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Dave Grace
World Council of Credit UnionsSenior Manager
Dave GraceWorld Council of Credit UnionsSenior 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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Represents >120 million credit union membersin 85 countries
worldwide.
Manages long-term TA programs to develop,strengthen, &
modernize credit union systemsAfrica, Asia, the Caribbean, Central
Asia,Europe, Latin America, & the South Pacific.
Works to create a appropriate legal ®ulatory environments
for safe & sound creditunion operation
Who is WOCCU
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Credit unions (a.k.a. credit cooperatives) arefinancial
cooperatives that are user-owned MFIsoffering savings and credit
services
Depending on a countrys legal framework, creditunions may be
authorized by Superintendency ofBanks, Central Bank, Ministry of
Finance, Ministry
of Cooperatives, or freestanding law to mobilizesavings.
About Credit Unions
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Auditing standards Traditional Supervisory Committees in
credit
cooperatives
The traditional role of Supervisory Committees has evolved toan
External/Internal Audit committee in credit cooperatives
Strong preference for annual external auditor and
periodicinternal audits to be conducted be qualified
externalprofessionals (internal audits can be performed by
staff
reporting to Audit committee)
Only in very, very small institutions should this be
contemplatedto be accomplished by volunteers and even then
minimumcriteria exist
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External/Internal Audits shouldinclude 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 - SupervisionRange of Preferences:
- Direct Supervision of all credit coops by governmentfinancial
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, QubecCanada,
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 Regulatory reserves
Retained earnings
Donations/grants
Year to date net income that has not been closed to
retainedearnings
Ownership shares are not capital unless it they are permanentand
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 modelpermits
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What is needed for strongcredit coop legislation
Specific law for financial cooperatives
Separate from the general cooperative sectorbecause of technical
aspects of financialintermediation
Separate from banking because ofcooperative ownership and
governancestructure
Separate from specialized laws that do not
address savings component
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Requires Macro conditions Economic stability
Efficient & effective judicial system
Effective enforcement
Open economy and private markets Property rights &
collateral
Core Principals for Legal Framework
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Core Principals for Legal Framework
WOCCU survey of over 100 countries
indicates those countries with uniquelaws and strong financial
sectorregulation for credit cooperative have themost 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 UnionLegislation provides digests
of actualcredit cooperative laws and regulations inover 100
countries
Both have been updated in 2005
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Thank you.
Dave Grace
World Council of Credit [email protected]
