REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE ACCOUNTS OF KENYA NATIONAL TRADING CORPORATION FOR THE YEAR

ENDED 30TH JUNE 1997.

1. FINANCIAL POSITION

During the year 1996/97 the Corporation incurred a loss of Kshs. 153,535,660 before crediting an extra ordinary item of Kshs. 305,458,260, which brought the Corporation's cumulative deficits to Kshs. 747,300,560 as at 30 June 1997. The Balance Sheet as at 30 June 1997 also reflects negative working capital of Kshs. 97,993,280 contributed to mainly by creditors totalling Kshs 377,791,460 and a bank overdraft, which had increased to Kshs. 39,284,200 from Kshs. 1,844,720 as at 30 June 1996 and which had attracted interest amounting to Kshs. 67,674~180 during the year 1996/97. Quite clearly therefore, the Corporation is technically insolvent and its continued operation as a going concern will depend on the support of its creditors and bankers.

The Committee heard the evidence given by the Chief Executive that during the Financial Year 1996/97 the Corporation ~ncurred a loss of Kshs. 153,535,660 and that as at the same period operated on a negative working capital of Kshs. 97,993,280.

The Committee was informed that: -

(i) the insolvency and the negative working capital were principally caused by the Corporation's indebtedness to the Commissioner of Customs and Excise Duty and Kenya Commercial Bank who were owed Kshs. 257 million and Kshs. 94 million respectively;

(ii) the obligation to the Commissioner of Customs and Excise Duty .and to that of the Government were extinguished by settling them orr against what the' government owed the' Corporation and that as a result the Corporation was refunded Kshs 148.5 million and that;

(iii) the Corporation has taken several steps including closure of 10 loss-making depots, starr rationalization exercise and renting out its properties leading to a marked improvement in the overall trading performance and reduction of net loss to Kshs 63 million in 2002.

The Committee noted that a Cabinet Memorandum, which hal been presented to the Cabinet, approved the winding up of th~ Corporation, as it is no longer sustainable.

The Committee recommends that in view of the fact that th. Corporation is commercially unviable and technically insolvent the Corporation be wound up.

2. UNDERSTATEMENT OF DEBTORS

2.1 The Balance Sheet Debtors figure of Kshs. 270,334,32(J

as at June, 1997 excludes a debt of Kshs. 250,456,000 due from the Ministry of Finance in respect of sugar importation loss which the parent Ministry and the Ministry of Finance undertook to compensate the Corporation for. It has not, however, been explained why the debt was excluded from the debtors account for the year 1996/97 particularly when the same had not been collected.

In addition, the Balance Sheet debtors figure includes debts totalling Kshs. 180,127,578 in respect of goods which were either not supplied or were stolen while in transit made up of the following: -

Insurance Claims - Loss of stock

Loss of stock through misappropriation

Loss of cement and hardware at various depots Coffee losses at Coffee Board of Kenya

Kehe.

863,590 12,425,604 35,445,707 31,392,677

Total Losses

180,127,578

The Corporation has not availed any information to show action taken to recover the above losses from those involved.

2.2 The Debtors figure further includes other trade debtors

totalling Kshs. 15,511,858 comprising mainly of bounced cheques and prepaid expenses of Kshs. 10,302,377 and Kshs. 5,041,028 respectively. Action taken to recover these amounts from the individuals involved has also not been indicated.

2.3 The Debtors also include an amount of Kshs. 243,322

outstanding against an employee who is no longer in the service of the Corporation. The corporation has, however, not given any indication as to how it intends to recover the amount from the ex-staff member.

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The Committee heard the evidence given by the Chief Executive and was informed that: -

(i) the debt of Kshs. 250,456,000 due from the Ministry of Finance was in respect of Iosses suffered by the Corporation on sugar importation, a sum which the parent Ministry and the Ministry of Finance undertook to compensate the Corporation and that the Corporation could not incorporate the same in its accounts for the year under review as it was still reconciling the figures with the two debtors, and therefore the item was treated as a contingent gain.

