Writing
SUPERVISORY COMMITTEE
a) There shall be a supervisory committee consisting of three (3) members who shall be
elected by general meeting and completely independent of the management committee.
The supervisory committee shall be directly answerable to the general meeting to which it
shall report.
b) Members of supervisory committee shall be elected for a period of three (3) years with
one member retiring annually. Conditions for qualifications to be elected and lose office
shall be similar to those of management committee.
c) Notwithstanding the provision (a) of these by-laws, any member of the supervisory
committee may be removed by a resolution of two-third of members a general meeting
present and voting.
DUTIES OF SUPERVISORY COMMITTEE
Pursuant to Rule 28 (3) of the act the following powers and duties shall be restored upon the
supervisory committee:(a) Verification of all transactions of the society
(b) Write periodic reports of its findings to be tables at management committee meetings
and general meeting.
(c) Evaluate programs and policies of the society
(d) Assist in proper interpretation of local policies, by-laws, act, rules, general meeting
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(q) Freedom to acquire services of an expert in a specialized field in the course of their
duties; whereby remuneration of such expert shall be determined by management
committee.
(r) Receive and scrutinize the reports of the internal auditor, if any take action on the
same or recommend for action by the general meeting.
(s) Submitted its quarterly reports to the commissioner
AUTHORITY OF THE SUPERVISORY COMMITTEE
Without performing any duties or exercising any of the powers of the Management
Committee, the Supervisory Committee shall be responsible for the Society's compliance and
internal control. It's also responsible for accuracy and control of Sacco finances, conducive
administrative procedures and safeguarding of the Society's corporate image.
LIABILITY OF SUPERVISORY COMMITTEE
In spite of its total independence from the Society, Management Committee, the Supervisory
Committee shall be jointly liable for losses sustained trough their lack of supervisions or
negligence in noticing illegal and fraudulent acts.
QUALIFICATION FOR SUPERVISORY COMMITTEE MEMBERSHIP
In addition to qualifications set in By-laws, the General Meeting may set other qualifications
for a person to be elected a supervisory committee member. Such qualifications shall include,
but not limited to:
(a)
(b)
(c)
(d)
(e)
Weak internal controls not only allow for the perpetration of fraud but allow for errors and
unintentional mistakes to go undetected for a long period of time. Usually, these errors
individually do not represent a large amount
of funds. However, the cumulative total can be material and the time needed to correct
the error significant.
The primary objectives of internal controls are to:
Safeguard assets and member savings;
Verify the efficiency and effectiveness of the operations;
Assure the reliability and completeness of financial and management information;
Prevent fraud and mistakes; and
Ensure compliance with applicable laws and regulations.
Internal controls can be broken down into two categories
accounting and administrative controls.
These two categories are not mutually exclusive. Some of the procedures and
records involved in accounting control also apply to administrative control.
Accounting Controls - Accounting controls should provide reasonable assurance that
staff performs transactions according to managements direction and their authorization
level. In addition, transactions should be recorded and financial statements prepared
according to accepted accounting principles. A SACCOs records must reflect its actual
financial condition, structure, and results of operation. Accounting controls may differ
with the size and complexity of a SACCO. The following controls should be part of the
internal control environment and should be helpful both to inform the SACCOs board
completion. The documentation should include the name of the individual making the
transaction, the date of the transaction, how much it is for, and what general ledger
accounts it effects.
Some of the more common record keeping deficiencies include:
General ledger entries that fail to contain an adequate description of the
transaction;
Lack of permanent and satisfactory records pertaining to cash items and
overdrafts;
Teller cash sheets that do not contain adequate details;
Investment subsidiary ledger that fails to list all necessary information;
Bank account reconcilements that are not current or fail to reflect the description and
disposition of outstanding items;
Inadequate details concerning debits and credits to the cash account;
Correcting record keeping errors by erasing instead of crossing through the error;
Numerous corrections each month;
Failure to make daily postings to the accounts and records;
Failure to promptly close the books each month; and
Failure to review exception and other internal control reports.
7. Supervisory committee Auditing Every SACCO should have an adequate audit program.
An active supervisory committee may be adequate for small, limited service SACCOs, while
medium-sized institutions offering more than basic services should employ the expertise of an
external auditor to perform the annual audit. The supervisory committee can perform the
account verification and internal audit functions.
