Inside fraudulent exercise in the Gideon Muriuki led Cooperative Bank

That the Cooperative Bank is one of the most trusted Banks in the republic is a cinch but are some of its staff taking advantage of the ‘tyranny of customers’ only paralleled by Equity and “Mattress Sacco’ to perpetrate fraud?

The bank that vaunts a CEO whose annual pay increased to Sh376.4 million last year, securing his position as the highest-paid CEO of all the Nairobi Securities Exchange has been hit by cases of fraud perpetrated by bank employees who work in cahoots with external persons to obtain money from the bank.

The Gideon Muriuki led Bank is on the spot as having weaknesses in IT systems. The bank according to inside sources has systems of poor quality and that explains for instance the constant system hitches. Last Thursday, the systems were down for one hour affecting its card transaction and ATMs. It was however had been restored to normalcy.
The downtime attributed to a technical fault left the bank’s ATM Services, Card transactions at Merchants and other Point of Sale outlets dysfunctional rendering transactions by its customers impossible.

Previously, Cooperative Bank has suffered by rising employee fraud, IT system malfunctions. The same happened on December 22nd 2017 and the worst would be in 2014 2nd July when the Co-operative Bank of Kenya systems failed leaving numerous customers stranded with all manner of complaints.

One Dina Mwangi took to her face-book account and wrote: “Coop bank is a fraud. 13,000 vanished from my account mysteriously by a certain kisingu on 25 June. I have been at the upperhill branch since noon and. Is now 3pm and I have not been helped. I am being shuttled from on inefficient officer to another. You are the most disgusting inefficient fraudulent bank ever.”

This happened at the worst time for most people – end month, when most need to pay utility bills such as rent, power and water bills.

Esther Kasaya wrote: “Honestly Coop bank how can you make me go without salary for three days. Cant you tell us what is happening. When I call you people you say the money is in my account, when I check the ATM nothing, when I queue inside the bank you tell me your system is offline, Kusema ukweli why are you making us look like beggars? why”

The insider intimated that the bank’s internal investigations have established a link between employees who know about malfunction in some of the bank’s IT systems and account holders who take advantage of the system.

While some of the cases have ended up in the court and others remain under police investigation, the bank, keen to protect its image, has hardly reported the full extent of the problem to authorities and has on occasions refrained from pressing charges against account-holders implicated in the fraud.

Dozens of farmers from Central Kenya whose property were auctioned over loans they owed the bank, but which the government has paid in full. Some of the farmers said that collateral they placed with the bank cannot be traced.
Last year, an employee at the bank’s Eldoret Branch was accused of stealing Sh40 million from customers who had invested in stocks under accounts he was handling.
The bank’s credit card section has been hit by a systemic problem known to staff whereby when a customer conducts a transaction using their card, the credit and debit accounts are not settled in real time. The bank staff then manipulate entries on the Credit Card Debit Suspense Account that has to be reconciled manually.

Like many banks, Co-op Bank runs bank and card systems, Bank Master and Trans Master, separately. When the bank closes operations at the end of the day, the Bank Master goes to sleep, but the Trans Master that supports ATMs and connects the bank’s account-holders to international card system works 24 hours.

However, due to the bank’s malfunctioning systems, sometimes transactions from the Trans Master have to be entered manually on the Bank Master, according to information the bank provided to the Milimani Commercial Court in a case lodged against it by a customer the bank later accused of abusing its systems.

Given the malfunction, some bank staff worked in cahoots with account-holders, mostly from the Nairobi Business Centre Branch along Ngong Road, who took advantage of the system to net decent amounts from the bank through gambling activities on the credit card that were performed mostly at night but, as the court established, also during the day.

Under the fraud, the bank was required to make payment to merchants from whom the customer had purchased goods or services (normally in foreign currency for internet-based transactions), in this case betting companies, even where there were no records of the customers having placed bets. The customers accounts were also credited with huge sums of money.

One such customer, Anthony Kimani Chege, who operated Account Number 01109127579300 at the Nairobi Business Center Branch, went to court in May 2011 to press for Sh14 million the bank had deposited in his account through the fictitious betting wins but which the bank discovered and froze before he could withdraw the money.

The account-holder used his debit card No.4407830011038792 for gambling on-line.
He went to court seeking orders for Coop Bank to be compelled to un-freeze his account and release him the Sh4,829,969.15 being the credit in his account when it was frozen. While he lost the case, the hearing unearthed massive impropriety on Coop Bank staff members and negligence from senior management that refused to take action for months according to the court.

Investigations by the bank’s security department showed that Mr Chege was one of seven account holders who all opened their accounts at the same branch, having been introduced by one employee of the bank. The bank found that some its employees were aware of the malfunction in the IT systems and had encouraged account holders to take advantage of the system of it. While the employees were identified, some were not punished. Ostensibly, the web is intricate and some employees eat with senior bank staff.

Neither did the bank improve its systems, which according to insiders remain among the weakest in the industry given the constant malfunctioning. Is the failure to improve its system deliberate? One ponders…

In one such fraud case, Justice Ochieng expressed concern that the bank did not review its systems or stop the fraudulent transactions four months after the investigations department had raised the red flag. “Considering that the plaintiff had opened his account in January 2011, the bank could have stopped the bleeding of the account if it had taken appropriate action in a timely manner.

“By failing to act appropriately and in a timely fashion, the bank negligently contributed to continued debiting of an account which did not have requisite funds to meet such debits,” the judge held, in declining the bank’s demand for Sh14 million from the plaintiff.

“As the bank was contributorily negligent, to such a degree that it allowed the transactions to continue for a whole four months, I find that the losses should lie where they have fallen,” the judge ruled.

Not to mention dozens of farmers from Central Kenya whose property were auctioned over loans they owed the bank, but which the government has paid in full.

Some of the farmers said that collateral they placed with the bank cannot be traced even though President Uhuru Kenyatta has said the farmers’ loans should be offset from Sh2 billion government.

Published on 7/7/2019

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