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Citizen Weekly

Sunday, 14 December 2014

EGERTON UNIVERSITY SACCO ON VERGE OF COLLAPSE

Egerton University Savings and Credit Co-operative Society Limited is steadily sinking into a situation it cannot save itself from. This is at the behest of its board chairman, Kepha Orina. He has promised to crush anyone including board members.
For the last four months the Sacco’s less than 30 Sacco and management staff members have without following procedures, supportive documents, in total disregard of the law and in most cases unilaterally “lent” themselves over Sh96 million against Sh350 million the organisation borrowed from Co-operative Bank  in early 2014. The alleged loan types included staff development, Jilinde, pre-salary allowance, Fosa Jilinde, products loans, loan advance and normal loans. Majority of the staff are receiving net salary of less than a third against the provision of the employment Act 2007. Most of the said loans were not approved by the board as the authorising organ. When contacted Sasra said  they were  aware  of the problem  and  was analysing the  report and complains presented  to it  by the  audit committee. “We  have received  a  comprehensive and astonishing report from the audit committee of  Egerton University Sacco and we are analysing it  to the fullest and we shall soon crack the whip accordingly,” a Sasra official in Nairobi said but challenged the  Commissioner for Co-operatives to assist  the firm. “We are told the current officials are sheltered. And nothing can be done even if they go against the law. There is a huge conflict of interest among some committee members and is known but nothing has been done even after it was reported by members of the Sacco. The Sacco has about 4,000 members with the highest saver having about Sh3 million and the lowest less than Sh2,400 according to records seen and analysed by Weekly Citizen newspaper. Contacted Orina denied and asked Weekly Citizen to contact Simuyu Matete the Sacco chairman of the supervisory committee who refused to comment saying that the government knows how well the Sacco is doing and currently managed. He dismissed the reporter as an agent of some members who were removed from the board during election. Some of the board members do not have required documents, savings and shares to allow them borrow the money they borrowed as required by law. According to documents obtained by us, the following are leading members of the board and management staff who has borrowed money without meeting the requirements or conditions and have no necessary documents.  They are:-
The vice-chairman Owidi who is based at Laikipia University campus has been earning over Sh 35,000 per week in allowances for coming to sign cheques.  The tradition is that the executive officials which include the chairman, the vice chairman, treasurer and secretary must all be based at the Njoro Campus so as to cut down on operation costs.
Members have accused the government for allowing the board and staff mismanages the Sacco by “stealing” from it and destroying it while saying they are transparent while from stealing naive members. In fact members say the government officers have been bribed and therefore closed their eyes to what is happening.
Sasra predicts that Egerton University Savings and Credit Society Limited will soon sink with billions of shillings belonging to members unless effective governance and systems are put in place or even outright removal of the current board members and top management staff is removed.
Sasra reckons that the Sacco registered to serve members through savings mobilisation and credit administration is operating in total disregard of ethos, business prudence and legal provisions. The Sacco operates at the headquarters in Njoro and branches in Laikipia University and Kisii University, and satellite centres in Nyahururu and Nakuru.
According to records seen, the Sacco spent Sh3,219,700 in allowances to board members between the months of January to August 2014. Orina received the highest totaling to Sh392,000, followed by the vice chairman Owidi, Achieng Sh354,500, followed by the Joseph Mwangi Sh341, 800, Matete Sh 247,000 and Augustine Ndenda 213,000.
Orina, Owidi  and  Ruto took  loan  nine times their savings of Sh650,429, Sh866,804 and Sh1,201,000 respectively while Martin Mukuna and David Mwayo took six times their savings  of  Sh376,000 and Sh353,000 respectively.
It was established that 403 accounts were overdrawn by Sh4.7 million while 18 accounts were overdrawn by Sh4.6 million.  Some members of staff who were not in the tender and evaluation committee participated in the procurement process. Nyahururu office was opened without due diligence and development of business plan. Sasra told Weekly Citizen that the board agenda was overloaded with many items for discussion and there was no policy on payment of allowances.