(ii) having reconciled the figures and the indebtedness of the two Ministries, the Corporation was paid a sum of Kshs. 148,500,000 which has since been reflected in the books of accounts for the year 2001/2002 thereby resolving the issue;

(iii) out of the losses of Kshs. 863,590 in respect of insurance claim, an amount of Kshs. 413,674.60 has been paid leaving a balance of Kshs 449,915.40 which has since been provided for as bad debt and is being considered for write-off;

(iv) stock losses worth Kshs. 12,425,604 has been provided for as bad debts while an amount of Kshs. 94,249,110.65 in respect of losses of cement and hardware has been recovered leaving a balance of Kshs. 41,196,528.45 which is being pursued. One of the debtors, MIs. Rapsel Ltd, whose directors were Mr. Joseph Manga Mugwe and Mr. Pascal Kiragu Mugwe failed to supply fertilizer worth Kshs. 7 million;

(v) out of the amount of Kshs. 31,392,677 being coffee losses at the Coffee Board of Kenya, an amount of Kshs. 22,442,393.65 was recovered leaving an outstanding balance of Kshs. 9,937,717.93 from MIs. Rejitek Coffee Co. Ltd (Kshs. 583,390.10), MIs. Davco Enterprises (Kshs. 3,934,216.17) and MIs. Less-Gestions Hilarae, Canada (Kshs. 4,432,677.08);

(vi) the amount of Kshs. 243,322 included in the debtors account was in respect of a car loan to an ex-staff Mr. Eric Kipkoech Bett for which an amount of Kshs.

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18,871.50 had been recovered leaving a balance of Ksh •. 224,450.50

The Committee observed with concern that one of the debtors, M/s. Rapsel Ltd whose directors are Mr. Joseph. Manga Mugwe and Mr. Pascal Kiragu Mupe have not been taken to Court by the Attorney General for obtaining money by false pretence contrary to section 313 of the Penal code due to their failure to supply fertilizer worth Kshs. 7 million to the Corporation even though the Criminal Investigations Department had re-instituted investigations.

The Committee expressed grave ccncern that the Attorney General failed without reasonable course to file an appeal in the case in respect of theft of stock worth Kshs. 500 million by the former Chief Executive, Mr. David K. Tirop.

On a similar matter, the Committee noted that pursuant to its recommendation in its 8th and 9th Reports (that, the Attorney General institute full investigations into the activities of the then Managing Director, Mr. D.K Tirop' and the then Chairman of the Board of Directors Mr. Kuria Kanyingi with a view to instituting civil and criminal proceedings against them if there was a prima facie evidence of fraud), the Attorney General had carried out investigations and found no evidence to link Mr. Kanyingi with the losses.

Further, the Director of Criminal Investigations .Department vide his letter Ref. CID/IB/SEC/4/4/1/VOL.X/C 171 of 14th June 2005 informed the Committee that upon investigations, 'Mr. Kanyingi was not found with anything criminal'.

Accordingly, the Committee recommends that in view of the latest development, the matter in question touching on Hon. Kuria Kanyingi and as deliberated in its 8th & 9th Reports, rests and be treated as closed.

The Committee further recommends that: -

(i) the Attorney-General should, without further delay, prefer criminal charges against the Directors of M/ s, Rapsel Ltd, Messrs. Jos.eph Manga Mupe and Mr. Pascal Kiragu Mupe for obtaining money by false pretence ill" respect of non-deliverance of fertilizers worth Kshs. 7 million;

(il) the outstandiq amount from the following companies in respect of cofree transferred to them be recovered forthwith:-

MIs. Rejitek Coffee Co. Ltd Kshs. 583,390.10

MIs. Davco Enterprises Kshs.3,934,216.70

MIs. Less-Gestions Hilarae, Canada Kshs.4,432,677.08

(ili) the Corporation should find ways of recovering the Kshs. 500 million being losses of stock occasioned by Mr. David K. Tirop, without further delay.

(iv) the amount of Kshs. 224,450.50 in respect of a car loan be recovered from Mr. Eric Kipkoech Bett.

