Mumias Sugar Company: Analysis of Accounting System

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The Mumias Sugar Company is located in western Kenya. The company deals with the production and selling of sugar and is ranked the best sugar miller in Kenya and East Africa at large. The company processes sugar cane to sugar, packages and sells the sugar to both local and international markets. Mumias Sugar Company is among the leading sugar exporting companies in the COMESA region. The processed sugar is packaged and sold in various packages ranging from a quarter kilogram, half a kilogram, one kilogram, two kilograms, and in multiples of one kilogram. Apart from sugar processing, the company is the only one in East and Central Africa that produces its electricity from bagasse which is sold to the national grid.

The major customers of the company are both small-scale consumers and large-scale consumers. People around Mumias Sugar Company purchase sugar directly from the company usually up to twenty-five kilograms for home use. Supermarkets and other retailers purchase sugar from the company in large packages for sale to their customers. The sugar is also exported in bulk to countries like Tanzania and Sudan. The sugarcane used in producing sugar is purchased from local farmers. Most of the sugarcane farmers are located in western Kenya thus transport costs are incurred.

The Mumias Sugar Company has a strong management system that ensures the activities of the company run smoothly. The managers hold regular meetings to make major decisions in various aspects of the company. It has a strong accounting system in place. The accounting department has strong internal controls that ensure the company is not defrauded. Mumias also has an internal auditing department to facilitate regular auditing of the other departments. An external auditing firm is also hired and paid annually to audit the activities and financial statements of the company. Details of how the essential departments operate are discussed in this project.

Overview of the accounting system

The accounting system of this company is of interest as it controls all the other activities of the company. The department is concerned with the collection of cash from customers, paying the expenses of the company, and keeping records of the company. The various aspects of the accounting system are discussed in the subheadings below.

Control and auditing

Mumias Sugar Company has a strong internal control system that aids its activities. The internal control systems are to ensure that there is no fraud committed. The internal control system has its sub-departments ranging from the procurement department to the accounting department. The various departments are allocated different activities to ensure the controls are coordinated.

The procurement department issues receipts to farmers once sugarcane is purchased from the farmers. A counterfoil of the receipt is retained in the receipt book for counter-checking purposes. The information on the number of units of sugar cane sold to the company and the unit price is also recorded in a field book. This information becomes essential as it is used to prepare the final bills of the company and pay the farmers. Whenever a farmer comes to collect cash from the company they have to come with the original receipts issued to them during the purchase of the sugar cane to reduce fraudulent activities. Those who offer other services to the company are also given receipts showing how much the company owes them to facilitate the payment.

The receipts issued usually contain the seal of the company to avoid forgeries. Since people are notorious and could go-ahead to produce their own receipts and claim huge amounts from the company, the company has a stamp that must be seen on all receipts issued by the company. The date is also an essential aspect of the receipts as it facilitates the counter-checking of the receipts with the contents of the field books. The receipts are also indexed to avoid fake receipts from criminals.

In a bid to facilitate the auditing of the company’s finances by the company’s internal auditing department the department usually takes the counterfoils of the receipts and the field books for counter checking purposes. The internal auditing department can call a few numbers recorded in the field book to ascertain the authenticity of the recorded transactions.

Each transaction of the company is audited by the internal auditing department to ensure there are no ghost transactions. Since the company is expected to publish its financial statements each year, it hires an external auditing firm to audit its accounts and financial statements. This is a requirement for all companies in Kenya.

The managers are put on toes by the auditor’s report since if they fail to perform and the company is likely to go into liquidation the auditor will qualify this report. This means the shareholders will either change the management or call for the dissolution of the company and the other managers will have lost their jobs.

Revenue collection and cash cycle

The company makes both cash and credit sales. Sales to direct consumers are usually in cash as they never purchase much. However, retailers who are the major customers are allowed to purchase sugar from the company on credit provided they meet their pledges. The number of days allowed before one pays the company depends on various aspects and these aspects are usually recorded down for compliance. Some of the aspects considered include the number of units purchased and the past payment records.

However, a debtor should not take more than four months before paying the company. This way the company is able to maintain its liquidity as it is able to meet its short-term obligations as soon as they are due. Mumias Sugar Company tries to ensure that before they are required to pay the farmers, the debtors should have submitted their debts. Any debtor who fails to meet the terms of previous transactions is not allowed to purchase sugar in the future on credit. They are only allowed to purchase on a cash basis.

