ESSENTIALS of CO-OPERATIVE SOCIETIES BY OSOBA - ENAKALI. C. O. (CHAPTER EIGHT)

ESSENTIALS OF CO-OPERATIVE SOCIETIES BY OSOBA - ENAKALI. C. O.

CHAPTER EIGHT

AUDITING IN CO-OPERATIVES

 

Chapter’s Objective:

After the student had read through this chapter, he/she would be able to:

1.     Identify the need for auditing in co-operative societies.

2.     Know how to effectively manage a newly formed co-operative.

3.     Know under what condition loans could be granted to co-operatives.

Functions of the Auditor in Co-operatives

The auditing of the activities of the co-operative societies is meant to improve its performance and efficiency. By extension, it is also to safeguard the interest of its members who may have little or no business experience.

At an appointed time external auditors visit the co-operative to inspect its activities. As a starting point, the financial transactions of the co-operative are subjected to checking by these auditors who have no personal interest in the co-operative. They scrutinized all the financial entries and calculations in the co-operative books by making, reference to the receipts of every entry; wages record; bank statement and other relevant documents are properly looked into. This is to ensure that all entries in the books are correct and complete.

The next stage is to look into a stock of goods on hand in the co-operative at the beginning and end of the year. This is to ensure that it corresponds with the record of goods bought, sold, and processed during the year. In order to arrive at the stock of goods on hand, allowance is given for wastes and deterioration during the handling process of goods.

The auditors also probe into the cash on hand and at a bank to ensure that every entry is in place. Where the auditor is convinced that all the record have been properly kept and represents a true picture of the co-operative, he then proceeds to draw up a balance sheet.

After due consideration of the value of the assets of the co-operative such as building, land, machinery, and vehicles the auditor is able to have a detailed record of the year’s operations and current situation of the co-operative. At this stage, a brief declaration of the state of the Cooperative is made and signed by the auditor.

Where, however, the auditor is not satisfied with the situation of the co-operative, though the balance sheet may be signed, he records his doubts. He goes further to warn the co-operative members about the unsatisfactory areas where improvement is expected before the next audit period.

Where the record of the activities of the co-operative was badly kept, thus presenting a misleading picture of it, the auditor could refuse to sign. This consequently leads to the setting up of an inquiry into the affairs of the co-operative.

Ensuring Proper Organization and Management of Co-operatives through Methods Audit

Another very potent way by which a newly formed co-operative could be made to be properly organized is through the adoption of the method audit. This implies frequent visits to the co-operative by an inspector. This inspector may or may not have played an active role in the formation of the co-operative. He attends all the meetings of the co-operative and ensures all the minutes of the meetings are properly kept. He also ensures that all financial transactions of the co-operative are properly recorded in a way that will allow adequate internal checks.

The inspector assesses the general situation of the co-operative, the state of the working tools such as machines and other related equipment. He also considers if satisfactory attention is being given to the goods in respect of their storage. As the co-operative stabilizes by being able to guide itself against any event that could retard its performance and efficiency; a self-assessment situation is developed. This is the situation whereby answers to questions like the suitability of the location of the co-operative, maintenance of manageable size of the co-operative, and a host of other self-evaluation questions are given. All these are geared towards ensuring the efficiency or growth or survival of the co-operative. The assessment of the above question is made available to the manager of the co-operative. This is to enable him to identify areas of the co-operative that require proper attention.

Where the manager does not put things in their proper condition as observed by the inspector, the issue is made available to either the co-operative committee or to the members at a general meeting for proper deliberations and action.

Methods of Auditing and Control in Co-operatives

Three methods exist in carrying out the auditing and control of the co-operative societies. The methods are through private agencies, central co-operative bodies, and government departments.

Government Department

The low level of business experience and organizing ability of the co-operative necessitated the roles of the government department in ensuring its existence and proper management. This made it mandatory for the concerned department to carry out both statutory functions including the auditing of the co-operative and the inspection of its activities in general. The auditing, which is periodical in nature, is usually carried out once a year. This is carried out by the government department occasionally delegating the responsibility to audit unions formed by the co-operative itself. The justification for government department roles in the affairs of the co-operative is the support it gives to it. This necessitated the need to monitor its progress as well as identifying its weaknesses.

Inspection on the other hand which is also a statutory function of the movement department comes up occasionally. When the co-operative is on the verge of disintegration or where there are some unusual events, inspection is conducted on its activities.

Supervision through a non-statutory function is occasionally exercised by the government department responsible for the co-operative matter.  It operates on a continuous basis by agencies visiting the co-operation and checking their accounts, examining how they execute their business, rectify any problem and make suggestions for its improvement and development.

Government intervention in cooperative matters is to encourage the formation of a large number of co-operatives by people who may not comprehend what they are doing as a result of which they are unable to stand and operate independently.

In spite of the invaluable roles of government in ensuring the growth and survival of the co-operative, it has been criticized to have prevented the freedom of operation of the co-operative as an organized body.

Central Co-operative Body

Another method for auditing and control of the co-operative is through a central co-operative body. This body is constituted from the auditing section of a general cooperative union or a national cooperative Bank.

Private Agencies

Private agencies form yet another method of auditing and ensuring control in cooperative societies. In this method, the co-operative could employ a private method auditor who specializes in co-operative work.

The problem here is that he/she cannot have a wider experience than that of a national co-operative auditing union. Where the smaller primary societies are regularly audited by a government department the large federal trading organizations are devised to engage the service of an external professional auditor.

Conditions for Granting Loans to Co-operatives

Another very important method of controlling and influencing the development of cooperative society is through giving or withholding loans to it.

Before loans are advanced to a co-operative the lender must rest assured that it is operating a sound business and has enough assets. Besides, it would also like to know whether the business is being well managed or not.

Where the loan is meant for development, the co-operative the bank demands to know if the business being undertaken by the co-operative is genuine and viable. Other vital information includes whether there are enough members or potential members in the locality that would make the business a success. Does the co-operative have the potential of processing its produce or is it there simply to be selling the product of its members? These are some of the questions that require adequate answers. The depth of the information sought by the co-operative bank before finally advancing the loan, however, depends on the resources at its disposal.

Where the co-operative bank relies on the shares and deposits of its members as well as its reserves, it probes critically into the co-operative to ensure that the money is not invested in a barren business.

Self-evaluation questions

1.     Why is auditing necessary in cooperative societies?

2.     What is method auditing?

3.      Identify and explain the procedures for granting loans to co-operatives?