The Senate Standing Committee on Trade, Industrialization and Tourism has intensified its oversight of the cooperative sector after scrutinizing the Commissioner for Cooperative Development, Mr. David Obonyo over governance failures, regulatory oversight and financial accountability at the Kenya Union of Savings and Credit Cooperatives (KUSCCO).

Senator Jackson Mandago questioned how significant financial misstatements at KUSCCO went undetected despite the Commissioner's representation on the Union's Board as an ex-officio member.

"KUSCCO is the apex of the cooperative movement, and its Board should be the crème de la crème. If the Commissioner's representative was on the Board to strengthen governance and ensure regulatory compliance, where was that oversight when these governance failures occurred?" Sen. Mandago asked

In response, the Commissioner explained that he appointed Ms. Anne Mutinda as his representative after assuming office in September 2021. Although KUSCCO appeared compliant by holding Annual General Meetings, conducting elections and presenting annual financial statements, complaints from members who could not access their investments prompted him to deploy an inspection team.

"The financial statements looked healthy, but I realized something was wrong. That prompted me to deploy an inspection team, which uncovered the irregularities," the Commissioner said, adding that he believes there was collusion among senior management, including the Chief Executive Officer, Internal Auditor and Finance Manager.

The Commissioner informed the Committee that the 2023 inspection revealed KUSCCO's loan book had been overstated by more than KSh7.6 billion, despite the Union reporting deposits of over KSh18.9 billion and a loan portfolio of approximately KSh13.9 billion. The findings prompted forensic investigations by Grant Thornton LLP and PricewaterhouseCoopers LLP, which exposed extensive governance and financial management failures.

Busia Senator Okiya Omtatah questioned the effectiveness of the Commissioner's audit oversight, arguing that the regulator should have gone beyond merely receiving audited accounts. "As a regulator, you don't just receive audited accounts; you must go out of your way to undertake proper oversight," Sen. Omtatah said.

The Commissioner explained that while the Directorate of Audit reviews accounts submitted by licensed audit firms to ensure compliance, the KUSCCO case involved deliberate manipulation of financial records that could only be detected through verification of primary documents.

"The financial statements balanced, but they did not present the true picture. We have since strengthened our oversight beyond routine compliance reviews." Mr. David Obonyo said.

Sen. Esther Okenyuri, the committee Vice Chairperson also sought clarification on whether the Directorate of Audit had complied with the requirements of the Accountants Act during the verification of KUSCCO's audited accounts. “Under the Accountants Act, the Directorate of Audit is required to request source documents when verifying audited accounts. Was this process followed?" she asked.

In response, the Commissioner stated that the Institute of Certified Public Accountants of Kenya (ICPAK) is the primary regulator of audit firms, while the Ministry's role is to vet and approve audit firms in good standing that wish to audit cooperative societies.

The Committee also examined the process through which KUSCCO's statutory auditors were appointed. Members were informed that auditors are appointed during the Annual General Meeting from a list approved by the Commissioner in consultation with ICPAK. Omenye & Associates CPA(K) served as KUSCCO's statutory auditors for the 2020, 2021 and 2022 financial years.

Seeking to establish whether similar concerns existed elsewhere in the cooperative sector, Senators requested a list of other SACCOs audited by the same firm. The Commissioner named Poly Sacco Society Ltd, Alarms Sacco Society Ltd, Belle Vue Sacco Society Ltd and Siginon Sacco Society Ltd, noting that available records indicated compliance during the audited periods.

The Committee further examined the Commissioner's statutory role in the liquidation of cooperative societies, service delivery timelines and broader challenges affecting regulation of the cooperative sector, including overlapping functions between the National and County Governments, inadequate funding for inspections, shortage of technical personnel and weak ICT infrastructure.

The Commissioner informed Members that the review of audited accounts takes an average of eight days, while the registration of a Savings and Credit Cooperative Society takes approximately two weeks, provided all the required documentation is submitted.

The Committee reaffirmed its commitment to strengthening legislative and regulatory frameworks governing cooperative societies, enhancing accountability within SACCOs and ensuring robust oversight mechanisms that protect members' savings, restore public confidence in the cooperative movement and promote transparency across the sector.