REPORT OF THE AUDITOR-GENERAL ON AGRICULTURAL DEVELOPMENT

CORPORATION FOR THE YEAR ENDED 30 JUNE, 2023

PREAMBLE

I draw your attention to the contents of my report which is in three parts:

A. Report on the Financial Statements that considers whether the financial statements
are fairly presented in accordance with the applicable financial reporting framework,
accounting standards and the relevant laws and regulations that have a direct effect
on the financial statements.
B. Report on Lawfulness and Effectiveness in Use of Public Resources which considers
compliance with applicable laws, regulations, policies, gazette notices, circulars,
guidelines, and manuals and whether public resources are applied in a prudent,
efficient, economic, transparent and accountable manner to ensure Government
achieves value for money and that such funds are applied for the intended purpose.

C. Report on Effectiveness of Internal Controls, Risk Management and Governance

which considers how Management has instituted checks and balances to guide
internal operations. This responds to the effectiveness of the governance structure,
the risk management environment, and the internal controls, developed and
implemented by those charged with governance for orderly, efficient and effective
operations of the entity.

An unmodified opinion does not necessarily mean that an entity has complied with all
relevant laws and regulations and that its internal controls, risk management and
governance systems are properly designed and were working effectively in the financial
year under review.

The three parts of the report are aimed at addressing the statutory roles and
responsibilities of the Auditor-General as provided by Article 229 of the Constitution, the
Public Finance Management Act, 2012 and the Public Audit Act, 2015. The three parts of
the report, when read together constitute the report of the Auditor-General.

REPORT ON THE FINANCIAL STATEMENTS

Adverse Opinion
I have audited the accompanying financial statements of Agricultural Development
Corporation set out on pages 1 to 53, which comprise of the consolidated statement of
financial position as at 30 June, 2023, and the consolidated statement of financial
performance, statement of changes in net assets, statement of cash flows and statement
of comparison of budget and actual amounts for the year then ended, and a summary of
significant accounting policies and other explanatory information in accordance with the
provisions of Article 229 of the Constitution of Kenya and Section 35 of the Public Audit
Act, 2015. I have obtained all the information and explanations which, to the best of my
knowledge and belief, were necessary for the purpose of the audit.

Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
In my opinion, because of the significance of the matters discussed in the Basis for
Adverse Opinion section of my report, the financial statements do not present fairly, the
financial position of the Agricultural Development Corporation as at 30 June, 2023, and
of its financial performance and its cash flows for the year then ended, in accordance with
International Public Sector Accounting Standards (Accrual Basis) and do not comply with
the Public Finance Management Act, 2012.

