SECURITY FOR LOANS

Unless the loan applied for is equal or less than a member’s total savings, it must be secured by guarantors. The total shares and deposits of the borrower and those of the guarantors must be equal to or more than the loan applied for.

Why don't we take this relationship to the next level and you lend me some money? :-)

•   The society may still require a member to have his loan application secured by guarantors even though what is applied for may be less than or equal to his savings if those savings have been pledged as security for other members loans.

•   No member will be allowed to guarantee more than three loans. All guarantors must be members of the society.

•   Members of the management and supervisory committee shall not guarantee loans among themselves.

•   The obligation of the previous guarantors shall cease upon change of guarantors subject to the new guarantors being accepted by the society.   the obligation of the guarantors shall also cease when loans guaranteed have been reduced to less than the members total savings.

•   The society shall maintain a record of all guarantors in each members file.

Other Security

•   The society officials approving loans may ask for such additional security as it deems
necessary.    Pledges in the form of articles like share certificates, land title deeds, vehicle log books and insurance policy up to surrender value may be accepted as security.

•   Confirmation as regards the validity of the articles so pledged has to be obtained from the issuing authority before such documents can be accepted as security for a loan.

•   All expenses related to valuation and charging of security shall be met by the applicant.

Procedure for Recovery of Defaulted Loans

In case a loan is not repaid for a month, the society shall inform the borrower/loanee     immediately in writing with copy to each of the guarantors. if no repayment is effected
during the second month, the guarantors shall be informed of this fact and notified that
they will be called upon to honour their obligations if no repayments are effected at the end of three months.  However, the society will still maintain efforts to recover the defaulted loan from the loanee.

Withdrawal from Membership

•   Where a member wishes to withdraw from the society’s membership he may be required to give the society at least 60 (sixty) days written notice of his intention to withdraw.

•   No member shall be allowed to withdraw from the society membership unless the member’s loan is repaid in full or the loan balance can be fully offset by the member’s savings. Such member will also have to satisfy that all loans guaranteed have been paid in full or the balance does not exceed the savings of the members whose loans were guaranteed.

•   A member who voluntarily withdraws from the society membership and wishes to rejoin later will be required to pay a rejoining fee of 2,000.00 to the society.

Amendment

•   the loan policy may be amended by the management committee from time to time, provided that such amendments are communicated to all members before taking effect.

•   Any difficulties encountered in the implementation of this loan policy shall be referred to the management committee for clarification or interpretation.

EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (Swiss Contact and Department of Co-operatives).

DUTIES AND POWERS OF THE MANAGEMENT COMMITTEE/BOARD OF DIRECTORS

The Committee of the society subject to any directions from the General Meeting generally direct the affairs of

BOARD OF DIRECTOS

the society. Its procedures, powers and duties are prescribed by the Co-operative Societies Act Cap 490, Co-operative Rules and the By-Laws of the society. In particular the management committees or board of directors shall:

a) Observe in all its transactions the Act, the Rules, the by-laws and prudent business practices.

b) Act upon all applications for membership.

c) Make provision for sufficient funds for loans.

d) Ensure that true and accurate records and accounts of the society’s money, properties, capital reserves, liabilities, income and expenditure are kept and maintained;

e) Prepare and develop long-term management plans and budgets for presentation at the General Meeting;

f) Propose to the General Meeting the amount and kind of surety bond, or other security, which shall be given by the member of the committee or employee having custody of or handling funds or property of the society;

g) Determine and recommend to the General Meeting the interest rates on loans, the maximum maturities and terms of payment or amortization of loans from time to time and the maximum amount that may be loaned with or without security to any member;

h) Cause the audited accounts to be displayed in a conspicuous place at its registered office and branches at least two weeks before presentation of accounts to its members at the general meeting;

i) Lay before the General Meeting audited accounts, together with proposals for the disposal of net surplus, if any;

j) Recommend to the General Meeting the dividend rate to be paid on shares, if any, and interest to be paid on deposits;

k) Fill through co–option, vacancies occurring in the committee between General Meetings;

