How Kuscco board pocketed Sh18m for site visits to housing project

Kenya Union of Savings and Credit Cooperatives (Kuscco) board pocketed Sh18 million in allowances for site visits during the construction of the Sh1.5 billion Kuscco Homes Project.

The money, paid in cash over five years, is one of the queries flagged in the PricewaterhouseCoopers’ (PwC) audit into the Sh13.3 billion fraud at the Saccos umbrella organisation.

The payouts raised eyebrows, prompting a meeting to regulate the visits by a committee formed to oversee the project in Kitengela, Kajiado County. The audit report characterised the project as a loss right from the feasibility study, which projected net sales of Sh1.2 billion.

According to the audit report, some of the tenders for the project were issued via email, with payments akin to kickbacks linked to Kuscco staff.

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Of the 16 contractors, the audit team found no evidence of a procurement process. Additionally, of the 16, only three had contracts signed. This raises the question of the grounds on which the service providers were being paid.

According to the report, the Sh1.5 billion cost is as per the expenditure data retrieved by PwC from bank statements.

“This was 90 per cent above the allocated budget as highlighted under 4.231 and 29 per cent above the expected project expenditure in the feasibility study,” the report says. “Based on the projected net sales of Sh1.2 billion as detailed in the feasibility study, this would amount to a loss of 20.7 per cent.”

The report says Kuscco conducted an undated feasibility study, which estimated the total project expenses at Sh1.176 billion with a projected net profit of Sh83.96 million. The net profit, says PwC, was based on net sales of Sh1.26 billion.

“Both Julius Odera (Kuscco Housing Fund chief executive and former Kuscco Housing Fund manager) and Scholastica Kalianya (Internal Audit Manager) were not aware of the individual who conducted the feasibility study and the financial projections,” the report says.

It adds: “Further, there is no evidence that the feasibility study and the financial projections informed the project budget of Sh800 million.” The Kitengela Kuscco Home Project is made up of 120 mansionettes, a barbershop, a salon, a restaurant, and a minimart, and was meant to replicate a similar development in Kisumu.

The project started in 2013. It was funded from the Kuscco Housing Fund (KHF) account, Kuscco Main Shares account, Kuscco Main account, Central Finance Fund (CFF) and a loan of Sh300 million from the Gulf African Bank.

Sh272.4 million came from the KHF account, Sh937.9 million from the Kuscco Main shares account, Sh15.1 million from the CFF account, Sh50.1 million from the Kuscco union main account and Sh300 million from Gulf African Bank.

Project’s budget

The land was bought for Sh51 million.

The loan from Gulf African Bank had been paid up by December 2023.

The report says while Sh800 million was the project’s budget, Ms Kalianya did not provide any documentation to the effect.

“Further, we did not see any evidence of an approved budget by the Kuscco board in the period between 2010 to 2014,” the report says. The report says that initially, Kuscco board members  conducted site visits to get the progress of the project from the architects, managers and other consultants.

The board members are said to have received their allowance for this activity in cash. “Based on our analysis of the bank statements, costs associated with the site visits between 2018 to 2023 amounted to Sh17.9 million,” the report says.

According to Francis Wande, Kuscco chief cashier, to mitigate these costs, the board at the time resolved to establish a committee to oversee the project’s progression. There were, however, no minutes to confirm this claim.

A committee was tasked with reporting to the board on the same. Nevertheless, this committee, led by Mr Odera, was powerless in selecting the service providers for the project.

George Ototo, the former Kuscco Group managing director currently before the court on fraud charges, and who had been with the union since 2010, is implicated in the report for the irregular onboarding of vendors.

According to the report, Mr Ototo, who unceremoniously left the entity early last year, sent a memo on May 26, 2013 to Image Architects, Capital Architects, Designspec Ltd, Cadplan Architects Limited and Space Link, inviting them to submit their bids.

However, on August 5, 2013, Cadplan Architects informed Kuscco via a letter addressed to Mr Ototo that they had been contracted as the project’s architects.

“There is no evidence of submissions made by other architects invited to bid,” the report says. “Although the board selected Mr Odera and Mr Kenneth Kimaiyo (Kuscco former Internal Audit Manager) to be part of the committee overseeing the project from inception to completion, they were not aware of the process followed to onboard various vendors when we spoke with them.”

The vendors are said to have been paid Sh1.16 billion. Cadplan Architects was paid Sh78 million between 2014 and 2023, according to the report.

Contemporary Electricals Enterprises, the report says, was paid Sh37 million between 2016 and 2020.

The report notes that the firm was not the lowest bidder, suggesting that the process was not competitive.

Gamma Electricals and Mechanical Co Ltd was the lowest bidder at Sh52.3 million. Contemporary Electricals Enterprises Ltd bid Sh53.6 million.

The PwC team also noted links between Contemporary Engineering, Contemporary Electricals Enterprise Ltd and Dinesh Construction Ltd as phone calls to these firms were all being picked by the same person – Fredrick Opondo.

The report notes that Dinesh Construction Ltd, which was doing the main works in the project, was paid Sh796.7 million between 2013 and 2020, which was 3.76 per cent above the contract sum of Sh768.5 million.

This was an overpayment of Sh28.3 million. Villa Care Kenya, a real estate agency engaged to market the project for sale, did not sell any houses, but they were paid Sh1.3 million. The deal was to pay Villa Care Kenya an advance payment, and then Kuscco would recover through a commission of two per cent on the sale price of every house.

“According to both Mr Odera and Mr Kimaiyo, Villa Care were not successful in selling any houses. Kuscco did not take any further steps to recover the money paid to Villa Care,” the report says. The audit also notes that Cadplan Architects, Shaque Associates, Laconsult Associates and Donn Consultants, which were engaged for consultation at Sh96.1 million, were later collectively paid Sh147.2 million. This is an overpayment of Sh52.1 million.

Former Kuscco internal audit manager, Mr Kimaiyo, was also found to have received Sh2.7 million from Cadplan Architects as payments from the contracted firm. This payment was made on December 4, 2017.

“Mr Kimaiyo informed us that this amount was payment for a vehicle registration number KBN 565C sold to an associate of the owner of Cadplan Consultants Ltd, Daniel Manduku. However, we observed that his explanation was not consistent,” the report says.

The audit questioned this transaction, arguing that the sales agreement of the said vehicle reads that it was sold to Cadplan Ltd and Mr Manduku signed as the purchaser.

“As of December 4, 2017, Cadplan was still offering architectural consultancy and project management services to Kuscco since the Kuscco Homes Project was still ongoing and Mr Kimaiyo was in the project committee,” the report says.