Basis for Adverse Opinion

1.0 Failure to Disclose Material Uncertainty in Relation to Sustainability of

Services
The consolidated statement of financial position reflects current liabilities balance of
Kshs.1,495,452,000 which exceeds the current assets balance of Kshs.798,453,000
resulting to a negative working capital of Kshs.796,957,548. Further, the Company’s
statement of financial performance reflects an operating loss of Kshs.29,612,000 resulting
to an increase in accumulated deficit from Kshs.1,239,254,000 as at 30 June, 2022 to
Kshs.1,251,552 as at 30 June, 2023. The Corporation is therefore, technically insolvent
and its continued sustainability of services is dependent upon support from the National
Government and its creditors. In addition, this material uncertainty has not been disclosed
in the financial statements.
In the circumstances, the Corporation’s ability to continue sustaining its services could
not be confirmed.
2.0 Receivables from Exchange Transactions
The consolidated statement of financial position and Note 21 to the financial statements
reflects receivables from exchange transactions balance of Kshs.432,044,000. However,
the following issues were observed; -
2.1. Unsupported Receivables from Exchange Transactions
Management made a provision for doubtful debts totalling Kshs.132,477,000 whose basis
was not provided. In addition, as previously reported, included in the balance is non-trade
debtors of Kshs.130,801,000 out of which Kshs.12,865,307 related to outstanding safari
advances. Management did not provide the details of the safari advances and no
explanation was provided as to why they were not surrendered at the closure of the
financial year as required by law.
2.2. Long Outstanding Trade Debtors
Review of the trade debtors’ records revealed debtors amounting to Kshs.238,614,013
which relate to entities that have since been wound up or their records cannot be traced
by the Management for verification as detailed in the table below;
Amount
Invoice Date Debtor (Kshs.)
2016 Vital Plantation 14,521,099
2016 Bushlands 7,682,448
2021 Boit James 3,853,816
2012 Africa Business Centre 3,727,125
Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
2
 2009 Chemelil Sugar Company 40,481,469
1993 KGGCU (KFA) 6,782,864
2009 KPCU 5,842,554
2013 Kenya Seed Company 7,793,265
2010 Ministry of Agriculture 45,105,883
2016 National Irrigation Board 91,365,213
2010 KCC-O30-Kitale 9,271,027
2015 Wondernuts Kenya Limited 1,635,250
2017 CAI Station 552,000
Total 238,614,013
In the circumstances, the accuracy and completeness of receivable from the exchange
transactions balance of Kshs.432,044,000 could not be confirmed.
3.0 Unsupported and Long Outstanding Payables
As previously reported, the consolidated statement of financial position and Note 26 to
the financial statements reflects trade and other payables from exchange transactions
balance of Kshs.1,427,985,000. Included in the balance are the Corporation’s non-trade
creditors amounting to Kshs.756,031,000 out of which payables amounting to
Kshs.154,030,000 relates to unpaid wages for casual laborers with Kshs.126,014,000
having been outstanding for more than one year and with some balances dating back to
the year 2001.
In addition, the balance includes outstanding unremitted Pay As You Earn (PAYE) tax of
Kshs.24,522,205 which had been outstanding for more than one year. However, the
Kenya Revenue Authority-I tax portal reflected a balance of Kshs.34,183,799 resulting in
an unreconciled variance of Kshs.9,661,594.
Further, trade creditors of Kshs.7,058,579 described as invoice to receive did not have
details of the creditors.
Moreover, included in the trade and other payables from exchange transactions are
payables amounting to Kshs.696,244,000 out of which payables amounting to
Kshs.568,099,806 have remained unpaid for more than two hundred and seventy (270)
days.
In the circumstances, the accuracy and completeness of trade and other payables from
exchange transactions balance of Kshs.1,427,985,000 could not be ascertained..
4.0 Property, Plant and Equipment
The consolidated statement of financial position and Note 23(a) to the financial
statements reflects property, plant and equipment balance of Kshs.1,225,948,000.
Review of records held by the Corporation revealed the following matters;
4.1. Inaccuracies and Inconsistencies in the Financial Statements
4.1.1. Unsupported Adjustments

The property, plant and equipment balance includes adjustments in buildings, fencing
and water supply, farm equipment, furniture and equipment and motor vehicles of
Kshs.25,171,000, Kshs.250,000, Kshs.34,090,000, Kshs.4,479,000 and Kshs.50,246
Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
3
respectively all totalling Kshs.114,236,000. However, these adjustments were not
supported by journal vouchers.
4.1.2. Unsupported Assets Balances
The property, plant and equipment balance of Kshs.1,225,948,000 includes
Kshs.1,022,691,000 in respect to leased farms, farms managed by ADC, building, fencing
and water supply. However, valuation reports and asset inventory for buildings, fencing
and water supply and leased farms were not provided for audit.
4.1.3. Revaluation of Assets
Review of assets movement schedule provided revealed that residual values over the
remaining useful life of assets are not estimated hence significant number of assets are
fully depreciated but still in use. In addition, the depreciation policy adopted under Note
4(d) in the summary of significant accounting policies in the financial statements does not
disclose how depreciation will be calculated and recognized in the year that an asset is
acquired or disposed.
Further, the Corporation has no assets and liabilities management policy contrary to
Paragraph 4 -(4.5) of The National Treasury Policy on Assets and Liabilities Management
in the Public Sector, June, 2020 which requires Public Sector Entities to align their policies
to this policy and policy guidelines issued by The National Treasury.
4.1.4. Unsupported Prior Year Adjustment to Depreciation Expense
Review of prior year net book value disclosed in Note 23 (a) under property, plant and
equipment differ with prior year audited account as tabulated below;
2021/2022
2022/2023 Audited Financial
Financial Statement Statements
Amount Amount Variance
Assets (Kshs.) (Kshs.) (Kshs.)
Leased Farms 220,000 216,000 4,000
Fencing and Water Supply 14,246,000 14,954,000 -708,000
Farm Equipment 166,528,000 166,711,000 -183,000
Motor Vehicles 144,549,000 138,592,000 5,957,000
Furniture and Equipment 22,492,000 22,491,000 1,000
Total 348,035,000 342,964,000 5,071,000

In the circumstances, the accuracy and completeness of the property, plant and
equipment balance of Kshs.1,225,948,000 could not be confirmed.

