Many years ago, I sat on the board of a not-for-profit organization whose lacklustre CEO had been woefully appointed to a role way above his intellectual competency. As a member of the audit committee, we discovered that the finance manager was not following policy on a certain financial process causing several bushy board eyebrows to be raised. After the finance manager stammered and tripped over his own shaky defence, we asked him to leave and turned to the CEO to find out what his view of the matter was. Without batting an eyelid, the CEO shrugged his shoulders and coolly said, “Me, I don’t understand accounting so me I don’t know what the finance manager does to be honest,” while looking around the table for affirmation from other committee members that he thought were on board the same MV Ignorance boat. Our confidence in the CEO was significantly compromised and we reported the same to the board chairperson who did nothing. I resigned from the board shortly thereafter. The CEO was eventually ignominiously bundled out by an internal coup engineered by his own staff who recognized his incompetence.

Last year, the Kenya Union of Savings and Credit Cooperative Societies (KUSCCO) got the media’s attention when it was reported that an audit, ordered by the Ministry of Cooperatives, had revealed Kes 6 billion in losses. According to an article in this newspaper on May 6th 2024 titled “Kuscco board fired after audit reveals Kes 6 bn illegal withdrawals,” the auditor found misappropriation of member funds, illegal withdrawals, cash transfers and engagement in illegal or unlicensed activities. You have to read the article yourself to get more of the horrendous pilferage and utter dereliction of responsibility by the management of the firm, including over a hundred million in loans and cash transfers to the CEO and double purchasing of land.

But the title of the article is the attention grabber. The board was fired. Why? To begin with KUSCCO was started as a lobby for the savings and credit cooperative society (SACCO) industry. In ways that the parent ministry of cooperatives was unable to fathom, it morphed into a deposit taking institution but was not regulated by Sacco Societies Regulatory Authority (SASRA) which is the industry regulator. With a membership of 4,168 Saccos and deposits of Kes 18.9 billion, it beggared belief that the scale of deposits was not something the board had considered when mulling over how lucky they were that they were not under Sasra’s thumb. Or maybe they had given it a fleeting thought. An earlier article in this same paper dated 31st January and titled “Ministry orders Kuscco audit over deposit taking” gives the genesis of the board’s demise. In October 2023, following suspicions that it was operating a deposit taking business when it had been registered as a union for Saccos, it had fallen upon the padded shoulders of the Cooperatives Cabinet Secretary to take stern action against the unregulated Kuscco.

By this time, KUSCCO was unable to meet its financial obligations, such as discharging fixed deposits as they fell due. The Cabinet Secretary ordered an audit, which then revealed that KUSCCO’s financial books had been audited by unlicensed entities in the last two years. But hold up a minute! Up until this moment, one could extend grace to the board for not knowing that there was ongoing financial malfeasance occurring at the highest levels. One might even extend the board more grace for overseeing the metamorphosis from a SACCO union into a deposit-taking institution. However, grace ends when one hears that the board audit committee, which is one of the most important board committees, had knowingly been dealing with an unlicensed audit firm.

A few years ago, I was appointed to a board where that exact situation prevailed. We, the audit committee members, discovered that there were all manner of snakes and ladders playing out within the organization when we started asking what, in the name of ICPAK heaven, a key subsidiary was doing being audited by a non-registered audit firm. Needless to say, we were bundled out of that board by the appointing authority faster than you can say “Ati who?”

KUSCCO’s story is definitely one for the governance hall of fame—a series of unfortunate events overseen by a group of not-so-unwitting board members supervising a not-so-straightforward management team. A key lesson for someone wishing to join boards is this: understand basic financial accounting. If you don’t, then verify that the chair of the audit committee is a qualified accountant in good standing. If they are not, then ensure that there is a qualified accountant on the audit committee. If none of those applies, consider disembarking from MV Ignorance. This world and that board are not your home!

[email protected]

The Nitpicker Podcast