Reference no: EM133299863

SACKED Uchumi CEO Jonathan Ciano was the major supplier of fresh produce to the retailer's outlets and always paid himself before other suppliers, the firm's new boss has revealed.

Detailing the massive fraud that he has so far unearthed from the company's records, new CEO Julius Kipng'etich said several other Uchumi managers were running parallel shops which they may have been stocking with items stolen from the retailer's stores.

"Nobody knew the extent of the loss before, even me. I based my decision to come work here on the half year results which showed the firm had a loss of Sh262 million and I thought at the time this was easy to turn around...I looked at the track record of the firm based on the accounts and felt it would be easy to turn it around, until I arrived here and started digging further," Kipng'etich told the Star in an interview.

"I realised this company was in a deep hole," he said.

Supplier debt, preliminary investigations show, was severely under-stated at Sh750 million yet it stands at Sh2.2 billion. This has raised questions over whereabouts of the Sh500 million loan the firm got last year to help settle dues owed to suppliers.

"He (Ciano) was a major supplier of fresh produce and he used to pay himself in advance. It's terrible," Kipng'etich said.

In addition, the new management said the Sh1 billion rights issue money cannot be accounted for. Following the findings, the company has now banned its employees from conducting business with the firm directly as suppliers or indirectly to eliminate conflict of interest and corruption.

"Uchumi did not fall because there was no business or because suppliers hated it or because the employees did not work hard enough; it fell because of mismanagement," Kipng'etich said.

He added that as a result, the new management has had to take "painful" decisions to try and turn around the business including sacking 1,977 temporary and workers from its regional subsidiaries or 55 per cent of its workforce. The company has remained with 1,740 employees.

However, Ciano on his part told the Star he is yet to get any reports on him from the new management, since he was sacked on June 15. "I do not respond nor comment on former employer matters as I have no reports from them even after eight months," he commented.

A report on fraud at the company has been forwarded to the Capital Markets Authority as well and the Director of Public Prosecution for further action on the ex-managers of Uchumi.

CMA has acknowledged receiving the report on the forensic investigation done by KPMG. "The authority has highlighted to the company areas for further necessary work to support the depth and clarity of the report. Once the findings of the audit have been finalized and adopted by the company, we will work with its management and board to inform the scope of actions on its findings," CMA said in an email response.

However, Kipng'etich assured shareholders that a new business strategy will improve the company's fortunes since focus on mass market has catapulted firms such as Equity Bank to massive success.

QUESTION

Explain the appropriateness or inappropriateness of application of any three (3) vital responsibilities of the Board of Directors as is drawn from the case.