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November 28, 2011

Pyrethrum growing sector in Kenya faces many challenges

by Paul Wafula

In July 2008, then Kenya Pyrethrum Growers Association national chairman Justus Monda dismissed reports that pyrethrin stock worth over Sh1.5 billion had been stolen from the State-owned corporation.

He said the money had been used in 2004 by the Pyrethrum Board of Kenya (PBK) to clear an outstanding bank overdraft.

This was not the first time allegations of the mysterious loss of the insecticide killer ingredient were made.

In a Parliamentary Select Committee on Agriculture hearing, Mr John Macharia Kamau, a farmer in Narok, informed MPs investigating the collapse of the industry that farmers were not paid their 2002 bonus and for their 2003 deliveries, only to be told that “rats ate” their produce.

But unclassified records seen by Smart Company show that top managers at the Pyrethrum Board of Kenya (PBK) conspired to loot over Sh2.7 billion worth of pyrethrin stock between 2001 and 2005, pushing the State-owned corporation to its knees.

The documents that vindicate a forensic audit adopted by Parliament in February 2009 also suggest that delay by the prosecuting arm of the government to act on corruption cases may have abetted the decade-long plunder of PBK’s resources.

The records also reveal that channels of corruption ran deep and spanned the tenures of several management teams that conspired to dip their hands into the tills of the parastatal.

“Between 2001 and 2005, PBK lost stock worth Sh2.7 billion. The Criminal Investigations Department was called to investigate the losses. The CID has not submitted its findings to date,” read a management audit report prepared by the Inspectorate of State Corporations for the Office of the President.

The management report shows that as late as October 2007, PBK had no policy or systems on imprest and advances, enabling more than 670 of its staff and board members to get cash at will.

“No imprest register is maintained and as the team found out, board members and staff had left PBK with huge debts whose recovery is uncertain. As at 1 October 2007, debts totalling Sh21,159,152.80 were owed to PBK by both staff and board members,” reads the report.

The fact that the debts have been pending for more than six years further dims hopes of the firm ever recovering these monies since the current legislation favours debtors.

Trouble at the firm first emerged in March 2003 after a fire broke out at the PBK factory in Nakuru and extensively damaged one of the extraction plants.

Consequently, due to huge stocks of pyrethrum flower which were vulnerable to degradation, PBK was given authority by the government to transport it in grist form to Rwanda for processing.

Grist weighing 2,381.22 metric tonnes was transported to Rwanda, warming up relations with the Rwandese nationals and effectively taking graft to the regional level.

“The expectation of the board was that after extraction, 23,500.37 kilogrammes of pyrethrin was to be received from Rwanda. However, only 18,073,31 kilogrammes were received. Pyrethrin equivalent to 6,043.75 kilogrammes were never received at PBK.

“The board flouted the contents of the agreement signed between Rwanda and PBK and huge payments were made in cash as opposed to the agreed mode of payment through telegraphic transfer,” read the report.

Although the matter was recommended for investigation by the defunct Kenya Anti-Corruption Commission (KACC), not much ground has been covered.

“We are also concerned that despite telling evidence, the KACC is yet to take any action on the matter. As a committee, we are preparing to take on the KACC to find out why they have not acted as advised or if they also participated in the cover-up,” said Mr John Mututho, the chairman of the Parliamentary Select Committee on Agriculture after a meeting that resolved to stop the State corporation from selling its assets in efforts to revive its operations.

The financially-troubled PBK is seeking government approval to dispose of part of its Sh4 billion assets to jump-start its operations.

The current managing director, Dr Isaac Mulagoli, said the board needs about Sh300 million for smooth operation, including servicing of loans and settling farmers’ dues.

“We are also preparing a legal framework that will liberalise the pyrethrum sector to avoid a repeat of the theft that was witnessed at the Pyrethrum Board of Kenya as well as give farmers an opportunity to have a choice when it comes to selling their flowers,” said Mr Mututho.

The forensic report reveals that then managing director Polyne Sego flouted government procedures and regulations and went against the board’s advice and some junior employees, who questioned unilateral decisions to make huge payments for the purchase of pyrethrum from Rwandese firm SOPYRWA to supplement declining local production.

“The managing director ignored proper advice given to her by the board, refinery manager, finance manager, and the management staff finance committee. Huge payments were paid to SOPYRWA at the expense of farmers. Most of the officers opposed to the importation have since been dismissed,” said the report.

The report recommended that Mrs Sego be held accountable for flouting government procedures by purchasing oleo resin from Rwanda before submitting the proposal to the tender committee.

“The idea to import oleo resin was noble, but the implementation was improper as government procedures and regulations were flouted with impunity by the managing director, Mrs Polyne Sego,” a report by the Inspectorate of State Corporations noted in the 2007 report.

It recommended that the MD be held accountable for approving the down payment of $500,000 (Sh36,500,000), in breach of the agreement and against the advice of the finance manager.

The board had also invested Sh150 million in the collapsed Euro Bank, contrary to the State Corporations Act, which required it to handle the money “in a manner directed by Treasury”.

“There was no authority granted by Treasury for investing such colossal amounts of money in Euro Bank,” the report said.

But it is the way the firm kept its financial records that exposed the depth of misappropriation.

According to the audit, PBK’s cash books, telephone, advances, and imprest registers were neither maintained nor kept as required.

The firm, as at October 2007, was operating more than one cash book and 20 local and five foreign bank accounts.

Sixteen of the local bank accounts were regional and their main purpose was to facilitate payments to farmers. The audit report shows that management was only able to provide information on 11 of the regional accounts.

“Despite the frequent enquiries by the team about the position of the last five accounts, no information was availed by management,” said the report. “Examination of the cash books availed to the team revealed that they were in shambles,” it said.

The team found that no reconciliation of cash books had been done for more than four months, neither were records of transactions maintained.

During random spot inspection, it was observed that cheques amounting to Sh252,841 written between March 2005 and June 2007 were still kept by clerks. Most of the cheques had gone stale, yet they were neither cancelled nor replaced.

“This clearly indicated that the amount indicated in financial reports as paid to farmers does not reflect a true position of arrears payable to them,” the report noted.

For residents of Nakuru who saw the factory in full operation in yesteryears, it would seem like a fairy tale to ask them to recall how it was when lorries laden with pyrethrum flowers from Kisii, Nyandarua, Limuru, Naivasha, Gilgil, Mau Narok, Molo, and Subukia would deliver their load before 2003. The silence now is deafening.

The Nation

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