1

Chapter 1 COMPANY PROFILE The Emancipators Multi-Purpose Cooperative (EMPC) was

established in January 15, 1992. It is located at DAR-Prov Tabora Bldg Gen. Luna St. San Fernando City, La Union. Its agency is the Department of Agrarian Reform which mandates community organizing and improving the capabilities of the ARBs. As the DAR is doing its activities to help the ARBs, through the leadership of Mr. Renato C. Flores who was then the PARO II and Ms. Mary Geralyn I. Zarate spearheaded the organization of the Emancipators Multi-Purpose Cooperative (EMPC). EMPC was organized in 1991 and was registered on January 15, 1992. One of the main objectives of the organization is to help its members especially in the educational needs of the children of the DAR employees. The initial twenty (20) original members were able to raise Php 21,000.00 as their initial share capital. The main service of the coop is lending. As per policy, a member can loan two times of his or her capital share of the member who availed loan. The coop also availed loan from the Department of Trade and Industry (DTI) to augment the needs of its members amounting to Php 500,000.00. This amount was loan out to members as Special loan. The

interest rate was sixteen (16) percent per annum. As of year 2000, EMPC has already paid the Department of Trade and Industry (DTI). The lending services of the coop are classifies as regular loan and enhancement loan. In the regular loan, the members can avail twice his or her capital share with one (1%) percent per month. A member is allowed to avail Php 10,000.00 in the enhancement loan with an interest of two (2%) percent per month payable in six (6) months. The coop is a member of the Federation of ARC coops in La Union. Awards and recognition which were given to the coop are from the DAR for its participation in the programs of DAR and the award for being millionaire cooperative. As of now, the owners of EMPC totaled to 141 who are also its employees. The registered capital is Php 22,173,767.12. It has been operating for nineteen (19) years already. Its short term goals are to increase member and the collections of unpaid obligations whereas its long-term goal is the continuance service to the members. Refer to Appendices 2a and 2b. Vision: We want to increase capital and wealth of its cooperative member and be a reference point for entrepreneurial aspirations.

Mission: To encourage thrift and savings mobilization among the members and engage in the selling and marketing of basic commodities. To provide soft loan assistance to our members for productive and providential purposes. Organizational Structure Every organization has its own set of officers with certain responsibilities which would aid in the effective governance and implementation and realization of the importance of the entitys internal control. Such is illustrated by Figure No.1. The organization is spear-headed by the Board of Directors which would have power over the committees and the management staff. There are four committees in the organization, namely the Audit Committee, Election Committee, Education Committee and Credit Committee. The management staff on the other hand is comprised of the general manager, the secretary, treasurer, bookkeeper, auditor, cashier and the store custodian. The different responsibilities and names of each person occupying the aforementioned positions can be seen in Table No. 1 and can be referred to Appendices 3a and 3b.

BOARD OF DIRECTORS

COMMITTEES

MANAGEMENT

AUDIT

ELECTION

CREDIT

EDUCATION

GENERAL MANAGER

SECRETARY

TREASURER

BOOKKEEPER

AUDITOR

CASHIER

STORE CUSTODIAN

Figure 1: ORGANIZATIONAL CHART

Table No. 1: Names and Responsibilities of the Officers of the Cooperative POSITION Board of Directors RESPONSIBILITIES Passed resolutions and policies Provide decisions with regard to disbursements NAME Chairperson: Susimo Asuncion Vice-Chairperson: Clarita Almoite Directors: Librada Sanchez Melchor Durao Roberto Bolaoen Nestor Pagaduan Editha Ramolete Tranquilino Tomacder Rodolfo Balatero Jocelyn Supsup Lorie Capistrano Leovic Ancheta Elizabeth Morta Severino Pagaduan

Audit Committee Credit Committee

Audit internal records and cash Process and assess loans

Education Committee Election Committee General Manager Secretary

Provide seminars to employee and members of Clarita Almoite the organization. Facilitates the election of the Board of Directors Manage managerial staff Take minutes during BOD meetings Keeps record of the office Magdalena Espanto Joel Rimando Rosmin Reyes Josephine Bernas

Treasurer

Issue or deposit checks or Alma Montero cash to bank

Bookkeeper Auditor

Bookkeeping Auditing financial statements Collection of payments from lending business Purchases goods to be sold Sells products to consumers Lists amounts involved in purchasing and selling of goods

