INTERNAL CONTROLS AND AUDIT MANUAL

BRAEMEG SACCO SOCIETY LIMITED

This policy document defines Internal Controls measures to assist in mitigating risk and standardizing
operations
 Internal Controls and Audit Manual
TABLE OF CONTENTS

1 INTRODUCTION 4

1.1 Objectives of the Manual 4

1.2 Procedure for application of the policy 4

1.3 Distribution 4

2 PROCEDURE IN CARRYING OUT AN AUDIT 5

2.1 Planning and preparation 5

2.2 Review of Internal Audit Assurance 5

2.3 Working papers 6

2.4 Audit reports 6

3. MANAGEMENT CONTROLS 8

3.1 Authority and responsibility 8

3.2 Segregation of Duties 8

3.3 The Budgeting and Budgetary Control 8

3.4 Membership 8

4 LOAN POLICY CONTROLS 9

4.1 Purpose 9

4.2 Loan Application 9

4.3 Default Management 9

5. SAVINGS CONTROLS 11

6. OPERATIONS CONTROLS 12

6.1 Membership Procedures 12

6.2 Updating Members’ Register 12

6.3 Withdrawal of Membership 12

6.4 Lending Procedures 12

6.5 Loan Management 14

7 ACCOUNTING SYSTEM CONTROLS 17

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7.1 Cash management 17

7.2 Petty Cash 17

7.3 Cheque payments 17

7.4 Bank Reconciliation 18

8 FIXED ASSETS CONTROL 19

8.1 Assets Capitalization 19

8.2 Asset Register 19

9 INVESTMENT CONTROLS 20

10.0 INCOME AND EXPENDITURE CONROLS 21

10.1 Interest income 21

11.0 FINANCIAL PROCEDURE CONTROLS 22

11.1 Cash in Hand 22

11.2 Accounting for cash at bank 22

11.3 Accounting for Stationery 24

12.0 PROCUREMENT CONTROLS 26

12.1 Procurement policies 26

12.2 Procurement Procedures 26

13.0 PERSONNEL POLICY CONTROLS 27

13.1 Recruitment and Staffing 27

13.2 Conduct and discipline 27

13.3 Remuneration 28

14.0 MANAGEMENT INFORMATION SYSTEM CONTROLS 30

14.1 Documentation 30

14.2 Reports 31

15.0 ICT POLICY CONTROLS 32

15.1 Accounting and Operating Systems 32

15.2 Internet and email 32

15.3 Systems User Manuals 32

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15.4 Planning for ICT 32

15.5 Acquisition and Implementation 32

15. 6 Systems maintenance 33

16.0 INVESTIGATIONS 34

16.1 Stages of investigation 34

16.2 Fraud 34

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1 INTRODUCTION
1.1 Objectives of the Manual
The Manual is an explanation of the manner in which BRAEMEG‟ Sacco Ltd requires its Auditing function to
be conducted. It is not intended to be a book of reference of last resort, but to be read section wise so that the
knowledge of the underlying principles and reasons for rules are understood.

1.2 Procedure for application of the policy

This manual contains Policies and procedures, which will govern and guide the auditing function of
BRAEMEG‟ Sacco. The critical objective is to serve with a professional difference and this manual provides a
framework for professional auditing frameworks. It is intended to establish a smooth, efficient and effective
auditing system to enable BRAEMEG‟ Sacco management obtain accurate, reliable and timely Audit reports for
expedited decision making and reporting.

Further, this manual seeks not only to protect BRAEMEG‟ Sacco assets but also to establish policies and
procedures that will facilitate the management of quality growth and development of the company into a highly
sustainable and respected organization.

The manual is intended to be a handbook for easy reference and interpretation of Auditing policies and
procedures. As a rule, the CEOs and the Auditing staff must be fully conversant with the entire manual.

1.3 Distribution
This Auditing manual is the property of BRAEMEG‟ Sacco, and shall not be made available to any person who
is not a member of staff of BRAEMEG‟ Sacco, whether in part or in whole and in whatever form without
express authority from the board.

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2 PROCEDURE IN CARRYING OUT AN AUDIT

2.1 Planning and preparation

Planning in the most common sense means determining well in advance:

 What work needs to be done

 When the work needs to be done by so as to meet reporting deadlines

 Where the audit wok is to be carried out particularly if the clients have several locations

The Auditor must work out a probable program of work on how the objectives of the assignment are to be
achieved.

Generally the planning of an Audit involves four separate stages:

 Acquiring or updating knowledge of the Society‟s business

 Developing an overall plan

 Developing an audit programme

 Drawing up the work plan

2.2 Review of Internal Audit Assurance

The procedures required to conduct an audit in accordance with International Standards on Auditing (ISA)
should be determined by the Auditor having regard to the requirements of ISA‟s, relevant professional bodies ,
legislation, other regulations and where appropriate the terms of the audit engagement and the reporting
requirements.

Reasonable Assurance

An audit in accordance with ISA‟s is designed to provide reasonable assurance that the financial statements
taken as a whole are free from material misstatements.

Reasonable Assurance is a concept relating to the accumulation of audit evidence, necessary for the Auditor to
conclude that there are no material misstatements in the financial statements taken as a whole. Reasonable
assurance relates to the whole audit process.

However, there are inherent limitations in an audit that affects the auditor‟s ability to detect material
misstatements. These limitations result from factors such as:

 Use of testing

 Inherent limitations of any accounting and internal control system e.g. possibility of collusion

 The fact that most audit evidence is persuasive rather than conclusive

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The work undertaken by the Auditor to form an opinion permeated by judgment, in particular regarding:

 The gathering of Audit evidence for example in deciding the nature timing and extend of Audit
procedures

 The drawing of conclusions used on the Audit evidence gathered e.g. assessing the reasonableness of
the estimates made by management in preparing the financial statements.