3. STOCK LOSSES

The Stock figure of Kshs. 62,348,600 shown on the balance Sheet as at 30 June 1997 excludes stocks of coffee valued at Kshs. 14,357,82 which have been treated as obsolete stocks and a provision for obsolescence made in the Accounts. Although it has again been explained that the coffee was stolen while stored by the Coffee Board of Kenya on behalf of the Corporation, correspondence between the Corporation and the Coffee Board of Kenya setting out the terms under which the coffee was stored was not seen nor has any indication been given as to why the Coffee Board of Kenya cannot be held responsible for the loss, if the Board's custody of the coffee 'at the time of the loss was under a properly executed agreement.

The Committee heard the evidence given by the Chief Executive that stocks of coffee worth Kshs. 13,807,746.60 out of stock losses of Kshs. 14,357,802 were released from the Coffee Board warehouse to the following customers and the requisite warrants executed:

Customer Amount in Kshs.
MIs. Davco Enterprises 7,973,212.40
MIs. Cargi! E.A Ltd 928,022.90
MIs. Rejitek Coffee Co. Ltd 583,290.10
MIs. Murayama Trading Co. Ltd 835,099.75
TOTAL 13,807,746.65 The Committee 'Was informed that the transfers were irregular and that the then Coffee Manager Mr. Reuben Sarun O~e Nakuo who oversaw the transaction has been apprehended and. charged before the Anti-Corruption Court for abuse of office.

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IDe \,;ommlttee was further informed that the fraudulent transactions were effected through companies associated with Mr. Ole Nakuo and his wife, Mrs. Mary Nasieku.

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The Committee observed with concern that although Mr. Ole Nakuo had been charged with abuse of office contrary to Section 101(1) of the Penal Code, there is enough evidence to sustain a charge against him and his wife for theft.

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The Committee recommends that the Director of the Kenya s

Anti-Corruption Commission prefers charges of theft against Mr. s

Reuben Sarun Ole Nakuo and his wife Mrs. Mary Nasieku for c:

theft of coffee worth Kshs. 13,807,746.65. (

4. STAFF PENSION SCHEME

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For a number of years, the Corporation has been running a Staff Pension Fund Scheme which was initially managed by Kenya National Assurance Company (now in liquidation) and which as at 30 June 1997 stood at Kshs. 34,172,137. After the Kenya National Assurance was placed under receivership, the Corporation transferred the management of the pension fund to another Insurance company which now manages the Staff Pension Scheme. The liquidators of Kenya National Assurance Company have, however, neither transferred the balance of Kshs. 34,172,137 held by them to the new managers of the Scheme nor has any indication been provided as to the fate of that amount. Further, the Corporation did not charge or even include in its Accounts for 1996/97 pension contributions due to pensioners but not remitted to the Insurance Company. Consequently, it was not possible to confirm that the pensioners' funds are secure and will be available as and when the employees retire.

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The Committee heard the evidence given by the Chief Executive that at the time the Kenya National Assurance was placed under receivership, the Staff Pension Fund stood at Kshs. 39,355,436.70, and that the Kenya National Assurance Company 2001 has since paid Kshs. 26,236,957.00 leaving a balance of Kshs. 13,118,478.90.

The Committee recommends that the Chief Executive should ensure that the balance of Kshs. 13,118,478.90 is recovered from Kenya National Assurance Company 2001 and directed to the pensioners Fund.

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5. FIXED ASSETS

As was the case in the previous year the Corporation's fixed assets of Kshs. 556,433,980 as at 30 June, 1997 include land at Loita Street LR No. 209/10343, valued at Kshs. 30,462,540 which was surrendered to the Commissioner of Lands without the approval of the Board. Although it has been indicated that the plot was surrendered back to the Commissioner of Lands because the Corporation was unable to develop it, available information, however, shows that the plot was passed on to a private flrm, which in turn sold it to a financial institution. As far as it has been possible to ascertain the Corporation has to date not been able to obtain compensation in the amount of the plots valuation of Kshs. 30,462,540 from the Commissioner of Lands. There is also no information to support any likely recovery of the amount. Consequently the plot's value of Kshs. 30,462,540 included in these Accounts under Fixed Assets may not be realizable. In addition, the Corporation has not obtained title deed for its land at Iten Plot number 109437/5 and has not renewed the lease for its land at Karatina. In the circumstances, the ownership and security of the Corporation's land cannot be confirmed.

