A savings and credit co-operative society (Sacco) associated with the Presbyterian Church of East Africa (PCEA) has won an enforcement order seeking over Sh95 million fixed deposits stuck in the troubled Kenya Union of Savings & Credit Co-operatives Ltd (Kuscco).
The PCEA Ruiru Co-operative Sacco filed the suit at the Cooperatives Tribunal after it failed to access its matured deposits at Kuscco, which faced a mega fraud that has left billions of shillings in deposits at risk.
The tribunal ruled that the Sacco was justified in seeking the Sh96 million, freeing the PCEA cooperative to enforce recovery of the millions, including auction and seizure of Kuscco’s properties and bank accounts respectively.
A forensic audit by PricewaterhouseCoopers (PwC) uncovered large-scale financial fraud at Kuscco- a Sacco board in Kenya. Audit revealed that Sh13.3 billion had been lost
"PCEA Ruiru Coop Savings & Credit Society Limited has proved that they are entitled...they are successful in the claim and we therefore award the costs with interest at Tribunal Rates from the date of filing the claim," the tribunal ordered.
"This matter is of great public interest since this decision will not only affect the Claimant but also members of the other 177 Saccos who are members of Kuscco. We therefore find that the doctrine of frustration is applicable; Kuscco did not willingly fail to perform, but found itself in extenuating circumstances which were not contemplated," ruled the tribunal chaired by Beatrice Kimemia.
They entered judgment for payment of Sh88.9 million, being the Sacco's investment and Sh6 million interest, pushing the payout to Sh95 million.
The Sacco sued in March 2024, claiming unlawful retention of its deposits and accrued interest. It said the retention contravened the terms outlined within the investment agreement.
The PCEA Ruiru Sacco lost Sh88.9 million invested between 2018, when they joined, and 2023, when the intention to withdraw part of the money was frustrated.
In the last rollover in January 2023, the deposits were to earn 9.2 percent per annum as at the maturity date of December 31, 2023. Kuscco is said to have failed to honour the withdrawal of Sh60 million in April 2023, prompting the suit.
Edward Ngarega Gacheru, the Sacco treasurer, testified that they wrote demand letters, including on December 21, 2024, but did not receive the funds.
They had also done a letter dated February 23, 2024 demanding remittance of Sh95 million within seven days.
In defence, Kuscco advocacy manager Paul Wanyatta told the tribunal that financial mismanagement at the organisation was discovered in December 2023 following an inspection by the Commissioner for Cooperative Development.
The tribunal heard that the non-performance of the contract with the PCEA Ruiru, was not deliberate and that mismanagement was to blame for the cash crunch.
"There was mismanagement and a statutory audit was ordered, and thereafter the Board of Management was removed and an interim board appointed. There was an intention to pay, but the Respondent was experiencing liquidity issues," said Mr Wanyatta.
The tribunal heard that Kuscco did not deny the debt and asked that it be allowed at least three years to reorganise its books as it settles the smaller saccos.
The State directed over 247 Saccos to cut dividends and write off or set aside funds to cover expected losses linked to the multi-billion shilling fraud at Kuscco.
Several Saccos wrote off their Kuscco investments. The State has kept the list of the 247 Saccos with cash in Kuscco top secret, fearing its disclosure could trigger a run and collapse of the cooperative societies.
Saccos that owed billions of shillings were advised to stagger the provisions over the coming years, while some have been directed to tap bank loans for the risk buffer.
The State has cast doubts about whether Saccos will recover their investments in Kuscco, underlining the extent of fraudulent activities in the umbrella body.
The rot has left Kuscco with assets of Sh5.2 billion against liabilities of Sh17.7 billion, sinking it into Sh12.5 billion insolvency for an organisation that operated without a regulatory watchdog.
The PwC audit unearthed the cooking of financial books to the tune of Sh9.3 billion, following understatement of costs like commissions and interest expenses and overstating incomes—a scheme which saw Kuscco book phantom profits.
Records unearthed by PwC indicated false entries of commissions of up to three percent. As a result, the executives withdrew Sh1.6 billion, but paid out Sh1.1 billion.
