Chief auditor raises red flag on broke State corporation
Cash-strapped National Oil Corporation of Kenya (Nock), risks closure for being insolvent, according to a new report by the Auditor General.
The report by Nancy Gathungu, unveils the rot within the troubled corporation over the years.
Auditor General Nancy Gathungu has revealed that the corporation’s current liabilities balance of Sh7.6 billion exceeds its current assets of Sh2.3 billion by Sh5.3 billion, which indicates that there exists material uncertainty regarding the entity’s ability to continue operating.
Further, Gathungu raised a red flag that the corporation has accumulated losses which stood at Sh3 billion as at June 2020 from Sh2.6 billion recorded in 2019.
The losses increased after the company recorded a loss of Sh494.5 million for the year ending June 2020 from Sh352.9 million recorded in 2019.
“The corporation is therefore, technically insolvent and its continued existence, is dependent upon the financial support of the government, bankers and its creditors, unless management puts in place measures to improve its performance and to reduce reliance on financial support from shareholders,” reads the report.
In the report tabled at the National Assembly by Majority Whip Emmanuel Wangwe, Gathungu cited various irregularities and liabilities that have led to the losses incurred by the corporation.
The irregularities include unjustified decline in value of free hold land, unaccounted for funds for the special projects, loss of products, defaults on loan payments, stalled Liquefied Petroleum Gas LPG mini filing skip project, uncapitalised equipment, payment of unprovided for allowances and non compliance with fund guidelines.
Others are long outstanding staff imprests, lack of disaster recovery plan, lack of guidelines on government grants and disbursement, lack of annual governance audit as well as various control weaknesses in Information technology.
With regards to loss of products, Gathungu said her office could not verify the accuracy of Sh565.8 million, which comprises a provision of doubtful debts of Sh40 million due from a contracted transporter in respect of lost Automotive Gas Oil products referred as diesel.
According to her, an estimated 390,000 litres of diesel destined for Geothermal Development Company’s Menengai offices were lost in custody of the transporter who has since disputed the allegations.
A report by Auditor-General, also cited losses recorded by the corporation of 4.09 litres of diesel and 341,063 litres of super petrol brand valued at Sh356.95 million between July 2017 and December 2018 which were mainly through non delivery of transporters consignments to Kenya Ports Authority (KPA) sites.
“Despite the losses having been a subject to forensic investigations, a further loss of 32,000 litres of diesel valued at Sh3,268,160 was reported in June 2019.
According to an incident report on the loss, the products loaded into transporters trucks at Kenya Petroleum Refineries Limited destined to KPA sites were not delivered,” adds the report.
Audit report says Nock, lost more in a mega scandal involving diversion of fuel products and falsification of credit and delivery notes by officials.
The report says crooks took advantage of Nock’s weak record-keeping to milk the corporation dry.
On default on loan payments, Gathungu revealed that the corporation has defaulted payments amounting to Sh5 billion, which comprises bank overdrafts and term loans of Sh43.8 million and Sh4.6 billion respectively.
As a result of the default, Gathungu regretted that one of the lenders; Kenya Commercial Bank (KCB) consolidated its outstanding loan and interest into one term loan of Sh3.6 billion reported as current borrowings whose implication increases the corporation’s liabilities.
“Further, an offer from KCB in July 2020 to restructure the borrowing was yet to be accepted by the corporation.
Management indicated that they were not comfortable with the terms of restructuring as contained in the offer.
The impasse may lead to the corporation losing strategic assets, which were used as collateral to secure the loans to the financiers through repossession,” reads the report.