Senate Report On Mismanagement Of Cooperative Funds In KUSCCO

1. Kenya Union of Savings and Credit Co-operatives Limited (KUSCCO) was registered on 19th September, 1973 (Reg. No. CS/2171) as the umbrella union of Savings and Credit Cooperative Societies in the Country.

2. The Unions main role is the promotion of Saccos through advocacy, provision of financial services, provision of information/training and other services.

3. The Union currently has a membership of 4168 Sacco societies spread across the country, with share capital of Ksh.3 billion, deposits and savings amounting to Ksh.18 billion and loans to members Ksh.14 billion.

4. The Union later opened the common bond to admit individual members and diversified its activities to include housing, mortgage and insurance.

5. KUSCCO also registered subsidiaries, namely; KUSCCO Housing Cooperative Society Limited and KUSCCO Mutual Assurance Limited to offer insurance services.

6. The union has Regional Offices at Nairobi, Mt. Kenya, Rift Valley, Western and Coast. It has a network of Branches that serves the members. These are Nyeri, Embu, Meru, Kitengela, Thika, Nakuru, Eldoret, Bungoma, Kakamega, Kisumu, Kericho, Kisii, Mombasa and Malindi.

7. KUSCCO Ltd Problem

8. Despite holding substantial amounts as members deposits and operating Deposit-Taking Business, KUSCCO was not under SASRA regulation as envisaged under the SACCO Societies Act 2008.

9. Some SACCOs complained to the commissioner that they could not access their term deposits as they fell due. This prompted the Commissioner for Cooperative Development (CCD) to institute an inspection to establish the financial soundness of the Union

10. The inspection revealed that despite the Union financial statements getting unqualified auditors’ opinion in 2022, the assets and liabilities values materially differed from available primary documents. This renders to audit opinion questionable. Other issues that were revealed by the report were;

    a. Falsification of records by top management to depict profits yet the Union was making loses.

    b. Mismatch of investments

    c. Investment in non-viable projects

    d. Misappropriation of funds by top management

11. The preliminary findings were discussed with Board of Directors of KUSCCO on 8th and 15th December, 2023. The board sent four members of the senior staff including the Chief Executive officer on compulsory leave pending investigations.

12. A KUSCCO stakeholders meeting convened by the Commissioner at All Saints Cathedral Hall to discuss the happenings at KUSCCO an having had been briefed on the findings of the inspection report removed the entire KUSCCO board and authorized the Commissioner to put in place an interim Board for a period of 90 days as per the Provisions of the Cooperative Societies Act (amendment) 2004.

13. The Interim board of directors were given the responsibility to carry out a forensic audit and come up with a restructuring plan for KUSCCO Ltd

14. Since then, the four sacked officials of KUSCCO Ltd have been arraigned in court to answer various charges related to misappropriation of funds and mismanagement at KUSCCO Ltd.

3.0 Specific Responses on the Statement Requested by Hon. Sen Okiyah Omtatah

The following is our statement to questions raised by Hon. Sen. Okiyah Omtatah.

Question 1 State the circumstances that led to the loss of cooperative savings over a period of 10 years, as depicted by the recent audit undertaken by the Ministry of Cooperatives and Micro, Small, and Medium Enterprises (MSME) Development;

Response The following factors according to the audit led to the financial problems in KUSCCO

a. Falsification of records by top management to depict profits yet the Union was making loses.

b. Mismatch of investments

c. Investment in non-viable projects

d. Misappropriation of funds by top management

Question 2: Disclose the regulatory and oversight measures the Ministry undertook in respect of KUSCCO to address and prevent mismanagement of funds over the 10-year period;

Response KUSCCO Ltd has been meeting their legal compliance requirements as follows a. Carrying out their annual audits as required. b. Convening their annual general meetings. c. Filing their annual returns as required. d. Carrying out 1/3 of board elections as required. e. Filing other information as required by the Commissioner for Cooperatives.

Question 3: Report on the status of compliance by KUSCCO over the past 10 years in keeping proper books of accounts, undertaking annual audits, and submitting annual returns to the Ministry of Cooperatives and MSMEs Development;

Response: KUSCCO was undertaking annual audit and submitting annual status to the Ministry of MSMS as required, however the inspection and forensic audit carried out by the Commissioner and PriceWaterCoopers respectively established that KUSCCO management were falsifying records that depicted profits yet the organization was making loses.

Question 4: Provide the loan portfolio of KUSCCO, including a breakdown of the loans advanced to the board of directors and senior staff that were dismissed following the findings in the special audit commissioned by the Ministry in October, 2023;

Response: The following is loan portfolio of KUSCCO Ltd.

a. Central finance fund Kshs. 3,366,042,374 b. Kuscco housing fund Kshs. 2,909,677,296 c. KUSASA Kshs. 191,738,880

TOTAL Kshs. 6,467,458,550

The following are the loans advanced to Senior Staff who were dismissed

Note. It is important to note that PriceWaterhouse Coopers (PWC) limited is still reconstructing the loan book and this might change slightly.

Question 5

Indicate the status of the undischarged fixed deposits to members that fell due and that had not been duly remitted as of the date of the audit report;

Response

The following is the status of undischarged deposits to members by the date of audit report.

Principal Kshs. 8,816,674,997
Interest Kshs. 3,601,187,602
Total Kshs. 12,417,862,599

Question 6

Detail actions taken by the Ministry to recover the funds alleged to have been misappropriated by the board of directors and senior staff, and measures to ensure that such misappropriation does not occur in the cooperative sector;

Response

The cabinet secretary handed over the forensic audit to government agencies to proceed with investigations and prosecution. So far, the former Chairman, Group Managing Director, Finance manager and Advocacy manager have been arraigned in court over the same and necessary recovery measures are being taken.

By

Hon. FCPA Dr. Wycliffe Ambetsa Oparanya, EGH.

Cabinet Secretary for Cooperatives and MSMEs