Ideally, larger SACCOs should consider a program that consists of a full-time internal
auditor reporting to the supervisory committee and an annual external audit performed by an
independent third party accounting firm.
The scope of the internal audit depends on the size of the SACCO and the number and
complexity of the services offered. Because of cost constraints, many SACCOs cannot afford a
full-time internal auditor. In this case, periodically the supervisory committee can perform:
bank reconcilements, cash counts, review of employee and officials loans, review of activity
within accounts designated as dormant, and review of expenses and the supporting
documentation.
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6. Dual Control Accessing vaults, files, or other storage devices should require at least two
keys or combinations under the control of at least two different people. Effective dual
control mandates that all employees carefully guard their key or combination;thus, only
collusion can bypass this important control feature. Examples of items that should be under
dual control are: vault cash, negotiable collateral, investment securities, reserve supply of
checks, credit cards and money orders, the night depository, mail receipts, ATM cash,
dormant savings accounts, and spare keys to cashier drawers.
7. Protection of Assets A principal method of safeguarding assets is to limit access to
authorized personnel only. Protection of assets can be accomplished by:
Developing operating policies and procedures for cash control;
Establishing dual control over cash;
Conducting periodic physical inventories of SACCO assets;
Protecting assets by purchasing adequate insurance;
Requiring the use of passwords to access the computer system and changing
passwords no less than quarterly; and
Limiting physical access to cash and the computer system.
8. Zero Tolerance culture the SACCO should have a culture that supports internal
controls and does not tolerate excessive errors or fraud. These values can be
promoted by establishing:
Severe consequences for fraud that are written, conveyed verbally, and
strictly followed. All fraudulent acts should be met with swift and permanent
action;
9. Personnel Policies Personnel policies should specifically state the consequences for
fraudulent acts and excessive errors so each employee understands the ramifications
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of such actions. Employees should be familiar with the personnel policy; a review of
this policy should be part of each employees initial training. The policy at a
minimum should:
10. Rotation of Personnel From time to time, employee job functions should be rotated
unannounced. The rotation should be of sufficient duration to discover any fraud.
Besides being an effective internal check, rotation of personnel is a valuable aid in the
SACCOs overall training program as employees learn how to perform other jobs. The
cross-trained employee can substitute when other employees take vacations, are absent,
or are rotated.
11. Mandatory Vacations SACCOs should have a vacation policy that requires all employees
to take at least 5 consecutive working days off. During this time they should have no access to
SACCO records. An uninterrupted work schedule frequently is needed to embezzle funds
unnoticed.
12. Proper financial decision analysis. For a Sacco the following decision analysis should be
made.
(i)
(ii)
(iii)
Liquidity risk analysis loans demand and cash availability, divided payment
and cash availability.
Financial risk analysis:
The possibility of not able to meet long-term financial obligations as the fall
due e.g. repayment of loan to bank.
Cost-benefit analysis in case of a project the benefits versa the resources to
be used. Always take project which adds value to the sacco.
Signs of Warning
The following are possible indicators that internal controls are not adequate to discourage
dishonest or fraudulent acts. SACCO officials or management should take corrective action to
reduce the chance of fraud. Regulatory authorities should address these shortfalls with the
officials and management and develop plans to enhance internal controls.
Little or no internal controls in place;
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4. Excessive Voids
Voided sales slips could mean that the sale was rung up, the payment diverted to the use of
the perpetrator, and the sales slip subsequently voided to cover the theft.
5. Missing Documents
Documents which are unable to be located can be a red flag for fraud. Although it is expected
that some documents will be misplaced, the auditor should look for explanations as to why
the documents are missing, and what steps were taken to locate the requested items. All too
often, the auditors will select an alternate item or allow the auditee to select an alternate
without determining whether or not a problem exists.
6. Excessive Credit Memos
Similar to excessive voids, this technique can be used to cover the theft of cash. A credit
memo to a phony customer is written out, and the cash is taken to make total cash balance.
7. Common Names and Addresses for Refunds
Sales employees frequently make bogus refunds to customers for merchandise. The address
shown for the refund is then made to the employee's address, or to the address of a friend or
co-worker.
