Kapkoros Tea Factory under scrutiny over financial audits

The management of Kapkoros Tea Factory is facing legal action from a group of its shareholders, who are also farmers and members of Olenguruone Tea Factory, over alleged financial audit violations.

The shareholders, represented by Chepkoech Koech and Company Advocates, claim that the company's financial reports for the year ended June 30, 2024, were prepared in violation of Kenyan laws, including the Accountants Act CAP 15 and its regulations, as well as the International Financial Reporting Standard 10 (IFRS 10).

The controversy stems from the company's annual general meeting on December 6, 2024, where the Board of Directors presented its annual report and financial statements.

The lawyers argue that Kapkoros Tea Factory PLC, as a parent company with four wholly-owned subsidiaries (Kapkoros Tea Factory Ltd, Tirgaga Tea Factory Ltd, Olenguruone Tea Factory Limited, and Motigo Tea Factory Ltd), is legally required to present consolidated accounts but has never done so.

The shareholders also accuse the company's auditors, BACE Partners LLP, of negligence and intentional misrepresentation.

“The auditors chose to turn a blind eye to the glaring intentional misrepresentation of Financial Reports by the directors,” the letter reads.

The letter alleges that this lack of transparency leads to "defective resolutions, hence fraudulent compensation of shareholders".

“We request that the Institute of Certified Public Accountants of Kenya (ICPAK) initiate a review of the annual report and find that it does not comply with the law,” the letter signed by Martha Koech reads.

The farmers have also requested that ICPAK undertake disciplinary action against BACE Partners LLP, the accountants of KTDA MS, and the directors of Kapkoros Tea Factory PLC for their roles in the irregularities.

Despite the allegations, the company's chairman, David Korir, reported a significant increase in crop production for the year, with green leaf delivered rising by 20.96 per cent to 112,643,249 Kgs.

The company also saw a favorable increase in tea prices, with the average price per kilogram of made tea rising to Sh308.38, a 1.38 per cent increase from the previous year.

The chairman's report also outlined several achievements, including factory expansion, modernization, and operational enhancements.

The report, however, did acknowledge some challenges, such as low absorption rates at the tea auction and rising production costs.