The Sacco which says it has had a steady growth until early 2013 is on the downward trend according to key performance indicators such as membership, assets, deposits, loans and shares. The Sacco’s level of compliance with the prescribed statutory requirements especially capital adequacy, liquidity ratios, external borrowing, investments among others is wanting and a fraud to say the least. 
Board members and staff get imprest without justification which is not accounted for.
An official at Sasra explained to Weekly Citizen in Nairobi that the Sacco had a loan portfolio of Sh1.225 billion as at August 31 2014 with a loan loss reserve of Sh19.8 million against the requirements of Sh38.9 million based loan performance in line with regulatory analysis of the loan listing thus the Sacco has under provided for loan losses. The official said, the Sacco reported total financial investments amounting to Sh29.7 million. The Co-operative Bank and Kuscco shares investments had a variances amounting to Sh4.2million. While the values in the original documents of ownership indicate a figure of Sh31.4 million, the Sacco reports financial investment of Sh29.7 million. The annual report and financial statements presented at the 38th annual general meeting did not disclose whether the financial institutions were reported at market value or cost in line with the international financial reporting standards adding that the Sacco should reconcile the values and report the investment fairly as can be supported by the evidence especially ownership records. The surplus, the official who spoke candidly armed with documents said that the board overstated it by the under-provisioning of loans loss adding that while the Sacco reported Sh129.8 million as interest income, only Sh94 million had been received in cash form contradicting his Sacco’s policy that income is recognised when cash is received. The Sacco reports different figures for the loan portfolio in different financial reports, the officials said. Adding that instead of reporting the loan book that is supported by the listing consistently, in all reports for decision making and to other stakeholders. The officials said, 626 loans accounts amounting to Sh110.8 million could not be classified due to incomplete information especially issue date and loan principal amount disbursed . As at August 31 2014, about Sh84 million of the loans could not be revealed implying that the Sacco may not recover the money. “Further, the Sacco had provided for Sh19.1 million as the provision for loan loss against the requirements of Sh38.9 million. This exposes the Sacco to potential capital reduction as a result of the inadequate provision of loan losses,” the officer said. The Sacco, the officials revealed has 22 loan products that can be accessed by the members but only 19 loan products have been actively advanced to the members. The official  expressed disbelieve Sacco management comprising of the staff and board hold loans amounting to Sh82.77 million, accounting for 7pc of the Sacco’s loan portfolio of which 68pc are held by the staff while the remaining 32pc are held by the board of directors. Some board members and staff had taken loans nine times instead of three time of the non withdrawal their savings with no ability to repay. The Sacco records and documentation are incomplete especially the loan form as a result of inadequate and/or lack of evidence of loan approval by both the staff and board in line with the credit policy the officials said, adding the Sacco advanced emergency and school fees loans beyond the maximum limit of Sh400,000. The Sacco is advancing some loan products such as Staff Development Loan, Microfinance Loan and Super Loan that are not documented. Even though the loaning process is automated, some important information such as dates, period, etc is not complete and it appears there seems to be no measures to ensure that such information being mandatory to the member records is captured as revealed by the incomplete records. The Sacco, the officials said, has built a structure in Kisii University Campus for use in its deposit taking business operations; however, without formal allocation by the university senate and it has not been regularised hence the Sacco does not have the ownership documents for the land on which the building stands.
