Kuscco loses billions to froud leaving 247 Saccos at risk

The Kenya Union of Savings & Credit Co-operatives Ltd (Kuscco) is in deep trouble after losing a massive amount of money, putting Sh. 13.3 billion from 247 deposit-taking Saccos at risk. An audit by PricewaterhouseCoopers (PwC) revealed that Kuscco is insolvent by Sh. 12.5 billion, exposing major fraud and mismanagement within the organization.

Fraud and Financial Mismanagement

The PwC audit uncovered serious financial irregularities at Kuscco, including falsified financial statements and stolen funds. Shockingly, some of these fake records were signed by a deceased auditor, Mr. Alfred Basweti from Omenye & Associates.

The report also linked top executives to corruption, including bribery, unauthorized bank withdrawals, and awarding contracts to companies owned by senior officials.

To hide the financial losses, Kuscco’s financial records were manipulated to show profits that did not exist. This led to severe consequences, with top managers now facing police investigations. Some key figures named in the report include Managing Director George Ototo, Finance Manager George Owino, and Chairman George Magutu.

The scandal has left Kuscco with a total financial hole of Sh. 24.8 billion, affecting savings and loans from various Saccos. The Cabinet Secretary for Cooperatives and Micro, Small, and Medium Enterprises, Wycliffe Oparanya, stated that the fraudulent transactions, which relied heavily on cash payments and manual record-keeping, have made it difficult to trace the stolen money.

Oparanya also noted that recovering the lost funds might not be possible. "We have already informed Kuscco members that they are unlikely to get their money back. Even if recovery efforts are made, the process will take a very long time," he said.

Initially, Kuscco had a strong financial base, with a share capital of Sh. 3.3 billion, savings and deposits worth Sh. 15.3 billion, and a loan book valued at Sh. 14 billion. However, poor investment decisions and a lack of regulatory oversight created loopholes for financial mismanagement.

The organization expanded into financial and investment services without proper structures, leading to uncontrolled losses.

As part of damage control, Kuscco is undergoing restructuring to focus on its original mandate of training and advocacy.

Dubious Commission Scheme

One of the major loopholes identified in the audit was a commission-based payment plan for marketers. Kuscco initially introduced a 1% commission for business brought in by marketers. However, PwC found that fraudulent records were created, inflating commissions up to 3%.

As a result, Kuscco paid out Sh. 1.1 billion while holding onto Sh. 1.6 billion. Additionally, both Ototo and Owino reportedly received Sh. 107.3 million as advance payments for questionable deals.

Large-Scale Thefts and Missing Funds

The audit report further revealed that between 2018 and 2023, Sh. 206 billion was misappropriated from Kuscco’s savings bank account under the guise of cash replenishment for its Fosa branches. Out of Sh. 839 million withdrawn from bank accounts, only Sh. 633 million was accounted for in Fosa’s strongroom.

A Kuscco cashier also confessed that Ototo and Owino directed him to hand over Sh. 135 million to them over seven years. On top of that, Ototo was given a Sh. 20 million "loan" that he never repaid.

The Kuscco scandal has shaken the cooperative sector, with billions of shillings at risk and top executives facing serious allegations. As investigations continue, the future of Kuscco remains uncertain, and the likelihood of recovering the lost funds seems bleak. The organization is now being restructured in an attempt to restore trust and prevent further financial mismanagement.