Ghost shareholding, fake loans used to steal Sh82.3 million from Energy Sacco - report
The fraud, which occurred between January 2016 and June 2021, was uncovered by Reuben Gitahi & Associates Forensic Services, a firm hired by Energy Sacco to investigate the irregularities at a cost of Sh400,000.
A forensic audit has exposed a fraudulent scheme at Energy Sacco, where staff colluded with members to siphon Sh82.36 million through ghost shareholding, fictitious loans and manipulated financial records.
The revelations, presented in court, showed how employees created non-existent shares to inflate members’ contributions, allowing them to access loans beyond the permitted limits.
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The audit further uncovered that some members received multiple loans, at times up to 10 times the allowed limit, while others had their records backdated to qualify for loans before meeting the required waiting period.
Additionally, the Sacco paid Sh1.58 million in dividends based on these fictitious shares, highlighting the extent of the financial malpractice.
The fraud, which occurred between January 2016 and June 2021, was uncovered by Reuben Gitahi & Associates Forensic Services, a firm hired by Energy Sacco to investigate the irregularities at a cost of Sh400,000.
The findings were first revealed in court after the forensic firm sued the Sacco for failing to pay the full contract amount.
Tainted Sacco sector
The audit report marks yet another scandal in Kenya’s savings and credit cooperative (Sacco) sector, where staff-driven financial misconduct has been on the rise. A recent PricewaterhouseCoopers forensic audit linked former top executives of the Kenya Union of Savings & Credit Cooperatives (KUSCCO) to a Sh13.3 billion financial fraud involving falsified profits and suspicious withdrawals.
Energy Sacco, which had kept the Sh82.36 million suspected loss undisclosed, found itself in court when Reuben Gitahi & Associates sought payment for their investigative work. The firm, which claimed the Sacco had failed to pay Sh120,000 as the final settlement, lost the case on December 17 last year but has since filed an appeal.
According to the audit report, Energy Sacco employees colluded with select members to create fictitious shares, which were then used to secure loans.
“These members appear to be related as if working in a cartel,” the forensic investigators read the report.
Out of 44 investigated members, 38 fraudulently obtained and defaulted on mobile loans worth Sh80.77 million, aided by unnamed Sacco staff who manipulated records to make it appear as though the loans were being repaid.
“The Sacco officials created fictitious shares in the members' accounts to inflate the members' share contribution for them to qualify for a loan... The officials also posted fictitious loan repayments in the members' statements,” reads the report.
The fraudulent activities allowed some members to access loans up to 10 times the allowed Sh20,000 mobile loan limit, while others had their loan applications backdated to circumvent the required six-month waiting period.
Suspicious bank transactions
The audit also uncovered suspicious banking transactions, including Sh5.1 million paid into a single account but recorded under 11 different individuals. In another case, a single member secured seven loans worth Sh3.13 million within two years, but the records falsely attributed them to seven different people.
According to data from the Sacco Societies Regulatory Authority, Energy Sacco held Sh155.84 million in deposits at the end of 2023, with gross loans totalling Sh136.98 million. However, its non-performing loans stood at 29.99 per cent, ranking it among the top 15 Saccos with the highest loan default rates.
The Sacco, whose members are drawn from the Ministry of Energy and other government departments, had 710 members as of the end of 2023, spread across locations including Bukura, Busia, Garissa, Jamhuri, Kericho, Kisii, Kitui, Lodwar, Marsabit, Mitunguu, Mirangine, Migori, Mtwapa, Nyeri, Uasin Gishu, and Wajir.
Cooperatives and Micro, Small and Medium Enterprises Cabinet Secretary Wycliffe Oparanya has pledged to restore confidence in the Sacco sector following a series of financial mismanagement cases.
“There are other cases involving major Saccos that have been experiencing financial troubles due to suspected mismanagement. We are going to take those cases before investigating agencies,” Oparanya said while handing over KUSCCO’s forensic audit report to criminal investigators.
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