The Sacco initiated the procurement of the construction services in December 2011 that was to be done within three months. The Sacco informed the inspection team that two bidders responded, namely Gesure and Nikase contractors, of which Gesure was awarded the contract at a price Sh4.5 million because Nikase did not have a bid bond. However, at the time of inspection, no tender document had been filed with the Sacco and no contract document had been signed to show the contractual obligation between the two parties. The contractor, Gesure, did not complete the project within the contractual period of three months ending on March 31 2012 but applied and received approval for extension of the contract period on May 15 2012 long after the deadline had expired. The Sacco approved extension on without clearly indicating the period instead of terminating. The Sacco made payments to the contractor of Sh1million as a part payment without any certificate of completion. Three days later, the contractor requested for further payment of Sh540,393 which was paid to him vide cheque No 027084 on May 31 2012. During the same period, exactly on May 29 2014, the board drafted a letter to the contractor indicating the level of dissatisfaction in performance of the contract that was not signed. The board of directors therefore made payments to the contractors and yet the board was unhappy with the work performance especially the occasioned delay. There was no explanation given for the awarding the extra contract of Sh1.01 million to Gesure contractors even with the knowledge that the firm had performed the earlier contract unsatisfactorily. At the time of inspection, there was no record to show the total payments to the contractors, however, the review of the file indicated that Sh3.9 million had been paid taking cognizance of the 10 per cent  initialization fee of Sh456,384. The owner of Gesure constructors is said to have died and works had been completed by the secretary of works for Njoro Plaza, whose value was not disclosed. From the information received, the branch needs renovation within less than two years after the works. The value for money for the members on this construction account cannot be seen and members of the board need to account for the activities and payment done for the project. The Sacco says without documentation that Laikipia banking hall team verbally has three operational offices in Laikipia, the old small office provided by the Laikipia University, a new proposed office within the campus and another office within Nyahururu township. The two offices in Laikipia campus had no documentation of ownership except for the allocation based on negotiations between the university and the Sacco. The contract Njoro Banking Hall Partition was awarded on May 29 2013 for a period of 12 weeks from the date of site possession. On June 25 2013, the value of the contract was revised to Sh28.6 million, which change amounted to 44.6pc increase of the contract price and thus violating section 47 (b) Public Procurement and Disposal Act 2005 and the attendant regulation 31 (c) which restricts works variations in excess of 15pc to be retendered. The cost was reviewed again to Sh31.5 million on October 1 2013, hence altering the original contract by 58.9pc. The Sacco paid the last installment of Sh8 million on October 10 2013 without a work certification. The Sacco has opened an office in Nyahururu the office was opened without any due diligence and developing a business case. The board was to use the market performance to justify the recruitment of marketers. While the information found in the Sacco revealed that the office is operating as an outlet, and the authority has not issued a no objection to its set up in line with regulation 17. The Sacco management especially the board of directors has flouted the procurement rules in the engaging of services. The manner the procurement processes are undertaken gives an indication of board influence, hence value for monies to the members for the activities engaged by the board is not assured. Except for the month of June 2013, the board holds meeting without board minutes the records from the minutes indicate that the committees were inactive hence the board agenda is overloaded with many items for discussion.
While the board indicated that there were meetings throughout the year, there were no records to support such meetings. The Sacco pays directors huge sums of monies that contribute to high costs for governance. The board members had received payment for attending as high as 30 board meetings, 22 joint board meetings and 61 duty assignment in eight (8) months. The total attendance of all members for the various board and some members of staff have disciplinary cases in their respective files which seem not to have been finalised. Also, there were other cases which seem to have been finalised without case determinations and staff members recalled including the son of the Supervisory committee chairman Simuyu Matete and the chief executive officer Victor Ruto. This raises questions on the board’s impartiality, objectivity and willingness to conclude such cases of the nature that touch on integrity of the staff in performance of their duties. The Sacco has engaged consultants to perform different roles including marketing and event management. However, it raises doubts when the Sacco engages a consultant, who is a former staff, after taking the same person to court for some omission and/or commissions that caused loss to the Sacco. It is important for the Sacco board to clarify the circumstances under which such engagement occurred and members monies were used to compensate would have been suspected criminal. The engagement of the aforementioned consultant was not transparent, as it did not comply with the procurement rules as it was single sourcing hence value of the services paid for cannot be assured from the board and management staff.