State directs Saccos to cover losses from KUSCCO scandal
The audit revealed that Sh13.3 billion had been lost, leaving KUSCCO insolvent by Sh12.5 billion
The government has directed 247 savings and credit cooperative societies (saccos) to reduce dividend payouts and set aside funds to cover potential losses linked to the multi-billion-shilling fraud at the Kenya Union of Savings & Credit Co-operatives (KUSCCO).
The directive as reported by Business Daily comes as the saccos prepare for their annual general meetings, where they will approve dividends, provisions, and write-offs.
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The State Department for Cooperatives stated that these provisions for doubtful investments would help reflect the actual financial position of the saccos and safeguard their liquidity.
Members have been urged to limit dividend payouts and allocate funds to cushion against possible losses from their KUSCCO deposits and shares, which amount to billions of shillings.
A forensic audit by consultancy firm PricewaterhouseCoopers (PwC) exposed massive financial irregularities at KUSCCO, including fraudulent bookkeeping, large-scale theft by executives, bribery, unauthorised bank withdrawals, and conflicts of interest in awarding contracts to firms owned by top managers.
Manipulation of financial records was used to conceal these schemes, creating the illusion of profitability.
The audit revealed that Sh13.3 billion had been lost, leaving KUSCCO insolvent by Sh12.5 billion. The umbrella body had collected Sh24.8 billion in deposits from the 247 saccos, funds now at risk.
"All those people who invested in KUSCCO we have asked them to provide over some time. Everybody who has savings with KUSCCO we have asked them to provide as a good financial practice," said Commissioner for Co-operatives Development David in an interview with Business Daily.
"We are telling them that this profit you have made instead of giving members all of it, get a portion of it and set aside as a provision. It is a good way especially now when they [saccos] are declaring dividends so that they don't declare a lot of dividends anticipating there is money from Kuscco and this provision comes from the surplus they are realising," he added.
The directive is a setback for sacco members, who have enjoyed annual dividends of between 8.22 percent and 10.22 percent over the past five years, even during the Covid-19 crisis.
Several leading saccos, including Mwalimu Sacco, which will hold its AGM on Saturday, have listed the write-off of KUSCCO investments as an agenda item for member voting.
Sacco will meet on Friday, Harambee Sacco on March 3,2025 and Mhasibu Sacco on March 8.
Names withheld
The government has withheld the names of the affected saccos, fearing that their disclosure could trigger panic withdrawals, leading to a collapse of the institutions.
Some saccos have been advised to stagger the provisions over several years, while others have been told to seek bank loans as a financial buffer.
According to industry experts, the largest saccos bear the biggest losses.
"In most cases, it is the big saccos who had invested in KUSCCO. Though not all of them, a majority were the big saccos who have surplus money to save,"Obonyo said.
"The provisions will roughly run for between one and five years based on the individual sacco, the amounts involved, and their financial muscles, " he added.
Data from 2023 ranks the top five deposit-taking saccos by assets: Mwalimu National Sacco (Sh66.43 billion), Stima Sacco (Sh59.15 billion), Kenya National Police Sacco (Sh54.24 billion), Harambee Sacco (Sh38.57 billion), and Tower Sacco (Sh23.23 billion).
The government has cast doubt on whether saccos will recover their investments, emphasizing the extent of fraud at KUSCCO.
The umbrella body has only Sh5.2 billion in assets against Sh17.7 billion in liabilities, leaving it Sh12.5 billion in the red. KUSCCO had been operating without regulatory oversight, allowing fraudulent schemes to thrive unchecked.
PwC investigators uncovered evidence from emails, computer logs, M-Pesa records, and documents implicating at least 23 senior managers in the fraud.
Eight executives, including former managing director George Ototo, former finance manager George Owino, and former chairman George Magutu, have been placed at the center of the scandal.
The audit exposed the falsification of financial records amounting to Sh9.3 billion, achieved by understating costs such as commissions and interest expenses while inflating income figures to create fictitious profits.
Between 2018 and 2023, Sh206 million is suspected to have been stolen through bank withdrawals under the guise of replenishing cash at KUSCCO Fosa branches.
PwC also found false commission entries of up to three percent, allowing executives to withdraw Sh1.6 billion while only paying out Sh1.1 billion.
Ototo, Magutu,Owino, and former KUSCCO Advocacy Manager Mercy Muthoni have been charged with multiple offenses, including fraud, theft, and money laundering.
KUSCCO's former external lawyer, Jackline Omolo, has also been implicated and is facing charges related to forging a land purchase agreement, money laundering, and theft.
They have denied the charges and are currently out on bond.
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