4.2. Lack of Motor Vehicle Ownership Documents

Included in the property, plant and equipment balance is an amount of Kshs.63,220,000

in respect to motor vehicle. However, review of copies of logbooks certified by CMC
Motors Group Ltd revealed that thirty-seven (37) motor vehicles with a net book value of
Kshs.2,246,255 are jointly owned by CMC Motors Group Ltd and original logbooks were
Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
4
still held by CMC. In addition, included in the corporation’s assets register is a vehicle
GKB100R that is in use at Galana Ranch. Available information revealed that the vehicle
had been handed to the Corporation by the Ministry of Agriculture. However, there was
no document provided to confirm the ownership of the vehicle.
In the circumstances, the ownership of the motor vehicles valued at Kshs.63,220,000
could not be confirmed.
4.3. Leased Land
4.3.1. Expired Lease Agreements
Review of the lease agreements maintained by the Corporation revealed that some of the
lease agreements had long expired and hence the tenants were in occupation irregularly.
The expired leases are for, Kudu Camp Galana, Drake Management, National Irrigation
Board, Sabaki Tropical Fruits Ltd and Bushlands.
4.3.2. Encroached Land
The Corporation entered into an agreement with a tenant for lease of land in Rumuruti
measuring 15,000 acres for fifteen (15) years. The lease was effective from
1 October, 2015 at a lease rent of Kshs.500 per acre per annum. It was noted that the
acreage changed from 15000 acres to 13,103 acres from 1 October, 2019. In a
correspondence dated 27 February, 2017, the surveyors had indicated that 1897 acres
had been lost due to illegal grazers invading the said piece of land. In addition, no further
correspondence has been seen to explain what has since transpired with the 1897 acres
that are no longer in the custody of tenant.
4.3.3. Unpaid Leases
An agreement was done to lease 5 acres for six (6) years in Tsavo East Wilderness Camp
with effect from 1 January, 2021. The rent payable was Kshs.15,000 per acre quarterly.
The tenant was to complete construction works in the leased land within a period of not
more than six (6) months from the commencement of the lease during which rent was not
payable. In the event the tenant was not able to complete the construction works within
the stipulated period, they were to apply for extension of a further period at least two (2)
months before the expiry of six (6) months. As at 23 April, 2023 there was no physical
development on the property or physical presence. Further, the lessee was not paying
the lease fees despite the grace period having lapsed.
In the circumstances, the completeness, accuracy and valuation of leases could not be
confirmed.
4.4. Farms Managed by ADC
Included in the property, plant and equipment balance is value of farms managed by the
ADC amounting to Kshs.521,513,000. Review of land records revealed the following
matters;
4.4.1. Lack of Land Ownership Documents
The balance includes parcels of land as detailed below whose ownership documents
were not provided for audit review;
No. Farm Acreage Location Reason

Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
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 1 Enchili 685 Mau Narok Title not processed - letter dated
11 July, 2023 from Ministry of Lands
informed the Corporation that farms
were bought by settlement fund
trustees in October, 2010 which is a
resettlement programme
2 Enchil 822 Mau Narok Title not processed
3 Enchil 225 Mau Narok Title not processed
4 Lanet 1504 Nakuru Title deed was not provided
5 Suam 300 Kitale Title deed was not provided
6 Ndabibi 2021.3 Nakuru Pending registration
7 Ndabibi 425.01 Nakuru Pending registration

