How Coop Bank Deliberately Uses a Weak IT System to defraud Kenyans to enrich its CEO

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The fact remains that Cooperative Bank is among the most trusted Bank and commercial service provider in Kenya. Out of this, some staff may be taking advantage of the earned trust from citizens with its overwhelming customers to fraud Kenyans.

Cooperative Bank’s CEO salary was last year increased to Ksh 376.4 Million, making him the highest paid C.E.O in the Nairobi Securities Exchange. Independent investigations show how the bank employees have been working in cohorts to obtain money from the bank.

The CEO, known as Mr. Muriauki Gideon is now on the spot for pioneering a weak IT system for the Bank. The bank, from the inside sources and employees, has a very weak IT system which is well explained with the reason for constant hitches on a daily basis. An example is that on Thursday, the cooperative bank system was done and even the ATM machines were out of service but it was made to normalcy after a time. Thousands of customers were left complaining as the card transactions were rendered impossible.

Recently, Coop Bank announced that it had moved to almost 90 percent of its customer transactions to alternative delivery channels including mobile and ATMs, has 580 ATMs and over 11,000 Co-op Kwa Jirani agents across the country.

Look at the following where the rapid faulty systems were supplied by a known vendor connected to a senior director of the bank, close ally to the CEO.

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 to leave numerous customers stranded with all manner of complaints.

There are those who found huge sums of money missing from their bank accounts, others could not access their funds,  those whose payroll is processed by the bank had to wait for over 4 days to access their salaries. This also applied to those who had deposited cheques which took more than 4 days to clear.

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”

What is the logical explanation behind these constant system challenges that when resolved leave many customers in tears? What is the CEO who is also the MD doing other than fighting over land, laundering money and getting embroiled in love scandals only to emerge the highest paid when customers get wanting services?

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.

Every new work day, the Bank Master should automatically take on board all transactions a customer may have made on Trans Master during the night.

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 grant for the purpose.

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