Forster named as top beneficiary of Jersey accounts
Former CEO of the CMC Motors Group Martin Forster (left) at a past launch. Photo/ FILE
CMC’s former chief executive Martin Forster actively managed the overcharging of the company’s vehicle imports with the aim of feeding illegal off-shore accounts of which he was a top beneficiary.
This is revealed in a forensic audit report by South African firm Webber Wentzel which details how the company adopted a credit-based sales strategy to push volumes that would ultimately increase the payments to the accounts.
As recently as 2006, Mr Forster wrote to Mr T. Sato, the general manager of Japanese trading company Sojitz Corporation, demanding the remittance of inflated vehicle import charges to the Jersey accounts.
“... the payment you know about and has been administered for years, according to you, cannot now be paid and we will still look to your company to find a way of affecting this payment,” Mr Forster wrote in the letter.
In an interview with Webber on November 29, 2011, Mr Forster had told the auditors that the over-invoicing of vehicles had ended in 1997 or 1998.
But when confronted with evidence of the letter in a second interview on January 19, 2012, he said the scheme had stopped “seven or eight years ago,” meaning around 2004.
“This communication appears to be a reference to a payment of the over-invoicing amount due not yet paid. This would seem to negate representations that the scheme had ended in 1997/1998,” Webber said in reference to the correspondence. In the second interview, Mr Forster said that he had written to Land Rover and spoke to the Japanese trading house in Nairobi terminating the overcharging arrangements because “he believed there were sufficient capital invested (in the scheme) to generate income for ongoing distributions to the selected beneficiaries.”
Land Rover, Nissan Diesel (UD), and Suzuki franchises were the main targets of the scheme where suppliers would inflated the vehicle prices by between 1.5 and two per cent.
Mr Forster benefited the most from the off-shore accounts, earning a total of £142,750 or 26.4 per cent of the £538,684 disbursed between 2008 and 2011. Other top beneficiaries include former CMC chairman Jeremiah Kiereini who was paid £32,000 and Forster’s son Greg Forster who was paid £19,500 over the same period.
Mr Forster told Business Daily that his efforts to wind up the Jersey accounts since his exit from CMC had been frustrated by the legal complexity involved.
In a bid to beef up the off-shore accounts, the motor dealer’s management rolled out a credit-based sales strategy to drive sales volumes through which the Webber report states CMC lost billions of shillings over the decades.
Although the full loss is not quantified, the auditors found that the company would pay more interest to financiers than it would receive in interest from clients buying on credit.
The aggressive sales drive also saw the company suffer from high default rates as deposit levels were lowered to 10 per cent of a vehicle’s value or less in some instances.
In the four years to 2011 alone, the cost of the credit extension –including bad debt write-offs-- amounted to Sh1.5 billion, with Webber saying the sales model was inspired to boost vehicle import overcharges that would be remitted to Jersey accounts.
Webber noted that the company’s finance cost exceeded its finance income by three times in each of the past four years and rose steadily in inverse proportion to its profits.
CMC posted its first net loss of Sh181.1 million in the year to September after a steady decline from the peak of Sh927.1 million in 2008.
The desire to raise sales was so strong that vehicles not yet delivered were booked as sales in the company’s financial statements, leading to an overstatement of profits.
Last year, for instance, the company revised down its net profit for the six months ending March 2010 to Sh188.9 million from the Sh303 million it had reported earlier. This saw its net profit for the six months to March last year remain flat at Sh187.6 million after the adjustment.
“The changes in the amounts disclosed have been done to afford comparability of the half year results,” the firm said in a statement signed by finance director Mary Ngige and the then chairman Peter Muthoka. The company at the time attributed the flat earnings to a drop in demand from the government and a deliberate decision to stop sales based on credit.
The Webber report however notes that the risky credit-based sales strategy continued despite the stated policy.
Mr Forster admits that the board was not aware of the strategy to sell vehicles on credit, saying it was a management decision. He however objects to the losses laid out in the Webber report.
Report badly swayed
“The report is badly swayed by Bill Lay (CMC’s new chief executive). At any one time, the company charged customers interest higher than its rate of borrowing,” he said.
“We made a lot of money on interest and I have the figures to prove it,” he said without giving details, adding that he will seek audience with the capital markets authority (CMA) later this week to voice his concerns.
Mr Forster, who has since joined a small trucks dealers along Nairobi’s Mombasa Road, says his problems started when he fell out with lead shareholder Peter Muthoka.
He says he negotiated with Marubeni, a Japanese trading firm, for an extension of credit period from 90 to 260 days for supply of New Holland tractors.
The supply deal was under a Cost, No Insurance & Freight (CNF) contract which means that Marubeni would include freight in its billings to CMC.
“Mr Muthoka, who was my supporter in the board, approached me and asked me to change the terms of the Marubeni contract to Free On Board (free of shipping services and costs thereof),” he said.
“He said his firm (Andy Forwarders) was interested in the tractor freight business but his charges were 90 per cent higher than Marubeni and I refused,” he added. After declining Mr Muthoka’s proposal, Mr Forster asked finance director Mary Ngige to investigate other contracts Andy had with CMC and brief him on any overcharges.
He adds that Mrs Ngige tipped Mr Muthoka of his directive, making the top shareholder to team up with other board members such as Paul Ndungu to sack him on March 14 last year.
Mr Kiereini was also forced out of the board and replaced as chairman by Mr Peter Muthoka less than a fortnight later as the newly rich directors worked in concert to control the firm.
But that co-operation was short-lived following a boardroom coup on September 8 when Mr Muthoka was replaced as chairman by Mr Joel Kibe, sparking one of the most vicious boardroom wars.
The ouster of Mr Muthoka came after Mr Lay accused his firm Andy of overcharging the motor dealer to the tune of Sh1.1 billion between 2006 and 2011.