4.4.2. Parcels of Land with Ownership Dispute

4.4.2.1. ELC Petition No.2 of 2022
There was an ongoing court case ELC Petition Number 2 of 2022 where the suit property
of 175 acres belonged to Lands Limited. The petitioner alleged to be the lawful proprietor
of all parcel of 200 acres land, Grant No.1.r 19981 having acquired from another owner
other than ADC in the year 2021.
4.4.2.2. KTL ELC Petition No E001 of 2023
There was an ongoing Court case in the Environment and Land Court at Kitale ELC
Petition Number 1 of 2023 for two parcels of land. The petitioner alleged that Land Limited
executed an instrument of transfer in respect to one parcel measuring 300 acres located
at Suam Orchard Farm at Kshs.1,238,350,000 and 5355/23 grant numbers and the
second parcel of land comprised of two titles situated in Trans-Nzoia County. On
1 December, 1997, in favour of the petitioner, Chief Land Registrar duly registered the
instrument of title in favour of the petitioner vide presentation book number 1140 of
18 April, 2000.

In the circumstances, the ownership of the above parcels of land could not be confirmed.
4.5. Farms Managed by the Corporation

Included in the balance is value of farms managed by the Corporation amounting to

Kshs.37,910,000 with the following issues; -
i. Included in the balance are seven (7) parcels of land whose ownership documents
were not in the custody of the Corporation. Records provided for audit revealed that
two of the parcels were charged against a bank loan with a commercial bank and the
loan was in arrears. Further, review of loan records for the commercial bank loan
reveal that the loan has been charged against four (4) parcels of land and shows that
the loan was in arrears of Kshs.156,389,000.
ii. In addition, although Management had indicated that the entity had leased some
parcels of land to various organizations, an inventory of all the leased parcels and

Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
6
 Board Policy to guide on the lease charges were not provided while the lease
agreements and receipts were not supported by lease valuation reports.
iii. A parcel of land in Molo sub-county has been encroached on by informal settlers
although the Corporation has secured ownership documents.
iv. As previously reported, the financial statements exclude the value of land measuring
about 2,908.42 acres known as Home Farm. The land was allocated to private
developers in the year 1994 under unclear circumstances. Although, Management
has explained that the matter is still under investigations, the status of the
investigations was not provided for audit review.
v. The property, plant and equipment balance excluded land of undetermined value
measuring 319.4 hectares located in Garissa Municipality which Management has
explained that was donated. No explanation has been provided for failure to value the
land and include it in their books.
vi. The financial statements reflect capital work in progress of Kshs.50,909,000. The
balance includes Kshs.8,549,000 incurred on construction of seed drier and store
project in Kitale that was started in the year 2006 and Kshs.23,681,000 incurred on
construction of a dam and store at Suam Orchards Farm also in Kitale. Review of
project progress report revealed that the projects had stalled.
In the circumstances, the accuracy, completeness, valuation and ownership of
Corporation land balance of Kshs.37,910,000 could not be confirmed.
5.0 Investments
The consolidated statement of financial position reflects an investment balance of
Kshs.467,283,000 as disclosed in Note 24 to the financial statements.
However, the following inadequacies were observed;
5.1. Non-Consolidation of Subsidiaries Financial Statements
Included in the investments balance of Kshs.467,283,000 are investments in shares held
in Chemelil Sugar Company Ltd of Kshs.203,592,000, Muhoroni Sugar Company of
Kshs.41,342,000, and Kenya Seed Company Ltd of Kshs.114,014,400 where Agricultural
Development Corporation holds 96.22%, 74.17% and 51,83% respectively which is more
than half in nominal value of share capital. However, the subsidiaries financial
performance and financial position are not consolidated in the Agricultural Development
Corporation consolidated financial statement as the holding company. Further, there is
no documentary evidence or disclosure notes in the financial statement for the exemption.
5.2. Unpaid Dividends from Investments
The Corporation holds investments at Chemelil Sugar Company Ltd of Kshs.203,592,000,
Muhoroni Sugar Company of Kshs.41,342,000, Kenya Grain Grower’s Co-op Union of
Kshs.1,123,424, Pyrethrum Board of Kenya of Kshs,35,640,000, Kenya Planters’
Co-operative Union of Kshs.24,960,000, and Agro-Chemical and Food Ltd
Kshs.16,900,000 respectively all totalling Kshs.323,557,424. However, no dividends have
been received for a considerably long time.
5.3. Unsupported Investment at Kenya Grain Growers Co-operative Union
Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
7
Included in the investment is an investment at Kenya Grain Growers Co-operative Union
of Kshs.1,123,424 of 70,214 Ordinary shares of Kshs.20 supported by various share
certificates. However, review of the share certificates revealed that 700 shares were not
supported by certificates.
5.4. Investment at Kenya Seed Company
Note 24 to the financial statements reflects investment of Kshs.467,283,000 which
comprises of investment of Kshs.114,014,400 in respect to 5,700,720 shares of Kshs.20
each in Kenya Seed Company bought in the year 1986 which is a holding of 52.88%.
However, there is ongoing case Nairobi HCC NO.575 of 2004-ADC-VS-Kenya Seed
Company & 9 Others since Kenya Seed Company issued for sale 4,000,000 Ordinary
Share to existing shareholder. However, the Corporation did not subscribe and floatation
resulted to dilution of shareholding from 52.88% to 40.28%.