The Committee heard the evidence given by the Chief Executive that land L.R No. 209/10343 (Loita Street) valued at Kshs. 30,462,540 was surrendered back to the Commissioner of Lands by the then Chief Executive, Mr. Paul K. Arap Magut allegedly due to the failure by the Corporation to develop it within the stipulated time.

The Committee further heard that: -

(i) the land, which was surrendered without the approval of the Board, was later allocated to M/s. Rapsel Ltd whose directors include Mr. Pascal Kiragu Mugwe and Joseph Manga Magwe;

(ii) a then member of the Board Mr. Joseph Manga Mugwe used his influence to have the plot transferred to him ar..d which he later sold to Savings and Loan (Kenya) Ltd for Kshs. 110 million;

(iii) by the time the Commissioner of Lands irregularly withdrew the offer of allocation made in 1985 vide letter ref. No. 111101/29 of 25th April 1985, the land was valued at Kshs. 30,462,540, which

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included the value of the plot, coat of developing the parking and consultancy fees;

(iv) no authority was obtained from the Board, the parent Ministry, nor the Treasury for disposal of the property;

(v) following the Committee's recommendation that criminal charges be preferred against the persons involved in the fraudulent transfer of the property, the suspects recorded statements with the Criminal Investigations Department and that before they were taken to court, the Attorney General called for the file and has not returned it.

The Committee noted that the police are of the firm view that there is sufficient evidence to sustain a prosecution case against the suspects namely Joseph Manga Mugwe, Philip Kiplelei Magut, Grace Munyina Adera, Wilson Gachanja and Pascal Kiragu Mugwe over the irregular transfer of the plot.

The Committee was informed that the Corporation is pursuing the matter and that a legal suit had been instituted against the Commissioner of Lands, Mr. P.K Magut, and MIs. Raspel Ltd vide Civil Suit No. HCCC. 153 of 1999, with a view to repossessing the plot.

The Committee was informed that the Corporation had obtained title deed for plot No. Karatina/Block/l/71, and that it had paid all the outstanding rates in respect of Iten Town plot and has applied for a title.

The Committee observed that the surrender of the land plot L.R No. 209/10343 by the then Managing Director and the then Company Secretary who jointly signed the Deed of Renunciation was irregular and unlawful as it was never approved by the Board.

The Committee further observed that the Attorney General would appear to be hampering the efforts of the corporation on the matter by constant withdrawal and retention of the ("lie and yet there is sufficient evidence to prosecute the five suspects.

The Committee therefore recommends that the Chief Executive should follow up the court case in respect of LR No. 209/10343 to its finalization.

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The Committee further recommenda that: -

(i) the Chief Executive should liaise with the Attorney General with a view to preferring criminal charges against Mr. Joseph Manga Mugwe, Wilson Gachanja (former Commissioner of Lands), Pascal Kiragu Mugwe, Mr .. Paul Kiplelei Magut, the then Managing Director and Mrs. Grace Adera, the then Company Secretary for surrendering and transferring plot no. 209/10343 without the Boards' approval in clear violation of the provisions of Section 13 of the State Corporation Act (Cap 446);

(il) the Commissioner of Lands . should liaise with the Attorney General with a view to moving the High Court for orders of cancellation of title deed L.R No. 209/10343 fraudulently' issued to Savings and Loan Kenya Ltd and have it allocated to Kenya National Trading Company Ltd or its successor(s); and

(iil) the Chief Executive should pursue issuance of title deed for its plot in Iten.

