Saccos fraud investigation unit a game-changer

Over the years, the business model adopted by savings and credit cooperative societies (saccos) in Kenya has placed members’ contributions in a precarious position.

In 2019, the Ministry of Trade (overall supervision of saccos in Kenya is under the Ministry of Agriculture, Livestock, Fisheries and Cooperatives) conducted an inspection which brought to light the sad state of co-operative societies in Kenya.

Notably, Machakos and Mombasa counties were marked as having more collapsed institutions than thriving ones while roughly half of the 1,150 saccos registered in Mombasa, Kwale, Tana River, Kilifi and Taita Taveta had closed shop.

The Sacco Societies Regulatory Authority (Sasra) suspended several institutions between 2019 and 2020 for breaching regulations and mismanagement of member contributions.

These and other cases surrounding the operations of saving societies in Kenya captured the attention of the President who gave a directive on the establishment of the Sacco Societies Fraud Investigation Unit.

Sasra chairman, John Munuve, formalised this initiative after the co-operatives endorsed an agreement with the Directorate of Criminal Investigations, to pursue this cause.

Considering the tremendous growth and potential benefits saving societies, the President’s intervention is justified. The entire sector had an asset base of Sh617.685 billion and held deposits worth Sh431.46 billion in 2020.

In October 2019, the Commissioner of Cooperatives, Didacius Ityeng, alluded that the mismanagement of member contributions needed to be addressed and took steps to close down unsustainable societies.

How will the investigative unit curb such fraud?

Best practice

To begin with, the sector has entered into a memorandum of understanding with the Ethics and Anti-Corruption Commission to support the establishment of industry best practices and instill integrity that has depreciated over the years.

This has seen a total of 372 complaints against corrupt officials addressed and measures taken against such misadministration. Potential collaborations with the Central Bank of Kenya would allow the integration of saccos into the national payment infrastructure.

This would allow efficient and effective mobilisation of members’ savings and real-time reporting of these transactions through the approved clearance of the Nairobi Automated Clearing House.

Potentially, deposit-taking saccos stand to mitigate possible fraudulent risks should they be integrated into the national system.

To prevent further leakages and to tighten oversight, cooperative institutions should be required to submit copies of internal audit results and compare these with actual audits at the end of the financial year to the regulating body.

For the non-deposit taking entities, they should be strictly regulated to ensure they do not operate as their opponents. They should therefore not deal in foreign trade operations or investment ventures.

Regulatory bodies

For effective and efficient performance, regulatory bodies such as the Capital Markets Authority (to regulate the liquidity ratios and the minimum core capital levels) should support the saccos fraud investigation unit.

Funding from the Government, for instance, can be channeled towards the development or improvement of cyber security systems used.

With funding requirements achieved, necessary training and software development could potentially mitigate infrastructure risks.

Parliamentary support through policy legislation, for example, the review of the National Payment System Act, would accommodate saccos in the system.

Parliamentary support could also involve the amendment of the Sacco Societies Act to expand the Sasra mandates to include regulation and supervision of non-deposit-taking saccos.

Through these fostering initiatives, the idea that SACCOs can be sidelined from national growth and financial inclusion objectives can finally go away.

Elizabeth Nyingi, Writer - Sense of Cents