Under the circumstances, the accuracy and completeness of investments balance of

Kshs.467,283,000 could not be confirmed.
6.0 Unsupported Receivables from National Livestock Project
As previously reported, the statement of financial position and Note 21 to the financial
statements reflects receivables from exchange transaction balance of Kshs.432,044,000.
Included in the balance is an amount of Kshs.37,914,000 in respect of the National
Livestock Project account that is claimable by the Corporation from the parent Ministry.
According to records, the project was started in the year 2006 when the Government
granted the Corporation an amount of Kshs.198,000,000 to purchase livestock under the
emergency off-take program in drought stricken arid areas. The amount was to be spent
on maintenance and daily running of the project operations. However, the balance of
Kshs.37,914,000 was not supported with documentary evidence to confirm that the
amount is reimbursable by the State Department of Livestock.

In the circumstances, the accuracy and completeness of the receivables on National

Livestock Project balance of Kshs.37,913,748 could not be confirmed.

The audit was conducted in accordance with International Standards of Supreme Audit
Institutions (ISSAIs). I am independent of the Agricultural Development Corporation
Management in accordance with ISSAI 130 on the Code of Ethics. I have fulfilled other
ethical responsibilities in accordance with the ISSAI and in accordance with other ethical
requirements applicable to performing audits of financial statements in Kenya. I believe
that the audit evidence I have obtained is sufficient and appropriate to provide a basis for
my adverse opinion.

Emphasis of Matter
Budgetary Control and Performance

The statement of comparison of budget and actual amounts reflects final revenue budget
and actual amounts on comparable basis of Kshs.2,418,928,000 and
Kshs.1,662,494,000 respectively, resulting to an unrealized revenues of
Kshs.756,434,000 or 31% of the budget. Similarly, the statement reflects final expenditure
Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
8
budget and actual on comparable basis of Kshs.2,226,799,000 and Kshs.1,709,261,000
respectively, resulting to under absorption of Kshs.517,538,000 or 23% of the budget.

In the circumstances, the under collection of revenue and under absorption affected the
planned activities and may have impacted negatively on goods and service delivery to
the public.
My opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in my professional judgment, are of most
significance in the audit of the financial statements. There were no key audit matters to
report in the year under review.
REPORT ON LAWFULNESS AND EFFECTIVENESS IN USE OF PUBLIC
RESOURCES
Conclusion
As required by Article 229(6) of the Constitution, because of the significance of the
matters discussed in the Basis for Adverse Opinion and Basis for Conclusion on
Lawfulness and Effectiveness in Use of Public Resources sections of my report, based
on the audit procedures performed, I confirm that public resources have not been applied
lawfully and in an effective way.
Basis for Conclusion
1.0 Unserviced Borrowings
Review of the loan records provided for audit verification including the inventory of the
tittle deeds for the land that the entity owns revealed that two of the entity’s tittle deeds
for parcels in Trans Nzoia County have been charged by a Commercial Bank for a loan
owed to the bank which was valued at Kshs.156,389,000 as at 30 June, 2023 of which a
monthly installment of Kshs.4,600,000 was to be paid. Review of the bank statement
further revealed that within the financial year, only installments amounting to
Kshs.8,846,391 were paid leading to accrual of interest and default charges amounting
to Kshs.17,659,485.
In the circumstances, Management was in breach of loan agreement and the entity’s land
is at risk of being auctioned.
2.0 Failure to Remit Statutory Deductions
The statement of financial position and Note 26 to the financial statements reflects trade
and other payables from exchange transactions balance of Kshs.1,427,985,000. Included
in the balance are deductions amounting to Kshs.255,889,129 not remitted to the
respective entities with some which have been outstanding for over twenty-three (23)
years as tabulated below:
Amount No. of Years
Details Ref No. (Kshs.) Outstanding
P.A.Y.E 9202 23,688,039.91 11
N.S.S.F 9204 23,659,509.15 24
Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
9
 Amount No. of Years
Details Ref No. (Kshs.) Outstanding
N.H.I.F 9205 1,587,994 6
Pension Scheme Deductions 9211 1,714,440.59 8
AGDECO Society Deductions 9212 175,239,144.12 11
Total 255,889,129

