Top executives of Kenya Union of Savings & Credit Co-operatives Ltd (Kuscco) face arrest and asset seizure for cooking financial statements and theft that put Sh13.3 billion belonging to depositors at risk.
Cabinet Secretary for Co-operatives and Micro, Small and Medium Enterprises Wycliffe Oparanya on Tuesday handed the PricewaterhouseCoopers (PwC) forensic audit to Inspector-General of Police Douglas Kanja for an in-depth probe and prosecution of those culpable.
Mr Oparanya agreed with the PwC on the need for recovery of the lost billions of shillings that have left Kuscco insolvent to the tune of Sh12.5 billion and placed the savings of 247 Saccos at stake.
The forgery of the signature joins a list of misfeasance at Kuscco that includes cooking of books, large-scale theft by executives, bribery, unexplained bank withdrawals and conflict of interest through issuance of contracts to firms owned by top managers and masking the schemes through manipulation of financial statements to report non-existent profits.
“I request several agencies to undertake the necessary legal and administrative action upon further investigation to support litigation about criminal and economic crimes culpability and also commence the process of asset recovery,” said Mr Oparanya.
The 208-page PwC audit retrieved the trove of incriminating information from 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 including then managing director George Ototo, finance manager George Owino and Chairman George Magutu.
At the end, Sh13.3 billion has been lost, leaving the umbrella body of Saccos insolvent to the tune of Sh12.5 billion, putting at risk the Sh24.8 billion it received from Saccos.
Mr Oparanya said the complex web of fraudulent transactions including manual entries and cash dealings to exclude banking trail indicates that the in-depth probe may take longer to conclude, warning that Saccos may not recover billions of shillings lost in the scheme.
“We have already met Kuscco members and pointed out to them that they are unlikely to recover this money. And even if the recovery process is undertaken, it will take too long,” he said.
On Tuesday, Mr Kanja said he is forming an investigating team with the Directorate of Criminal Investigations for a deeper probe and punishment of the culprits.
“Investigators are going to go through this report. We are going to leave no stone unturned. For those involved in the mismanagement of Sacco members’ money, they will face the full force of the law. I will hand the report to the DCI with express instructions for them to start looking at the report immediately,” said Mr Kanja.
Mr Oparanya said at its peak, Kuscco had a share capital of Sh3.3 billion, Sh15.3 billion in deposits and savings and Sh14 billion loan book.
However, he noted that the diversion into financial and investment services without proper structures, regulatory oversight and investment policy frameworks exposed Kuscco to theft and mismanagement.
Mr Oparanya stopped Kuscco from conducting unlicensed financial activities including receiving deposits and issuing loans in a restructuring that will leave it with its original mandate of advocacy and training.
He said the entity’s workforce will be trimmed to about 40 from an estimated 200 spread across the five subsidiaries.
“Kuscco is being restructured so that it becomes a lean institution that can undertake its mandate of training and advocacy.
The PwC audit has unearthed the cooking of financial books to the tune of Sh9.3 billion, with understating costs like commissions and interest expenses and overstating incomes — a scheme that saw Kuscco book phantom profits.
The audit placed blame on Mr Ototo, Mr Owino and Mr Magutu.
Concealed expenses, overstated earnings
The report also reveals that Kuscco concealed expenses worth Sh3.7 billion, helping it overstate net earnings.
As Kuscco expanded into insurance and real estate, it came up with a scheme for paying commissions for marketers to bring in business, who were paid an average of 1 percent of the value of work brought to the firm.
Records unearthed by PwC indicated false entries of commissions of up to 3 percent. As a result, the executives withdrew Sh1.6 billion but paid out Sh1.1 billion.
Separately, Mr Ototo and Mr Owino received a combined Sh107.3 million as advance payments for bringing business that is in doubt.
The audit shows that between 2018 and 2023, Sh206 million may have been stolen through withdrawals from Kuscco Sacco savings bank account in the name of replenishing cash at Kuscco Fosa branches.
The PwC audit shows 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.
Francis Wande, Kuscco’s main cashier, told PwC that Mr Ototo and Mr 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’ but he never returned the money.