6. LONG TERM INVESTMENTS

Between 13 May 1995 and 11 March 1998, the Corporation sold a total of 7,375,400 Uchumi Supermarket shares for a total of Kshs. 320,735,150 while leaving a balance of Kshs. 154,130 shares still held in Uchumi Super Market. Out of the total sale proceeds of Kshs. 320,735,150 the Corporation paid an amount of Kshs. 10,511,628 to the two (2) stockbrokers who handled the sale. The payment also included Kshs. 5,125,650 paid to one of the stock brokers (who handled sale of 475,000 shares) in form of sales commission, Kshs. 576,422, purchases' commission Kshs. 576,422 and consultancy fees of Kshs. 3,972,806. While it is not clear why the Stock-broker was paid both the Sales and Purchases commissions instead of only one of the commissions, the management has also not explained how the stock broker was identified or how the consultancy fee of Kshs. 3,972,806 paid to him was agreed. In the absence of any satisfactory explanation regarding the apparent payment of double commission and also on consultancy fees, the amount of Kshs. 4,549,228 paid to the stock broker who handled the sale of 6,900,400 shares, was paid a total of Kshs. 5,385,978, which represented about 1.81% of sale proceeds compared to the rate of 2.20% for the first stockbroker.

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.& ne \_;ommlttee heard the evidence given by the Chief Executive that the Board approved sale of its 7.5 million Uchumi Supermarket shares in order to offset its debt obligation to Kenya Commercial Bank and that MIs. Dyer and Blair were appointed as Consultants as well as stock brokers for the sale of the shares.

The Committee further heard that:

(i) m/s. Dyer and Blair were paid a total of Kshs. 5,125,650.10 as sales and purchase commissions and consultation fees and that the Capital Market Authority approved the payment of the two commissions;

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(ii) the difference in the commissions charged by the Brokers was in accordance with the then regulated rate for commission before July, 1995 which was 2.5% and 1.8% 'thereafter;

(iii) m/s. Dyer and Blair prepared a brochure for sale of the shares;

The committee observed with concern that the Stock Brokers MIs. Dyer and Blair were single-sourced by the Corporation as no evidence of submission of bids was seen.

The Committee recommends that the Chief Executive should ensure that procurements regulations in force are adhered to without exception.

7. IRREGULAR TRANSFER OF SHARES

The Investments balance of Kshs. 770,660 shown on the Balance Sheet as at 30 June 1997 comprises of the value of the balance of the Uchumi Super Market 154,130 shares, which in turn include 124,600 shares that were transferred to ICDC without the approval of the Board of Directors. Although the Corporation has explained that the shares were irregularly transferred by the parent corporation (ICDC) to itself to compensate ICDC for unpaid rent, KNTC has disputed the rent payable and until such dispute is resolved, it is not possible to confirm the propriety of the transfer of the 124,600 shares by ICDC to itself reportedly in settlement of outstanding rent recoverable from the Corporation.

The Committee heard the evidence given by the Chief Executive that the transfer of 124,600 shares to ICDC was meant to offset

rent arrears of Ksha. 3,951,950 and that reconciliation of the rent outstanding haa been done thereby resolving the audit query.

8. CASH AND BANK BALANCES

8.1 Bank Overdraft

The Balance Sheet overdraft figure of Kshs. 39,284,200 comprises of the following: -

Cash at bank KCB Moi Avenue

Cash at bank National Bank

Cash on Hand Head Office

Balance Sheet Overdraft amount

Kshs (98,258,030) 58,668,089 305.741 (39,284,200)

However, the reconciled" bank balance for KCB Moi Avenue Account as per Cash Book (ledger) was an overdraft of Kshs. 39,031,122 while that shown in the reconciliation total was, as indicated above, Kshs.98, 258,030 thereby resulting in an unexplained difference of Kshs. 59,226,908. The reconciled bank balance as per Cash Book for National Bank is Kshs. 116,856 while that shown in the reconciliation is Kshs. 58,668,089, again resulting in another unexplained difference of Kshs. 58,551,233. There was also- an unexplained difference of Kshs. 675,674 that was included in the KCB-Moi Avenue Reconciliation, which dates as far back as 1995. The Corporation has not been able to explain the nature of these differences.

