Audit exposes financial rot and land grab at ADC

Auditor General Nancy Gathungu has given an adverse opinion on the Agricultural Development Corporation (ADC) books of accounts covering the period to June 30, 2024.

The audit revealed glaring inaccuracies throughout ADC’s financial records, including unexplained prior-year adjustments, missing supporting notes, and unsupported grants worth Sh198 million.

Gathungu said critical pages in the financial statements were omitted, and key disclosures such as bank account details and land ownership documents were either missing or incomplete.

ADC’s financial records were riddled with inaccuracies, from unexplained cash flows to undisclosed amounts received from government agencies.

Grants of Sh198 million were not supported by documentary evidence, making it hard for the auditors to confirm the accuracy, completeness and validity of the records.

In the same vein, ADC’s property, plant and equipment were valued at Sh1.19 billion, but the audit could not verify the accuracy or existence of these assets.

Significant portions of this value include leased farms and managed properties without proper valuation reports or ownership documents.

Auditors established that biological assets like sugar cane worth Sh43 million were wrongly classified under property and equipment.

“Valuation reports and asset inventory for buildings, fencing, water supply and leased farms were not provided for audit,” Gathungu explained.

A number of the corporation’s land parcels are also at risk of loss owing to protracted disputes and encroachment, the events clouding the corporation’s asset base.

Multiple parcels are embroiled in court cases, including one where 175 acres are claimed by another entity. The claimant argues that the land was acquired from another owner other than ADC.

Gathungu has flagged another four parcels detailing how they were used to secure a non-performing loan of Sh340 million, risking liquidation by the bank.

“The time taken so far, the interest accrued and the loan balance suggest that the loan is underperforming, which may lead to liquidation of the security by the bank,” the auditor warned.

The bank was owed Sh156 million as of July 2023. In yet another case, questions have emerged about how a lessor lost about 1,900 acres to illegal grazers.

The audit report shows that the tenant was given 15,000 acres of ADC land in Rumuruti at Sh500 per acre for 15 years.

Midway, from October 2019, the acreage changed to 13,100, and the surveyors indicated that the rest was lost due to illegal grazers invading the said piece of land.

Gathungu reports that no further correspondence has been seen to explain what has since transpired with the 1,897 acres that are no longer in the custody of the tenant.

The review further revealed that a number of farms managed by ADC had no ownership documents, including the Ndabibi land.

Titles were not presented for 685 acres of Enchii farms in Narok. Another portion of the same, one of 822 acres and another of 225 acres, had no title deeds.

Title deeds were not provided for some 1,500 acres in Lanet, 300 acres in Suam, while the Ndabibi parcels were pending registration.

“An inventory of all the leased parcels and board policy to guide the leases were not provided, while the lease agreements were not supported by lease valuation reports,” the report reads.

Gathungu also cited the unresolved case of Home Farm, where 2,900 acres were allocated to private developers under unclear circumstances.

Additionally, 37 vehicles with a net book value of Sh2.2 million were found to be jointly registered with a supplier, raising questions about true ownership.

The vehicles are jointly owned by Motors Group Ltd, which still retained the original logbooks, with no documents to confirm ownership of another one handed by the Agriculture ministry.

“Ownership of motor vehicles valued at Sh40 million couldn’t be confirmed,” the report reads in part, further highlighting how ADC land is equally exposed.

ADC has further been reprimanded for failing to collect Sh406 million that it is owed by debtors.

“There was no evidence provided regarding measures taken to recover these long-outstanding debts.”

Investments worth Sh467 million in subsidiaries such as Chemelil sugar, Muhoroni sugar and Kenya Seed Company were not consolidated into ADC’s financial statements.

This is despite ADC being the majority shareholder. “No dividends have been received from these investments for a considerable time, pointing to poor returns on public funds.”

An investment at Kenya Seed Company of Sh114 million is also challenged in court, the auditor casting doubt that it would end well with ADC.

The audit also uncovered serious irregularities in human resource management amid revelations that 37 per cent of ADC’s employees come from a single ethnic community, violating the National Cohesion and Integration Act.

Nine staff members were retained beyond the mandatory retirement age without justification and 18 employees had net pay below one-third of their basic salary, contrary to the Employment Act.

ADC’s internal controls were also deemed ineffective. It emerged that the corporation uses outdated, standalone software systems that are not integrated, hindering operational efficiency.

There is no approved staff establishment plan, and the asset register is poorly maintained; fully depreciated assets are still in use, while some assets listed could not be physically located. 

Board appointments were also irregular as members were appointed without the required qualifications, and key positions, such as an international finance expert and a representative for lenders, were not filled as mandated by law.

The board also failed to conduct an annual governance audit, as required. ADC reported a huge loss of Sh992 million, reversing a prior-year surplus.

Current liabilities exceed current assets by Sh915 million, and cash reserves have dwindled significantly.

“These indicators raise serious doubts about the corporation’s ability to continue operating without urgent government intervention,” Gathungu said.

INSTANT ANALYSIS

The audit portrays an institution riddled with financial indiscipline, weak governance and disregard for legal and regulatory frameworks. It reveals that public resources have not been applied lawfully or effectively, and ADC’s ability to deliver on its agricultural development mandate is severely compromised. Gathungu has called for immediate corrective measures, including enhanced oversight, regular audits, and adherence to statutory requirements, to restore accountability and ensure the prudent use of public funds.