HARAMBEE SACCO OFFICIALS INVOLVED IN YET ANOTHER SCANDAL

  A confidential inspection report compiled by the Sacco Societies Regulatory Authority (Sasra) shows that the Sacco has been using creative accounting tactics to cover up fraud and non-payment of loans by some members.

Harambee Sacco chairman Mr. Maclaud Malonza.( Left)

 The Banking Fraud Department of the Central bank of Kenya has arrested a businessman together with his wife for fraud related activities at the giant Harambee Sacco. The couple trading under the name Liwal Ltd were arrested Friday the 18/05/2018 and booked at the Kileleshwa police station in Nairobi; they will appear in court on Monday.  Mr. Walter Bonyo and wife are suppliers at the Sacco; they together with an employee of the Sacco Seth Ogutu are accused of defrauding the Sacco of Ksh. 13 Million shillings. Seth Ogutu is however not in custody as he is said to have been admitted at a hospital in Kisumu over an ailment. The Sacco is however not immune to fraud perpetuated by some of its employees.
Kenya’s second largest savings and credit society, has also been hit by a serious liquidity crisis, putting at risk the more than Sh4 billion belonging to 100,000 government employees. A confidential inspection report compiled by the Sacco Societies Regulatory Authority (Sasra) shows that the Sacco has been using creative accounting tactics to cover up fraud and non-payment of loans by some members.

The inspection conducted by the regulator between August 27 and September 6, 2016 found that the Sacco did not meet nearly all of the prudence parameters and had negative core capital. It also found that Harambee had understated its bad debt, leading to inadequate loan loss provision.
The bad debts are attributed to loans that were disbursed without adequate collateral even as members who have waited for loans in vain call for a refund of their deposits. “The Sacco requires a total loan loss provision of Sh4.13 billion in order to adequately reflect the possible losses from non-performing loans even before considering the deposits available as collateral,” reads the report.
The regulator adds that insiders were skimming cash through automated teller machine transactions and M-Pesa withdrawals. In June 2016, the report says the board of directors resolved to borrow Sh1.2 billion from Co-operative Bank, part of which was used to pay dividends of Sh633 million for the year. The Sacco’s Harambee Plaza building, which the Parliamentary Service Commission plans to buy for the expanded National Assembly, was charged to secure the loan.

Harambee Sacco Plaza in Nairobi

“These are pointers to the fact that the Sacco is facing acute liquidity problems and possible financial distress, which may impair its stability and existence in the long term, unless quickly and effectively addressed,” says the Sasra’s inspection report. The report implicates Harambee Sacco’s chief executive officer, the head of information technology, the finance manager and chief accountant in the mismanagement scam, but does not identify them by name.
It recommends a thorough investigation, full reconciliation of the Sacco’s transactions and the recovery of billions of shillings belonging to members.
In 2012, Harambee Sacco’s finance manager, Mr. Benson Zephania Ojiambo who was due to appear before the Agriculture, Co-operatives parliamentary committee for questioning over the alleged financial scams was shot dead by unknown people days before he made his presentation to the investigating committee. Sasra found that Harambee Sacco operated without an internal audit function and the current internal auditor is not registered with the Institute of Certified Public Accountants of Kenya. The internal auditor was also the Sacco’s principal front office services activities (Fosa) manager until June 2017, creating a conflict of interest because he was expected to audit a department that he was supervising.
The inspectors believe the management deliberately falsified or expunged crucial records with the intention of concealing the true financial condition of the Sacco. As at the time of the inspection, Harambee Sacco had a total loan portfolio of Sh9.81 billion, out of which 29.5 per cent or Sh2.89 billion was considered lost because the loans had not been paid for more than 360 days.
The inspection, however, found that only 14 per cent or Sh1.37 billion of the loan portfolio was performing. Under Sasra prudence guidelines, the level of non-performing debts should not be more than five per cent.
The inspection further found that the Sacco’s management information system (MIS) had not been properly configured to produce accurate loan classification reports.
“This has the effect of leading to material misrepresentation of the overall financial position of the Sacco at any given time,” the report adds. Sasra has recommended the discontinuation of three popular loan products - Personal Loan 60, Mkombozi Loan and Jisaidie Loan which have a combined outstanding balance of Sh5.2 billion out of which 92 per cent or Sh4.8 billion is not performing.
Other stories related to Harambee Sacco by The Weekly vision
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The regulator recommended that the three products be stopped by the end of 2017 and the lending procedures reviewed before they are reintroduced with the approval of the authority. The report shows that loans borrowed by members of the Ministry of Youth were the most prone to delinquency (81 per cent) followed by those disbursed to members of the Immigration department (71 per cent), Kenya Police employees (63 per cent), Office of the President (59 per cent) and Kenya Defense Forces (57 per cent).
The Sacco draws its membership mainly from government employees including those working in the Office of the President, Department of Defense and National Police Service which includes the Administration and Kenya Police National Youth Service.
“Majority of these members are salary-based public servants and there ought to be minimal incidence of loan default if any,” adds the Sasra inspection report.
Harambee Sacco employees had at the time of inspection borrowed Sh232.5 million, more than a third (Sh84 million) of which was non-performing)

The report blames the management for not disclosing the extent of the loan default to the board of directors whose members are also thought to be compromised by overdrafts in their Fosa Accounts.
At the time of inspection 1,607 Fosa accounts were overdrawn to the tune of Sh20 million. At least Sh6.3 million of the amounts had benefited staff members and Ksh. 593, 000 related to five members of the board of directors. “The overdrawing of accounts by directors and senior members of staff is irregular and amounts to granting credit facilities without following due process which is tantamount to abuse of office,” notes the Sasra report.
The poor management practices have led to discontentment among members with 954 members with savings of Sh127 million having applied for refunds and to leave the Sacco. There was also a loan backlog of Sh29.3 million, excluding loans that were awaiting disbursement.