For the years that Arnold Munene has worked at Kenya Union of Savings & Credit Co-operatives (Kuscco), nothing in his wildest dreams had prepared him for the managing director role this soon—let alone taking over an entity that has been battered by a multi-billion shillings heist.
Mr Munene now finds himself with the unenviable job of trying to revive the fortunes of an institution that has shaken the foundations of Kenya’s over Sh1 trillion deposit cooperatives movement. This was after it was revealed that years of misfeasance had cost it about Sh13.3 billion.
He says when he dreamt of a CEO role, he never knew the first opportunity would come in such circumstances. For about 10 years, he served Kuscco as a senior regional manager, overseeing regional relationships with member savings and credit cooperative societies (saccos).
That was until mid-January last year when he was made the acting managing director, even as the entire board and management were sent packing.
Mr Munene, who was confirmed as managing director last May, had many things to contend with: First CEO role, suspended top management, panicky withdrawals from saccos, public scrutiny at Kuscco, books of accounts that could not be relied upon for decision-making and staff reeling in shock.
“I have had to make radical changes every day. I believe we needed someone who can stand in and say ‘Yes, something bad happened and we are determined to rectify it to revive and restore the confidence of millions of Kenyans in the Sacco industry’,” Mr Munene told the Business Daily.
He had seen Kuscco at what he believed then were years of growth, with saccos receiving dividends for their investments and staff getting annual bonuses for exemplary performance.
But as PricewaterhouseCoopers (PwC) forensic audit would later show, Kuscco was but a house of cards. At first, he says he was in denial when he heard about the rot at Kuscco, considering that for years, Mr Ototo’s team used to present “strong and healthy” financial statements and reward bonuses to employees for “impressive performance”.
“I was in shock and denial. There were no signs of struggle at Kuscco. When I got in [as CEO], that was the first time I got to see the real accounts of Kuscco. I could not believe that an institution that was being run by two qualified CPAs [certified public accountants] would be in such a mess.”
Just like Mr Munene, many of the Kuscco staff could not believe that the institution that had for years paid them bonuses for impressive performance was in a financial mess.
“It took me months to convince staff there was a side of Kuscco they did not know. I had to go round to the regions and tell them ‘Guys, it is true!’”
One of Mr Munene’s first moves was to pick an internal audit team, which unearthed a gap of almost Sh8.6 billion, even as books of accounts painted a different picture. When he asked the finance team where the money was, no one seemed to have answers.
The acting finance manager had only stumbled upon parallel sets of Kuscco accounts after the then finance manager George Owino was pushed out.
Mr Munene had to quickly close most of the more than 90 bank accounts that Kuscco held in different banks and requested statements to understand how transactions had been done.
That formed part of what PwC used to piece together a trail of who withdrew what and when. Kuscco has also had to switch from a cash system to corporate Internet banking to “see what is in the accounts and not just the books,” according to Mr Munene.
PwC is now helping Kuscco reconstruct the books of accounts to eliminate phantom numbers.
“We are reconstructing the entire loan book file-by-file because out of those cooked financial statements, we realised about half of the loan book is interest and penalties accrued over many years, meaning what is recoverable is way less,” explains Mr Munene.
To dial down operating costs, Mr Munene’s team engaged a consultant for a job evaluation exercise to assess staff competencies. That required all staff to submit their academic certificates to Kuscco. But before the process was complete, 61 employees resigned.
The job evaluation returned a verdict that Kuscco was overstaffed and needed not more than 86 employees compared with the more than 200 in service. Mr Munene then rolled out an early voluntary retirement package, which has seen 64 apply.
“We want to release them by the end of this month, based on the availability of cash, so that we are left with a lean staff to fit into the Kuscco that will be dealing with advocacy, capacity building and training,” he said.
Kuscco now targets to recover at least Sh6.2 billion or 70 percent of the Sh8.8 billion principal amount that saccos had invested in the umbrella entity within the next three years.
Mr Munene says the amount will come from various initiatives, including the sale of a 60 percent stake in Kuscco Mutual Assurance—the insurance subsidiary, the auction of houses and land held by defaulters of mortgages issued under the Kuscco Housing Cooperative and the recovery of loans from saccos that had defaulted on payment.
On March 7, Mr Munene wrote to the Commissioner of Co-operatives David Obonyo, requesting an “urgent” intervention to recover Sh1.16 billion tied up in about 74 saccos that tapped Kuscco loans but defaulted.
In addition, Mr Munene is exploring a conversation with banks to buy the mortgage book from Kuscco to enable it to exit the housing business as soon as possible.
Mr Munene has also closed down several Kuscco branches such as in Malindi, Kitengela, Bungoma, Nyeri and Meru as part of efforts to reduce operating expenses and direct the savings to refunding saccos. So far, Sh136 million has been refunded to several small saccos, averting collapse.
For Mr Munene, the bigger picture of his assignment at Kuscco is ensuring the stability of Saccos where millions of Kenyans have put their savings.
“I am doing this for Kenya because the conversation is about members who have trusted saccos with their hard-earned savings. I am a product of saccos. My parents were P1 teachers and trusted the sacco model to power my dreams,” he says.