2.3 Working papers

All audit work performed should be recorded in working papers and each working paper should indicate:

 Date of accounts being reported on

 Initials of the staff member preparing the working papers

 Date of preparation

 Initials of the reviewer date of review

 The heading indicating the content of the working paper

 The file reference number

Purposes of working papers

From the above functions, it will be seen that working papers, perform the following functions:

i. Enable the Auditor to obtain an understanding of the audit and the evidence obtained. Such an
understanding may be required by:

 Final reviewer in considering the opinion to be expressed on the accounts as a whole

 A court in the event of a need to justify the appropriateness of the opinion expressed in accordance with
approved auditing standards

ii. Introducing a discipline into the audit process ensuring that appropriate evidence is gathered and
evaluated

iii. Provide a basis for planning and performing subsequent period‟s audit.

2.4 Audit reports

The Auditors report is the end result of all his work. It is a very short but very important statement to the
Society. It expresses the Auditors opinion that the policies of the organization and internal controls are upheld
in the operation of the Society.

The wording to be used in the audit report depends on the area of business being audited and the requirements
of the Society.

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Basic elements of the Auditors report

Title

The Auditors report should have an appropriate title such as – The report of the Internal Auditors. This Title
distinguishes the Auditors report from the other reports that might be issued by others, such as offices of the
Society.

Addressee

The Auditors report should be appropriately addressed to the Central Board of Directors of BRAEMEG‟ Sacco.

Introductory/opening paragraph

The report should include a statement that Society accounts are the responsibility of the entity‟s management.

Opinion paragraph

The Auditor should give an opinion on the affairs and records of the Society.

Date of the report

The Audit report must be dated

The Auditor reports to the Management:

 To give his comments on the accounting records, systems and control

 To bring to the attention of the management areas of weakness that could lead to material errors

 Report on areas of internal control

 Comment on matters that may have an impact in future Audits

 To enable the management to put right matters that may otherwise lead to a qualified report

 Auditor to point out areas where the management could be more efficient, more effective or where
economies could be made or resources could be used more effectively

Format of the report

The report should be clear, constructive and concise. It should contain an opening paragraph explain the
purposes of report, a note that it contains matters which came to the Auditors attention and is not a
comprehensive list of all weaknesses, a request that BOD should reply to each point made.

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3. MANAGEMENT CONTROLS

3.1 Authority and responsibility

It is the responsibility of the Board of Directors to direct and monitor the affairs of the Society on behalf of the
members. However, they can delegate the administrative duties to the CEO and the Society‟s staff.

The Board of Directors shall ensure that the delegated responsibility matches the authority to enable the
management staff execute their duties efficiently.

3.2 Segregation of Duties

Different tasks shall be performed by different persons or subcommittees and checked/verified and approved by
different persons or committees. This is to ensure that a transaction is not originated and completed by the same
person.

3.3 The Budgeting and Budgetary Control

a) The Audit budget shall be prepared annually and presented to the members for approval. Preparation of
the budget will be based on, approved programs by the Board of Directors.
b) The budget period to be covered shall be 12 months and broken down into quarters and months.
c) After the end of every month, the office shall prepare a report whereby the actual expenditure is compared
with the budget.
d) A prepared supplementary budget must be presented to members at a Special General Meeting for
approval before implementation.
e) Any donations, subscriptions and /or contributions shall require special authorization from the Board of
Directors and must be provided for in the budget.
For effective budgeting process, the society will formulate a five-year strategic plan with annual reviews to
accommodate changes within the business-operating environment.

3.4 Membership
Common Bond
The membership shall consist of persons who work for Braeburn schools ltd and others as will be stipulated in
the Society By-Laws.
Eligibility
A person of either sex shall be eligible for membership if he or she possess the qualifications specified in the
By-Laws.
Every applicant for membership shall complete an „application for membership” form. A membership fee, set
by BOD from time to time, shall be submitted together with this form.
Application for Membership
Membership in the Society shall be terminated upon occurrence of one or more of the events as specified in the
By-Laws.

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4 LOAN POLICY CONTROLS

4.1 Purpose
The Loan Policies are intended to provide direction, guidelines, and make provisions for proper and efficient
utilization and administration of the SACCO Loan Portfolio in order to ensure that the SACCO‟s interests are
adequately protected, to ensure equitable distribution of funds, encourage liquidity planning and enhance
effective communication and information flow between the SACCO and its members.

4.2 Loan Application

Requirement for qualification
A member must have completed at least six months‟ active membership. A member who withdraws from the
society and rejoins later will be treated as a new member for the purpose of this loan policy.
A member applying for a loan should undertake to pledge future salary and income from the employer
towards loan repayment before the SACCO Society grants such a loan.
a) All applications for loan shall be made on prescribed forms by the society and shall in each case set out
the amount applied for, the purpose of the loan, terms of repayment and type of security provided. The
loan application form must be fully completed and supported by at least/Three most recent pay-slips.
b) False information on the application form shall lead to automatic disqualification and shall constitute an
offence
c) Loan applications shall be considered in order in which they are received. In event that funds are
inadequate for all the applications the Board of Directors shall decide on the preference criteria to use.
This applies only to normal loans.

4.3 Default Management

Arrears
a) A loan shall be considered to be in arrears when whole or part of an installment is not paid on the due date
for whatever reason.
b) Installments in arrears will attract a penalty at a rate of 1% or one determined by the BOD from time to
time.
Delinquent Loans
When a loan has an installment in arrears puts the whole loan at risk. Loans in arrears shall also be considered
as delinquent loans because they could turn out to be non-performing.
Defaults
A loan shall be considered to be in default if installments are missed and remain unpaid for a period of 90 days.
The whole loan will be in default.
Loan Recovery
a) The BOD through Credit Committee shall make efforts to collect loans considered to be in default.
b) Where the loan and interest balance is equal or less than the member‟s savings, it shall be recovered from
the savings.

