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Sacco savers face dividend cuts on Kuscco fraud losses
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 State has directed 247 savings and credit cooperative societies (saccos) to cut dividends and write off or set aside funds to cover for expected losses linked to the multi-billion shilling fraud at Kenya Union of Savings & Credit Co-operatives (Kuscco).
The directive is expected to guide the saccos in the coming weeks as they host annual general meetings, which approve dividends, provisions and write-offs.
The State Department for Cooperatives reckons that provisions for doubtful investments will provide the true picture of the saccos’ financial position and protect their liquidity.
It also asked members to limit dividend payouts and set aside funds to cover for possible loss of their deposits and shares at Kuscco worth billions of shillings.
A forensic audit by consultancy firm PricewaterhouseCoopers (PwC) revealed malpractices at Kuscco, including the 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.
At the end, Sh13.3 billion has been lost, the umbrella body of Saccos is insolvent to the tune of Sh12.5 billion and Sh24.8 billion it received from the 247 saccos as deposits are 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,” Commissioner for Co-operatives Development David said in an interview with the 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.”
The dividend freeze or cut is a blow to sacco members who have enjoyed annual payouts that ranged between 8.22 percent and 10.22 percent in the five years to 2023, including during the Covid-19 economic hardships.
Several top saccos including Mwalimu Sacco, which will hold its AGM on Saturday, have placed the write-off of their Kuscco investments as part of the voting agenda.
Stima Sacco will hold its AGM tomorrow (Friday), Harambee Sacco on March 3 and Mhasibu Sacco on March 8.
The State has kept the list of the 247 saccos with cash in Kuscco top secret, fearing its disclosure could trigger a run and collapse of the cooperative societies.
Saccos owed billions of shillings are being advised to stagger the provisions over the coming years while some have been directed to tap bank loans for the risk buffer.
Mr Obonyo reckons that the big saccos have the largest exposure in Kuscco.
“In most cases, it is the big saccos who had invested in Kuscco. Though not all of them but a majority were the big saccos who have surplus money to save,” he says.
“The provisions will roughly run for between one and five years based on the individual saccco, the amounts involved and their financial muscles.”
The top five deposit-taking saccos on assets are 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), official data capturing 2023 shows.
The State has cast doubts about whether saccos will recover their investments in Kuscco, underlining the extent of fraudulent activities in the umbrella body.
The rot has left Kuscco with assets of Sh5.2 billion against liabilities of Sh17.7 billion liabilities, sinking it into Sh12.5 billion insolvency for an organisation that operated without a regulatory watchdog.
The forensic audit by PwC 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 former managing director George Ototo, former finance manager George Owino and former chairman George Magutu.
The PwC audit unearthed the cooking of financial books to the tune of Sh9.3 billion following understatement of costs like commissions and interest expenses and overstating incomes—a scheme which saw Kuscco book phantom profits.
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.
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.
Mr Ototo, Mr Magutu, Mr Owino and former Kuscco Advocacy manager Mercy Muthoni have been charged in court with eight counts, including committing a felony, stealing, uttering false documents and money laundering.
Kuscco’s former external Lawyer, Jackline Omolo, has also been placed at the centre of the fraudulent dealings and also faced eight charges including preparing a fake land purchase agreement, money laundering and stealing.
