Cash-strapped National Oil Corporation of Kenya (Nock) lost more than Sh2.3 billion in a mega scandal involving diversion of fuel products and falsification of credit and delivery notes by officials.
A report by Auditor-General Nancy Gathungu says officials of the State-run agency failed to account for at least 2,280,017 litres of automotive oil (diesel) and 230,458 litres of petroleum motor spirit (super petrol) valued at an aggregate Sh2,270,336,000 based on the pump prices at the time of audit in December 2018.
The audit report says crooks took advantage of Nock’s weak record-keeping and order processing procedures to make a killing.
For instance, the corporation did not schedule vehicles transporting petroleum products to its customers or undertake daily and monthly stock reconciliation—making it a playground for thieving officials and their cronies.
“In addition, instances of malpractices identified in the generation and processing of unauthorised credit notes, illegal diversion of product consignments, dispatches not supported by transporter documentation or not delivered to intended sites,” Ms Gathungu said in the corporation’s books of accounts for the year to June 2018.
“In view of the foregoing malpractices and illegal diversion of product consignments, the accuracy of inventories could not be verified.”
The theft was unearthed after the oil firm failed to reconcile variances in stocks amounting to Sh1.42 billion and Sh1.72bilion in the 2018 and 2017 financial years respectively.
Spooked by the anomaly the Nock management responded by hiring three top audit firms — KPMG limited, Ernest and Young and Geomatrix — to investigate the anomaly recorded between July 2017 and December 2018.
But the firms were handed the same brief— adding more pain to taxpayers already hit by the Sh2.3 billion loss in inventories.
“The scope of investigations by the three firms is largely similar and run within the same period thereby casting doubt on the value for money,” Ms Gathungu pointed out.
The audit firms were paid a sum total of Sh18.81 million for the same job by Nock, with KPMG bagging Sh3,366,000, Ernest and Young Sh11,398,400 and Geomatrix Sh Sh4,050,000.
Ms Gathungu said according to interim reports by the three consultants, at least 280,017 litres of diesel and 230,458 litres of super petrol valued at Sh2,270,336,000 in aggregate based on the pump prices at the time of audit in December 2018 could not be accounted for.
The inventory loss has heavily contributed to liquidity woes facing Nock whose current liabilities exceeded its current assets by Sh2.59 billion as at June 2018.
Records show that in 2017 the oil corporation incurred a Sh225.34 million loss, widening to Sh588.55 million in 2018.
“The management attributed Nock’s state of affairs to accumulated losses and reclassification of long-term loan as current liability in 2018. The change was made to conform to the loans covenant after the corporation’s current liabilities exceeded its current assets,” the Auditor-General said.
“This current state of affairs, along with other matters set forth in note 18 to the financial statements, indicates that a material uncertainty exists that may cast significant doubt on the corporation’s ability to continue as a going concern.”
The latest audit comes in the wake of revelations that Nock risks asset seizure and auction over Sh5.3 billion defaulted bank loans.
Nock chief executive Gideon Morintat told the Senate early this month that KCB had, in a letter dated August 13, 2020, demanded full settlement of its loan in 30 days, failing which the bank would institute recovery measures.
Nock said KCB had reneged on an April 2020 plan that consolidated the loans and gave a moratorium on principal and interest up to February 2021 in anticipation of a lump sum repayment.
The corporation said Stanbic Bank’s loan of Sh1,459,899,790 is in arrears, but it did not explain whether the lender had issued demand notices.
Nock wants the Treasury to urgently provide a Sh5.93 billion bailout to offset the Sh5.3 billion loan and pending bills of Sh628 million owed to small and medium enterprises (SMEs).
The Senate committee on Energy has since directed the Auditor-General to conduct a forensic audit of the Sh5.3 billion loan that Nock borrowed from KCB and Stanbic Bank.
Nock projects a Sh1.44 billion loss for the year ended June 2020 after it sank deeper into financial turmoil.
Documents tabled in Parliament show that the State agency’s losses will more than triple from the Sh300 million recorded the previous year.
The anticipated loss is linked to a sharp decline in fuel sales that squeezed its revenues. Nock’s fuel sales declined to 124.8 million litres in the period under review, representing a 61.3 percent of the 322.8 million litres a year earlier.