KTDA on the spot over delayed release of forensic audit report

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Kenya Tea Development Authority (KTDA) Chairman David Ichoho. Promised that the report would be released in January. PHOTO/UGC

By JOSEPH ROTICH

newsdesk@reporter254.com

Top officials at Kenya Tea Development Agency (KTDA) and those who were sacked could end up in court once a forensic audit report into mega corruption at the tea agency is made public we can reveal today.

The audit report which was supposed to be made public in January is still being held under unclear circumstances more than four months after Tea Board of Kenya finalized its investigations.

Stakeholders in the tea industry have demanded for the immediate release of the forensic audit report that is said to have recommended far-reaching changes at the tea agency including prosecution of past and present senior managers.

Some of the senior managers at KTDA who survived the purge that resulted in the sacking of their colleagues are said to be frustrating the release of the audit report by the Tea Board of Kenya.

“We want the forensic audit report released immediately and handed over to key government investigative agencies led by the Ethic and Anti-Corruption Commission (EACC) so as action can be taken against those who have fleeced billions of shillings from KTDA,” a KTDA director from Kericho privy to the matter said.

Those privy to the findings of the forensic audit said it has borrowed heavily from other previous investigations into runaway corruption at KDTA.

Some of the earlier investigative reports adopted into the forensic report include; a special investigation contained in the Tea Industry Status Report, investigations into the collapse of Chase Bank in which KTDA lost Ksh 21 billion among others.

In December last year, KTDA chairman David Ichoho, said that results of the forensic audit into the tea agency and affiliate companies will be known by January this year.

Mr Ichoho said the forensic audit covers a period of five years and involves all KTDA factories, nine subsidiary companies and the KTDA Holdings.

Mr Ichoho said that besides determining the true financial status of the agency, the audit will further determine action to be taken against former directors, who were sacked on the onset of tea reforms being spearheaded by Agriculture Cabinet Secretary Peter Munya.

A special investigation contained in the Tea Industry Status Report shows that tea farmers are being double-charged through warehousing, brokerage, marketing, value addition and management fees.

Tea pickers at work in Kericho. PHOTO/COURTESY

The report says that Chai Trading Company Ltd a KTDA subsidiary that provides warehousing services, charges tea farmers warehousing fees ‘yet technically the farmers own the warehouses’.

The report reveals that Chai Trading Company Ltd charges farmers 0.5 percent of total value of tea sold by farmers as brokerage fees, yet KTDA Holdings Ltd charges them 2.5 percent total value of tea sold for all management activities including marketing which is a KTDA mandate.

“KTDA has a fully-fledged marketing department. Apart from conflict of interest, this is double charging the farmer for services that could have been conducted by one entity. Chai Trading Company Ltd is also paid 0.75 percent from the buyer and 0.5 percent from the producer of the same tea sold making a total of 1.25 percent,” the report notes.

It also emerged that KTDA has been stealing from tea farmers billions of shillings through an opaque and corrupt tea auction system called “Price discovery.”

KTDA handles between 160 million and 200 million kilogrammes of processed tea annually and about 60 percent of that processed tea is sold at Mombasa Tea Auction on Tuesdays all year round, where crooked, opaque and corrupt “price discovery” is done.

The other 40 percent is handled through private arrangement by the KTDA marketing department where certain players in the tea sector are given wealth on a silver platter.

Through this arrangement, tea is given to a Mombasa subsidiary of KTDA called Chai Trading Limited and some international tea buyers like Lipton which buys around 100 million kilogrammes annually from KTDA is allowed to buy tea that was not sold through the auction at below market rates.

During the tea auction multinationals and Chai Trading Ltd suppress the auction prices by bidding rock bottom prices as this result in tea brokers being unable to sell them the tea below reserve prices.

Thereafter the multinationals and Chai Trading go to KTDA’s marketing department on Wednesdays where they are offered the tea at rock bottom prices for premium tea.

Investigations have also revealed that tea farmers are being double-charged by the KTDA for different services rendered to them by the agency’s subsidiaries.

The Tea Industry Status Report shows that tea farmers are being double-charged through warehousing, brokerage, marketing, value addition and management fees.

Former Kenya Tea Development Agency CEO Lerionka Tiampati. PHOTO/COURTESY

The report shows that while KTDA manages two factories in Rwanda, the proceeds from this consultancy does not accrue to the Kenyan farmer.

“This is also a conflict of interest since KTDA is assisting the Rwanda tea to complete with Kenyan tea. There should be evaluation of the benefit of this venture in respect to Kenyan economy and income to the farmer,” it adds.

The report says that an assessment of the management fees KTDA charges farmers shows it is very high and there need for the same to be reviewed.

“As per the management agreement between factory companies and KTDA, the agency charge a management fee of 2.5 percent of net proceeds this has turned to be very high in relationship to the services offered by the agency,” it notes.
Report says that there should be a revision of the management agent fee downwards while other management agencies service providers can be allowed in so as to create favourable competition in this service provision.

It says that it is not justifiable for KTDA to charge agency fees at 2.5 percent of the total tea proceeds from the smallholder tea sub-sector when the factories are meeting much of the expenditure.

The report also cites the issue of conflict of interest among KTDA directors saying some of them are shareholders of some of the tea marketing companies.

“They are involved in the importation of cheap teas that is used to blend with cheaply bought quality farmers tea. Therefore their decisions as directors favour their companies and fleeces the farmer,” it notes.

In September 2019, Nyeri and Kericho senators Ephrahim Maina and Aaron Cheruyoit, wrote to the t Director of Criminal Investigations (DCI) George Kinoti, asking him to investigate KTDA following reports it lost Sh 21 billion following the collapse of Chase and Imperial banks.

The Senators said DCI should commence investigations as they awaited implementation of the report of the Ad-hoc committee on tea which among other recommendations proposed for the formation of a Commission of Inquiry to probe the operations of KTDA.

They also wanted KTDA investigated following complaints from tea farmers over the alleged hoarding of their earnings commonly referred to as bonus by KTDA and its subsidiaries.

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