KENYA : A forensic audit has uncovered a massive Sh13.3 billion fraud at the Kenya Union of Savings & Credit Co-operatives Ltd (Kuscco), including the forging of a deceased auditor's signature on 2022 financial statements.
The investigation revealed that top executives, including former managing director George Ototo, finance manager George Owino, and chairman George Magutu, were involved in cooking books, large-scale theft, bribery, and unexplained bank withdrawals, leaving Kuscco insolvent by Sh12.5 billion.
The audit exposed Sh9.3 billion in misstated accounts, Billions in concealed interdepartmental lending, and Sh3.7 billion in hidden expenses, putting Sh24.8 billion in deposits from 247 saccos at risk.
The forensic report, found that KUSSCO ran an interdepartmental lending scheme that hid Ksh 6.5 billion in unreported loans.
It emerged that the auditor, Mr Basweti, had died long before the signing of the Kuscco’s books in a strange occurrence that was picked by the auditors after they noticed his signatures in 2022 and earlier documents differed.
The auditors retrieved incriminating information such as e-mails, computer logs, M-Pesa statements and documents of at least 23 top managers at KUSCCO in a review that placed eight executives in the spotlight.
Additional findings include Sh500 million in potentially misappropriated commissions and Sh821 million in overpayments to insurance brokers, including Baobab Insurance agency, which was majority-owned by a former Kuscco managing director.
When approached for interviews regarding the findings, the implicated executives either declined or remained silent.
The systemic vulnerabilities plaguing cooperative ecosystems globally is weaponized by lax oversight which enables executives to weaponize member trust for personal gain.
Cooperative fraud traces to structural flaws in self-regulation—Tanzania’s 2023 SACCOS crisis and Malaysia’s 1980s Cooperative Central Bank collapse reveal how weak governance transforms member-owned institutions into vehicles for “Cowboy Capitalism,” akin to the U.S. savings-and-loan debacle.
In other news, Kenya's cooperative sector, Savings and Credit Cooperative Societies Saccos successfully recovered Sh491.2 million in unremitted deductions from struggling institutions during the fiscal year ended June 2024, exceeding their Sh490 million target.
The achievement, attributed to stronger enforcement of the Cooperative Act, represents a 13.6% increase from the previous year's recovery of Sh432.3 million and marks the third consecutive year of improving collections from defaulting entities, including public universities and county governments.
The recoveries provide welcome relief to the Sacco sector, which has been grappling with a broader Sh2.59 billion in unremitted deductions from employer institutions as of December 2023, down from Sh2.67 billion the previous year.
Public universities and tertiary colleges have emerged as the leading defaulters, withholding Sh958.07 million in 2022, surpassing county governments on the non-remitter list.
In response, the Sacco Societies Regulatory Authority (Sasra) is considering a framework enabling the direct deduction of Sacco dues from Exchequer-funded entities' budgets. At the same time, the sector continues to show robust growth with total savings reaching Sh1.126 trillion by June 2024.
Finally, Payouts to retired public sector workers surged by 40.39 percent in the first half of the financial year, with the Treasury disbursing Ksh82.84 billion compared to Ksh59.01 billion in the same period last year.
The increase follows efforts to clear a backlog of Ksh23.78 billion carried over from the previous fiscal year due to revenue shortfalls.
President William Ruto’s directive for civil servants to retire at 60 has further strained pension expenses, with 85,400 workers expected to exit by June 2026.
Despite the rise in payouts, the pension budget still lags by Ksh28.74 billion. The Treasury plans to digitise and re-engineer the pension management system to streamline payments and eliminate inefficiencies.