8. Increasing Reconciling Items
Stolen deposits, or bogus checks written, are frequently not removed, or covered, from the
reconciliation. Hence, over a period of time, the reconciling items tend to increase.
9. General Ledger Out-of-Balance
When funds, merchandise, or assets are stolen and not covered by a fictitious entry, the
general ledger will be out of balance. An inventory of the merchandise or cash is needed to
confirm the existence of the missing assets.
10. Adjustments to Receivables or Payables
In cases where customer payments are misappropriated, adjustments to receivables can be
made to cover the shortage. Where payables are adjusted, the perpetrator can use a phony
billing scheme to convert cash to his or her own use.
11. Excess Purchases
Excess purchases can be used to cover fraud in two ways:
Fictitious payees are used to convert funds
Excessive purchases may indicate a possible payoff of purchasing agent
12. Duplicate Payments
Duplicate payments are sometimes converted to the use of an employee. The employee may
notice the duplicate payment, then he or she may prepare a phony endorsement of the
check.
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They may also include supplementary schedules and information based on or derived from,
and expected to be read with, such statements. Such schedules and supplementary
information may deal, for example, with financial information about industrial and
geographical segments and disclosures about the effects of changing prices.
Financial statements do not, however, include such items as reports by directors, statements
by the chairman, discussion and analysis by management and similar items that may be
included in a financial or annual report.
Revenues
These are the source of incomes. For a sacco the main source of income is interest of
members loans. All other sources are classified as operating incomes including sale of
loan forms, fines and penalties, withdrawal charges etc.Interest on loans guides on
how much to give as return on investments to the shareholders (interest on
deposits/savings).
ii)
Expenditure
Actual accounting is used to know what to include as expenditure. All expenditure
either paid or unpaid should be included sacco expenditure is usually divided into.
1. Administrative any expenditure related to normal day today running of the
office, which includes stationery, sundry expenditure, entertainment, etc.
2. Personnel any expenses related to employee of the sacco e.g. salaries, wages,
allowances etc.
3. Financial it includes bank charges and interest on loan borrowed.
4. Governance any expenditure related to members either a committee or others
5. Others any other expenditure which may not be classified in the above stated
classes e.g. depreciation
2 0 FINANCIAL ACCOUNTING
STUDYTEXT
Liabilities
These are obligations that a business is expected to meet within a certain duration. They can
also be defined as total funds owed for assets supplied to a business or expense incurred but
not paid yet.
Liabilities can either be short term or long term. Short term liabilities are those that are
expected to be met within duration of one financial year. Payment for accrued expense,
creditors, dividends to share holders e.t.c. on the other hand long term liabilities are those
payable within a period exceeding one financial year e.g. long term loan, re-payment of
debentures e.t.c
Capital: this is defined as the total of all resources invested and left in business by its
owner.Revenue/Income: this can be defined as the monetary value of all goods and services
sold to customers by a business enterprise.
It shows the net value of the business/ wealth. It gives the general picture of the business
D. Cashflows statement:
Shows the inflows and outflows of cash.
The sources and application of cash. It has the following heading:
1. Cashflows from operating activities
2. Cashflow from investing activities
3. Cashflow from financing activities
The final figure shows the cash and bank balance the end of the period.
1.Income Statement
2.
Income statement is also called as profit and loss account, which reflects the
operational position of a SACCO during a particular period.
It consists of one accounting year.
It determines the entire operational performance of the SACCO like total
revenue generated and expenses incurred
Income statement helps to ascertain the gross profit and net profit of the SACCO.
Balance Sheet
What is PEARLS?
It is continuously being reviewed and updated to meet the problems of today and
overcome the challenges of tomorrow.
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A management tool
P = Protection
A = Asset Quality
R = Rates of Return
L = Liquidity
S = Signs or Growth
PEARLS Analysis
Balance Sheet
Income Statement
PEARLS relates various elements in the balance sheet and income statement in an
integrated manner.
Current Assets
Current liabilities
Current assetsstock
Current liabilities
(2)
Dividend paid
share capital
x 100 =
x 100 = %
right of access to it. Comments by one person about another using intemperate
language can usually be re-phrased before recording without losing meaning.
8. Make sure that the medium on which text is recorded is appropriate to the subject
matter.
Strength