CS Chelugui Disbands Entire KUSCCO Board Over Illegally Withdrawing Ksh6 Billion

Ministry of Cooperatives and Micro, Small and Medium Enterprises (MSMEs) Cabinet Secretary Simon Chelugui announced the dismissal of the board of directors of Kenya Union of Savings and Credit Co-operatives Ltd (KUSCCO).

KUSCCO is the umbrella body of savings and credit cooperatives (saccos) in Kenya, with key roles being mainly advocacy and representation. In addition, it offers SACCOs and other cooperatives financial and technical assistance, tailored to largely benefit middle and low-income earners both in Kenya’s rural and urban areas. 

In a statement on Monday, May 6, Chelugui revealed that the decision resulted from an audit that revealed "significant discrepancies" in the management and operations of the union.

A consultative meeting held on April 25, 2024, with representatives from depositors saw a unanimous consensus reached regarding the future of the union.

Kenya Union of Savings & Credit Cooperatives (KUSCCO) Offices located along Kilimanjaro Road, Upper Hill, Nairobi. /SACCO TREND MAGAZINE

“It has come to light that despite incurring losses, the union proceeded to declare bonuses, dividends and interest, a practice that cannot be condoned.

"It was concluded that the current board of directors has failed in its duty to steer the union effectively. Consequently, in the interest of ensuring accountability and restoring confidence, the Ministry has taken decisive action on this matter,” reads the statement in part.

The union's top management was revealed to be unable to account for Ksh5.5 billion withdrawn from the organisation's bank accounts between February 2013 and April 2024

Other findings from the audit included:

1. Suspicious cash transfers to Company Secretary KUSCCO Housing - Ksh318,160,172
2. Loans to senior KUSCCO staff and directors (including subsidiaries) some text
   • Group Managing Director - Ksh50 Million
   • Company Secretary KUSCCO Housing Society - Ksh4.5 Million 
   • Head KUSCCO Housing Co-operative - Ksh7M
3. Double purchase of the same land (LR 23269/35) - Ksh80,546,000 
4. Suspicious cash transfer of funds to Insurance Agencies - Ksh434.160.379
5. Cash transfers from KUSCCO accounts to their staff accounts
   • Group Managing Director - Ksh67,035.752.35 and two other members of staff each Ksh118,046,999.90 and Ksh15,986,289.00 respectively.
6. Inter Subsidiary Cash transfers.
7. KUSCCO Operating unregulated FOSA - KUSASA Neither a - registered FOSA nor Microfinance.
8. Irregular account opened for KUSASA under KUSCCO CIF
9. Customers' cheques received at KUSASA were endorsed and deposited at the KUSCCO account for clearing.
10. The bank is not indemnified on third-party cheques.

The Ministry added that it had appointed Grant Thornton, a reputable auditing firm, to conduct a thorough examination of the union's financial affairs.

It also found that despite incurring losses, the union proceeded to declare bonuses, dividends and interest.

In response to these findings, immediate administrative measures were taken, including the dismissal of implicated top managers and administrators, to facilitate a comprehensive audit of the union's operations and financial records.

This crackdown was part of a wider effort by the Ministry to ensure proper management of funds in Savings and Credit Cooperatives (Sacco Societies).

"Anybody who will be found to have engaged in fraudulent activities will face the full wrath of the law," warned CS Chelugui in late January this year.

"We will continue to uphold the highest standards of financial integrity and ensure the financial health of all institutions under its purview through transparent, accountable and well-run financial cooperatives."

Chelugui also ordered an inquiry into suspected violations of Sacco regulations by KUSCCO and further directed an audit to be done on KUSCCO "to ascertain the credibility of the issues raised by the members." However, he did acknowledge the important role KUSCCO plays in supporting Saccos. 

"KUSCCO is the umbrella body for Saccos and we're fully cognizant of the big role the organization plays in empowering Saccos through training among other things," he noted.

The CS nonetheless lauded the public for exercising patience even as the ministry continued to restore confidence in the cooperatives' financial sector.

Simon Chelugui taking his oath of office on October 27, 2022, as Cooperatives CS. /TWITTER