The following categories of preventive controls can be adopted to guard against possibility of fraud occurring in the Sacco.

  1. The society should maintain excellent portfolio quality
  2. There is need for simplicity and transparency of systems and procedures
  3. Fraud- preventive human resource policies
  4. Client education and awareness
  5. Strict, transparent policies and procedures of write –offs and rescheduling loans
  6. Policy for custody and handling collateral
  7. Credit committee- Credit committee not only play an important role in reducing credit risk, but also are an essential element of an operational integrity and fraud prevention strategy.
  8. Cash handling policy-Basic controls recommended to mitigate the risk of misappropriation for the society include;
  • Use of standardized, pre-printed, pre-numbered loan/membership application forms.
  • The society should prepare loan agreements in quadruplicate.
  • The society should include all vital details in the loan agreements, to reduce manipulation.
  • The society also needs to restrict access to blank loan agreements.
  • The society staff should do a final pre-disbursement vetting and verification of compliance for each loan and in case of anomalies should report to management committee.
  • Additional mandatory checks should be done by the staff before disbursing.
  • The society should elaborately document the disbursement process e.g. by making sure cheque or cash collections are recorded.
  • The society should retain one copy of the disbursement receipt and give the other to the payee.
  • In disbursing funds directly to the borrower, the staff should check for evidence that the person accepting funds is the real borrower.
  • An accountant or someone else should compare payee disbursement request and loan agreement signatures.



Policy for custody and handling collateral

Currently many Saccos are vulnerable to potential irregularities or fraud in the collection, storage and return of collateral. The assigned staff/management or any person may collect collateral but not deposit it in the designated storage area, or collect the wrong type of collateral, or neglect to collect it at all. It is important that co-operative societies should mitigate the risk associated with collateral through the following steps:

  1. The co-operative societies must have policies and procedures on when to require collateral, when to assume custody of collateral versus allowing borrower to maintain custody, where to deposit and store collateral, and how to value collateral.
  2. The co-operative societies should have clear guidelines to their staffs on how to verify the authenticity of the particular collateral e.g. land title verification, vehicles logbooks, etc.
  3. If the borrower maintains collateral, the co-operative societies should periodically inspect the collateral for impairment. The loan agreement should include a detailed description of the collateral and serial number or other identifying number of the property, and require that collateral must not be sold without prior notice to the society.
  4. Procedures must be clearly stated for returning collateral to the borrower upon full repayment of the loan. The Saccos should maintain a proper register for all members’ collateral so that whenever it is being moved or transferred to any other party, it is properly signed for.
  5. Procedures should be recommended to improve the chances that liquidation of collateral is done at the best available price, and that proceeds from liquidation are deposited intact into the bank.
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