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c) If the loan outstanding is greater than the member‟s savings, the Society shall recover the loan from the
employee‟s benefits through the employer or other property/assets pledged by the member.
d) Where a member defaults and the Society is unable to recover the loan from his employer, the loan shall
be recovered from the guarantors.
e) A member whose loan is in default shall be blacklisted and will not be eligible for another loan for a
period of not less than six months.
f) No member shall be allowed to withdraw from the society if in default but can after clearing the loan
balance.

Loss of a Member in Default

Any member who loses membership by death where his/her loan was in default shall have the loan dues
recovered from guarantors, deposits and withdrawable savings. Any outstanding claims will be written off by
the Society.
Loan Loss Provision and Write-offs
The Society shall make a general provision of total outstanding loans for loan loss in accordance with the
provision in the Credit Policy and SASRA Regulations.

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5. SAVINGS CONTROLS
To mobilize savings, the Society shall apply aggressive marketing efforts. Appropriate incentives shall be
applied to promote savings growth based on set goals.
Savings withdrawal shall only be allowed at the time a member is withdrawing membership unless he/she is
withdrawing part of withdrawable savings product.
At a members‟ discretion, voluntary savings may be offered as a product with flexible withdrawal. The Society
shall offer these depending on member‟s needs.

a) From time to time the Board of Directors shall determine the interest rate applicable to savings and the
method of calculating interest earned. In determining these the Board of Directors shall consider the
following elements: -
1. Financial market behavior
2. Current inflation rate
3. Transaction costs on savings
4. Savings mobilization volume
5. Terms offered to the market
6. Average rate on deposits weighted on portfolio
7. Business methodology to estimate rate on deposit.

b) The interest rate offered shall be competitive in the market. The interest rate shall be reviewed periodically,
according to the competitive patterns and should be adjusted in a timely manner to market conditions.

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6. OPERATIONS CONTROLS

6.1 Membership Procedures

Application for Membership
a) Every new member shall fill in a membership application form provided by the Society and pay the set
membership fees at the time of application.
b) Filled application forms shall be delivered to the Society to be cross-checked for completeness and
required attachments and stamp “received”.
c) Then the applicant shall be issued with the By-Laws after paying the membership fees.
d) The application form is them forwarded to the accounts office for verification and checking of payment of
membership fees.
e) The form shall be forwarded to the Board of Directors for approval.

6.2 Updating Members’ Register

a) After approval by the Board of Directors, the forms shall be forwarded to the loans section for register
updating and filing.
b) After a member withdraws from the Society the members‟ register shall be updated accordingly

6.3 Withdrawal of Membership

a) A member wishing to withdraw his/her membership from the Society shall fill the applicable forms and
forward them to the office.
b) The loans officer shall check for any outstanding loans or pending guarantee on the member‟s savings and
notify the BOD accordingly.
c) The Board of Directors shall authorize the withdrawal of membership and the member shall be refunded
his/her savings after 60 days from receipt of the resignation date.

6.4 Lending Procedures

Members shall apply for loans using pre-designed application forms and submit them together with attached
documents (as per policy on each loan type) to the office for processing.

a) Loan applications shall be received and checked for completeness and attachments as required. If in order,
the officer in charge will stamp them “received” and allocate a serial number and then register them into
the Loans Register.
b) The loan application forms shall then be forwarded to the loans section. The loans officer shall check the
following: -
 Whether the amount applied and other loans outstanding are within the set multiplier.
 Whether the guarantors have ability to guarantee (savings)
 Repayment capacity determined by the ratio of installment to regular pay
 History on loan repayment in the last 2 years – if there are any missed installments.

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The loans officer recommends the maximum amount that can be disbursed and forwards the form to the CEO.
The CEO, if in agreement with the officer, recommends the amount to be approved to the Credit Committee.
Loan Approval
a) The Credit Committee shall approve the loan. The committee can delegate the powers of approving to one
of the members pending ratification by the full committee and the Board of Directors. In approval, the
committee shall check conformity to the set criteria for each loan type applied for;
 Ratio of installment to gross (regular) pay
 Loan applied to savings ratio
 Letter of commitment from employer (agreement form)
 Any special requests (in form of a letter) from the applicant.
b) Approved loan application forms are then passed to CEO to authorize for cheque or Electronic fund
payment.
c) The CEO passes the approved loan applications to the accounts section for cheque writing or electronic
payment.
d) It then follows the normal payment process.

Loan Disbursement
a) All loan payment shall be made into the members FOSA account unless the BOD approves
otherwise.
b) The loan officer updates the loans register.
c) An allotment letter is prepared and signed by the loanee. It is then taken to the CEO for approval.
d) Allotment book is updated and the allotment letter is send to the employer (payroll office).

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6.5 Loan Management

Loan Repayment
Members may pay part or whole balance of his/her loan by depositing cash in the Society‟s account or by
cheque.
Reporting on Default
a) By the end of every month, the Board of Directors shall receive a report showing the status of the loan
portfolio from the CEO. A list shall be provided for members with loans in arrears and those in default.
b) An age analysis shall also be provided to the Board of Directors by the CEO/Credit Committee with loans
classified in line with the provision of regulation 41(1) (2) of the Sacco Societies regulations 2010.
 Performing loans
 Watch loans
 Substandard loans
 Doubtful loans
 Loss loans
The following actions shall be taken on loans in arrears and in default;
i. Mail Notice shall be sent to members that have an installment in arrears (past due) for 30days
requesting the member to pay within 14 days.
ii. Mail Notice shall be sent members that have an installment in arrears over 90 days informing him/her
the Society‟s intention to realize the security pledged for the defaulted loan, i.e., deposits, shares and
other security pledged.
iii. If the balance is not cleared, the Society shall recover loan balance plus interest from guarantors.
iv. If the whole balance is not recovered from guarantors, then a notification shall be given to the member
that he/she is being transferred to a debt collector or SACCO lawyer for further actions on recovery at
the expense of the borrowing member.
v. All correspondences regarding loan delinquency shall be properly filed by the loans department.