8.2 Further, the Trial Balance and the composition of the Balance Sheet Cash at Bank figure of Kshs. 5,782,440 revealed that there were other bank accounts with debit and credit balances while the bank statements show nil balances as follows: -

Cash at bank Cash at bank Fixed Deposit Cash at bank

Kshs 12,287,140 Dr 13,260,107 Dr. 14,955,606 Cr.

9,323,560 Cr.

KCB Coffee GBI Coffee Grindlays Moi Avenue

The Corporation has not explained how cash held by the two bank accounts totalling Kshs. 25,547,247 was utilized to nil balances or even explained the circumstances under which the overdrawn cash account of Kshs. 9,323,560 arose. It is also not clear how the Fixed Deposit Account 'reflects a credit balance of Kshs. 14,955,606

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(U) the sum of Kshs. 149,955,606, being credit ba.lance in Mis. Grindlays Bank fixed deposit ledger account due to mispostings which have since been corrected thereby resolving the audit query.

instead of the normal debit balance. Arising from the foregoing, it is not possible to confirm that the Balance sheet Cash at Bank of Kshs. 5,782,440 as' well as the Bank overdraft of Kshs. 39,284,200 are correctly stated.

The Committee heard the evidence given by the Chief Executive that the unexplained difference of Kshs. 59,226,908 existed in the books and that the necessary corrections have been made and effected in the books.

The Committee further heard that: -

(i) the Accounts with debit and credit balances, which were not reconcililig with bank statements have been reconciled and necessary accounting corrections effected; and

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REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE ACCOUNTS OF KENYA NATIONAL TRADING CORPORATION FOR THE YEAR ENDED 30TH JUNE, 1998

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1. FINANCIAL POSITION

During the year 1997/98, the Corporation incurred a loss of Kshs 306,337,320 which together with a prior period adjustment of Kshs 5,041,020 brought its cumulative deficits to Kshs 1,058,678,900 as at 30 June 1998. The Corporation's Balance sheet as at 30 June 1998 also reflects negative working capital of Kshs 361,984,220. Evidently, therefore, the Corporation was technically insolvent and its continued operation as a going concern will depend on the, support of its lenders, other creditors and bankers.

The Committee heard the evidence given by the Chief Executive' that the Corporation incurred a loss of Kshs.306,337,320 during the year 1997/98 and that the' Corporation's Balance Sheet reflected negative working Capital of Kshs.361,984,220 as at 30th June, 1998.

The Committee further heard that:

(i) the insolvency and the negative working capital were principally caused by the Corporati~n's indebtedness to the Commissioner of Customs and Excise Duty and Kenya Commercial Bank who were owed Kshs.257 million and Kshs.94 million respectively.

(ii) the obligation to the Commissioner of Customers and Excise Duty and to that of the Government was extinguished by netting them off against what the government owed the Corporation and that as a result the Corporation was refunded Kshs.148.5 million.

(iii) the Corporation and the KCB have agreed to' meet and re~olve the dispute out of court; and

(iv) the Corporation has taken several steps including closure of 10 loss making depots, staff rationalization exercise and renting out its properties leading to a marked improvement in the overall trading performance and reduction of net loss to Kshs.63 million in 2002.

2. BANK AND CASH BALANCES

The Committee noted that a Cabinet Memorandum haa been presented to the Cabinet and which approved the winding up of the Corporation, as it is no longer sustainable.

The Committee recommends that in view of the fact that the Corporation is commercially unviable and technically insolvent, the Corporation be wound up.