This was contrary to Section 19(4) of the Employment Act, 2007 which states that an
employer who deducts an amount from employees’ remuneration in accordance with
Subsection 19(1) shall pay the amount so deducted in accordance with time period and
other requirements specified in law, agreement, court order or arbitration as the case may
be.
In the circumstances, Management was in breach of the law.
3.0 Non-Compliance with Law on Ethnic Diversity
Review of the staff records revealed that the Corporation has two hundred and
seventy-eight (278) members of staff on permanent and pensionable terms out of which
one hundred and two (102) staff members or 37% of the total workforce were from one
ethnic community. This was contrary to Section 7(2) of the National Cohesion and
Integration Act, 2008 which states that no public establishment shall have more than one
third of its staff from the same ethnic community.
In the circumstances, Management was in breach of the law.
4.0 Staff Exceeding Mandatory Retirement Age
Review of the records maintained by the Human Resource Department including the
payroll and the staff bio-data revealed that a total of nine (9) members of staff in various
job groups were above the mandatory retirement age of sixty (60) years as at
30 June, 2023. Management did not provide any evidence that the said officers
possessed rare knowledge, skills and competencies, are willing to work under contract
and their performance shall not in any way be impaired by age as stipulated in Section
80(2) of the Public Service Commission Act, 2017.
In the circumstances, Management was in breach of the law.
5.0 Staff on Acting Capacity
Review of the records maintained by the Human Resource Department including the
payroll and the staff bio-data revealed that a total of two (2) members of staff have been
in acting capacity for more than the recommended six months. This is contrary to Section
C.14 (1) of Human Resource Policies and Procedures Manual for Public Service
May, 2016.
In the circumstances, Management was in breach of policy guidelines.
6.0 Lack of Contractual Agreements on Sale of Seed Maize
Review of Board minutes revealed that a meeting held on 28 June, 2022 had ratified
Agriculture, Livestock and Project Committee report on review of Kenya Seed Company
Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
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(KSC) contract on seed maize pricing to Kshs.114 from Kshs.74. The Managing Director
wrote to Kenya Seed Company Managing Director vide letter dated 12 September, 2022
Ref; ADC-HQ/TEC/OC/14/C/VOL.19 (126) confirming that ADC had agreed to the new
producer price of Kshs.95.57 per kilo of clean seed and requested KSC to finalize signing
of the contract.
However, the Corporation sold 7,891,048.83 Kgs of clean maize at a price of Kshs.88
amounting to Kshs.694,412,297 to Kenya Seed Company Ltd with no basis and without
entering into a contractual agreement resulting in loss revenue for the Corporation of
Kshs.59,735,160 using the agreed price of Kshs.95.57 per kilo. This was in contravention
of Section 135(1) of the Public Procurement and Asset Disposal Act, 2015 which requires
the Accounting Officer to sign a contract incorporating all the agreements.
In the circumstances, Management was in breach of the law.
7.0 Failure to Close Non-Designated Payment Platforms
As at the time of audit, the corporation was still operating on and receiving payments via
different pay bills after the 8th August, 2023 deadline. This is contrary to the Government
digitization plan that all ministries, government departments and agencies were directed
to terminate all non-designated payment platforms and migrate to the designated paybill
number by 8th August, 2023.
In the circumstances, Management was in breach of policy guidelines.
8.0 Under-Utilization of Feed Mill and Engineering Complexes in Kitale
During the physical audits to the Feed Processing Complex and Engineering Complex
carried out in the month of August, 2023, it was noted that the Corporation was operating
below its optimum as highlighted below;
8.1. Feed Mill Processing Complex
i. The feed mill equipment was very old and could not meet the huge demand for the
livestock feeds.
ii. The old equipment at the feed mill operates at very low efficiency, consumes a lot
of power and therefore high operation costs for the complex.
iii. The feed mill complex had an annual production target of 3500 tonnes of feed unit
but only managed to produce 2170 tons. This is 62.8% of the annual target hence a
shortfall of 37.2%.
8.2. Engineering Complex
i. The engineering service complex/machinery pool was poorly equipped to meet the
demand of repair services both externally and internally despite there being a huge
market for its specialized services.
ii. The complex had an annual revenue target of Kshs.53,598,673 but realized
Kshs.20,083,686 thus achieving 37% of its target from its four revenue streams -
code 1434, 1701, 1702 and 1703 resulting in a shortfall of 62.8%.

