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Stima Investment Sacco board ousted in Sh500m land fraud probe

A construction site
A construction site. FILE PHOTO | NMG 

The Commissioner of Co-operatives has removed from office the entire board of the giant Stima Investment Co-operative Sacco after a forensic audit revealed massive fraud at the society, which has exposed members to losses exceeding half-a-billion shillings.

The fraud, which is documented in court filings, reveals widespread mismanagement of funds at Stima Investment, an arm of the 13,565-member Stima Sacco Society.

The audit by financial consulting firm Deloitte reveals how Stima Investment lost money through multiple irregular land purchases across the country in which officials bought occupied land without conducting any due diligence or site visits, failed to settle transactions after putting down initial deposits and in other cases collected funds from members even before the preliminary purchase agreements were signed.

The Commissioner of Co-operatives on February 19 dissolved the seven-member board, prompting them to file a suit in court seeking to reverse the decision.

The board members want the court to “to quash the decision made by the Commissioner of Co-operatives’, arguing that they were legally elected on November 28, 2018. “There is no basis in law and fact for the 1st respondent (Commissioner of Co-operatives) to dissolve the board of directors,” says the board in its application. The court papers point to an elaborate scheme of mismanagement of members’ funds.

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The Sacco, for instance, received a Sh100 million deposit from the KenGen Foundation, which was meant to be invested and pay a return of 16 per cent against its policy capping returns at 12 per cent.

But instead of investing the funds were used to pay dividends to members for two years. The payments were deemed to be illegal since dividend is supposed to be drawn from the Society’s accumulated earnings but it was made to paint a rosy picture of a prospering organisation to the members. The liability and interest on this fund stands at Sh150 million and continues accumulating. The organisation further presented a misleading financial statement for the year 2017, which now the management is promising to rectify by re-evaluating the organization portfolio.

The 2017 Stima Sacco Society shows its share capital grew by 38 per cent to Sh1. 3 billion while members’ deposits hit Sh2.053 billion as at 2017, an increase from Sh1.565 billion in the previous year. The Sacco said its total asset grew from Sh2.6 billion in 2016 to Sh2.9 billion in 2017.

The Stima Investment audit shows it acquired a 15-acre piece of land in Riat, Kisumu in 2016 at a cost of Sh48 million and paid 20 per cent deposit.

But the society was shown a wrong plot to convince them to pay for the land, and only later came to learn that the right land was elsewhere and 12 families lived on it as squatters.

Their bid to retake the land has not been successful, and a Sh9.6 million deposit paid for the deal is at stake. The society entered into a deal to acquire 140 plots at Sh91 million, which the report identifies as Green Isinya Project. It paid a 10 percent deposit and undertook to settle the balance in 120 days, which it never did.

The organisation is already in breach of contract and negotiated with the vendor to be allowed to take up only 14 plots, which is equivalent to its deposit.

This proposal however has been rejected by Gulf Bank to which the land is charged, which has given a condition that the society should take at least 70 plots.

Faced with this scenario, and lack of liquidity, the society has planned to organize site visits for its members to lure more to pay for the land in order to take 70 plots, a gamble that exposes more members to loss.

Separately, the society received Sh15 million from the Catholic Church promising to sell them a piece of land in Naivasha, which it never delivered and the church is threatening to sue for.

The two parcels of land it purchased in Lamu are also locked in disputes. One of the plot has a court case while the other one has no approvals from county government, making sub-division difficult.

The society started collecting cash for a project identified as Rangau even before it sealed the purchase deal with the owner of the 200 plots.

While it started receiving the cash at Sh930,000 per plot offer, the vendor has revised the plot price to Sh1.2 million.

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