Mumias’ sales unit a haven of sugar cartels

The forensic audit by KPMG done early last year on the request of the current Mumias board of management revealed a huge risk on account of how sugar sales and distribution is run at the miller. PHOTO | FILE 

In Summary

• With sugar contributing over 80 per cent of the company revenue, little care was taken to protect revenue from this unit against potential abuse.
• Distributorship contracts were awarded without regard to due process, with the audit showing some distributors with sales of over Sh50 million not having PIN nor VAT certificates submitted to Mumias.
• Loopholes in the sugar sales department was therefore massively exploited by some company officials to enrich themselves.

By RAMENYA GIBENDI
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The forensic audit by KPMG done early last year on the request of the current Mumias board of management revealed a huge risk on account of how sugar sales and distribution is run at the miller.

With sugar contributing over 80 per cent of the company revenue, little care was taken to protect revenue from this unit against potential abuse.

At the end of financial 2013/14 for instance, up to 61.1 per cent of all sugar sales from the giant cane miller were being handled by five distributors.

In the period under review, 20 distributors accounted for 88 per cent of sugar sales in what KPMG said denied the company the power to control the price of its own products.

In essence, the distributors could easily form a cartel and literally control market forces, riding on Mumias Sugar’s strong brand name.

“There were no policies and procedures for managing revenue concentration as more than 40 per cent of total sales were controlled by three customers operating one-man show outfits that are outside the main corporate arena,” reads KPMG’s forensic audit report.

DIVERTED GOODS

Distributorship contracts were awarded without regard to due process, with the audit showing some distributors with sales of over Sh50 million not having PIN nor VAT certificates submitted to Mumias.

As late as last year, the company was caught trading with customers/distributors without contracts, which exposes the company to losses in case of any defaults.

“Some customers had traded without valid agreements since 2006 and continued to handle significant transactions with Mumias Sugar Company,” read the 386-page survey.

The miller also exposed itself by using some of its distributors to conduct inter-warehouse transfer of its sugar products, a clear conflict of interest.

This was made worse by the fact that inter-warehouse staff would accept theoretical deliveries of sugar, a situation that promoted the diversion of goods for lack of adequate controls.

Loopholes in the sugar sales department was therefore massively exploited by some company officials to enrich themselves.

Separate internal audit documents also reveal that the department would allow well- connected customers/distributors to place long-standing sugar orders (floating orders), which would be taken only if prices favoured them, and cancelled if market prices did not swing in their favour.

In 2008 and 2009, for instance, according to the internal audit documents, a Sh23 million loss was identified as a result of selected customers maintaining long-standing orders and only using those that benefited them, at the expense of the company.

It is the reversal of this trend, and a much-deserved turnaround that could make or break the revival plan of Mumias Sugar.