In the circumstances, Management has not effectively utilized the resources available.
Report of the Auditor-General on Agricultural Development Corporation for the year ended 30 June, 2023
11
The audit was conducted in accordance with ISSAI 4000. The standard requires that I
comply with ethical requirements and plan and perform the audit to obtain assurance
about whether the activities, financial transactions and information reflected in the
financial statements comply, in all material respects, with the authorities that govern them.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a
basis for my conclusion.

REPORT ON EFFECTIVENESS OF INTERNAL CONTROLS, RISK MANAGEMENT

AND GOVERNANCE
Conclusion
As required by Section 7(1)(a) of the Public Audit Act, 2015, because of the significance
of the matters discussed in the Basis for Adverse Opinion and Basis for Conclusion on
Effectiveness of Internal Controls, Risk Management and Governance sections of my
report, based on the audit procedures performed, I confirm that internal controls, risk
management and governance were not effective.
Basis for Conclusion
1.0 Use of Outdated Software and Stand-Alone Systems

Review of the Information and Communication Technology (ICT) environment of the

Corporation revealed that it uses a software called SERA blue version which covers
stores management, accounting modules, revenue, purchases, production, unit and cost
centers. However, the following anomalies were noted:

i. Although the contract for acquisition of the system was not availed for audit
verification, available information revealed that the system was acquired more than
twenty-five (25) years ago and thus its efficiency level is too low due to changes in
technology over time.
ii. There was no service level agreement with the vendor and thus maintenance of the
system is highly hindered.
iii. The system is not web based and thus the head office and regional offices are not
integrated.
iv. The acquisition and maintenance cost of the system could not be determined as no
documentation was availed as at the time of audit.
In addition, the Corporation’s human resource department uses a standalone memory
soft payroll system. However, the system is hosted within the HR department and not
shared with any of the farm and regional managers and hence the payroll officer must
print copies for HRM and other managers for checking. The system is not compatible with
the Sera Blue Version. Further, it was not possible to confirm the cost and time of
acquiring the system as the records of its purchase could not be traced.
In the circumstances, the Corporation may suffer compromised efficiency due to use of
ineffective ICT systems.

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2.0 Failure by the Corporation to Undertake Governance Audit
Review of the internal controls environment revealed that Corporation did not undertake
a governance audit as required by Section 1.13 of the Mwongozo Code of Conduct for
State Corporations.

In the circumstances, the effectiveness of the governance structure could not be

confirmed.
3.0 Unsurrendered Tablets from Former Board Members

Review of the records provided for audit including the board minutes and assets register
revealed that a total of seventeen (17) former directors of the Corporation did not return
tablets issued to them for official use. Although the resolutions of the board for recovery
are still in force, Management did not avail any evidence of initiating the recovery process
as stipulated.