Loan Provisioning and Write off

In most cases loan repayment shall be made through a check-off system where the employer shall submit
contributions from several members in one cheque, from the members BOSA accounts. However, a member
may pay part or whole balance of his/her loan by depositing cash in the society‟s account or by cheque.
a) By the end of every month, the Board of Directors shall receive a report showing the status of the loan
portfolio from the CEO. A list shall be provided for members with loans in arrears and those in default.
b) An age analysis shall also be provided to the Board of Directors by the CEO/Credit Committee with loans
classified as follows: -
 0 days
 1-30 days
 31-180 days
 181-360 days
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 Over 360 days

The following actions shall be taken on loans in arrears and in default;

i. Mail Notice shall be sent to members that have an installment in arrears (past due) for 30 days
requesting the member to pay within 14 days.
ii. Mail Notice shall be sent members that have an installment in arrears over 90 days informing him/her
the Society‟s intention to realize the security pledged for the defaulted loan, i.e., deposits, shares and
other security pledged.
iii. If the balance is not cleared, the Society shall recover loan balance plus interest from guarantors.
iv. If the whole balance is not recovered from guarantors, then on the 121st day a Notification shall be
given to the member that he/she is being transferred to a debt collector or SACCO lawyer for further
actions on recovery at the expense of the borrowing member.
v. All correspondences regarding loan delinquency shall be properly filed by the loans department.

Procedure
a) At the end of each quarter or any such other times as the Board of Directors may require, the CEO shall
prepare a detailed report of all loans on which the SACCO anticipates loss of interest and/or principal
(Allowance for Doubtful Loans report).
b) The SACCO shall be required to maintain an allowance for loan losses based on the Allowance for
Doubtful loans report. When all effort to collect and or the loan has been turned over to collector or
SACCO lawyer and the period has exceeded 18 months, such loans will be charged off against the
allowance for loans loss.
c) In event that the principle sum and interest is not fully recovered from the security offered by the
defaulting member and the guarantors, the balance shall be provided for at the rate of 100%. (written off)

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7 ACCOUNTING SYSTEM CONTROLS
Basis of Accounting
The Society accounts should be prepared under the historical cost convention. Incomes and expenses shall be
recognized using the accrual basis of accounting.

7.1 Cash management

cheque and direct deposits receipts
a) Official receipts shall be issued for cheques received and banked, direct banking made and deposit slips
forwarded to the office.
b) Members are required to submit banking slips to the office (as evidence of banking) and an official receipt
issued. Banking slips not forwarded within a reasonable time after the transaction date shall attract a
penalty to be determined by Board of Directors from time to time and, in addition, bank charges for
seeking copies from bank.

7.2 Petty Cash

a) Subject to regular reviews on cash requirements, a petty cash fund shall be maintained.
b) Cash payments shall be limited to an amount predetermined by the Society
c) The accountant shall raise a petty cash voucher with details of the expense and payee for all payments and
attach all supporting documents
d) The voucher shall be signed by the Accountant and passed to the CEO for approval.
e) When the voucher is approved and the payment is made, it shall be stamped PAID.
f) Any advance for cash from petty cash must be supported by a requisition indicating what is to be bought.
g) Petty Cash reconciliation should be done by the Accountant and checked daily by the Internal Auditor.

7.3 Cheque payments

a) All payments to suppliers shall be by cheque
b) Supporting documents (invoices, loan application forms, claims, and bills) must be attached and
authorized for payment.
c) Every payment must be requested through a pre-numbered payment voucher with supporting documents
attached. The pre-numbered vouchers shall contain necessary accounting data: purchase order, number,
reason for payment and source of funds.
d) The approved payment voucher shall be returned to the Accountant to write a cheque. The accountant,
upon issuance of a cheque shall stamp all documents PAID.
e) The signed cheque shall be sent or dropped to, or collected by the payee, who must sign the payment
voucher as acknowledgement.

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7.4 Bank Reconciliation
a) Bank reconciliation shall be done monthly. The Accountant, will do the reconciliation, the Internal
Auditor will review before approval by the CEO.
b) All paid vouchers together with original third party supporting documents shall be filed in chronological
order.
c) Un-established items shall be cleared within one month after reconciliation date.

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8 FIXED ASSETS CONTROL

8.1 Assets Capitalization

a) The Society shall capitalize fixed assets based on the classification as per chart of accounting.
b) Classification of assets will be based on wear and tear basics of categorization as per prevailing tax
legislation.
c) Only assets that meet criteria (b) above will qualify to be recognized as fixed assets since reflected in the
register accordingly.

8.2 Asset Register

a) The Society shall maintain an up-to-date Fixed Assets Register. The fixed assets register shall be
maintained on the fixed assets module in the system or a spreadsheet or a book, whichever is preferable
but should have the following details.
i. Assets identification number
ii. Acquisition date
iii. Description of asset
iv. Location
v. Class of asset
vi. Cost of acquisition
vii. Accumulated depreciation
viii. Net book value
b) The Accountant should ensure that all the assets are tagged with an identification code.

