Companies

Portland Cement hires E&Y to probe multiple revenue leakages

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East African Portland Cement Company (EAPCC) Managing Director Simon Peter Ole Nkeri. FILE PHOTO | NATION MEDIA GROUP.

Portland Cement has hired Ernst & Young (E&Y) to conduct a forensic audit of its business as it emerged that the company is technically bankrupt and may have lost stock worth approximately Sh900 million from its warehouses over the past two years.

E&Y will investigate the State-owned firm’s increased indebtedness, huge supplier balances and massive loss of cement from its depots which have left it technically insolvent to the tune of Sh2.8 billion.

Loss-making Portland has also disclosed that seven of its depots have been closed in the past two years as cement worth Sh400 million disappeared in Uganda while its Kenyan business lost stock worth Sh500 million.

E&Y has also been hired to investigate further losses of at least Sh320 million which Portland may have incurred through “unfavourable rebates given to some distributors and corruption linked to clearing and forwarding agencies.”

“The Board instructed that the forensic audit be done to determine the underlying reasons for the poor performance and financial crippling witnessed over the last couple of years,” Portland’s management told the Business Daily.

“E&Y won the bid to undertake the forensic audit and started work on November 7. Efforts to undertake such an audit for the past four years have been thwarted and frustrated by the previous management.” The Treasury owns 25 per cent of Portland and NSSF 27 per cent with LafargeHolcim controlling 41.7 per cent.

Portland’s management says it has not yet indicted any of its staff following the pilferage, but has made changes at the heads of department level awaiting the findings and recommendations of the forensic report “within a month.”

These massive losses partly explain Portland’s persistent financial woes and shareholder wrangles that have seen shareholders accuse the company’s management of cooking its books to conceal the dire state of the firm.

Kephar Tande, Portland’s former managing director, exited the company in June after over five years in charge. He was replaced by Simon Peter Ole Nkeri a month later.

Mr Nkeri, in a Facebook post, acknowledged existence of malpractices and “corruption cartels and networks.” “As we fight against these nightmares, the corruption cartels are already fighting back to derail the process of turning around EAPCC and to scamper our bid to turn around its fortunes,” he said on the social media post.

The chief executive was reacting to an expose by the Business Daily which revealed that the cement maker was technically insolvent with its current liabilities of Sh4.96 billion outpacing its current assets of Sh2.11 billion.

READ: Portland Cement audit now finds Sh3bn insolvency

What this means that if the company’s creditors recalled their liabilities today, the NSE-listed firm would not be in a position to settle them within one year.

Auditor-General Edward Ouko, through an audit report done on his office’s behalf by consultancy firm Deloitte & Touche, took exception with Portland’s “ability to continue as a going concern.”

Deloitte’s report, which covers the year to June 2016, also revealed operational gaps which could have been exploited by unscrupulous employees to enrich themselves. A pointer to this possibility was the fact that stocks were overstated by Sh791 million.

“A comprehensive analysis of the source of the variance would allow management to identify how they arose – whether due to fraud or error,” Deloitte noted. Other red flags were unexplained expenses on stock purchases, employees who exited the company without settling millions of shillings in salary advances and money being received but not allocated to specific transactions.