The expenditure cycle

The major expenditure of the company is the purchase of sugar cane from the farmers. Farmers are paid after every six months by the company. This is an agreement made between the farmers and the company when they enter the contract of sale. The company is thus allowed to collect sugar cane from the farmers on credit for a period of six months.

At the end of the six months, the accounting department comes up with the bills that the company is supposed to settle and the farmers are paid promptly. This ensures that at no time is the company declared bankrupt as a result of failing to pay its creditors. Salaries to the employees are also a major expenditure and they are paid on a monthly basis of course after scrutiny of the details in the payroll. Other services offered by the company are also paid for on a similar basis.

Human resource management and payroll cycle

The company has a human resource department that ensures proper management of the workforce. This department is charged with ensuring that the company has enough personnel at any given time while at the same time allocating roles to the employees. In a way, the company monitors the hours one utilizes working and the employees are paid based on those hours. Employees are usually rotated after a given duration of time from one job center to another. One does not know the next job center they are to work in since the rotation is random and this ensures fraudulent cases are minimized.

The department also hires extra staff whenever there is a shortage or a need for extra staff. This is facilitated by long hour-interviews that ensure the best personnel are employed selected to work for the company. Any dishonest employee is usually dismissed from the company by this department and those who fail to cooperate or produce expected results are also sent packing and their replacements are hired almost immediately. The department prepares the payroll depending on the hours worked and hands it over to the accounting department for payment. The payroll is scrutinized before paying the employees to avoid ghost workers on the list of workers (Ireland 2006).

General ledger and reporting system

This is done by the accounting department that keeps all the financial records of the company. To ensure proper records are maintained, the department keeps both a personal and general ledger. The accounts of various customers and creditors are maintained separately by the accounting personnel. The personal ledger contains these accounts with the names of the customers and creditors mentioned in the ledgers.

A general ledger that reports the various financial aspects of the company usually under given letterheads is also maintained. The ledgers are part of the accounting records kept for auditing purposes. A summary of accounts of all the transactions of the company in a given duration is provided in the general ledger. This reduces the time that one uses to examine the financial records of the company as these ledgers also come in handy when preparing the financial statements of the company at the end of the year.

The accounting department has the role of preparing the financial statements every year. These statements are prepared and presented in a form that can be published after auditing. Some of the financial statements prepared by the company include; a balance sheet, a statement of financial performance, and a cash flow statement (Cuomo 2008).

The balance sheet is to report the financial position of the company. The balance sheet is usually audited both internally and by the external auditor before availing it to the general public. This is also done to the cash flow statement and the statement of financial statement. International financial reporting standards are applied when preparing financial statements. They are usually accompanied by financial policies and other factors considered in preparing the statements in the form of notes. The financial statements are published together with the auditor’s and director’s reports.


In general, the company has a strong accounting system and a strong internal control system. The two departments are the reason the financial aspects of the company are always maintained at a given level to avoid falling short of funds. The internal controls besides aiding in the financial aspects of the company, also ensure that fraudulent activities do not go unnoticed and those who commit these activities do not go unpunished. The department uncovers such acts and recommends future ways of ensuring they do not happen.

The human resource department ensures that Mumias has the right personnel in terms of skills and numbers, thus at no time does the company fall short of personnel. The department dismisses dishonest employees and those who fail to meet the required standards of performance. It also finds the appropriate replacements in time for dismissed employees.

This company is a success because of these departments that work hand in hand. The management structure is also strong and most of the time willing to spend more hours working to ensure the most appropriate decisions are made as far as running the company is concerned. The company is likely to perform better in the future as the managers are always on toes and up to date with the day-to-day activities in the company.

The auditors should keep up the good work of reporting on the truthfulness and fairness of the accounts and financial statements prepared by the company. Mumias Sugar Company is a company worth emulating as it carries out its activities in a unique and right way.


Cuomo, Serafina. Ancient mathematics, London, UK: Routledge, 2008, Print.

Ireland, Lewis. Project Management. London, UK: McGraw-Hill Professional, 2006, Print.

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