Auditor General flags KMC over Sh1.7 billion unrecorded debt

The Kenya Meat Commission is on the spot after Auditor-General Nancy Gathungu flagged a series of financial, operational and governance weaknesses.

 The queries include an unrecorded Sh1.67 billion government loan, unsupported liabilities, declining livestock purchases and persistent losses.

 In the review for June 30, 2025, Gathungu, in a qualified opinion on KMC’s books, cited several material concerns that cast doubt on the accuracy of the reported financial position.

 Among the key findings was KMC’s failure to recognise a Sh1.67 billion loan owed to the National Treasury despite being instructed to do so following a verification exercise.

 KMC reported domestic borrowings of Sh372.4 million in its books, but Treasury records showed a loan balance of Sh977.3 million, creating an unexplained variance of Sh604.9 million.

 Further, the Treasury directed KMC to recognise a loan liability of Sh1.67 billion as of June 30, 2021, continue accruing interest and provide a repayment plan.

 “Management has to date not recognised the loan amount of Sh1,667,125,232 in its books or provided a repayment plan as required,” Gathungu said.

 As a result, the auditor said the accuracy of KMC’s non-current liabilities could not be confirmed.

 The audit also questioned the commission’s creditor and debtor records.

 KMC reported trade and other payables amounting to Sh487.7 million, including Sh81.3 million that lacked supporting documents such as payment vouchers and invoices.

 In addition, pending payment vouchers worth Sh24.6 million relating to livestock supplies were omitted from the creditors’ balance.

 KMC is owed Sh552.4 million by various government agencies, with the amounts remaining unpaid for more than 90 days without evidence of recovery efforts.

 Rental arrears of Sh19.4 million from active tenants occupying KMC properties, as well as unpaid balances amounting to Sh126.6 million accrued between 2012 and 2021, were unsupported, disputed or untraceable.

 Gathungu observed that KMC lacks a debt management policy and has no structured framework for credit risk assessment or impairment reviews.

 “The accuracy and full recoverability of the outstanding receivables balance of Sh694,114,443 could not be confirmed,” she said.

 Questions were also raised over the commission’s land holdings valued at Sh15.02 billion.

 Parcels in Machakos, Nairobi, Kajiado, Kwale, Mombasa and Laikipia counties had original title deeds remaining with the National Treasury.

 Three parcels in Machakos, Nairobi and Mombasa are subject to ongoing court cases and unpaid land rates amounting to Sh1.61 billion.

 Leasehold properties in Kwale and Mombasa, initially issued in 1966 for 37 years, were reportedly extended in 2011, but no documentation confirming the extensions was provided.

 As a result, the auditor could not verify the accuracy and valuation of KMC’s property portfolio, which stands at Sh17.33 billion.

 The report also paints a grim picture of the commission’s financial health. KMC sales revenue declined to Sh1.64 billion during the year from Sh1.71 billion in the previous period.

 Operating losses before tax widened to Sh588.8 million from Sh365.6 million recorded the previous year.

 Management attributed the decline to livestock supply shortages caused by delayed payments to suppliers, which led to stock-outs of meat products, as well as delayed payments by key government customers.

 The auditor warned that the continued accumulation of losses raises concerns about KMC’s long-term sustainability.

 “The continued accumulation of losses signifies persistent financial underperformance and sustainability challenges, casting doubt on the commission’s ability to operate profitably and achieve its financial objectives,” the report states.

 KMC had projected revenue of Sh3.92 billion but realised only Sh1.72 billion, resulting in an underperformance of Sh2.21 billion, or 56 per cent of the target.

 The under-realisation, the auditor said, likely affected planned activities and service delivery.

 Operationally, the commission fell significantly short of its livestock procurement targets.

 KMC procured only 19,825 cattle against a target of 49,574, translating to 40 per cent achievement.

 Goat procurement reached 77 per cent of the target, while sheep procurement achieved only 10.1 per cent, with the commission purchasing 802 sheep against a target of 7,939.

 The auditor faulted management for failing to adjust unrealistic targets or implement corrective measures despite persistent underperformance.

 Livestock purchases have also been declining steadily, with the report showing procurement expenditure dropped from Sh2.05 billion in 2022-23 to Sh1.33 billion in 2024-25, representing a reduction of Sh713.4 million over three years.

 The decline was linked to delayed payments to suppliers after KMC reportedly shifted its payment policy from 72 hours to periods of up to 60 days.

 “This creates a direct operational challenge, as insufficient livestock supply limits production and consequently affects sales performance,” the report notes.

 Unremitted pension contributions amounting to Sh83 million and unreconciled tax liabilities of Sh115.3 million with the Kenya Revenue Authority were also flagged.

 Weak internal controls were also exposed. The audit revealed that 1,995 invoice numbers were missing from the sales system and no explanation was provided.

 KMC also lacked records for cancelled or voided invoices, raising concerns about the completeness of revenue records.

 Physical inspection found that only one of three trailers purchased in 2021 is operational, while eight vehicles have remained stalled between 2021 and 2023 without repair.

 Several key production machines, including canning lines and vacuum sealing equipment, were found to be obsolete or non-functional.

 The auditor estimated that the factory is operating at only about 50 per cent of its designed production capacity. 

INSTANT ANALYSIS

The Auditor General’s report paints a picture of an institution facing a deepening governance and operational crisis. Beyond the unrecorded Sh1.67 billion Treasury loan, the findings reveal systemic weaknesses in financial management, debt recovery, asset oversight and internal controls. KMC’s declining livestock purchases, widening losses, missed revenue targets and underutilised production capacity point to a business struggling to sustain its core operations. The report also raises accountability concerns, with missing invoices, unsupported liabilities and idle assets suggesting poor oversight.