An audit of the financial records of the Kenya Union of Savings and Credit Cooperatives (Kuscco) has revealed rot that has cost the organization more than Sh6 billion in losses, leading to the sacking of the board and senior officials.
The audit, conducted by US audit firm Grant Thornton, revealed misappropriation of members' funds, illegal withdrawals, cash transfers and engagement in illegal or unlicensed activities, ostensibly directed by the now-fired officials.
Cabinet Secretary for Cooperatives and Small and Medium-sized Enterprises (MSMEs) Development Simon Chilogwe on Monday said efforts would be intensified to recover the lost amount to revitalize the already ailing organisation.
“Preliminary findings point to systemic deficiencies in resource management, including creative and unreliable financial records,” Chilugwe told reporters at a press conference in his office on Monday.
“We will pursue all the guilty, all those involved, and those who will be named, until we recover every shilling owed to COSCO members,” he added.
Based on preliminary audit findings published by the ministry, COSCO officials oversaw “out of the ordinary” cash withdrawals totaling Sh5.5 billion between February 2013 and April 2024.
There were also “suspicious” cash transfers to the Kuscco Housing secretary amounting to Sh318 million, and to insurance agencies totaling Sh434 million.
According to Mr. Chilogwe, the irregular cash transfers to insurance agencies “allegedly constitute the payment of commissions for services rendered for insurance services,” while the organization had never obtained an absolute license to provide insurance services in the first place.
In addition, Cosco officials also oversaw the illegal extension of credit to senior employees and directors, including a Sh50 million loan to the general manager, Sh4.5 million to the company secretary, and Sh7 million to the Chairman of the Cosco Housing Cooperative. It is not yet clear whether the loans were ever repaid.
The organization also lost Sh80.5 million in the double purchase of a plot of land. Money was also transferred irregularly to the group managing director (Sh67 million) and a total of Sh134 million to two other employees.
The ministry ordered the special audit in January this year, after it emerged that COSCO's books had been audited by unlicensed entities over the past two years, a period during which the company was in financial distress.
The ministry ordered an investigation into Cosco's activities by the Cooperatives Commissioner in October last year on suspicion of its involvement in illegal deposit-taking businesses, due to its inability to meet its financial obligations.
Initial findings revealed that Cosco was mixing union funds between different programmes, including housing and insurance, without clear conditions, and was thus unable to release members' deposits.
According to the ministry, COSCO is registered as an umbrella body for Savings and Credit Cooperatives (SACO) in Kenya, but is not itself licensed to engage in the business of accepting deposits and granting loans.
Currently, COSCO has about 4,168 SACOs in its membership, and holds deposits estimated at Sh18.9 billion, meaning the missing funds are more than a third of the member funds held by the organization.