How Mumias bosses brought firm to its knees

What you need to know:

  • It was after his exit that the effects of a financially depleted entity began to show and the KPMG report traces some of the poor decisions under Dr Kidero that provide an insight into the current state of the company.
  • Working with Mohammed Farah as procurement manager then, Dr Kidero is on the spot for awarding tenders to companies with no records at the Registrar of Companies.
  • In the same year, Mr Kidero oversaw the approval to grant a urea importation tender to the same company worth Sh65.8 million against company policy of seeking board approval for contracts exceeding Sh25 million.

Managing Director Evans Kidero and his successor at Mumias Sugar, Mr Peter Kebati, ignored repeated calls by auditors and the company’s board of directors to seal gaping corruption loopholes at the miller, says a report.

The forensic report by audit and consulting firm KPMG blames management teams under the two former bosses of blatantly disregarding information from auditors that there existed massive abuses of procedure which needed fixing.

Shocking accounts

“We noted that Mumias Sugar Company’s internal auditors, external auditors and the board of directors consistently notified management of non-adherence to policy and procedure and gave recommendations, which should have been acted upon,” reads the report.

Non-compliance with policies and suggested changes, said the KPMG report, exposed Mumias to potential loss of substantial revenue.

“However, management never undertook to implement the recommendations suggested or enforce compliance with the policies suggested (by internal, external auditors and board of directors),” said KPMG.

It gives shocking accounts of how successive management teams connived at every turn in all departments, creating and exploiting loopholes that exposed the publicly listed company to massive losses.

Almost every process at the company — from procurement, sugar importation and commercial divisions — was deliberately abused for the benefit of individuals, says the report.

The audit report provides a preview of the chief architects and faces behind the current sorry state of previously western Kenya’s economic giant.

Current Nairobi Governor Kidero is listed among individuals with the greatest responsibility for the losses at the country’s largest miller during his decade-long reign as managing director.
Others are his successor Peter Kebati, who also worked under Dr Kidero, and the acting commercial director, Mr Peter Hongo.

Others adversely mentioned by the forensic audit that was commissioned by the current board of Mumias Sugar are Mr Paul Murgor, who was commercial director under Mr Kebati’s four-year reign as managing director.

Ms Emily Otieno, previously company secretary, and who was sacked alongside Mr Kebati and Mr Murgor, is also at the centre of a series of operational errors that left the miller bleeding.

EVANS KIDERO
He was managing director at Mumias from 2003 to 2012, the first Kenyan to head the country’s largest miller.

In the period, he was credited with turning around the fortunes of the company.

It was after his exit that the effects of a financially depleted entity began to show and the KPMG report traces some of the poor decisions under Dr Kidero that provide an insight into the current state of the company.

Dr Kidero’s administration is accused of awarding tenders to bidders with higher quotations and who submitted bids long after tenders had closed, a clear abuse of policy and evidence of underhand dealings.

Working with Mohammed Farah as procurement manager then, Dr Kidero is on the spot for awarding tenders to companies with no records at the Registrar of Companies.

In 2011 for instance, he awarded a fertiliser supply contract to a firm called Shah Kanji whose records could not be found at the company registry.

As the MD, Dr Kidero is on the spot for deliberately ensuring that issues raised by audit teams with regard to abuse of processes were never implemented.

The firm had offered to supply the farm input at Sh4, 590 per every 50 kg bag of Diamonium Phosphate fertiliser yet another bidder lost the tender having offered to supply the same at Sh3, 475 per 50 kg bag.

In the same year, Mr Kidero oversaw the approval to grant a urea importation tender to the same company worth Sh65.8 million against company policy of seeking board approval for contracts exceeding Sh25 million.

In this instance too, Shah Kanji’s bid was presented long after the other bids had been opened.

“We found that there was unfair practice as six other companies had already submitted bids …Mea’s formula fertilizer was lower in price. No negotiations were held to reduce the companies prices father,” said KPMG.

In another incidence Mumias awarded a tube brushing tender to a company –Roma limited- which had the lowest technical and commercial score and with the highest quoted price for the service.

The company had quoted Sh380, 000 per month for the service with a score of 88.39 while another that had a score of 93 and had quoted Sh321, 640 for the services lost, a clear disregard of quality and value for money.

‘We were unable to trace Roma’s file at the registry and could not therefore not ascertain whether it was a dully registered business or not,” the KPMG report went on.