INVESTMENT

l) Recommend investments of the society;

m) Authorize the conveyance of properties;

n) Authorize borrowing and lending operations of the society in accordance to the Act and the Rules;

o) Designate a depository or depositories for the funds of the society;

p) Employ and fix the remuneration of the employees in accordance with the terms and conditions of service as approved by the Commissioner;

q) Impose fines as provided for under these by-laws;

r) Approve transfer of shares;

s) Supervise the recovery and collection of loans from members and recommend to the General Meeting the write off of bad debts.

t) Perform or authorize any actions consistent with the Act, the Rules and these by-laws, unless specifically reserved for the General Meeting;

u) Provide adequate budget for education and training of members, the committee and staff; and

v) Perform such other duties as the General meeting may from time to time direct.

EFFECTIVE INTERNAL CONTROL IN SACCOS

Internal control can be defined as the whole system of controls, financial and otherwise established by the management committee in order to carry on the business of the society in an orderly and efficient manner,

Why don't we take this relationship to the next level and you lend me some money? :-)

ensure adherence to management and financial policies, safeguard assets and secure as far as possible the completeness and accuracy of the records.

The individual components of an internal control system are known as controls of "Internal Controls."

Internal control could be enhanced within the organization by:

• Organization structure
• Job description of
• Physical locations of departments or sections
• Information, accounting and documentation
• Authorisation and approval
• Supervision, personnel and general management
• Routine checks, verification and examination
• Scrutiny and physical checks including stock taking
• Control of documents, filing and movement of documents and files
• Vocation and rotation of duties
• Security of assets
• Ensuring efficient and effective discharge of society's goals, vision, mission and objectives

However, Sacco and business organizations need to have continuous application of accounting (records/books). This may include the following:-

• Cash journal/Petty cash journal
• General ledger
• Payment vouchers/Petty cash vouchers
• Receipt book, member statements
• Cheque book, asset register, member register, loan application forms, payroll deduction list
• Invoices, Delivery note, expenditure receipts
• Deposit slips, bank statements
• Cheque counter foils, cheque registers, etc

Other essential financial statements include:-

• Trial balances
• Income/expenditure statements or surplus and loss A/C
• Balance sheet
• Budgets

Why internal Control?

• Minimizes chances of errors and fraud
• Safeguard society's assets
• Boots efficiency in the society towards members services
• Having up-to-date data for managerial decision making
• Control of work and avoid duplication of efforts/duties
• Facilitates efficient statutory audits
• Facilitates identification of inefficiency and outdated policies
• Encourages specialization
• Allow society to grow at a reasonable rate
• Acts a motivator

ELEMENTS OF INTERNAL CONTROL

EMPLOYEES	Hire qualified people with good reference
	Require annual leave
	Bond employees in position of trust
	State conflict of interest policy
CLEAR DELEGATION AND SEPARATION OF DUTIES	Develop organization chart
	Separate record keeping from custody of assets
	Separate authorization from record keeping
	Separate purchasing from receiving
PROPER PROCEDURES FOR PROCESSING OF TRANSACTIONS	Ensure proper authorization of transactions
	Sign cheques only with proper support
	Approve all non-cash entries on returns, discounts and write offs
	Review past due and uncollectable accounts
SUITABLE DOCUMENTS AND ACCOUNTING RECORDS	Pre-number important documents
	Develop comparative financial statements
	Describe accounting methods in manuals or systems
	Prepare budget of anticipated results
CONTROL OVER ASSET RECORDS	Limit access to inventory
	Safeguard all important records
	Deposit cash receipts intact daily
	Keep all voided cheques
INDEPENDENT VERIFICATION OF PERFORMANCE	Reconcile bank statement independently
	Pre-list cash receipts
	Have an annual audit by CPA frim
	Take complete inventory regularly

DETECTION AND PREVENTION OF MISTAKES (General Control Techniques)