The accounts for the year 1997/98 reflect Kshs 584,880, Kshs 4,668,920 and Kshs 45,250,600 as Cash in Hand, Cash at Bank and Bank overdraft respectively as at 30 June 1998. The Bank and Overdraft balances of Kshs 4,688,920 and Kshs 45,250,600 however differed from the Trial Balance figures of Kshs 85,075,396 and Kshs 125,637,073 respectively as at the same time. In addition, the Bank reconciliation statement reflects Kshs 2,187,939 and Kshs 1,242,000 as Miscellaneous Debits and Cash-in-transit, amounts which have been outstanding since 1994 and 1995 respectively. In view of the foregoing and also on account of the materiality of the variances, it has not been possible to confirm the accuracy

The Committee heard the evidence given by the Chief Executive that:

(i) the correct Trial Balance figure for cash at Bank was Kshs.4,688,920 and not Kshs.4,668,920.

(il) the figure of Kshs.85,075,396 comprised only the debit balances in the Trial Balance which did not take into account the credit balances as at 30th June 1998, while the figure of Kshs.125,637,073 was exclusive of similar debit balances.

(iii) the figure of Kshs.45,250,600 on the Balance Sheet did not take into consideration the bank reconciliation which reduced the figure of Kshs.43,097,479 and subsequently the Balance Sheet figure was overstate.d by Kshs.2, 153, 120.

(iv) the figures have been acijusted for the subsequent years.

(v) the figure of Kshs.2,187,939 represents an amount which the bank debited on the Corporation's account and that the Corporation had instituted counterclaim against Kenya Commercial Bank.

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The Committee also heard that the issue of Cash and Bank Balances had been settled.

The Committee recommends that the Chief Executive should nsure that the amount of Kshs. 2,187,939 is recovered from Kenya Commercial Bank of Kenya.

3. STOCKS LOSSES·

The Balance Sheet Debtors figure of Kshs 65,387,900 as at 30 June 1998 is stated net of provisions of Kshs 290,470,280 for bad debts as of the same date. Included in these provisions for bad debts is Kshs 16,685,700 being the value-of sewing machines and bicycles stock reportedly stolen from Homa Bay Road Depot after the covering Insurance Policy had lapsed and, therefore, made the loss unclaimable. The Corporation is yet to explain satisfactorily why the Insurance Policy was allowed to lapse, thus resulting in such large losses. In addition, coffee stocks valued at Kshs 7,263,847 were irregularly transferred from the Coffee Board of Kenya to third parties between 10 January 1993 and 13 March 1995 but which still continued to be reflected as held by the Board as at 30 June 1998, even when records at the Coffee Board of Kenya confirm nonexistence of the stocks. In the circumstances, it has not been possible to confirm the accuracy of the Balance Sheet Stocks figure of Kshs 34,145,100 as at 30 June 1998

The Committee heard the evidence given by the Chief Executive that stock worth Kshs.16,685,700 was lost due to burglary in the Homa Bay Road depot where sewing machines and bicycles were stolen and that the loss was unclaimable as insurance policies had lapsed due to non-payment of insurance premiums.

The Committee further heard that a reconciliation exercise between the records at Coffee Board of Kenya and those kept by the Corporation in respect of Coffee Stock losses of Kshs.7,263,847 had established that the coffee was sold by the Corporation to the following companies:

Cargill E.A. Ltd

Bahari Transport Co. Ltd Maruyama Trading Co. Ltd Rejitek Coffee Co. Ltd Davco Enterprises Ltd

928,022.90 835,099.75 2,641,407.15 583,390.10 2,275,927.55

7,263,847.00

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These excludes amount transferred to MIs. Davco Enterprises of Kshs. 7,973,212.

The Committee was informed that the transfers were irregular and that the then Coffee Manager Mr. Reuben Sarun Ole Nakuo who oversaw the transaction had since been apprehended and charged before the Anti-Corruption Court for abuse of office.

The Committee was further informed that the fraudulent transactions were effected through companies associated with Mr. Ole Nakuo and his wife, Mrs. Mary Nasieku.

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The Committee observed with concern that although Mr. Ole Nakuo had been charged with abuse of office contrary to Section 101(1) of the Penal Code, there is enough evidence to sustain a charge against him and his wife for theft.

