Cooperative performance, social and financial audits

By Ma. Elma Ilagan–Ame, 25 Aug 2021, Manila Times

IN 2021, the Cooperative Development Authority (CDA) issued two memorandum circulars (MCs) that impacts cooperatives’ financial, performance and social audits, and the way they are related to each other.

MC 2021-04, issued in February 2021, circularized the implementation of the performance audit for cooperatives. Under this circular, all cooperatives are required to submit a performance audit report (PAR) to be conducted by either their internal auditor or audit committee. This report consists of a governance and management report (GMR), the financial performance of cooperatives using the following indicators: stability, turnover ratio, efficiency, profitability and structure of assets (STEPS) based on the latest audited financial statements, and a summary report, which contains observations, findings, and recommendations derived from the results of the GMR and the STEPS. The cooperatives will then have their PAR rating and this will in turn be validated during inspection by a designated field cooperative development specialist.

Also in 2021, the CDA issued MC 2021-01 in January 2021 for the revised policy guidelines governing the utilization of the community development fund (CDF) of cooperatives. The utilization and the impact of the cooperative’s programs and policies toward the development of the community where the cooperative operates, play a vital role in the social audit of cooperatives. Under the said circular, cooperatives shall allocate not less than 3 percent of the net surplus, which shall be fixed in the by-laws; provided that the total amount allocated for the CDF and the optional fund should not exceed 10 percent of the total net surplus. The main task of the cooperative is the formulation of a social development plan and budget to be approved by the general assembly. Such plan consists of programs and activities with social impact that will benefit the communities, which the cooperative will choose. Social development activities conducted for such communities and the funds utilized for each activity shall be reported in the social audit report of the cooperative, which in turn, shall be conducted by either the internal auditor, audit committee or an independent social auditor accredited by the CDA.

Performance and social audit, together with financial audit conducted by cooperative external auditors, comprise the triumvirate of audits that a cooperative must be subject to, in accordance with Article 80 of Republic Act 9520, otherwise known as the “Cooperative Code of 2008.”

Does impressive social audit and performance audit results equate to a remarkable control environment and, consequently, fairly stated financial statements? Or is it the other way around?

Do we need the auditors?

The answer is: both. All these three audits are interrelated. The success of these audits relies on how they will be executed, i.e., the quality of the audits performed.

It is therefore a call for the internal auditors and the audit committee, as well as accredited social auditors, to adhere to the standards set by authority, and perform their tasks with objectivity and competence.

At the same time, the cooperative external auditor must consider the results of the performance and social audits in understanding the cooperative including its core values, governance and control environment. Based on his understanding, he can assess his audit risks and plan his audit in order to obtain reasonable assurance that the financial statements are free from material misstatements.

He should also be aware that he plays an equally important role in the reliability of the performance audit report. The quality of the audited financial statements will be the basis of the results of the STEPS; materially misstated financial statements will result to unreliable financial ratios, which might mislead stakeholders when making decisions for the cooperative.

As for the social audit report, the basis of the CDF is the allocation of net surplus as presented in the audited financial statements. The cooperative external auditor must ensure that the cooperative declares the correct net surplus as basis for allocation, complies with the requirements on CDF utilization and reports such utilizations accordingly.

RA 9520 states that the declared policy of the state is to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing people power toward the attainment of economic development and social justice. It is with fervent hope that these three audits, when performed with quality, will be instrumental in the promotion of cooperative governance and propel the cooperatives in the achievement of their mission and vision not only for their members but for the Philippine economy in general.