US tobacco firm to audit Sh4bn gaps at Kenyan subsidiary
What you need to know:
The company noticed the gaps during its restructuring that begun mid this year. It, however, did not indicate if it was looking at criminal conduct or professional malpractices.
The decision is, it said, due to the global fall in demand for tobacco products as a result of gains that have been made by health campaigners.
US-based tobacco firm Alliance One is sending auditors to assess the operations of its Kenyan subsidiary after noticing discrepancies at least Sh4 billion.
The company noticed the gaps during its restructuring that begun mid this year. It, however, did not indicate if it was looking at criminal conduct or professional malpractices.
Alliance One said will send a legal and accounting team to confirm the actual amount involved.
“Available information suggests that the discrepancies may stretch back to 2008 or earlier and could reach approximately $40 million (Sh4.2 billion in aggregate). Because AOI has been unable thus far to determine the timing and amount of these discrepancies, no conclusion has been reached regarding materiality,” said the firm in a statement.
“Independent counsel and forensic accountants have been engaged to help determine the nature and timing of the acts that caused the discrepancies and identify the parties responsible.”
The Kenyan subsidiary has been generating EBITDA of between Sh240 million and Sh250 million over the last five years.
The firm announced that it was scaling down its Kenyan operations in June and stopped contracting tobacco leaf farmers and extension services in Migori County.
Fall in demand
The decision is, it said, due to the global fall in demand for tobacco products as a result of gains that have been made by health campaigners.
Alliance One had contracted 1,000 farmers in Migori to grow the crop processed at its Thika-based plant. It exports all the produce. The facility will now only process tobacco leaves sourced from Uganda.
Another manufacturer that recently ran into problems over accounting discrepancies locally was Tiger Brands, which sent home top managers over reporting malpractices.
Listed retailer Uchumi has also hired KPMG to undertake a forensic audit after posting losses and cash flow mismanagement that left branches with empty shelves.
Alliance One did not mention how much the restructuring will cost but other firms have paid millions of dollars to see off staff. Ingredion, another American firm that left the Kenyan market in 2012 due to difficulties in securing a steady supply of maize said its exit cost Sh1.76 billion.
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