The Committee recommends that the Director of the Kenya Anti-corruption Commission prefers charges of theft against Mr. Reuben Sarun Ole Nakuo and his wife Mrs. Mary Nasieku for theft of coffee worth Kshs. 13,807,746.65.

The Committee further recommends that the corporation should ensure that all its Assets, Properties and Stocks are insured.

4. FIXED ASSETS

The Corporation's fixed aasets figure of Kshs 855,626,780 reflected on the Balance Sheet as at 30 June 1998 and as previously reported includes land at Loita Street L.R. No 209/10343, valued at 30,462,540 which was surrendered to the Commissioner of lands without the approval of the Board. As far as it has been possible to ascertain, the Corporation has, to date not been compensated for the surrenct.ered plot by the Commissioner of Lands. Consequently, the Plot's value of Kshs 30,462,540 included in these accounts under fixed assets may not be realizable.

The Committee heard the evidence given by the Chief Executive that land L.R No.209 110343 (Loita Street) valued at Kshs. 30,462,540 was surrendered back to the Commissioner of lands by the then Chief Executive, Mr. Paul Kiplelei Arap Magut allegedly due to the failure by the Corporation to develop it within the stipulated time.

The Committee further heard that:-

(i) the land, which was surrendered without the approval of the Board, was later allocated to MIs. Rapsel Ltd whose directors include Messrs Pascal Kiragu Mugwe and Joseph Manga Magwe;

(ii) the then member of the Board Mr. Joseph Manga Mugwe used his influence to have the plot transferred to him and which he later sold to Savings and Loan Kenya Ltd for Kshs.ll0 million;

(iii) by the time the Commissioner of Lands irregularly withdrew the offer of allocation made in 1985 vide letter ref. No. 111101/29 of 2~th April 1985, the land was valued at Kshs. 30,462,540, which included the value of the plot, cost of developing the parking and consultancy fees;

(iv) no authority was obtained from the Board, the parent Ministry nor the Treasury for disposal of the property;

(v) following the Committee's recommendation that criminal charges be preferred against the persons involved in the fraudulent transfer of the property, the suspects had recorded statements with the CID and that before they were taken to Court, the Attorney General called for the file and has not returned it.

The Committee noted that the police are of the firm view that there is sufficient evidence to sustain a prosecution case against the suspects namely Joseph Manga Mugwe, Philip Kiplelei Magut, Grace Munyina Adera, Wilson Gachanja and Pascal Kiragu Mugwe for irregular transfer of the plot.

The Committee was informed that the Corporation is pursuing the matter and that a legal suit had been instituted against the Commissioner of Lands, Mr. P.K. Magut, and MIs. Rapsel Ltd vide Civil Suit No. HCCC. 153 of 1999, with a view to repossessing the plot.

The Committee was informed that the Corporation had obtained title deed for plot No. Karatina/Block/1/71, and that it had paid all the outstanding rates in respect of Iten Town plot and has applied for a title

The Committee observed that the surrender of the land plot L.R. No. 209/10343 by the then Managing Director and the then

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(i) the Chief Executive should liaise with the Attorney General with a view to preferring criminal charges against Mr. Joseph Manga Mugwe, Wilson Gachanja, former commissioner of Lands, Pascal Kiragu Mugwe, Mr. P.K. Magut, the then Managing Director and Mrs. Grace Adera, the then Company Secretary for surrendering and transferring plot No. 209/10343 without Board's approval in clear violation of the provisions of Section 13 of the State Corporation Act (Cap 446);

Company Secretary who jointly signed the Deed of Renunciation was irregular and unlawful as it was never approved by the Board.

The Committee further observed that the Attorney General would appear to be hampering the efforts of the Corporation on the matter by constant withdrawal and retention of the file and yet there is sufficient evidence to prosecute the five suspects.

The Committee recommends that:-

(ii) the Commissioner of Lands should liaise with the Attorney, General with a view to moving the High Court for orders of cancellation of title deed L.R No. 209/10343 fraudulently issued to Savings and Loan Kenya Ltd and have it allocated to Kenya National Trading Company Ltd;

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