Luz Samera Lora Daquep Janet Mortela Alma Montero Madelin Ramos

Cashier Store Custodian

Chapter 2 COMPANY OPERATIONS EMPC provides two services namely the Consumer store and the Lending business. It began its operations through the initial share capital from shares at Php 100.00 per share. The money was then kept in the bank to earn interest. Only a sufficient amount in the petty cash fund is maintained which would be used in purchasing goods to be sold in the Consumer store. Checks are issued in the Lending or MicroFinancing business of the cooperative after proper authorization of the Board of Directors. The Consumer Store The Consumer store of the EMPC is considered as the minor business of the cooperative having an estimated cost of capital of Php 50,000.00. Transactions involve purchasing and selling of goods which would include snacks, canned goods and other grocery items. The store has one employeethe store custodian, Madelin Ramos who is in-charge of purchasing the goods to be sold and in the managing and selling of such to customers. 1. Disbursement Cycle The money to be used in purchasing goods would come from the petty cash fund. For the petty cash fund to be established, a petty cash fund request is to be created by the treasurer which will be passed to the

10

Board of Directors for approval. Upon approval, the treasurer would then process the checks, let the signatories sign it and finally issue it to the store custodian together with the disbursement voucher. See Appendix 4 for a sample voucher. The other copy of voucher is to be kept for filing purposes. After which, purchasing of goods to be sold would take place. It is usually done every Saturday. The receipt from purchases would then be kept and filed. This is illustrated in Figure 2. 2. Revenue Cycle The Consumer store of EMPC would cater to the needs of all customersbe it employees or outsiders. The prices of goods available for sale are generally similar to that of other stores. The only difference is that when employees purchase goods from the store, they would not need to pay for it in cash; rather the total selling price of the goods that they have acquired would be recorded by the store custodian and if not yet paid within the year, it would then be deducted from the dividend that the member should receive at year-end. Such records would then be compiled and updated by the bookkeeper. Illustration of such is in Figure 3.

11

TREASURER PCF Request

B.O.D. Evaluation and Approval of Request

STORE CUSTODIAN B

Voucher 1 Check

Approved PCF request

Approved PCF request

Purchasing of Inventory

Check

Voucher 1 2

Official Receipt

N a B Figure 2: CONSUMER STORE DISBURSEMENT CYCLE

11

12

Store Custodian

Selling

Cash sale?

Yes

End

No Recording of Credit Sales

List of Credit Sales

Bookkeeper

Updating Records

Updated Records

Figure 3: CONSUMER STORE REVENUE CYCLE

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3. Collection Cycle Since the selling of goods can be in cash or on account, the amount received should be classified as to its mode. If the cash received is from a cash sale, it would be immediately kept whereas if the amount collected came from a member of the cooperative who has a credit account, such collection would be listed first. Afterwards, the list would be forwarded to the bookkeeper who will update the members credit record. As illustrated in Figure 4. The Lending Business The other business of the EMPC is the lending and microfinancing. The organization considers this as their major business because such uses a larger amount of money as compared to the Consumer store. Lending of money is exclusively for the members of the said organization only. To be able to become members of EMPC, each applicant must submit his or her written membership application which would then be subject for approval by the Board of Directors. In addition to that the applicant must undergo Pre-Membership Education Seminar (PMES) which would give the applicant sufficient information about the organization and its rules and regulations. A membership fee is

necessary to be paid and the member should have an initial capital for-at least one thousand pesos (Php 1, 000.00).

14

Store Custodian

Collection

From Cash Sale?

Yes

End

No Listing of Collection sssssssss

List of Credit Collections

Bookkeeper

Update Credit Records

Updated Records

Figure 4: CONSUMER STORE COLLECTION CYCLE

15

There are two types of loan which could be applied by the members of the cooperative. First of which is the regular loan which would be available one month after the approval of the applicants membership by the Board of Directors. The member can avail loan which is equivalent to twice of the par value of his share in capital stocks. However, such amount should not exceed seventy-five thousand pesos (Php 75, 000.00). There is a monthly interest of one percent (1%) which is deductible in advance. There would be a service charge of ten pesos (Php 10.00) for the first one thousand pesos (Php 1, 000.00) and five pesos (Php 5.00) for the succeeding thousand of the gross amount. The loan is renewable if the borrower had paid at least 50% of his or her previous loan. Rebates could be granted upon full payment two months before the maturity date, however a member who does not pay his or her monthly amortization regularly and has underpayments cannot avail rebates. There would be penalty for overdue loans for an amount of thirty-five centavos (Php 0.35) per day. In cases when the borrower has no payments for three

consecutive months, the management will send a demand letter and for six (6) months in above the borrower call his or her attention for a board dialogue. The other type of loan which a member could avail is the enhancement loan which would be available one month after the approval of the applicants membership by the Board of Directors. An amount of Php 10, 000.00 to Php 20, 000.00 can be availed as a loan

