Download 1 Dave Grace World Council of Credit Unions Senior Manager 2

Dave Grace
World Council of Credit Unions
Senior Manager
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Presentation Agenda
• Auditing standards in credit cooperatives
• Earnings distribution
• Requirements for an adequate legal
framework for financial cooperatives
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Who is WOCCU
• Represents >120 million credit union members
in 85 countries worldwide.
• Manages long-term TA programs to develop,
strengthen, & modernize credit union systems
Africa, Asia, the Caribbean, Central Asia,
Europe, Latin America, & the South Pacific.
• Works to create a appropriate legal &
regulatory environments for safe & sound credit
union operation
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About Credit Unions
• Credit unions (a.k.a. credit cooperatives) are
financial cooperatives that are user-owned MFIs
offering savings and credit services
• Depending on a country’s legal framework, credit
unions may be authorized by Superintendency of
Banks, Central Bank, Ministry of Finance, Ministry
of Cooperatives, or freestanding law to mobilize
savings.
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Auditing standards
• Traditional Supervisory Committees in credit
cooperatives
– The traditional role of Supervisory Committees has evolved to
an External/Internal Audit committee in credit cooperatives
– Strong preference for annual external auditor and periodic
internal audits to be conducted be qualified external
professionals (internal audits can be performed by staff
reporting to Audit committee)
– Only in very, very small institutions should this be contemplated
to be accomplished by volunteers and even then minimum
criteria exist
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Role of the External/Internal Audit
Committee
• Perform or preferably, appoint an external professional auditor
to review records within 90 days of close of fiscal year
• Perform or preferably, contract professionals to conduct
frequent internal audits throughout the year covering
operations, regulatory compliance and internal controls
• Present audit findings and annual audit to full board of directors
and annual general meeting
• Follow up on all recommends made in audits
• Ensure independence and non-obstruction of annual and
internal periodic audits
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External/Internal Audits should
include
• Evaluation of assets, liabilities & capital
• Verification of cash balances, securities and all
member accounts
• Examination of delinquent loans
• Loan loss provisioning
• Loans to officials & loan documentation
• Accounting treatment used
• General ledger & subsidiary ledger balancing
• Compliance with laws, regulations & bylaws
• Review of suspicious activity
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Prudential Auditing - Supervision
Range of Preferences:
- Direct Supervision of all credit coops by government
financial sector regulator– UK, Australia, US, most
english-speaking Canada, Ireland, Costa Rica,
Colombia
- Direct Supervision of the large ones – Ecuador,
Bolivia, Chile and Uruguay
Delegated supervision: Much of western Europe, Qubec
Canada, Mexico
Self Regulation: Peru, Jamaica
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Earnings Distribution
• The first priority is capitalization to a level required by
regulation and based on business needs
• What is capital in a credit cooperatives
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Regulatory reserves
Retained earnings
Donations/grants
Year to date net income that has not been closed to retained
earnings
– Ownership shares are not capital unless it they are permanent
and unencumbered. See International Accounting Standard 32
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Earnings Distribution
• Only after the organization is adequately
capitalized should it consider an
ownership share dividend
• Dividends on demand deposits should
paid monthly as the business model
permits
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What is needed for strong
credit coop legislation
• Specific law for financial cooperatives
– Separate from the general cooperative sector
because of technical aspects of financial
intermediation
– Separate from banking because of
cooperative ownership and governance
structure
– Separate from specialized laws that do not
address savings component
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Core Principals for Legal Framework
• Requires Macro conditions
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Economic stability
Efficient & effective judicial system
Effective enforcement
Open economy and private markets
Property rights & collateral
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Core Principals for Legal Framework
• WOCCU survey of over 100 countries
indicates those countries with unique
laws and strong financial sector
regulation for credit cooperative have the
most sophisticated credit coop
systems
= OUTREACH
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Legislative Tools
• Model Law for Credit Unions – model
legislation for credit cooperatives
• Guide to International Credit Union
Legislation – provides digests of actual
credit cooperative laws and regulations in
over 100 countries
• Both have been updated in 2005
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Thank you.
Dave Grace
World Council of Credit Unions
[email protected]
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