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Deloitte put on the spot over role in Mumias Sugar accounting scandal

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Mr Mumo Matemu, Ethics and Anti-Corruption Commission chairman. FILE PHOTO | SALATON NJAU |

Kenya’s anti-graft agency has put auditing firm Deloitte & Touche on the spot over its alleged role in handling the accounts of troubled sugar miller Mumias.

The Ethics and Anti-Corruption Commission (EACC), in response to a complaint filed by cane farmers who allege that Deloitte connived with top executives of Mumias to conceal accounting flaws at the company, says the auditing firm should face civil action.

Mumias Outgrowers Company (Moco) has accused Mumias Sugar of having declared false profits and is contesting a Sh2.6 billion outstanding loan demand from the miller, terming it as a false entry.

Moco, a group of about 75,000 cane farmers, has also accused the Institute of Certified Public Accountants of Kenya (ICPAK), the accounting watchdog, of laxity in enforcing disciplinary action against Deloitte.

“After analysis of your report, we are of the view that the matter is civil in nature since it points to professional negligence on the part of ICPAK and also Deloitte and Touche. Kindly, therefore, be advised to seek civil redress to safeguard your rights,” wrote EACC in a response to Moco seen by the Business Daily.

The disputed Sh2.6 billion owed to Mumias relates to a Sh190 million loan advanced to the cane outgrowers in 1994, which the sugar miller says remains unpaid.

Mumias Sugar states in its annual report that the loan remains unpaid and has ballooned to Sh2.6 billion because the facility attracts an interest rate of 23.5 per cent per annum.

However, Moco says it settled the debt in full in 1996.

“Moco settled the above loan of Sh190 million in 1996. Mumias has never raised any claim thereafter,” the farmers said in filings to EACC and copied to the Capital Markets Authority (CMA).

An internal audit report at the sugar miller shows that in 2007, Mumias Sugar allegedly took Sh2.6 billion from Moco accounts and declared it as part of its profits.

The farmers say that Deloitte acted as the auditor for both Mumias and Moco during the period, and hence the anomalies should not have emerged.

Moco filed the complaint with EACC asking the agency to conduct a probe on the conduct of Deloitte & Touche as the external auditors at Mumias who ought to have pointed out the above irregularities.

Mumias Sugar executives have been accused of secretly importing sugar into Kenya which they repackaged and sold under the listed firm’s brand.

The allegations led to the sacking of CEO Peter Kebati, commercial director Paul Murgor and company secretary Emily Otieno after a KPMG audit found them culpable of the acts.

READ: Mumias Sugar puts top staff on notice over illegal imports

Mumias Sugar posted a second consecutive loss of Sh2.7 billion in the year to June 2014 after being Sh1.67 billion in the red a year earlier.

This is the third time Deloitte is being accused of professional misconduct in handling books of accounts of firms here in Kenya.

CMA in 2012 filed a complaint with ICPAK in relation to the conduct of Deloitte as the independent auditors of troubled CMC Holdings for failing to point out financial malpractices at the motor dealer including a secret account held in the island of Jersey.

Deloitte stands accused of failing to unearth a secret offshore account —funded through over-invoicing of CMC’s vehicle imports—and also used to discreetly siphon out cash from the motor dealer.

READ: CMA wants Deloitte penalised for ‘abetting’ fraud at CMC Holdings

ICPAK’s disciplinary committee, chaired by Uchumi chief executive Jonathan Ciano, completed the investigations in November but is yet to make its report public.

A director at Tuskys supermarkets has petitioned the accountants’ watchdog to investigate Deloitte over claims of concealing material information on registration of other companies without the mandate of the retailer’s board.

Mr Yusuf Mugweru says in a sworn affidavit that these companies have been used by his siblings to swindle Sh1.6 billion from Tuskys.

READ: ICPAK urges Tuskys to back claim against Deloitte