A survey of Corporate Governance systems in Sacco Front Office Savings entities (FOSA)

Abstract

Corporate governance as practiced by SACCOS did not factor in the management of Front Office Savings Accounts (FOSAs), which, within a span of 15 years have tremendously grown in numbers, products and member deposits held. FOSAs are now a common feature in both urban and rural SACCOs competing directly with commercial bank accounts and financial institutions. Not much research has been made on the corporate governance of FOSAs except general guidelines associated with SACCOS as in Oyoo (2002) and Ongore (2001). FOSAs have been associated with a history of poor governance by their boards and management committees. The cooperative principles and values have been lost as the trustees put their priorities before that of members Wangombe (2003). There is no clear distinction between the roles of directors and management, which often results into conflict of interest. Majority of the board members and management teams have also been found to be lacking financial management skills necessary for running the complex FOSA services, which are essentially banking in nature. This has been blamed on the democratic nature for electing office bearers. As in their mother SACCOs, most FOSAs have also not incorporated codes of best practice as a guiding principle of governance and where they exist, they are rarely used. Based on the above, the study was conducted with the objective to establish and explain the governance systems within SACCO Front Office Savings Accounts. A questionnaire was administered to 50 FOSAs, of which 37 were fully completed.

The study found out that FOSA objectives reflects the objectives of their members and that FOSA member relation being Good. The Board relationships with the monitoring agencies were also found to be very good. It also found out that FOSAs have strategic plans of sufficient quality and content, which are reviewed against business plans. The Board of the management of FOSA's were also found to be monitoring their activities on a regular basis. The study found out that the FOSA's legal and ethical requirements are met satisfactorily and only 46% had signed code of ethics. It was also noted that the FOSAs, which experienced frauds, were the same that neither had a signed code of ethics nor an audit committee. While majority knew who recruited the FOSA managers, there were some who did not know how the FOSA Manager was recruited. The study also found out that the respondents knew the problems afflicting FOSA such as inadequate knowledge on FOSA operations, lack of office facilities, minimal IT skills, lack of long term lending, defection by members, competition from other financial institutions etc. Their solutions were also proposed as follows, training in all necessary areas, proper market intelligence, networking of FOSA and Back Office etc. The study recommended proper legislation, greater involvement of the board in the management of the FOSAs, entrenchment of code of ethics to minimize frauds. Indeed it should be a requirement of that all FOSA must sign a code of ethics. The study also recommended a further research to establish ethical and moral conducts of FOSAs, and also a further research to gauge how FOSA individual members and customers view the operations of FOSAs in general.