The Kenya Union of Savings and Credit Co-operatives (Kuscco), the umbrella body for SACCOs in Kenya, has been rocked by a massive financial scandal, revealing that top executives siphoned off approximately Sh580 million annually over a decade. A forensic audit by PricewaterhouseCoopers (PwC) exposed gross mismanagement, financial irregularities, and potential criminal activities within the organization. This has led to the arrest of several officials and placed the savings of 247 SACCOs at risk.
Key Findings of the Forensic Audit
The PwC audit uncovered a complex web of fraudulent transactions, including:
- Non-Performing Loans: Sh3.7 billion in non-performing loans.
- Overstated Profits: Nearly Sh798 million in overstated profits over the last six years.
- Irregular Commissions: Sh2.7 billion in irregular commissions.
- Mismanagement of Central Finance Fund: Sh1.3 billion in mismanagement of the central finance fund.
- Concealed Expenses: Expenses worth Sh3.7 billion were concealed to overstate net earnings.
- Questionable Withdrawals: Executives withdrew over Sh5.47 billion without proper authorization.
- Dubious Loans: Executives accessed loans totaling Sh61.5 million without board approval.
Forgery and Manipulation of Financial Records
Adding to the gravity of the situation, the audit revealed that Kuscco’s cooked financial accounts were signed by a dead auditor, Alfred Basweti, indicating forgery. This points to a deliberate effort to conceal the large-scale theft and manipulation of financial statements to report non-existent profits.
Unexplained Bank Withdrawals and Cash Dealings
The audit also highlighted unexplained bank withdrawals and cash dealings designed to exclude banking trails. For instance, between 2018 and 2023, Sh206 million may have been stolen through withdrawals from Kuscco SACCO’s savings bank account under the guise of replenishing cash at Kuscco Fosa branches. Further investigation revealed that Sh839 million was withdrawn from Kuscco’s bank accounts, but only Sh633 million was received physically in the Fosa’s strongroom, indicating a loss of Sh206 million.
Officials Implicated and Their Actions
Several top officials have been implicated in the scandal. Former Kuscco CEO George Otieno Ototo is under scrutiny for demanding Sh120 million in retirement perks amidst the Sh13 billion fraud. The audit also mentions Mr. Ototo in many of the things that went wrong at Kuscco. Francis Wande, Kuscco’s main cashier, stated that Mr. Ototo and finance manager George Owino instructed him to deliver Sh135 million to them over seven years. During the same period, he gave Mr. Ototo Sh20 million as a ‘loan’ that was never returned.
Legal and Investigative Actions
Following the submission of the forensic audit report, the Directorate of Criminal Investigations (DCI) arrested four suspects linked to the fraudulent scandal: Jackline Pauline Atieno Omolo, George Ochola Owino, Mercy Njeru, and George Magutu Mwangi[3]. They face multiple charges, including conspiracy to defraud, stealing by directors, and making false documents. Cabinet Secretary for Co-operatives and Micro, Small and Medium Enterprises Wycliffe Oparanya has directed for immediate and expedited investigations and has requested several agencies to undertake the necessary legal and administrative action to support litigation about criminal and economic crimes culpability and also commence the process of asset recovery.
Impact on SACCOs and Depositors
The financial mismanagement has left Kuscco insolvent to the tune of Sh12.5 billion, placing the savings of 247 SACCOs at stake. With assets of Sh5.2 billion against liabilities of Sh17.7 billion, Kuscco faces a severe financial crisis. Oparanya has expressed that members are unlikely to recover the lost money, and even if a recovery process is undertaken, it will take a long time. This scandal has eroded trust in Kuscco and raised serious questions about accountability, transparency, and the governance of cooperative organizations.