In the circumstances, the effectiveness of the Corporation's controls on assets could not
be confirmed.
4.0 Composition of the Corporation Board
Review of the files of individual board members revealed that the chairperson does not
have a degree related to the operations of the corporation as required in the first
attachment of Mwongozo, some members did not have a degree but a diploma and two
board members did not attach their CVs for audit verification.
In the circumstances, the effectiveness of the governance structure could not be
confirmed.

The audit was conducted in accordance with ISSAI 2315 and ISSAI 2330. The standard
requires that I plan and perform the audit to obtain assurance about whether effective
processes and systems of internal control, risk management and overall governance were
operating effectively, in all material respects. I believe that the audit evidence I have
obtained is sufficient and appropriate to provide a basis for my conclusion.

Responsibilities of Management and the Board of Directors

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Public Sector Accounting Standards (Accrual
Basis) and for maintaining effective internals controls as Management determines is
necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error and for its assessment of the effectiveness
of internal controls, risk management and governance.

In preparing the financial statements, Management is responsible for assessing the

Corporation’s ability to sustain its services, disclosing, as applicable, matters related to
sustainability of services and using the applicable basis of accounting unless
Management is aware of the intention to liquidate the Corporation or to cease operations.

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Management is also responsible for the submission of the financial statements to the
Auditor-General in accordance with the provisions of Section 47 of the Public Audit
Act, 2015.
In addition to the responsibility for the preparation and presentation of the financial
statements described above, Management is also responsible for ensuring that the
activities, financial transactions and information reflected in the financial statements are
in compliance with the authorities which govern them, and that public resources are
applied in an effective way.
The Board of Directors is responsible for overseeing the Corporation’s financial reporting
process, reviewing the effectiveness of how Management monitors compliance with
relevant legislative and regulatory requirements, ensuring that effective processes and
systems are in place to address key roles and responsibilities in relation to governance
and risk management, and ensuring the adequacy and effectiveness of the control
environment.
Auditor-General’s Responsibilities for the Audit
The audit objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes my opinion in accordance with the provisions
of Section 48 of the Public Audit Act, 2015 and submit the audit report in compliance with
Article 229(7) of the Constitution. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISSAIs will always detect
a material misstatement and weakness when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis
of these financial statements.
In addition to the audit of the financial statements, a compliance audit is planned and
performed to express a conclusion about whether, in all material respects, the activities,
financial transactions and information reflected in the financial statements are in
compliance with the authorities that govern them, and that public resources are applied
in an effective way, in accordance with the provisions of Article 229(6) of the Constitution
and submit the audit report in compliance with Article 229(7) of the Constitution.
Further, in planning and performing the audit of the financial statements and audit of
compliance, I consider internal controls in order to give an assurance on the effectiveness
of internal controls, risk management and governance processes and systems in
accordance with the provisions of Section 7(1)(a) of the Public Audit Act, 2015 and submit
the audit report in compliance with Article 229(7) of the Constitution. My consideration of
the internal controls would not necessarily disclose all matters in the internal controls that
might be material weaknesses under the ISSAIs. A material weakness is a condition in
which the design or operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements caused by error or fraud in
amounts that would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal course of
performing their assigned functions.

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Because of its inherent limitations, internal controls may not prevent or detect
misstatements and instances of non-compliance. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.
As part of an audit conducted in accordance with ISSAIs, I exercise professional
judgement and maintain professional skepticism throughout the audit. I also:
• Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for my opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by Management.
• Conclude on the appropriateness of Management’s use of the applicable basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the
Corporation’s ability to sustain its services. If I conclude that a material uncertainty
exists, I am required to draw attention in the auditor’s report to the related disclosures
in the financial statements or, if such disclosures are inadequate, to modify my
opinion. My conclusions are based on the audit evidence obtained up to the date of
my audit report. However, future events or conditions may cause the Corporation to
cease to sustain its services.

• Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information and
business activities of the Corporation to express an opinion on the financial
statements.

• Perform such other procedures as I consider necessary in the circumstances.

I communicate with Management regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in
internal control that are identified during the audit.

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I also provide Management with a statement that I have complied with relevant ethical
requirements regarding independence and communicate with them all relationships and
other matters that may reasonably be thought to bear on my independence and where
applicable, related safeguards.

FCPA Nancy Gathungu, CBS

AUDITOR-GENERAL

Nairobi

05 April, 2024

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