Staff of the energy ministry's Sacco colluded with members to siphon at least Sh82.36 million in the entity through ghost shareholding that was used to tap loans and earn dividends, a report presented in court has shown.
The loss at Energy Sacco happened between January 2016 and June 2021 but has been revealed for the first time in a finding presented in court by Reuben Gitahi & Associates Forensic Services - the firm that was hired by the institution to investigate the matter at a fee of Sh400,000.
The report marks the latest revelation of staff-driven improprieties among the savings and credit societies.
A recent PricewaterhouseCoopers forensic audit linked former top executives of Kenya Union of Savings & Credit Cooperatives (Kuscco) to a Sh13.3 billion heist that was executed through shady financial dealings that included cooking of books to declare phantom profits while making large unexplained withdrawals.
Energy Sacco had kept the Sh82.36 million suspected loss a secret but the document found its way in the Small Claims Court at Milimani after Reuben Gitahi & Associates sued it for failing to honor full payment of the Sh400,000 contract.
The forensic services firm presented the report in court as part of evidence that it delivered on the assignment and ought to be paid. The firm, which accused Energy Sacco of failing to honor Sh120,000 payment as final settlement for the forensic investigations, lost the case on December 17 last year but has filed an intention to appeal.
The report shows the staff of Energy Sacco, which draws most of its members from the Ministry of Energy, colluded with select members to create fictitious shares and take loans based on these shares.
“These members appear to be related as if working in a cartel,” concluded Reuben Gitahi & Associates in the investigation that relied on the Sacco’s records and transactions with its members.
According to Reuben Gitahi & Associates, 38 out of the 44 Energy Sacco members it investigated fraudulently tapped and defaulted on mobile loans worth Sh80.77 million after unnamed staff members helped them to create fictitious shares. The staff also manipulated records to show that the loans were being repaid.
The manipulated records helped the said members to breach the Sacco’s rule that barred them from tapping or accumulating mobile loans of more than Sh20,000. In addition, the Sacco paid Sh1.58 million in dividends and interests to these members based on fictitious shares.
“The Sacco officials created fictitious shares in the members’ accounts to inflate the members' share contribution for them to qualify for a loan... The officials also posted fictitious loan repayments in the members’ statements,” reads the report in part.
Some members tapped up to 10 times the allowed mobile loans limit of Sh20,000 while others were helped to backdate records so as to tap loans even before exhausting the Sacco’s six-month waiting period.
There were also suspicious bank payments where for instance, Sh5.1 million was paid out to a single account but recorded in Energy books under 11 different people. In another instance, one member tapped seven loans worth Sh3.13 million in under two years but were recorded under seven different people.
Sacco Societies Regulatory Authority data shows Energy Sacco held Sh155.84 million deposits at the end of 2023 when gross loans were Sh136.98 million and non-performing loans ratio at 29.99 percent—fifteenth highest default rate in the sector.
The Sacco, which draws its membership from the Ministry of Energy and other ministries, closed 2023 with 710 members scattered in several stations including Bukura, Busia, Garissa, Jamhuri, Kericho, Kisii, Kitui, Lodwar, Marsabit Mitunguu, Mirangine, Migori, Mtwapa, Nyeri, Uasin Gishu, and Wajir.
Cooperatives and micro, small and medium-sized enterprises cabinet secretary Wycliffe Oparanya is facing the task of injecting confidence into millions of members of Saccos in the wake of mismanagement and loss of funds in various cooperatives.
Mr Oparanya said recently that his ministry is following up on several other cases related to governance lapses in the Sacco sector.
“There are other cases involving other major Saccos that have been going under financial problems because of suspected mismanagement. We are going to take those cases before investigating agencies,” said Mr Oparanya on the day he handed Kuscco forensic audit to criminal investigators.
