SIC Investment Cooperatives board members and senior officials are accused of defrauding members by inflating land purchase prices against professional advice.
The Department of Co-operative Development has been caught flat footed in the financial problems facing SIC Investment Co-operative, despite one of its employees sitting on the troubled society’s Board of Directors.
Commissioner for Co-operatives David Obonyo told the Nation in an interview that his office had no knowledge of any problems within SIC, admitting that it has been unable to keep up with all the goings-on of more than 30 co-operative societies operating in Kenya.
Mr Obonyo, however, said SIC is obligated to inform his office when it is undergoing deep problems, suggesting that he would start investigations to establish the scale of fraudulent activities at the society.
“We are wondering how things could get to that level without us knowing. The only thing we have been aware of is that a new board was brought in last year and the CEO was removed but we have not been aware of any issues to do with financial problems,” Mr Obonyo said.
The Commissioner for Co-operatives was responding to questions sent by the Nation regarding actions the regulator has taken with regards to the fraud revealed at the SIC Investment Co-operative involving purchase of land, implementation of a housing project and in its fixed deposit investments.
SIC Board members have been exposed for approving purchase of unsellable parcels, inflating prices beyond rates advised by technical teams and engaging unqualified contractors, risking the loss of about Sh2 billion members’ money.
Mr Obonyo, who is charged with overseeing the operations of co-operative societies in the country, admitted that the office has not been aware of the malpractices that occurred for several years.
“There are more than 30 societies in Kenya and it is not possible to know everything happening in all of them. When there is an issue such as this, however, we can order an inquiry to find out what has happened,” he said.
The commissioner said the SIC reported removal an overhaul in its board last year and the subsequent ouster of its CEO in December, but has not reported going through any financial challenges.
While Mr Obonyo indicated that the department was unaware of the happenings in the 5000-member society, he acknowledged that his office has a representative within the SIC who ought to have reported back.
SIC members and customers have been undergoing pain as they are unable to get back hundreds of millions of shillings they have invested in the SIC, since the society is currently facing a liquidity crisis.
Those affected include customers who bought into SIC’s Miran Housing Project who have not entered their houses about two years since the promised completion time, and members who invested in its Pepea Fixed Deposit investment, where Sh450 million is currently stuck.
This follows blunders committed by board and management officials who approved procurements that failed proper business tests, sinking investments valued billions of shillings.
The law requires members of a co-operative society board to exercise prudence and holds its members liable for any losses.
“In the conduct of the affairs of a co-operative society the Committee shall exercise the prudence and diligence of ordinary men of business and the members shall be held, jointly and severally liable for any losses sustained through any of their acts which are contrary to the Act, rules, by-laws or the directions of any general meeting of the co-operative society,” the Co-operative Societies Act states.
The Act also gives the Commissioner for Co-operatives powers to hold an inquiry into the by-laws, operations and financial conditions of any co-operative society, after which he may decide to dissolve it if the inquiry finds the society not to be performing its duties properly.
Co-operative societies are expected to report to the Commissioner for Co-operatives about their operations and financial status as at last year before the end of this month.
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Incase you missed part one, read it here --> Sh2bn loss: How mismanagement crippled SIC Investment Co-operative
Tomorrow, look out for the third par in the series: Inside SIC's revolving door where CEOs and top executives exit at the Board’s whim
