Tuskys directors’ feud sucks in audit, registry companies

Tuskys supermarket along Muindi Bingu street at the central business district on 10 May 2012. FILE 

By DAVID HERBLING

In Summary

• Deloitte and Livingstone registrars accused of taking sides in family wrangle.
• The two professional bodies enforce discipline and ethical behaviour of trained accountants and secretaries.

An auditor has been caught up in the middle of a fraud case pitting directors of Tuskys Supermarkets with a director alleging that the firm facilitated the creation of dubious companies.

Documents filed in court by Yusuf Mugweru, a director at the supermarket chain, say that Deloitte, who are the company auditors, concealed material information on registration of other companies without the mandate of the board.

It is through these companies, Mr Mugweru says in a sworn affidavit, that Sh1.6 billion was fraudulently diverted from the retailer.

Mr Mugweru has also accused Livingstone Associates, a registry firm affiliated to Deloitte and who are Tuskys’ company secretary of professional misconduct.

“In early 2012, Livingstone Associates and Deloitte & Touché disclosed to me and my advocate of the existence of a number of companies, without giving sufficient explanation or at all, that had started appearing in the financial statements of Tusker Mattresses Limited (TML),” reads Mr Mugweru’s affidavit.

“In view of the above circumstances, and the duties imposed by law upon Livingstone Associates and Deloitte & Touché, the conduct of Ms Jumba and Mr Kiarie is both unethical and unprofessional.”

Ms Winniefred Jumba is a senior manager at Livingstone Associates and Mr John Kiarie is a partner at Deloitte who Mr Mugweru says handle the Tuskys account.

“Both Livingstone Associates and Deloitte have in the recent past colluded with other directors in attempting to make the questionable companies subsidiaries of TML and fraudulently convert the Sh1.6 billion into a loan from TML to Orakam Holdings,” says the court filings.

The documents have also been copied to the parties in the suit and Institute of Certified Public Accountants of Kenya (ICPAK) and the Institute of Certified Public Secretaries of Kenya (ICPSK).

The two professional bodies enforce discipline and ethical behaviour of trained accountants and secretaries. Deloitte declined to comment on the matter saying it had not been served because it was not party to the case.

“We have not been served with any papers and so are unable to give any comments,” Sammy Onyango, chief executive Deloitte East Africa.

However, correspondence seen by the Business Daily shows Livingstone Registrars received the complaints against Ms Jumba, one in October last year and another one in February this year.

Mediation efforts to resolve the Tuskys differences out of court have hit a snag after the parties said the matter was irreconcilable and opted to proceed to full hearing.

(Read: Family’s bid to resolve row over Tuskys out of court fails)

Mr Abdi Adan Suleiman was appointed mediator after a ruling by High Court judge Mohamed Warsame in July 2012. The arbitrator later narrowed the dispute to three issues.

“The dispute that has arisen in the company/funds is caused by lack of a board charter and shareholders agreement. There are companies /funds that are in dispute,” said Mr Suleiman in his report presented in court.

Hearing of the family-owned business’ case will begin in a month, July 2, before Justice Weldon Korir.

The family feud erupted early last year following revelations that Stephen Mukuha, the retailer’s managing director, had siphoned money from Tuskys’ account to related firms which were trading with the supermarket.

The feud threatens to tear apart one of Kenya’s successful enterprises that has grown from a tiny mattress shop in Rongai town to a multi-billion-shilling business.

(Read: Tusky’s retail chain hit by fierce sibling rivalry)

With a network of 45 stores across Kenya, Uganda and Rwanda, Tuskys is now ranked the region’s second biggest retailer in terms of revenues after Nakumatt Holdings. It has doubled its revenues in the last four years to Sh25.2 billion in 2011 from Sh12.9 billion in 2008.

The profit grew from Sh31 million to Sh323 million over the same period according to filings in court.

It rebranded from Tusker Mattresses to Tuskys in 2008 to capture young buyers. Mr Mugweru, who owns 17.5 per cent of Tuskys, argues that related companies and subsidiaries such as Enkarasha, popMEDIA, Kenspore, Magic Pay and Ndykak Investments were formed without a board resolutio

Mr Mugweru is also the administrator of his late father’s estate. He says that his brothers, Stephen Mukuha, George Gashwe and Frank Kamau, have been drawing funds from the retailer through the entities.

The business is run by seven siblings with Stephen Mukuha as MD, the other directors are Yusuf Mugweru, John Kago, George Gachwe, Sam Gatei, Mary Njoki and Kenneth Mwangi Njeri.

“The three directors are in most cases, the only shareholders in the questioned companies, but in others, they are directors with other third parties,” he says in submissions filed in court
.

“When I questioned the said transactions, Mr Stephen Mukuha assaulted me.” The assault case is presently in court.

Mr Mugweru says failure to disclose details of the companies was against international corporate practices of good governance and the code of ethics of company secretaries and auditors.”

Mr Suleiman has recommended the expansion of Tuskys board of directors to include three or four non family members on the basis of their qualifications; and a competitively hired CEO.

He said the expanded board would scrutinise all aspects relating to the disputed companies and funds with the intention of finding an amicable way forward on each of the said companies.