As the managing director, Mr Kidero is on the spot for deliberately not ensuring that issues raised by internal and external audit teams with regard to abuse of processes were never implemented.
Mr Kidero approved discounts and credit notes-a document used to correct a price overcharge- against set company procedure.

In the period the audit was conducted, the price variations are said to have cost the miller in excess of Sh243.6 million.

PETER KEBATI
He succeeded Dr Kidero on his resignation to venture into politics. Having previously served as finance director for nine years under Kidero, it was assumed he was the best bet for continuity.
The company, however, recorded a Sh1.67 billion loss for the period ending June 2013 in his first year at the helm despite registering a Sh2 billion profit the previous year. From there on, the company’s financial performance took a downward spiral.
He was sacked and now faces prosecution.

on the basis of the KPMG forensic audit, below are some of the costly errors that Mr Kebati is accused of committing while at the helm of the miller.

The report puts Kebati at the core of a controversial sugar importation deal that went wrong and in the end costing the listed miller about Sh1.1 billion.

He failed to provide the board with full information regarding Dantes Peak, a third party company that had been enlisted to import sugar from Sudan on behalf of the miller.

The board not having full information including the fact that no due diligence had been done on the third party and the process, failed to make an informed decision and the company was exposed to losses.

“He was aware that no due diligence had been done on Dantes Peak and he oversaw the award of the sugar importation contract,” said KMPG.

Working with company secretary Emily Otieno and commercial director Paul Murgor, Kebati initiated the opening of an account at Dubai bank for the sale of the imported sugar.

He however failed to nform the board of the existence of the account, yet the trio had instructed Mumias Sugar customers to start depositing money into the account.

In procurement, Kebati is on the spot for releasing a boiler that had been sold; even before full payment had been made as require thus exposing the miller to lose.

He also allowed for single sourcing of trader and consumer activation services from a company called Neo Marketing against procurement procedure.

He single source legal service from Pro Tom Ojienda, ostensibly on the advice of company secretary, Emily Otieno. The law firm was paid Sh7 million to represent the company on a trademark infringement suit/counterfeit sugar.

Like his predecessor, Kebati also approved astronomical downwards price adjustment to customers against procedure. At one point three customers enjoyed discounts of up to Sh10.3 million.
The miller is also said to have lost revenue in excess of Sh5.7 million due to Mr Kebati’s duplicated price adjustment.

PETER HONGO

He was acting commercial director from September 2010 to April 2012 under MD Kidero.

Mr Hongo is accused of recommending discounts to customers over and above approved rates.

He approved price variance analysis affecting greater quantities of sugar than the approved ones. At one point, the firm lost Sh19 million as a result of his approvals.

He continuously engaged with blacklisted distributors besides ensuring that the process of enlisting new distributors was clearly documented, which led to the company dealing casually with distributors.

PAUL MURGOR
He was the commercial director since April 2012 under Dr Kidero and until he was sacked with Mr Peter Kebati last year.

As commercial director, he was to establish prices and ensure they are in line with market dynamics. He was to also ensure that demand had been met.

The forensic audit blames Mr Murgor for being aware that insufficient due diligence had been done on Dantes Peak — a third party firm that imported sugar for Mumias — but oversaw the award of the tender.

He altered a report to the board of directors upon advice from Emily Otieno, which would have shed light on the dubious importation.

He was aware that transporters were diverting goods meant for inter-warehouse transfers but still went ahead to pay them in excess of Sh62.9 million.

He failed to implement board’s directive on discounts and credit notes to distributors.

At one point, a customer enjoyed discount of up to Sh9.9 million due to Mr Murgors unprocedural approval of credit notes.

EMILY OTIENO

She served as the company secretary both under Dr Kidero and Mr Kebati. She emerges in the report as having had a good working relationship with all the individuals mentioned in the report.
KPG finds her culpable of failing to pick conflicting clause in the controversial sugar importation contracted given to Dantes Peak.

She also signed an account opening form with Dubai Bank without board approval as is procedure.

She is also on the spot for instructing Mr Murgor to provide less facts to the board regarding the dubious importation deal

, a situation that left the board less informed. She also advised Mr Kebati to single source legal services from Tom Ojienda, without following due process.

She provided Mumias Sugar with insufficient review of three sugar importation deals with Kenana Sugar Company of Sudan thereby exposing it to losses.