1.0
INTRODUCTION
Cooperatives today,
play a prominent role in different economies, and
although cooperation
is a voluntary movement of the public at large,
there has been
considerable state participation in the development of
cooperative movement
in many countries.
Mahatma Gandhi had
envisaged that the cooperative movement is a tool
for eradication of
poverty when he said that:
i. cooperation is a
gateway to economic freedom.
ii. Cooperative audit
focuses on cooperative societies. In this note,
therefore, we shall
consider the following:
· what
cooperative means;
· types
of cooperative governance and cooperatives;
· features
of cooperative audit;
· objects
of cooperative audit;
· need
for cooperative audit;
· duties
of a cooperative auditor.
2.0
OBJECTIVES
At the end of this note,
you should be able to:
· explain
the concept of cooperative
· explain
the types of cooperative governance and cooperatives
· highlight
the features and objects of cooperative audit
· assess
the need for cooperative audit
· identify
the duties of a cooperative auditor.
3.0
MAIN CONTENT
3.1
The Concept of Cooperative
The international
cooperative alliance’s statement on the cooperative
identity defines a
cooperative as “an autonomous association of persons
united voluntarily to
meet their common economic, social, and cultural
needs and aspirations
through a jointly-owned and democratically controlled
enterprise”. It is a
business organization owned and operated
by a group of
individuals for their mutual benefit.
A cooperative may
also be defined as “a business owned and controlled
equally by the people
who use its services or who work at it”.
A cooperative can be
seen as a legal entity owned and democratically controlled
equally by its
members. Members have a close association
with the enterprise
as producers or consumers of its products or services,
or as its employees.
3.1.1
Types of Cooperative Governance
These are as follows.
(a)
Retailers’ Cooperative
This is an
organization which employs economies of scale on behalf of
its members to get
discounts from manufacturers and to pull marketing.
(b)
Workers’ Cooperative
This is a cooperative
that is owned and democratically-controlled by its
“worker-owners”.
There are no outside
owners in “pure” workers’ cooperative; only the
workers own shares of
the business.
(c) Consumers’ Cooperative
A consumers’
cooperative is a business owned by its customers.
Employees can also
generally become members.
3.1.2
Types of Cooperatives
Cooperative types
include the followings.
(a)
Housing cooperative
A housing cooperative
is a legal mechanism for ownership of housing
where residents
either own shares reflecting their equity in the
cooperative’s real
estate, or have membership and occupancy rights in a
not-for-profit
cooperative, and they underwrite their housing through
paying subscription
or rent.
(b)
Building cooperative
Members of the
building cooperative pool resources to build houses,
normally using a high
proportion of their labor. When the building is
finished, each member
is the sole owner of a homestead, and the
cooperative may be
dissolved.
(c)
Agricultural cooperative
Agricultural
cooperatives are widespread in rural areas. They provide
inputs into the agricultural
process. Agricultural cooperatives are the
most rational and
convenient form of organizing small and medium
farmers. They are key
components of strategy of development of rural
and underdeveloped
regions.
3.2
Cooperative Audit
This will be discussed
under the following.
3.2.1
Salient Features of Cooperative Audit
The audit of a
cooperative society is different from that of a limited
liability company
(company) because the objects of a cooperative
society are quite
different from those of a company. While the main
object of a company
is to earn profits, that of a cooperative society is to
render service to its
members. Service rather than profit is the motto of
a cooperative
society.
Regarding the nature,
extent and scope of cooperative audit, a
cooperative auditor
should not confine his enquiry to the books of
accounts, but should
go beyond the books and make enquiries into the
working and general
functioning of the (cooperative) society. His
enquiry should
embrace all circumstances which determine the general
position of the
society and should aim at seeing that the society is
working on sound
lines.
Thus, cooperative
audit is not merely a financial audit, it involves
administrative audit
also.
3.2.2
Main Features of Cooperative Audit
The main features of
cooperative audit relate to the following.
(a) Adherence to
cooperative principles;
(b) Observance of
provisions of acts, rules and bylaws;
(c) Valuation of
assets and liabilities and verification of cash balance
and securities;
(d) Verification of
balances of depositors and creditors;
(e) Examination of
overdue debts and classification of bad debts;
(f) Personal
verification of members and examination of their
passbooks;
(g) Discussion of
draft audit report with the managing committee;
(h) Audit
classification of society;
(i) Examination of
the working and other prescribed particulars of
the society.
Apart from the
general processes of auditing like posting, vouching,
verification of
assets and liabilities and so on, the special features of
cooperative audit are
briefly mentioned below.
(i)
Examination of overdue debts
Overdue debts affect
the working of a credit society seriously. They
affect the working
capital position of the society. As such, it is
necessary to make a
detailed analysis of the overdue debts with a view
to ascertaining the
chances of their recovery and classifying them as
good or bad. It is
also necessary to compare the percentage of overdue
debts to working
capital and loans and advances with that of the
previous year and
ascertain whether the trend is decreasing or
increasing, whether
adequate action is being taken for recovery, and
whether necessary
provision is being made for doubtful debts.
