A detailed audit has exposed massive failures at the Kenya National Trading Corporation (KNTC), revealing that food stock valued at Sh40.6 million was left to rot due to overstocking, poor handling, and weak oversight structures.

According to Auditor General Nancy Gathungu’s report for the financial year ending June 30, 2024, the losses stemmed from ineffective internal controls and a lack of proper governance, leading to the impairment of stock that was no longer fit for human consumption.

The damaged food items, mostly rice and cooking oil, were not included in the Sh2.97 billion inventory value reported by the Corporation.

“The statement of financial position reflects inventories' balance of Sh2,972,829,631 as disclosed in Note 24 to the financial statements. Excluded from this balance is Sh40,669,684 relating to impairment of stocks for damaged inventory,” reads the report.

Audit records revealed that the food in several depots was already in a damaged state. Gathungu said, “These damages were due to overstocking, poor inventory packaging and handling. In the circumstances, the effectiveness of the controls on inventory management could not be confirmed.”

The report faulted KNTC for failing to put in place proper systems to ensure safe storage and timely distribution of goods. The audit team, despite gathering enough documentation, found that the agency’s governance mechanisms failed to protect public assets, leading to avoidable financial losses.

Beyond the rotten food stock, the Corporation was also found to have made unsupported sales, provided inaccurate cost figures, and maintained questionable land records, with additional concerns raised about foreign travel expenditures and the organisation’s financial health.

In particular, the Auditor General flagged the absence of documentation supporting the sale of large quantities of goods. These included 2.68 million kilograms of rice, 2,712 jerricans of KNTC oil, and 1.03 million jerricans of imported oil. She noted that the total revenue from sales stood at Sh12.2 billion, but this figure could not be independently verified.

“In the circumstances, the accuracy and correctness of the sales amount of Sh12,198,063,661 could not be confirmed,” the report stated.

Discrepancies were also uncovered in cost reporting. While KNTC reported Sh15.07 billion as cost of sales, the audit team’s own calculations placed the cost at Sh7.45 billion, suggesting that the Corporation overstated its cost of sales by Sh7.62 billion. This also meant the gross profit was understated by the same figure.

Concerns were also raised over the Corporation’s fixed assets. Out of the reported Sh3.59 billion in fixed assets, Sh2.52 billion was attributed to land across several towns including Nairobi, Naivasha, Nanyuki, Nyahururu, and Kapsabet.

However, Gathungu noted that there were no valid ownership documents for this land, with unresolved disputes over other parcels located in Bungoma and Nakuru counties.

The report further highlighted that KNTC had set aside Sh520 million to cover a drop in land value for plots on Loita Street and in Nakuru.

One of the parcels was irregularly handed over to the Commissioner of Lands, while another had been encroached upon and registered under a third party. The audit found no evidence that the board or the National Treasury had approved these actions, nor any updates on ongoing investigations.

“The ownership, valuation and completeness of the land balance of Sh2,518,537,460 could not be confirmed,” the Auditor General stated.

Foreign travel was another area of concern. Of the Sh772.62 million spent on administrative costs, Sh48.7 million went towards travel and transport, including Sh4.11 million on foreign trips.

This amount also covered Sh2 million spent on behalf of the State Department for Trade, but the report indicated that proper approvals and supporting documentation, including boarding passes and passport copies, were missing.

The audit further painted a bleak picture of KNTC’s financial position. By the end of June 2024, the Corporation had posted a loss of Sh3.85 billion, pushing its negative retained earnings to Sh4.03 billion.

It was also operating with a negative working capital of Sh3.2 billion, having Sh14.09 billion in current liabilities against Sh10.88 billion in current assets. The liquidity ratio stood at 7:9.

“This casts significant doubts on the Corporation’s ability to continue as a going concern,” Gathungu warned, adding that KNTC’s financial statements did not disclose adequate measures to address its deteriorating financial condition.