Depreciation
a) Bank reconciliation shall be done monthly. The Accountant, will do the reconciliation which shall be
reviewed by the CEO.
b) All paid vouchers together with original third party supporting documents shall be filed in a chronological
order.
Un-established items shall be cleared within one month after reconciliation date.
c) Disposal of Assets
 The society shall apply reasonable and convenient assets disposal methods but in all cases
transparency and accountability must be upheld.
 The MC shall approve all assets disposal transactions.
 Assets shall be disposed when they become uneconomical to maintain.
Security on Assets
a) The SACCO shall have an elaborate security system to safeguard all its assets. This shall be arranged
with reputable security organizations as well as put in place the relevant physical security structures as
determined and approved by the Board of Directors.
b) All SACCO fixed assets shall be insured.

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9 INVESTMENT CONTROLS
At all times, the investment decisions shall be based on: return (yield), risk and liquidity of the investment.
a) Short-term savings funds shall be invested in short term assets. Long-term assets shall be matched with
long-term liabilities and capital. The mismatch shall not exceed 5%.
b) The Society shall adhere to the matching principle to avoid interest-risk exposure that could impair the
SACCO‟s liquidity and solvency.

Fixed rate investments

The Society Investment Committee shall monitor its liquidity and leverage position from time to time and
recommend to the Board of Directors desired changes regarding the SACCO‟s lending, investment, and
dividend and operating expense control.

Cash Reserve
The cash reserve to be maintained shall be determined by the BOD from time to time depending on the
prevailing operational circumstances.

Valuation
Investments shall be valued for purposes of annual reporting of carrying consistent with existing relevant
accounting standards.

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10.0 INCOME AND EXPENDITURE CONROLS

10.1 Interest income

a) Interest on loans shall be charged on reducing balance method.
b) The applicable rates per loan type shall be determined from time to time by Board of Directors.

Other revenues may include investment and sundry income.

Income recognition
All revenues shall be recognized when they are earned and not necessarily when received (using accrual basis)
as long as it‟s probable that economic benefits shall flow to the society and amounts can be reliably measured
for such accrued income.
EXPENSES
Committee Allowances
a) All sub-committee activities must be approved by the Board of Directors and provided for in the annual
budget. The Board of Directors/SC allowances shall fall under the following broad categories: sitting,
travel, public relations and other special allowances as may be determined from time to time.
b) All official Board of Directors/SC activities outside the office shall qualify for transport and public
relations allowances.
c) Transport allowance shall be based on actual cost of the most appropriate means of transport and this shall
be determined by Board of Directors beforehand. The Board of Directors shall review these rates based on
economic circumstances.
d) All sitting and transport allowances shall be paid as soon as possible after Board of Directors sittings.
Staff Travel Expenses
Travel expenses incurred by staff, consultants or any other authorized person, shall be reimbursed according to
the regulations set out in the operating policies of the organization.

Public relations shall be paid on Society official functions subject to Board of Directors‟ prior approval.
Taxation
Taxation shall be based on co-operative taxation legislation and the society shall choose to apply current
taxation and/or deferred tax method where necessary.
General Journals
a) All journal entries must be approved by the CEO before they are passed to the general ledger accounts and
reviewed quarterly by Board of Directors
b) Pre-numbered general journal book shall be used.
Correction of errors
a) Any error discovered after final monthly reports have been made or the monthly transaction files have
been closed, should be corrected in the following accounting period (month) but not going to the past
records and correct it. Such errors could affect members‟ statements or financial reports.
b) This error correction shall be properly documented and approved by the CEO.

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11.0 FINANCIAL PROCEDURE CONTROLS

11.1 Cash in Hand

Petty cash
a) The Accountant shall raise a petty cash voucher serially with all supporting documents and with details of
the expense and payee.
b) The voucher shall be signed by the accountant and passed to the CEO designee for approval.
c) When the voucher is approved and the payment is made, it shall be stamped PAID.
d) Petty cash vouchers shall be pre-numbered and details entered in the petty cash book.
e) When the petty cash balance falls to a specified level, to be determined by Board of Directors from time to
time, Accountant / Petty Cashier shall ask for replenishment.
f) Where money is to be advanced to a staff to acquire office facilities, a requisition shall be raised in for the
advance requested.
g) The requisitioner shall submit to the accounts office receipts or supporting documents for the expenditure
within 24 hours from time the money was advanced.
h) At the end of each day, the petty cash book is totaled to determine the balance. The balance shall be
reconciled with the physical cash counts.
i) Surprise cash counts shall be done at least once a month. Cash counts shall be done and documented by
designated employee(s) or SC member. The result of cash count shall be reported to the CEO
immediately.

The following procedures shall be followed when payments are received in form of a cheque or direct banking
(banking in slip):
a) The receipt number shall be entered in the reverse side of the cheque for follow-up in the event the
cheque is dishonoured.
b) Cheques shall be banked within one day of receipt.
c) When a cheque is dishonoured, the accountant shall communicate with the drawer immediately. The
dishonoured cheque shall not be released until the drawer makes acceptable alternative payment with
penalty accrued. The entry of the dishonoured cheque shall be reversed in the cashbook.

11.2 Accounting for cash at bank

Payments
a) Before a cheque is made to any supplier, the accountant shall have to ensure that invoices are in
agreement with solicitation, purchase orders and delivery notes. He should also ascertain availability of
funds before drawing up a cheque.
b) If funds are available, the accountant shall prepare a pre-numbered payment voucher with supporting
documents to the CEO/Treasurer for approval. The pre-numbered vouchers shall contain necessary
accounting data: purchase order, number, reason for payment and source of funds.