16

which is payable in six (6) months with two percent (2%) monthly interest. The loan is renewable if the member has already paid half of the previous loan. A penalty of thirty-five centavos (Php 0.35) a day is to be imposed for overdue loans. 1. Disbursement Cycle Members of the cooperative who would want to avail any of the aforementioned type of loans would submit an application form which would then be subject for assessment of the Credit Committee. See Appendix 5. The assessed loan and application form would then be subject for the approval of the Board of Directors. After which, the

treasurer would then prepare and issue check and vouchers. The check and the first copy of the voucher would immediately be given to the member who applied for loan and the other copy would be filed. As illustrated in Figure 5. 2. Collection Cycle If there is a cash collection, the treasurer would issue a receipt to the member of the cooperative who paid with another copy to be filed to update the individual record of each member with credit account. See Appendix 6a and 6b for the sample loan ledger and members account verification sheet. The amount of money collected would then be deposited to the bank which would result to an updated passbook.

17

MEMBER

CREDIT COMMITTEE

B.O.D

Application Form

Assessment of Loan

Application Form Assessed Loan

Approval of Loan

Voucher Check

Is it Yes approved?

Yes

No End Figure 5: LENDING DISBURSEMENT CYCLE

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TREASURER

BOOKKEEPER

Preparation & Issuance of Check

2 Voucher Check 1

Updating & Recording

Updated Records

Voucher 2

B C

Figure 5: LENDING DISBURSEMENT CYCLE

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If on the other hand, no cash payment was made by the member of the cooperative who has a loan, the bookkeeper would provide a list of monthly amortization to the DAR Personnel who would then be in-charge of deducting the amortized amount with the salary of the employee. This is illustrated in Figure 6. General Disbursement Cycle The member or the store custodian who needs a certain amount of money would let the treasurer know their necessity through oral communication. The treasurer will then assess if the desired

disbursement of the member or store custodian would involve large amount of money. If it does not, then the treasurer will prepare and issue checks and vouchers. The check and first copy of the voucher would then be given to the one who request for disbursement and the second copy of the voucher would be retained and filed. If the amount desired for disbursement would involve large amount of money, the treasurer would prepare a disbursement request which would be forwarded to the Board of Directors for evaluation and approval. After which the treasurer would prepare and issue the necessary documents such as the check and vouchers. This is illustrated in Figure 7.

20
Treasurer

Collections

Is collection in cash?

Yes
Receipt 1

No
Bookkeeper Member

Computation of Monthly Amortization

2 List of Monthly 1 Amortization

DAR Personnel

Updating Records

Updated Records

List of Monthly 1 Amortization

Figure 6: LENDING COLLECTION CYCLE

21

MEMBER

TREASURER

Preparation of Disbursemen t Request

Large Amounts?

YES

Reporting of Necessary Disbursements

NO Preparation and Issuance of Check

B 2 Voucher Check 1 Voucher 1 Check B N

Figure 7: GENERAL DISBURSEMENT CYCLE

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TREASURER
Disbursement Request

B.O.D. Evaluation and Approval

Figure 7: GENERAL DISBURSEMENT CYLE

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Investment and Financing All money received is immediately deposited to the bank to earn interest. In cases when there is a need to purchase equipment or to make an investment, the amounts required for such would be evaluated. If the necessary fund would be minimal, the decision as to its acquisition is left to the management. However, if the desired equipment or investment would involve large amount of money, such would be subject for the approval of the Board of Directors. The Payroll Cycle EMPC has only one employee who is the store custodian. The store-custodian is the only person whose salary is being accounted for in their payroll. The net pay is computed in the same manner as an ordinary employees salary is computed. There are also benefits such as SSS, HDMF and PhilHealth. Other persons to be seen in the organizational chart are members of the cooperative and are therefore stockholders. They would receive an honorarium and dividends at the end of the year based on their investments in the Capital stock. The dividends that would be distributed to them would include interests from the amount invested in bank accounts and amounts called surplus which would be the amount from the Consumer store and interest to be gained from the Loans granted by the cooperative.

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Security of Assets and Documents Assets are routinely checked and monitored. Assets are also immediately repaired upon determination that it is not functioning properly. Minor repairs would be subject to approval of management whereas major repairs and replacement would be subject to approval of the Board of Directors. Documents on the other hand are kept and are provided with back-up copies to ensure security.

