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How dead man signed off Kuscco accounts in Sh13.3bn heist
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.
Top executives of Kenya Union of Savings & Credit Co-operatives Ltd (Kuscco) forged the signature of a dead auditor to sign off cooked financial statements whose erroneous entries put Sh13.3 billion belonging to depositors at risk of theft.
A forensic audit by consultancy firm PricewaterhouseCoopers (PwC) has revealed that Kuscco, which receives billions of shillings from savings and credit cooperative societies (saccos) for investments, had its 2022 cooked financial accounts backed and signed by external auditor Alfred Basweti of Omenye and Associates.
It emerged, however, that Mr Basweti had died long before the signing of the Kuscco’s books in a strange occurrence that was picked by the auditors after they noticed his signatures in 2022 and earlier documents differed.
The forgery joins a list of malfeasance 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.
In the end, Sh13.3 billion has been lost, the umbrella body for saccos is insolvent to the tune of Sh12.5 billion and the Sh24.8 billion it received from 247 saccos as deposits are at risk.
The auditors 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.
“The 2022 financial statements were allegedly forged as the signatures of the 2021 and 2022 audited financial statements differ despite the signing partner being CPA Alfred Basweti of Omenye and Associates,” says the PwC audit report.
“Kenneth Kimaiyo, the former internal auditor, informed us that CPA Alfred Basweti had died before the signing of the Kuscco 2022 financials.”
Kuscco and David Obonyo, the Commissioner of Cooperatives, confirmed the death even as partners maintained they had not been in contact with Mr Basweti for the past four years.
PwC reckons that the Kuscco staff indicated that the final financial statements were prepared in secret, with Mr Owino, the external auditors and Mr Ototo being privy to the books of accounts and ignoring the rest of the finance team.
The rot has left Kuscco with assets of Sh5.2 billion against liabilities of Sh17.7 billion liabilities, sinking the organisation that operated without a regulatory watchdog into Sh12.5 billion insolvency.
When PwC wrote to the three men and several others for an interview in relation to the findings of the forensic examination that covered a seven-year period ended December 2023, they opted for silence.
The officials declined PwC request for interviews. Mr Ototo and Mr Ogutu did not respond to invitations for meetings while Mr Owino declined the request in an October 3 letter, PwC says.
Mr Ototo rebuffed the Business Daily’s request for comment.
“With respect, keep off. You have no details of what you are looking for. You may end up personally responsible,” Mr Ototo said in a text message.
The PwC audit has unearthed the cooking of financial books to the tune of Sh9.3 billion misstatement in the books of accounts, which arose out of understating costs like commissions and interest expenses and overstating incomes—a scheme which saw Kuscco book phantom profits.
The audit shows that Kuscco, which had five subsidiaries operated through numerous departments, used to run interdepartmental lending, which in the end concealed Sh6.5 billion lending that was never reported in the books of accounts.
Of the Sh11.1 billion that was lent out across departments, the PwC audit could only find a repayment of Sh286 million back to Kuscco main account— the umbrella account that was used in preparing Kuscco financial statements.
Sussie Karimi, the current acting finance manager at Kuscco, told PwC that losses incurred by some departments were recorded as advance to Kuscco’s main account. The audit explains that if one department recorded a loss, this would be offset against any advances it had received from Kuscco main account.
“This approach suggests that interdepartmental balances might have been used for potential financial misreporting, enabling Kuscco main to report profits by misclassifying losses within interdepartmental balances,” says the audit.
The audit placed blame on Mr Ototo, Mr Owino and Mr Magutu.
The report also reveals that Kuscco concealed expenses worth Sh3.7 billion, helping it overstate net earnings. The hidden expenses include interest expense (Sh2.4 billion) and marketing expenses or commissions to staff (Sh710 million).
PwC concludes that the systematic understatement of expenses suggests manipulation of financial statements in order to report non-existent profits.
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 1.0 percent of the value of work brought to the firm.
Records unearthed by PwC indicated false entries of commissions of up to 3.0 percent. As a result, the executives withdrew Sh1.6 billion, but paid out Sh1.1 billion.
“A total of Sh0.5 billion was thus potentially misappropriated,” said PwC.
