Former Uchumi top managers on the spot over Sh1bn cover-up

Uchumi Supermarkets store in Kisumu. PHOTO | FILE 

By DAVID HERBLING

In Summary

• Uchumi has announced that the former management had cooked books to prop up earnings, giving a false picture of the retailer’s financial position.
• The revelations vindicate a June 2015 research note by London-based Exotix which charged that Uchumi used revaluation gains from its properties to conceal losses it made over the past two years.
• Uchumi should have reported a Sh123 million loss in 2013 against the Sh357 million profit it made and a Sh336 million loss in 2014 compared to the Sh384 million profit it declared, analysts at Exotix said.

The revelation that Uchumi Supermarkets manipulated financial statements to the tune of Sh1.04 billion has put former senior managers including ex-chief executive Jonathan Ciano on the spot.

The listed supermarket chain on Saturday announced that the former management had cooked books to prop up earnings, giving a false picture of Uchumi’s financial position.

Uchumi said a clear picture of the extent of accounting fraud orchestrated by the former executives would be revealed once a forensic audit by KPMG is complete.

“The former management cleverly played around with books. The true and fair position of Uchumi was never reflected,” said current chief executive Julius Kipng’etich, who was hired in August to turn around the fortunes of the struggling retailer.

“This is both professional misconduct and a criminal offence. We will pursue with authorities,” added Mr Kipng’etich in an interview.

The revelations of book-cooking at Uchumi vindicate a June 2015 research note by London-based Exotix which charged that Uchumi used revaluation gains from its properties to conceal losses it made over the past two years.

Uchumi should have reported a Sh123 million loss in 2013 against the Sh357 million profit it made and a Sh336 million loss in 2014 compared to the Sh384 million profit it declared, analysts at Exotix said.

READ: How Uchumi used property valuation to inflate profits

Focus now shifts to the Mr Ciano’s executive team including Chadwick Omondi Okumu (chief finance officer) and David Mboya (internal auditor).

Mr Ciano — the former CEO who helped revive Uchumi after the retailer was declared insolvent on June 1, 2006 — was ousted in June alongside Mr Okumu in what the board termed as “gross misconduct” and “gross negligence”.

Uchumi has also parted ways with its chairperson Khadija Mire together with two directors James Murigu and Bartholomew Ragalo and replaced them with Catherine Ngahu (chair) and Louis Otieno of Microsoft Africa as a director.

The supermarket chain also took a Sh1.6 billion hit in impairment costs for closing all its branches and Uganda and Tanzania — which continually posted losses due to stiff competition and a weak expansion strategy.

This saw fourth-placed Uchumi post an after-tax loss of Sh3.4 billion in the year to June 2015 following a decline in revenue coupled with the provisions.