AUDIT REPORT: Kenya’s bullet factory misses financial target

According to an audit study, Kenya’s bullet factory failed to meet local demand due to a larger financial loss of Sh694.3 million for the year ending June 2019.

Kenya Ordnance Factories Corporation (KOFC) losses climbed from KSh470.8 million in the year to June 2018, according to Auditor-General Nancy Gathungu.

Kenya’s military and police have been utilizing bullets made in an Eldoret facility since 1997, with the deficit imported.

According to the disclosures, KOFC made KSh590.9 million in sales against a cost of KSh1.3 billion, resulting in a trading loss of KSh694.3 million.

“The management said that the high losses sustained were due to ineffective, old, and worn-out machinery whose performance stands at 40%, as a result of which they were unable to meet domestic demand,” Ms Gathungu wrote in a report filed in Parliament on August 9, 2021.

KOFC is responsible for the production of military hardware, machinery, and equipment. It manufactures small guns ammunition for domestic use and sells the surplus.

Ms Gathungu questioned KOFC’s failure to put to use machinery that has remained idle since the factory’s construction 24 years ago.

She claimed that machinery of unknown worth had been installed, either partially or completely. Two anvil piecing machines, one prima cap making machine, five prima polishing machines, and a tracer bullet loader are among the machines.

“The machinery has been inactive since the factory was created,” Ms Gathungu said, adding that the situation was in violation of section 72(1)(a) of the Public Finance Management Act of 2001.

Additional acreage is required for the bullet plant.

The company needs an additional 900 acres to meet international standards.

According to Auditor General Nancy Gathungu, the firm’s management requested an extra 908 hectares from the government.

This was done in order to meet the factory’s needed safety distance, after which an assignment letter for extra land was granted.

To meet international safety standards, KDF’s bullet plant in Eldoret will require an extra 900 acres.

According to available information, the corporation holds title documents for land measuring 727.7 hectares on which the facility is located, according to Auditor General Nancy Gathungu’s latest report on the company.

According to her, Kenya Ordinance Factories Corporation requested an additional 908 hectares from the government in order to meet the factory’s mandated safety distance, and an assignment letter for the additional land was issued as a result.

“The process of surveying the additional 908 hectares began in February 2011 but was halted due to informal settlers who refused to allow surveyors access to the land in the buffer zone, which is required to ensure the safety of the people in the neighborhood and the factory’s security in accordance with International Standards,” Gathungu writes in the report.

She claims, however, that none of the land parcels, including those with the property registration numbers Kakamega/Sango/1970, LR No.27206/1, and LR No.27206/2, measuring 0.48 hectares, 2,545 hectares, and 727.1 hectares, have been appraised and listed in the firm’s financial records as assets.

Buildings and civil works, water lines, work in progress, plant equipment and machinery, motor vehicles, furniture and fittings, and computers, she writes, make up the firm’s property, plant, and equipment net book value balance of KSh2,986,420,609 as of June 30, 2019.

She claims, however, that the assets register is incomplete, and hence the asset value of around KSh2.9 billion cannot be accurately determined.

Gathungu said the company budgeted KSh1.4 billion in income for the 2018/19 financial year, but only Sh1.3 billion was realized.

“A revenue shortfall of KSh118,130,498 or 8.4% of the planned amount emerged as a result,” she stated.

The corporation’s expenditure budget was KSh1.4 billion, while actual expenditure was Sh1.5 billion, resulting in a KSh88 million overspend.

According to the audit report, the company suffered an overall trading loss during the period under examination, which ended on June 30, 2019.

Sales of Sh590.9 million were recorded against a cost of sales of KSh1.3 billion in the financial accounts, resulting in a trading loss of KSh694.1 million, or 117.5 percent of total sales.

“Heavy losses were incurred due to ineffective, old, and worn-out machinery whose performance stands at 40%, thus could not match the domestic demand for the items,” Gathungu said in the study.

Along the Eldotet-Kitale road, the firm is near to the Moi Barracks Recruits Training College.