(ii) Adherence to cooperative principles
It has to be
ascertained in general whether, and, to what extent, the
objects for which the
society was set up have been fulfilled. The
assessment need not
be in terms of returns made but in terms of benefits
given to members. The
benefits could be in terms of sales made at
lower prices to members,
economy achieved in operations, avoidance of
wastage of funds,
avoidance of middlemen in purchases and so on.
(iii)
Personal verification of members and examination of their
passbooks
This is necessary in
cooperative societies in order to ensure that books
of accounts are free
from manipulations, since in many rural and
agricultural
societies, a considerable number of members could be
illiterate and as
such, personal verification provides a safeguard against
any manipulation.
3.2.3
Need for Cooperative Audit
Cooperative audit
serves the following purposes.
(a) Members of the
society are to be satisfied that the affairs of the
society are managed
properly and are on sound business
principles. This is
rendered possible by the cooperative auditor
undertaking a
detailed check of the voluminous transactions
taking place during
the entire year and making a report of his
findings as a result
of this check, to the members.
(b) A large number of
societies borrow funds from outside. The
creditors would be
keen to satisfy themselves of the financial
soundness and
creditworthiness of the society. For this purpose,
they would depend
upon the cooperative auditor’s report.
(c) A large number of
persons are employed by cooperatives for
managing their
affairs. In order to ensure that there is proper
check on efficiency
and integrity of employees, the management
would require a
systematic and thorough check of their accounts.
This purpose is
served by cooperative audit.
(d) Non-members of
the cooperatives, who deposit their funds with
the cooperative,
would like to satisfy themselves that their funds
are safe with the
society. This is made possible by the auditor’s
report on the working
of the society.
3.2.4
Objects of Cooperative Audit
At this point, let us
summarize the objects of cooperative audit as
follows.
(a) Verification of the accuracy of the books
of accounts and
ascertaining
correctness of accounts;
(b) Detection of
clerical errors and errors of principles, and
prevention of such
errors;
(c) Detection and
prevention of frauds;
(d) Examination of
the affairs of the society in order to ascertain
whether they have
been carried on in accordance with the
provisions of the
cooperative law and the principles of
cooperation, and on
sound business principles;
(e) Assessment of the
extent to which the conditions of the members,
particularly their
economic conditions, have improved by the
operations of the
society;
(f) Certification of
the actual returns made or loss incurred.
3.2.5
Main Aspects of Cooperative Audit
In several countries
(including the Asian countries), there are two main
aspects.
(a) Cooperative audit
is an audit conducted under the statute, and
therefore, it is
statutory in character;
(b) It is undertaken
by government itself, and it is therefore, state controlled
audit.
You should note the
experience in the Kingdom of Bangkok.
The Cooperative
Auditing Department (CAD) is the only institution to
audit the
cooperatives and farmer groups. In an attempt to perform the
duty efficiently, the
CAD has set a vision to develop and promote
transparency in
cooperatives, move forward with information
technology and
introduce accounting to Thai farmers.
The CAD plays a
significant role to strengthen the financial and
accounting conditions
of cooperatives and farmer groups and for the
well-being of Thai
farmers, the CAD has enhanced their accounting
knowledge.
Thus, CAD’s interim
and annual auditing aims at:
(i) checking the
correctness of book-keeping and observe whether
the internal control
is as efficient as possible, and helps the
cooperatives in
updating and completing the accounts;
(ii) giving a true
and fair view of the financial condition of
cooperatives and
farmer associations.
Due to the increasing
number of cooperatives, especially agricultural
cooperatives, CAD has
private auditors to relieve the auditing workload.
However, the auditing
procedure must be standardized.
3.2.6
Duties of a Cooperative Auditor
From the foregoing,
we can highlight the duties and responsibilities of a
cooperative auditor
to include the following.
(a) To verify the
cash balance and securities, examine the overdue
debts, if any, value
assets and liabilities of the society, verify
balances at the
credit of the depositors and creditors and the
amount due by the
society’s debtors;
(b) To satisfy
himself that the cooperative society has kept all
account books and
registers in connection with the business of
the society properly
and up-to-date;
(c) Verify whether
necessary statutory provisions have been strictly
observed;
(d) Verify whether
the business of the society has been concluded
according to the
cooperative principles and sound business
practices;
(e) Conduct personal
verification of members’ accounts and
examination of their
passbooks with a view to preventing
manipulation of accounts
by dishonest employees and office
bearers;
(f) Certify the
financial statements – balance sheet, etc.
4.0
CONCLUSION
In this note, you
have learnt that cooperative audit is not merely a
financial audit, it
involves administrative audit also. Countries establish
Cooperative Audit
Departments (CAD) to:
· audit
the accounts of cooperatives;
· assist/advise
on book-keeping;
· offer
advisory services generally;
· strengthen
accounting and internal control system.
CAD may engage
private auditors to assist in reducing the workload.
5.0
SUMMARY
In this note, you are
conversant with the following topics.
· Cooperatives
today, play a prominent role in different economies,
and that service
(rather than profit) is the focus of a cooperative
society;
· There
are types of cooperative governance and cooperatives;
· Cooperative
audit has features, need and objects;
· A
cooperative auditor has duties and responsibilities.
THE END
THE END
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