Savings and Credit Co-operative Societies (SACCOs) could soon be required to adopt mandatory whistle-blower policies as part of sweeping reforms aimed at improving transparency, governance and accountability in the sector.
The proposal is contained in a report by a Committee of Experts reviewing Kenya’s SACCO legal and regulatory framework.
The committee recommends that SACCOs establish strong whistle-blowing systems to protect individuals who report wrongdoing within their institutions.
According to the report, SACCOs should develop robust whistle-blower policies at the regulatory level that provide legal protection for individuals who present evidence of fraud, mismanagement or other irregularities.
The reforms also propose the creation of secure and anonymous reporting channels to encourage members, employees and stakeholders to report misconduct without fear of retaliation.
The committee said the policy would play a critical role in improving oversight within SACCOs and help expose financial mismanagement early.
The proposals follow extensive stakeholder consultations and engagement with SACCOs across the country, which revealed several governance and accountability concerns within the sector which controls over Ksh1.21 trillion.
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In addition to whistle-blower protection, the committee recommended stronger governance requirements for SACCO boards, including mandatory training and continuous professional development for board members on fiduciary responsibilities and conflict of interest policies.
The report, which is now with the Executive, also proposes introducing a system of “Approved Persons” for individuals holding key decision-making roles such as Board Chairpersons, Chief Executive Officers, and Finance Managers.
Under this proposal, the Sacco Societies Regulatory Authority (SASRA) would maintain a public register of approved individuals eligible to hold senior leadership positions in SACCOs.
The committee, chaired by Marlene Shiels, Chief Executive Officer of Capital Credit Union based in Scotland, UK also recommended strengthening auditing practices through mandatory independent external audits conducted by approved auditors.
The reforms would extend to independent internal audit functions to improve financial oversight.
To enhance efficiency and reduce costs, the report suggests that audit services could be delivered through shared services platforms across the SACCO sector.
The Ministry of Co-operatives and SASRA would also develop clear guidelines governing audit services, with penalties for non-compliance.
The reforms come amid concerns that the current self-regulation model within the SACCO sector has not been sufficiently effective in preventing governance failures and financial mismanagement.
Cabinet Secretary for Co-operatives, Micro, Small and Medium Enterprises Wycliffe Oparanya recently directed SACCOs to strengthen internal auditing procedures by requiring internal auditors to give their opinions on financial statements before they are submitted for external auditing.
He also called for disciplinary action against external auditors who fail to carry out their duties in accordance with the SACCO Societies Act and related regulations, including possible referral to the Institute of Certified Public Accountants of Kenya for additional sanctions.
The committee further recommended giving SASRA greater powers to sanction auditors who provide poor-quality audit services or fail to detect irregularities.
The report also proposes the introduction of real-time monitoring systems in SACCOs to improve regulatory oversight. SACCOs would be required to deploy digital systems capable of tracking transactions and generating automated alerts.
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Such systems would allow regulators to monitor financial performance indicators, including capital adequacy and liquidity ratios, while also enabling the introduction of early warning systems for financial distress and governance failures.
SACCOs that fail to comply with reporting requirements or deploy appropriate ICT systems could face sanctions until they meet minimum regulatory standards.
To strengthen member oversight, the committee recommended giving SACCO members access to real-time financial statements and key performance indicators.
Members would also be educated on how to identify warning signs in their SACCOs and demand accountability from leadership.
The report notes that most SACCOs currently only present financial results during annual general meetings. It recommends adopting practices similar to those in the banking sector, where institutions publish half-year and full-year financial results to enhance transparency.
The committee also proposed publishing governance and financial health ratings for SACCOs covering areas such as board effectiveness, financial stability and regulatory compliance.
If implemented, the proposed whistle blower policy and broader governance reforms could significantly strengthen oversight in the SACCO sector, which plays a critical role in mobilising savings and providing credit to millions of Kenyans.
In new changes announced last year by the regulator Sacco Societies Regulatory Authority (SASRA), SACCOs Chief Executive Officers (CEOs) and Chief Finance Officers (CFOs) or Finance Managers must sign audited financial statements alongside authorised board signatories.
The regulator introduced the rule which is now in effect to close accountability gaps in SACCO financial reporting, ensure management is directly responsible for financial disclosures and also improve transparency and protection of members’ savings.
By Obegi Malack
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