Financial fraud is a notable threat impacting the growth of SACCOs and cooperative societies in Kenya. There have been several cases of theft and misappropriation of funds in previous years.
According to the Central Bank of Kenya (CBK)’s Kenya Financial Sector Stability Report, SACCOs in Kenya lost about $10,600 in 17 months to March 2021. The attackers targeted vulnerable controls of systems to commit fraud. The CBK report also recommended all SACCOs to review and improve their IT systems for better security for members.
Fraud prevention for SACCOs in Kenya
- There can be many circumstances that can indicate the possibility of fraud in a SACCO.
- Transactions are not recorded in a proper and timely manner
- Improper records of transactions such as amount, time, and classification, etc.
- Last minutes adjustments made to account books without proper intimation
- Unauthorized access to the account or financial information
- Missing documents to support the transactions
- Unexplained transactions at the time of reconciliation
- Unusual balances in the financial statements and ratios
Any of the points identified in cooperative societies can mean a red flag for fraudulent transactions.
Organizations like Sacco Societies Regulatory Authority (SASRA) have been formed by the government to supervise and regulate SACCOs. SASRA is responsible for supervising SACCOs to ensure compliance, protection, and regulation of these societies.
Recently, SASRA formed a fraud investigation unit to serve SACCOs in Kenya. The Sacco Societies Fraud Investigation Unit (SSFIU) is formed to probe and address the rising fraud cases in the sector. It comprises five special officers from the Directorate of Criminal Investigation (DCI) and is expected to develop and implement a robust system to monitor the market and prevent fraudulent activities.
Can digital transformation help?
Digitization of financial systems can be seen as an effective way to combat fraud and theft activities. It can help SACCOs replace cash handling and transactions which is the basis for many types of fraudulent activities.
Detection and prevention of fraud can become a lot easier with digital systems. Digital transactions can make it easier to detect the source of transactions, monitor device fingerprint, geolocation, and important details of the fraudster device.
Furthermore, it makes it difficult for anyone to tamper with financial books and transaction details for illicit purposes as only authorized people can access the system. Any change to financial information will be recorded to form a unique chain of historical changes.
With digital systems, SACCOs can not only help identify a fraudulent transaction but can also prevent any such transaction from happening by highlighting through deeper insights and real-time updates.
We, at Wakandi, have built a digital system for SACCOs and microfinance institutes that can help them digitize savings and loans. It can ensure better effectiveness towards fraud prevention. To read more, we have a separate article on how Wakandi can help SACCOs fight fraud.
In this time when more and more people in Kenya are joining SACCOs to save money and obtain loans, the demand for effective fraud prevention is on the rise. The adoption of digital technologies can strengthen SACCOS to fight fraud. It might not completely solve the problem but can significantly reduce its chances. Going digital can ensure a secure environment for members and bring transparency to how SACCOs operate.