However, during a press briefing the following month, Ciano announced that the retailer would use the money to open 13 new branches in Kenya, Uganda, Tanzania and Rwanda.
It is this confusion and misinformation that set the stage for the misuse of the Sh895 million raised from the rights issue. The money was received through an account at Equity Bank set up by Faida Investment Bank. Some Sh876.8 million was deposited into this account in December 2014. Another Sh19 million was received in January bringing the total to Sh895 million. The account had a balance of Sh2 million before the installments were received.
The funds were then wired to Uchumi Supermarkets’ account at the Kenya Commercial Bank (KCB). This was not the end of the transfers. They were once more moved to the company’s main trading account, also held at KCB. Okumu did not ensure that a separate bank account was set up for the rights issue proceeds.
The reconciliation accountant at Uchumi told auditors that the finance boss issued a directive that the funds should be transferred to its receivership account instead of opening an escrow account. Okumu later asked his finance team to familiarise themselves with the guidelines and ensure all escrow account transactions were separated from normal trading transactions.
But whereas the guidelines on operating a special purpose escrow account requires that special accounts must not be used for trading activities or to reimburse branch expenditures, the audit found that Sh.812 million of the proceeds were used in financing trading activities. The firm used Sh412 million to settle outstanding supplier payment and rights issue expenses in Kenya. Another Sh150 million and Sh250 million was used in Tanzania and Uganda respectively, mainly to also settle outstanding supplier payments. “The purpose of the rights issue as communicated to the public was to finance the opening of 13 new branches and refurbish existing stores.
From our review, we found that only one branch was opened after the rights issue proceeds were received,” the report adds. In actual fact, the 13 branches said to have been opened had already been opened before the rights issue was completed. Also, Sh220 million set aside for refurbishments in Kenya was also utilised in paying suppliers.
The following investigative report was first published in the Standard.