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c) The approved payment voucher shall be returned to the accountant to write a cheque. The accountant,
upon issuance of a cheque shall stamp all documents PAID
d) The cheque, with all supporting documents shall be sent to the CEO, Treasurer and Chairman (or other
signatories) in that order for signature.
e) The signed cheque shall be sent or dropped to, or collected by the payee, who must sign the payment
voucher as acknowledgement.
f) Details of paid vouchers shall be entered into the cashbook.
g) All paid vouchers together with original third party supporting documents shall be filed in
chronological order.
h) The cashbook shall be updated daily and control reports printed showing receipts and payments by
assistant accountant and filed.
i) The office shall maintain a current and up-to-date cheque register with columns for cheque number,
payee name, purpose
j) When a new cheque book is received from the bank, details of all the cheque leaves shall be entered in
the cheque register, in sequential order. The rest of information will be left until the cheque is drawn for
payment or cancelled. As payment is made, details will be filled in the columns as necessary.
k) Cheque cancellation must only be done by CEO/accountant and reasons given for such cancellations.

Bank reconciliation
a) Bank reconciliation shall be done monthly. The Accountant, will do the reconciliation before approval
by the CEO.
b) All bank reconciliation must be filed in chronological order plus all the supporting schedules
c) Un-established items shall be cleared within one month after reconciliation date

Accounting for loans

a) On receipt of payroll deduction cheque; the Accountant shall verify against attached schedule.
b) A breakdown is done into various loan types (principal and interest), savings, shares and benevolent fund.
c) Batch files will be created for loans that must be reconciled before posting and posted.
d) After clearance of the cheque posting is done into member personal accounts and the control accounts are
cleared.

Fixed Assets
Acquisition and disposal
a) Recording and payment for the acquisition of fixed assets should be as per procurement and payment
procedures.
b) On delivery, assets shall be inspected before acceptance.
c) On acceptance, the asset shall be classified, tagged and recorded in the fixed assets register and invoice
stamped to authenticate the same.
d) If the disposal is a cash sale, the Accountant shall issue a general receipt.
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e) The relevant entries shall be passed into the general ledger accounts.

Depreciation
At the end of every accounting period (quarter or year), the Accountant shall prepare a depreciation schedule
for each class of items using the depreciation rates described above under depreciation policies.
Investments
a) The Board of Directors shall ensure that the SACCO maintains sufficient levels of liquidity to satisfy both
the demands for credit and deposit withdrawals.
b) Where an investment is to be made, the CEO shall collect the required data and pass it to the Board of
Directors
c) The Committee shall then analyse the data and advise the Board of Directors.
d) The Board of Directors shall make the final decision on the investment and authorize the Executive to
implement the decision.

11.3 Accounting for Stationery

Acquisition
Procurement of stationery shall follow the same procedures as described under procurement.
a) When stationery is received, it shall be checked against the order and items entered into the stationery
register.
b) At the end of every quarter, a physical stock take shall be undertaken by the accountant (or designee).
c) A stock analysis report showing unit costs shall be produced quarterly and forwarded to the CEO for
approval and then filed.

Stationery Capitalization
a) Using the stock take report of the end of last quarter of the year, the office shall value the stationery.
b) If material, the Accountant shall prepare a journal voucher to be approved by the CEO and adjust the
accounts accordingly.

Posting Journal Entries

a) Posting to the general ledger shall be made daily when raising payments and receipting.
b) The Accountant shall list all transactions requiring journals with affected accounts and amount.
c) The accountant shall then prepare the journals in the pre-numbered journal book and attach supporting
schedules that are properly cross-referenced where necessary and forward them to the CEO for approval.
d) After approval, the accountant shall post these transactions and file them.

Trial Balance
a) The trial balance shall be extracted from the general ledger by latest the 15th of every month by the
accountant.
b) Management accounts shall be made for every quarter and ready by the 20th day of the following month.

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c) The trial balance shall be used in preparing the draft financial accounts and supporting schedules.

Accounting Documents
Accounting documents such as cheque books and receipts shall be kept under lock and key and daily reports
pertaining to usage shall be availed for verification and authentication. The report shall contain serial numbers
of the same for monitoring purposes.

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12.0 PROCUREMENT CONTROLS

12.1 Procurement policies

a) In all cases, procurement shall be done with registered organizations.
b) Procurement for all items shall be done based upon approved budget by the Annual General Meeting.
c) All procurement actions shall be done in an open, free and fair competition in the market place and which
serve the best interest of the SACCO. All those involved in the procurement transactions shall at all times
exhibit high moral, professional and ethical standards.
d) Procurement shall remain the responsibility of the Board of Directors, but the authority may be delegated
to the Executive Committee.
e) For such small items not specifically provided for individually by name in the budget, authorized
employees shall raise a purchase requisition to the CEO.
f) For purchases which require significant outlay of funds, quotations should be obtained from at least three
suppliers
For items specifically provided for in the budget, the process shall be initiated through a minute of a Board of
Directors meeting indicating approval.

12.2 Procurement Procedures

a) The office shall raise the requisition and forward to the Treasurer if the items are of emergency nature or
below the cut for approval. The Board of Directors shall set the cut off value of requisitions that can be
approved by the treasurer.
b) The office shall solicit bids from at least three suppliers. In all cases, the solicitation letters shall have
adequate details as to description, size and specifications of the items to be purchased.
c) Where the requisition requires substantial spending, the requisition shall be approved by the Board of
Directors. The Board of Directors shall also provide guidance on the quotations should be sought from.
The potential suppliers shall be presented to the Board of Directors for approval.
d) The suppliers‟ quotations shall be submitted in sealed envelopes marked with quotation identification
numbers/names and shall be put in a tender box. The Board of Directors shall open these quotations on or
after the closing date and each signed by at least 3 Board of Directors members.
e) The office shall analyze the quotations and present to the Executive Committee for decision making. The
Executive Committee shall report on the decision reached to the Board of Directors for ratification.
f) The office shall send a pre-numbered purchase order to the selected supplier.
g) When goods are received, they shall be inspected by the accountant/ CEO to ensure they are in full
compliance with the specifications in the purchase order. A goods received note should be signed and
attached to the invoice.
h) The CEO/accountant shall ensure the invoice is agreed with the purchase order and the goods received
report before payment is made.