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Chapter 3 STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS After the conduct of certain procedures such as providing of questionnaire, interview and observation in the workplace, certain conditions have been noted and such were classified into four categories namely the strengths, weaknesses, opportunities and threats. See table 3 for the matrix. Table 3: S.W.O.T. Analysis Matrix Strengths Strict adherence to statutes and codes. Powers and limitations of each member and officer were communicated to them. All signatories namely the manager and the treasurer in are duly authorized by the Board of Directors. Bank accounts were in the name of the organization and all large monetary amounts require immediate recording and greater level of authorization. All documents in the Lending business were kept for filing and verification purposes. Bank reconciliations were carefully prepared and were monitored. The vouchers and checks were pre-numbered. Recommendations Maintain. Maintain.

Maintain.

Maintain. Maintain. Maintain. Maintain.

26

Deposits were made daily whenever there is a collection of loan. Signed checks were mailed promptly or given immediately by whoever signed the check. Requests for reimbursement and other invoices were checked for mathematical accuracy and reasonableness before approval. There was a password for the applications used in storing information in computers. Computer applications were logged-off when the user is away from the terminal or PC. Back-up disks were maintained of all critical information. The assets were routinely checked and monitored. Assets were immediately repaired upon determination that it is not functioning properly. Assets were kept in a safe place. All checks and vouchers are pre-numbered and are used sequentially. Weaknesses

Maintain.

Maintain.

Maintain. Maintain.

Maintain. Maintain. Maintain.

Maintain. Maintain. Maintain.

Some of the documents of the cooperative were not updated such as the organizational structure. Does not have organizational chart that clearly defined the lines of authority and responsibility.

Maintain an updated version of the documents like the organizational structure. Provide an organizational chart that clearly defined the lines of authority and responsibility.

27

There was no master price list for the goods available for sale. There was no consumer store credit ledger for the credit purchases incurred by the members of the cooperative. Credit sales lack proper verification of the buyers or customers. For cash sales, there was no list for sales incurred. There was lack of segregation of duties in the Consumer store. The store custodian not supervised by someone who has a higher rank than him. Documents were located in different locations. The following were observed and were contradicting with the answers in the questionnaire: There were no gift acceptance and investment policies maintained and distributed. There were no job descriptions on file for each of the members of the organization. Documents were not kept in a safe place.

Provide a master price list for goods available for sale and place it in the Consumer Store for the customers to see. Provide a Consumer Store Credit Ledger for credit purchases. Verification or countersigning of recorded amount. Provide a logbook or secured notebook. Emphasize the segregation of duties in the manual. Manager must make surprise visits and observation of the store custodian. Compile documents in one area with other copies in another area. Read more carefully the questionnaire before answering. BOD must formulate such and communicate such to employees. Provide specific descriptions per job. Secure the file cabinet and place of storage of documents.

Opportunities Consumer store can have another outlet or have another branch. The lending business can be

Evaluate and execute.

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open to non-members provided that a higher interest rate would be implemented to their loan. Loan application to financing entities can easily be granted. Threats

Evaluate and execute. Evaluate and execute.

Theft of products Consumer Store.

in

the

Unauthorized persons may have an immediate access to confidential documents. Damage to the documents of the company due to raindrops from the roof and or mites.

Storage of products must have lock and must not be accessible to customers. Documents must be stored and filed by the Secretary. Secure the storage area of documents.

Strengths In the conduct of studying the internal control of EMPC, certain conditions have been taken into consideration and observation. Among which includes the positive sides of the cooperatives internal control or otherwise known as the strengths. An effective and efficient internal control mechanism, leads to a streamlined administrative organizational set up. Strict adherence to statutes, codes and manuals prescribed by the Board of Directors minimize the risk of errors and irregularities, besides helping in protecting resources against loss, wastages, abuse and mismanagement.

