Auditor General Nancy Gathungu says Nzoia Sugar Company is technically insolvent after making heavy losses with debts amounting to more than Sh49.7 billion.
In her latest audit report, Gathungu says that as of June 30, 2019, the sugar firm had a shareholder funds deficit of Sh41.5 billion while the current liabilities stand at Sh49.6 billion.
The liabilities exceed the current assets of the firm valued at about Sh1.3 billion.
She says the current situation demonstrates the company is unable to meet its financial obligations as and when they fall due.
The report says the firm’s statement of comprehensive income reflects operating loss of Sh3.2 billion in the period under review.
“This state of affairs is indicative of an acute financial challenge facing the company which raises significant doubts on its ability to operate as a going concern," Gathungu said.
She said the company was therefore technically insolvent and its continued existence as a going concern is dependent upon the financial support from its creditors and the government.
According to the audit report, the company between 1990 and 1993, undertook an expansion of the factory’s cane crushing capacity from 3,000 tonnes of cane per day to 7,000 tonnes.
The expansion was financed by an international company and guaranteed by the Government of Kenya. The expansion programme was not completed then and the acquired machinery has been lying idle since acquisition, and has not generated any income for the company
The firm’s statement of financial position also reflected borrowings of Sh41.2 billion which included Sh426.2 million for the year under review and another Sh300 million for 2017-18 and the previous years.
“The company had received the loan from the Government of Kenya through the Ministry of Agriculture. However, the management did not provide a written loan agreement setting out terms of the loan," Gathungu said.
The firm has also been grappling with salary arrears and Gathungu said a review of the company’s human resource records revealed that the company had not paid its employees salaries from March 2019 to October, 2019 resulting in debts of Sh356.8 million and wages of Sh45.6 million payable to permanent employees and casuals respectively.
Nzoia Sugar Company also breached the law by not remitting Sh201.9 million to the Staff Retirement Benefits Scheme Fund.
The company’s inventory balance also included uncleared goods worth Sh142.7 million, which had been held at the Port of Mombasa awaiting clearance since 2017, with the charges having accumulated to more than Sh79 million as of June 30, 2019.