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13.0 PERSONNEL POLICY CONTROLS

13.1 Recruitment and Staffing

Staffing
The staffing pattern shall show the position and the number of staff occupying those positions, subject to
revisions from time to time. Each position shall have a current and relevant job description. Each Job
description shall, at a minimum, include
a) job grade/scale;
b) basic functions;
c) major duties and responsibilities
(d) Required qualifications, experience and other job requirements
Recruitment
a) All vacant positions shall be filled through a full and open competition.
b) Vacancies shall be advertised in an appropriate medium stating responsibilities, required qualifications,
method of application and the deadline for submission of applications.
c) A selection committee appointed by the Board of Directors shall screen, interview and rank the applicants
using a consistent selection criteria based on the required qualifications with appropriate weightings,
throughout the whole process.
d) The best candidate shall be invited for a discussion of terms, and after reference, shall be given a letter of
appointment providing a reasonable time within which to accept or decline the offer.
e) Medical examination shall be done at the expense of the Society before the reporting date.

Employment terms
a) New employees shall serve a probationary period of six (6) months and shall be confirmed upon
successful performance during this period.
b) The CEO on behalf of the Treasurer shall maintain a personal file for every employee

13.2 Conduct and discipline

Conflict of interest
Employees are prohibited from engaging in any outside employment, business or profession that may affect
performance of his/her duties because they are inconsistent or in competition with the ordinary business of the
Society.
Confidentiality
Disclosure of confidential information concerning members and fellow employees is prohibited. Breach of this
may result in employment termination.
Code of conduct
a) Employees shall at all times conduct themselves in a manner that will not cause embarrassment to the
organization, both within and without.
b) Employees shall behave in cordial and respectable manner towards fellow employees.

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c) Employees shall neither solicit nor accept gifts, favours or anything of monetary value from third parties
involved in any transactions with the society. Disciplinary actions including summary dismissal may be
taken against violators of this regulation.
d) Employees shall refrain from engaging in actions that may appear to create potential or real conflict of
interest with the organization. Specifically, no employee shall participate in the selection, award,
administration of contract where, to his/her knowledge his/her immediate family, partner or an
organization which he/she or his/her family has a financial interest or with whom he/she is negotiating or
has an arrangement concerning prospective employment.
e) It is the duty of every employee to keep his/her work- station neat and tidy all the time and help maintain
a professional and business like atmosphere in the SACCO.
f) Employees are to use Society properties responsibly and avoid abuse.
g) Except for cases of illness, absence from work must be reported to an employee‟s immediate supervisor
by start of the normal working day except under unavoidable circumstances.
h) Absenteeism due to sickness must be reported before end of the day and documental proof presented to
the supervisor on the first day of reporting to work. If the employee is to be away for more than one day,
another request must be made, unless satisfactory arrangements were made in advance with the immediate
supervisor.
i) Staff members must not involve themselves in campaigns for Board of Directors positions either on their
behalf or on behalf of other members. Such actions may warrant disciplinary actions, including
termination.

Staff attendance
The SACCO may maintain time of arrival and attendance records for all staff. Supervisors must ensure that,
their staff are aware of their responsibilities and when they are to be on duty. Flexible reporting and departure
times may be recommended by the CEO and approved by the Treasurer.

Grooming
Employees are expected to be neat, presentable and to maintain a standard of dress, grooming and general
decorum that will help present the SACCO as a top quality financial service organization in Nairobi.
Uniforms shall be provided for positions that require staff to be in them for better performance of their duties.

13.3 Remuneration
a) All salaries and wages shall be paid in arrears monthly.
b) All employees shall be required to open bank accounts for clearing salary cheque payments.
c) Salaries may be reviewed at the end of every year and implemented in January of the following year.
Within grade salary review (at the anniversary of the contract), shall involve individual consideration
relating to each member of staff. To review salaries, the following factors will be considered:
1. Work performance based on annual performance appraisal report
2. Professional skills enhancement

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3. General conduct
4. Length of service in the SACCO
5. Changes in the cost of living
6. Comparable salaries in relative sectors

Reviews of salaries and allowances may be carried out at the discretion of the Board of Directors and approval
by the AGM through the annual budget. The Human Resource Policy shall have all the details on staff issues.

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14.0 MANAGEMENT INFORMATION SYSTEM CONTROLS

14.1 Documentation
The Society‟s records shall be generated, classified, retrieved and utilized in a professional manner.
Society data and records may be originated from internal activities or from outside activities. Whatever the
source of records/data, the Society shall receive and file them properly.

Classification and coding

a) The society records shall be classified and coded in a user-friendly manner so as to enable the staff use
with ease. This classification will be based on the source and purpose of the documents.
b) The Society shall develop guidelines that shall lay down the criteria for such classifications, coding and
filing.
c) The manual coding shall correspond to the one in the computerized system.

Filling
The following filing guidelines shall be used for various types of records: -
(i) All personnel files shall be kept by the CEO
(ii) All members‟ files will be kept at the registry
(iii) There shall be a register book for the movement of files and other records in the registry. This will be in-
built into the computer system
(iv) A delivery book shall be used for all correspondence going out of the office.
(v) There shall be a register for all records delivered to the society.
(vi) All correspondence should be coded as they come into the office.

Document Security
a) The manual on document handling and security shall lay down the criteria to determine the sensitivity of
the documents of the society.
b) There shall be a cheque register maintained in the office.
c) All accounting documents like bank statements, voucher books, receipt books, share certificates, etc. shall
be kept in a safe.
d) The manual on records access shall lay down the different security levels attached to the records and the
level of staff that should have access to such records.

Destruction of documents and records

a) All records shall be destroyed on the expiry of the stipulated period. The Board of Directors shall decide
on the disposal mode.
b) All dormant members‟ records shall be destroyed after seven years.
c) All financial records shall be destroyed after ten years.
d) Procurement files shall be destroyed after seven years.