It also overpaid five insurance brokers by Sh821 million, including Baobab Insurance agency, with the firms saying they were being asked to overquote by top officials of Kuscco via phone calls and WhatsApp.
Baobab was majority owned by former Kuscco managing director (2007 and 2010), Carilus Ademba, and was registered just five months before it started receiving the business. Duncan Otieno Okiro, a former Kuscco IT manager who exited in 2024, also owned shares in Baobab.
Separately, Mr Ototo and Mr Owino received a combined Sh107.3 million as advance payments for bringing business to Kuscco.
PwC reckons there was no evidence that they brought the business after receiving the payouts. The commissions were being paid in cash, a pointer of a scheme to conceal bank trails.
“There is no evidence of how the commissions (to Mr Ototo and Mr Owino) were calculated as Kuscco paid in advance of potential purchase of shares. Further, there is no evidence of the shares purchased,” says PwC.
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 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 the seven-year period. During the same period, he gave Mr Ototo Sh20 million as a ‘loan’ but he never returned the money.
Mr Wande told PwC that Sh32 million was delivered to Walter Mukhwana, then serving as Kusasa branch manager.
An additional Sh19 million was marked as inter-departmental lending but there is no evidence of any department receiving it.
The use of unexplained cash withdrawals also played out when Kussco hired Erickson International to procure radio frequencies and conduct a radio and TV feasibility study.
Kuscco paid Erickson International, whose owners’ and directors’ records were not found by PwC, Sh35 million for the radio station, which was never launched.
However, a chunk of the Sh35 million or Sh26.9 million was withdrawn in cash from I&M Bank and handed to Kuscco manager.
To get the millions from I&M, the audit says, Kuscco official Mercy Njeru and Erick Andalya (executive director at Erickson) informed the bank in a May 2022 letter that the cash was for a “delegates sensitisation of the radio.”
“The letter indicated the purpose of the funds was delegate sensitisation. However, we noted that these were fictitious activities that did not occur,” said PwC.
The radio station payments were facilitated through forgery. Kuscco’s top executives presented a fake land transaction to trigger release of the Sh35 million.
It first indicated the purchase of Sh48.3 million in 2020. It later showed payment of Sh35 million for the same land in 2022 as a fresh deal.
Kuscco did not receive title for the land and PwC reckons that it did not find records in government databases showing the property transaction. The land was also not recorded as an asset in Kuscco books. PwC established that the land shows in official records as part of Ololua Forest, and not for private use.
“Mr Ototo approved a forged sales agreement to conceal alleged payment for the radio station,” said PwC.
The audit shows that Kuscco sold its fintech subsidiary, IRNET, for Sh104 million with a share of the proceeds of the deal being paid to unnamed six directors.
The audit further shows that Kussco officials tapped and defaulted Kuscco’s loans worth Sh489.2 million, with most of the officials breaching the sacco's policy that caps loans at up to five times the deposits one holds.
For instance, Mr Ototo had defaulted on loans worth Sh93.5 million at the end of 2023 when he held Sh425,000 as deposits in Kuscco. He did not pledge any collateral.
Mr Mukhwana tapped two loans worth Sh3.3 million using Sh17,000 deposits he held in Kuscco. He defaulted on payment, even as his loan file mysteriously disappeared from the Kuscco system.
Mr Owino joined Mr Mukhwana by tapping six loans worth Sh17.2 million between 2015 and 2023 yet his deposits were just Sh768,800. He defaulted on all of them.
According to KHC chief executive Julius Owino Odera, the officials were being issued loans above what their deposits could hold after instructions from Mr Ototo.
Mr Odera claimed that the Kuscco boss exempted some employees from the borrowing policy “based on trust that they would pay their loans.”
The rot at Kuscco extended to procurement where it paid Sh1.2 billion through what PwC calls questionable procurements. For instance, of the 16 vendors it hired to deliver a homes project in Kitengela, 14 had no signed contracts.
The audit showed the flouting of the procurement process might have paved the way for kickbacks to Kuscco officials, including a top official who received Sh2.7 million from one of the contractors only to claim that the company was paying him for a vehicle he had sold to one of the associates.
