (KNTC) due to overstocking, poor packaging and inadequate oversight.
Auditor General Nancy Gathungu, in her report for the year ended June 30, 2024, revealed that the losses resulted from ineffective internal controls and a failure in governance systems at the state agency.
She noted that the foods, which were no longer fit for human consumption, led to an impairment of Sh40,669,684 relating to damaged food stock, which was excluded from the reported inventories balance of Sh2.97 billion.
“The statement of financial position reflects inventories' balance of Sh2,972,829,631 as disclosed in Note 24 to the financial statements. Excluded from this balance is Sh40,669,684 relating to impairment of stocks for damaged inventory,” reads the report.
In damaged state
Gathungu said the stock sheets provided for audit showed food items in various depots were in a damaged state.
"These damages were due to overstocking, poor inventory packaging and handling. In the circumstances, the effectiveness of the controls on inventory management could not be confirmed,” reads the report.
Gathungu added that the Corporation failed to implement systems that would have ensured proper handling and timely distribution of the goods.
Despite obtaining sufficient and appropriate evidence, the audit team also found that the governance processes within KNTC failed to safeguard public assets, exposing the Corporation to unnecessary losses.
The corporation was also flagged for unsupported sales, inaccurate cost reporting, unresolved land ownership disputes, questionable foreign travel expenditure and material uncertainty over its financial viability.
No approved documentation
On sales, the Auditor-General found that the corporation could not provide approved documentation for the prices at which it sold 2.68 million kilograms of rice, 2,712 jerricans of KNTC oil, and 1.03 million jerricans of imported oil. She noted that the statement of profit or loss and other comprehensive income reflected sales of Sh12.2 billion.
“In the circumstances, the accuracy and correctness of the sales amount of Sh12,198,063,661 could not be confirmed,” the Auditor General said.
Similarly, the cost of sales was questioned. While the Corporation reported Sh15.07 billion in cost of sales, auditors who recomputed the figures arrived at Sh7.45 billion, indicating an overstatement of Sh7.62 billion, which consequently understated gross profit by the same amount.
The report further revealed that the Corporation’s fixed assets, valued at Sh3.59 billion, included land worth Sh2.52 billion without ownership documents. The land, according to Gathungu, spans Nairobi, Naivasha, Nanyuki, Nyahururu and Kapsabet. The report also flagged unresolved ownership disputes concerning other parcels in Bungoma and Nakuru counties.
Management had also made a Sh520 million provision for loss in land value on parcels located on Loita Street and in Nakuru.
According to the report, one plot was irregularly surrendered to the Commissioner of Lands, while another had been encroached upon and registered under a third party.
No evidence of approval
However, there was no evidence of approval from the board of directors or the National Treasury, nor updates on the alleged investigations.
“The ownership, valuation and completeness of the land balance of Sh2,518,537,460 could not be confirmed,” reads the report.
KNTC was also flagged for unsupported foreign travel expenses. Out of Sh772.62 million in administration costs, Sh48.7 million was spent on transportation, travel and subsistence. Of this, Sh4.11 million went to foreign travel, including Sh2 million spent on behalf of the State Department for Trade.
However, the report noted that “approvals and justification for the same were not provided for audit,” adding that relevant documentation such as boarding passes and passport copies were missing.
The report further raised serious concerns about KNTC’s financial sustainability. For the year ended June 30, 2024, the Corporation reported a loss of Sh3.85 billion, increasing its negative retained earnings to Sh4.03 billion.
In addition, its current liabilities stood at Sh14.09 billion against Sh10.88 billion in current assets, resulting in a negative working capital of Sh3.2 billion and a liquidity ratio of 7:9.
“This casts significant doubts on the Corporation’s ability to continue as a going concern,” Gathungu warned, noting that KNTC failed to disclose adequate measures in its financial statements to address this situation.
Auditor General Nancy Gathungu, in her report for the year ended June 30, 2024, revealed that the losses resulted from ineffective internal controls and a failure in governance systems at the state agency.
She noted that the foods, which were no longer fit for human consumption, led to an impairment of Sh40,669,684 relating to damaged food stock, which was excluded from the reported inventories balance of Sh2.97 billion.
“The statement of financial position reflects inventories' balance of Sh2,972,829,631 as disclosed in Note 24 to the financial statements. Excluded from this balance is Sh40,669,684 relating to impairment of stocks for damaged inventory,” reads the report.
In damaged state
Gathungu said the stock sheets provided for audit showed food items in various depots were in a damaged state.
"These damages were due to overstocking, poor inventory packaging and handling. In the circumstances, the effectiveness of the controls on inventory management could not be confirmed,” reads the report.
Gathungu added that the Corporation failed to implement systems that would have ensured proper handling and timely distribution of the goods.
Despite obtaining sufficient and appropriate evidence, the audit team also found that the governance processes within KNTC failed to safeguard public assets, exposing the Corporation to unnecessary losses.
The corporation was also flagged for unsupported sales, inaccurate cost reporting, unresolved land ownership disputes, questionable foreign travel expenditure and material uncertainty over its financial viability.
No approved documentation
On sales, the Auditor-General found that the corporation could not provide approved documentation for the prices at which it sold 2.68 million kilograms of rice, 2,712 jerricans of KNTC oil, and 1.03 million jerricans of imported oil. She noted that the statement of profit or loss and other comprehensive income reflected sales of Sh12.2 billion.
“In the circumstances, the accuracy and correctness of the sales amount of Sh12,198,063,661 could not be confirmed,” the Auditor General said.
Similarly, the cost of sales was questioned. While the Corporation reported Sh15.07 billion in cost of sales, auditors who recomputed the figures arrived at Sh7.45 billion, indicating an overstatement of Sh7.62 billion, which consequently understated gross profit by the same amount.
The report further revealed that the Corporation’s fixed assets, valued at Sh3.59 billion, included land worth Sh2.52 billion without ownership documents. The land, according to Gathungu, spans Nairobi, Naivasha, Nanyuki, Nyahururu and Kapsabet. The report also flagged unresolved ownership disputes concerning other parcels in Bungoma and Nakuru counties.
Management had also made a Sh520 million provision for loss in land value on parcels located on Loita Street and in Nakuru.
According to the report, one plot was irregularly surrendered to the Commissioner of Lands, while another had been encroached upon and registered under a third party.
No evidence of approval
However, there was no evidence of approval from the board of directors or the National Treasury, nor updates on the alleged investigations.
“The ownership, valuation and completeness of the land balance of Sh2,518,537,460 could not be confirmed,” reads the report.
KNTC was also flagged for unsupported foreign travel expenses. Out of Sh772.62 million in administration costs, Sh48.7 million was spent on transportation, travel and subsistence. Of this, Sh4.11 million went to foreign travel, including Sh2 million spent on behalf of the State Department for Trade.
However, the report noted that “approvals and justification for the same were not provided for audit,” adding that relevant documentation such as boarding passes and passport copies were missing.
The report further raised serious concerns about KNTC’s financial sustainability. For the year ended June 30, 2024, the Corporation reported a loss of Sh3.85 billion, increasing its negative retained earnings to Sh4.03 billion.
In addition, its current liabilities stood at Sh14.09 billion against Sh10.88 billion in current assets, resulting in a negative working capital of Sh3.2 billion and a liquidity ratio of 7:9.
“This casts significant doubts on the Corporation’s ability to continue as a going concern,” Gathungu warned, noting that KNTC failed to disclose adequate measures in its financial statements to address this situation.
Kenya National Trading Corporation
Auditor General Nancy Gathungu
Auditor General's report
KNTC
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