TECHNIQUES	REASON FOR TECHNIQUES
CASH DISBURSEMENT
Use only pre-numbered cheques for disbursement	To ensure all cheques are accounted for
Have proper support for cheques	Only pay properly authorised and justified expenditures
Cancel supporting documents when paid	To only pay once for proper expenditures
Cheque signing by management with no access to records/Alter but keep voided cheques	To ensure accounting records accurately reflect cheques written
Mail cheque directly to payee	To ensure that payee and only payee receives disbursement
Use imprest petty cash fund with one custodian	To ensure authority over petty cash and review periodically
CASH RECEIPTS
Use cash register and cheque register daily	To ensure all cash receipts are recorded
Deposit cash receipt intact	To ensure all cash receipts are deposited
Reconcile bank statements monthly	To ensure all cheques are authorised and recorded and receipts deposited
ACCOUNTING RECORDS
Use pre-numbered invoices	To ensure invoices are accounted for
List mail collections compare with journal	To ensure all mail collections are retained by Sacco
Review monthly comparative financial statements reports	Check any unusual revenue, expense or liability amounts
Approve all entries to general journals	To ensure only authorised and proper journal entries are made

INVENTORY CONTROL TECHNIQUES

1. PURCHASING

1. Centralize under responsible staff
2. Attach purchase invoices to cheques for payment
3. Cancel support documents when cheque is paid
4. Supervise all returned purchases
5. Use requisitions to initiate purchases

2. CUSTODY

1. Separate purchasing from receiving
2. Separate receiving from store keeping
3. Take physical inventory regularly
4. Use independent employees for physical inventory
5. Physically control access to inventory

3. RECORD KEEPING

1. Separate record keeping from custody
2. Require all documents to be pre-numbered e.g. ledgers, journals, passbooks, receipts, vouchers, etc
3. Use a perpetual system if possible
4. Compare results of physical inventory to records

DEFALCATION OF CASH

AREA OF DEFALCATION	HOW TO OBTAIN CASH	HOW TO COVER IN ACCOUNTING RECORDS
CASH DISBURSEMENT	-Issues cheques to others-Appropriate the cheques	Create false invoices
		Use invoices twice for supporting cheques
		‘Pad’ the payroll
		Pocket unclaimed wages and dividends
	Issue cheques to yourself	Incorrectly foot the cash disbursement journal
		Increase recorded amount of another cheque
	-Overpay vendor-appropriate refund	Allow asset or expense to remain overstated
PETTY CASH	Remove cash from petty cash fund	Increase amount on vouchers
		Create false vouchers
		Submit vouchers twice
		Allow fund to remain short
CASH RECEIPTS	Take cash from cash sales or receipts	Record no amount
		Record less than was received
	Take cash payment on account receivable	Bill for full amount but record sale at lower amount
		Record cash receipt but manipulate bank reconciliation
		Record cash receipt but incorrectly use the journal
		Do not record cash receipt but create credit memo to write off the amount
		Pocket payment on account which has been written off

SHORT HISTORY OF THE CO-OPERATIVE MOVEMENT IN KENYA

The co-operative movement in Kenya was found in the beginning of 20th Century. Africans were allowed to form co-operative societies in the 1950's when they were permitted to grow cash crops. The attainment of independence in 1963 became the turning point in the movement. It has ever since grown in terms of societies membership and share capital/member deposits.

The firs Kenya co-operative society, Lumbwa Co-operative Society, was formed in 1908 by the European farmers with the main objective of purchasing fertilizer, chemicals, seeds and other farm inputs and then market their produce to take advantage of economies of scale. In 1930, Kenya Farmers Association was registered as a co-operative society to take over the role of supply of farm input played by Lumbwa Co-operative Society. The African smallholder farmers fought for formation of their own co-operatives and later in 1950's they were allowed to promote and register co-operatives for cash crops like coffee and pyrethrum. Consequently at independence in 1963, there were 1,030 co-operatives societies with 655 being active with a total membership of 355,000.