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Records Archiving
The Society shall archive records/data that are dormant either in the office or outside the office (rented place) in
order to created space for the active records.

Documents
The following documents will be maintained:-
(i) Loan application and loan agreement (Normal loans)
(ii) Installing application and loan agreement
(iii) Membership application form
(iv) Deduction advice
(v) Allotment form

14.2 Reports
Member reports
The following are some of the Member based reports:-
a) Member statements
b) Withdrawn members
c) Loan Defaulters (listing)

Financial and Management Reports:

a) Monthly trial balance
b) Accounts statement
c) Fixed assets register report
d) Cheque (payment) listing
e) Receipts list
f) Monthly variance analysis
g) Cash flow statement
h) Loan delinquency report
i) Loan projections
j) Quarterly income and expenditure report
k) Quarterly Balance sheet
l) Quarterly Cash flow
m) Statement on changes in capital and equity

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15.0 ICT POLICY CONTROLS

15.1 Accounting and Operating Systems

a) The Society shall endeavour to acquire accounting package that will assist in accounting for the Society‟s
activities in an efficient manner.
b) The system shall, as much as possible, be able to integrate major operations of the Society such as
accounting, loans, savings/shares, payroll and fixed assets.

15.2 Internet and email

a) The Society shall invest in the communication systems especially the internet access and e-mail.
b) Access to the e-mail and internet shall be controlled by the CEO to safeguard Society‟s information and
control cost.

Hardware
Computers and other hardware shall be accessible to authorized staff to assist them in their duties as assigned.
They shall be used responsibly. The society shall install and upgrade its network so as to maintain internal
communication and centralized printing.

15.3 Systems User Manuals

All systems acquired or developed by the Society shall have well developed user and operational manuals for
references and maintenance.

15.4 Planning for ICT

The society shall have an ICT plan and shall be reviewed every year. The budget shall include a line item for
information and communication technology.

15.5 Acquisition and Implementation

a) The SACCO shall acquire appropriate technology to process, store and manage its information resources
effectively for efficient member services.
b) In addition to the procurement policies and procedures, a technical task force shall be set to define the
needs of a new system, assess feasibility of the new system, evaluate alternatives, and report findings to
the Board of Directors.
c) The technical task force shall participate in evaluating bids for supply of the software where off-the-shelf
package is being bought or work closely with the systems developer.

Installation and data transfer

a) Before a new system is accepted, the technical task force shall test it with actual data.
b) Full training shall be offered for the new system for the users of the system.

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c) Data for transfer shall be prepared by the management staff with assistance from the software vendor to
ensure that correct data is transferred into the new system.
d) The new system shall run parallel with the existing system for at least 3 months for comparison before
discontinuing the old system.

15. 6 Systems maintenance

a) System maintenance arrangements shall be made before the acceptance letter is signed between the
vendor and the Society. It should be made clear on how the system will be maintained and should bugs or
operational difficulties arise, how they shall be addressed.
b) At least one staff shall be trained on how the simple operational problems can be sorted.
c) The society shall sign a hardware maintenance contract with a reputable organization for routine repairs
and servicing.

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16.0 INVESTIGATIONS
An investigation is an enquiry commissioned by a client for some purpose. The scope of enquiry, the range of
possible clients and the number of purposes can be very large.

16.1 Stages of investigation

Stage 1: Instructions from the Management

This must incorporate a very clear view of the aims of the investigation, the scope of the investigation, the
degree of the detail required, the degree of secrecy to be observed, the person to whom the Auditor must
address his report.

Stage2: Professional courtesies

Professional etiquette requires that if investigations are carried out in the affairs of the Society all concerned
parties should be informed. This is aimed to boost co-operation in the audit.

Stage 3: Organization
This involves the Auditor assessing the aims of the investigation, estimating the time to be taken and the likely
costs and ensuring that the appropriate staff will be available.

Stage 4: Obtaining the background information

This is particularly important as it involves gathering as much background information as possible about the
object of the investigation.

Stage 5: Gathering Preliminary information

This information has to be gathered on the subject to be investigated by the Society.

Stage 6: Drafting the report

This is the final output of the investigation detailing the key findings of the stages one to five above

16.2 Fraud
The nature and scope of fraud investigation are dependent on the instructions given. The main considerations in
fraud investigations include the following:
a) The past time period that needs to be investigated which could be a few day or many years
b) The scope of the investigations. We have to determine whether we are investigating an
individual, a whole company or a whole department
c) Questioning of the individuals concerned

Audit Action in fraud

a. The Auditor has to ascertain the level of authority and nature of duties of the defaulting employees
b. Cast and vouch the cash book and obtain certificate of the opening and closing balances of the bank
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c. Check the cash book against the bank statements paying particular attention to the dates of lodgment to
ascertain whether receipts were banked promptly.
d. Examine the pay in slips at the bank and compare with counterfoils as these may reveal discrepancies.
e. Carry out a positive circularization of debtors
f. Scan the cash book for any apparently irregular payments
g. Examine returned cheques comparing names or payees with the details in the cash book and invoices.
h. Obtain duplicates of missing expenditure vouchers
i. Vouch and cast the petty cash book
j. Confirm names of all employees shown in the payroll with the chief Accountant and the personnel CEO and
confirm amounts payable to them
k. If the defrauder has access to all books then all postings should be checked and a trial balance extracted.
l. Confirm all bad debts written off, discounts allowed and return of goods
m. Check the order book against the sales day book and see that none of them has been processed twice
n. Obtain duplicates of all missing purchase vouchers
o. Compare the creditors‟ statements against purchase ledger balances
p. Check good inwards book or order against invoices to ensure that the latter relate to genuine purchases.

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