29

Based on the questionnaire, interview and observation that we have conducted, there was a strict adherence to statutes, codes and upto-date manuals. All signatories namely the manager and the treasurer in are duly authorized by the Board of Directors. The bank accounts in the BDO and Land Bank of the Philippines were in the name of the organization and all large monetary amounts require immediate recording and greater level of authorization. Amounts which are more than Php 10,000.00 need to be approved by the Board of Directors whereas amounts lesser than the stated amount would only be approved by the Treasurer. All documents in the Lending business were kept for filing and verification purposes which only proves that the Lending business of the cooperative have a strict control when it comes to documentation of transactions. Requests for reimbursement and other invoices were checked for mathematical accuracy and reasonableness before approval. Before any disbursement is made, the member should submit a request letter to the manager proposing a need to purchase such an item. If the manager approves the request, he will in turn pass it to the treasurer. Before the treasurer issues a check, he will evaluate first if the amount will exceed ten thousand pesos (Php 10,000.00) if so, he will turnover such request to the Board of Directors for approval. On the other hand, if the amount

30

is ten thousand pesos (Php 10,000.00) or below, the treasurer will just issue the check. Thus all things concerning the disbursement of large amounts and approval of the loan should be commended first by the Board of Directors. This will ensure the uniformity and will prevent any conflict that may rise. The governing board authorizes all bank accounts; check signers annually and immediately notify the bank of all the changes in authorized check signers. Signed checks are mailed promptly or given immediately by whoever signs the check and the check signer review the initial documentation supporting checks issued. With such, excessive outflow of money from the savings of the company is being prevented. The checks that are issued are prenumbered and are signed by the treasurer and countersigned by the manager after reviewing the initial documentation supporting the check before it is given to the employee. This is done in order to verify the completeness of the disbursement. In addition to that, proper

authorization can then be assured and fraud can therefore be avoided. For the safeguarding of assets, the assets were routinely checked and monitored. Assets were immediately repaired upon determination that it is not functioning properly. Assets were kept in a safe place. The cash sales that was generated from the transactions of the consumer store is kept in a secured storage until the employee who is the store custodian use it for the purchase of the merchandise and the

31

excess from the maintaining balance is promptly deposited to the bank. The receipt from the disbursement is kept by the employee to serve as an evidence of the expenditure. The listing of receipts is sent directly to those responsible for the general ledger, receivables and bank reconciliations. All receipts are compared to the duplicate bank deposit slip and are kept in a secure storage until deposit. More importantly, deposits are made by the treasurer who is independent of the accounting and cashiering functions. The collection of the amount borrowed from the lending business of the organization is assured since the members loan can be paid through cash and/or salary deduction, thus, ensuring the continuance of the business. Deposits are made daily whenever there is a collection of loan from the lending business of the organization. Persons authorized to approve expenditures are clearly identified namely head of the Credit Committee and the Treasurer. At the end of the month, bank reconciliations are prepared by the bookkeeper who is independent of the cash receiving and processing. This will reduce the possibility of the incurrence of any connivance among the personnel especially that such would possibly result to concealment of errors and fraudulent activities. Furthermore, this will certify that the book balance and bank balance are congruent with each other. It is also during this period that the disbursement lists initialed by

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the check signers are compared to the disbursement summary. In addition to that, all purchases will be reconciled to the monthly general ledger to if there is any material misstatement due to fraud or error exists. The computer that is used by the cooperative to record all its transactions have its password and the computer applications are logged off when the user is away from the terminal. This is done to avoid any unauthorized person to have an access with the important documents that are kept by the company, thus security of the documents could be assured. There are also back-up disks maintained for all the critical information in relation with the cooperative to support documents especially if the original papers are not available. Furthermore, the staff members are encouraged to save work frequently to avoid any loss of important information. Weaknesses Although, the internal control of the cooperative has several strengths, there are still loopholes which can immediately be identified upon observation of the practices and activities of the employees in the said organization. Certain weaknesses have been observed in the operation of the Consumer store of the cooperative.

33

The cooperative does not have organizational chart that clearly defined the lines of authority and responsibility. Thus, the

responsibilities of the personnel were not clearly segregated. In the Consumer store, it can be observed that there is no master price list for the goods available for sale to the customers. Aside from that, the employees of the Department of Agrarian Reform who at the same time are members of the cooperative were allowed to acquire goods on credit. The accumulated credits will be deducted from their dividends at the end of the year. The problem regarding the credit transactions is that there is no log book for those credit transactions. The consumer will just show the goods they acquired to the employee of the consumer store who will then, record the credit in a small sheet of paper by herself without anyone who will verify if such amounts are accurate and if such transaction really did exist. There were also times that the employee does not immediately record the credit if there were several consumers at the store. What if the employee has forgotten to record the credit? There is a tendency that there will be items which would not be recorded thus the balance of the debtor will be understated. With regard to the operation of the consumer store, the sole employee of the Consumer Store performs all the responsibilities ranging from the purchasing of stocks to the selling of such.

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Generally speaking, the primary weakness of the organization is the safekeeping of documents. Documents are very important in every business or establishment but based from the observation conducted, due importance to such documents is not properly observed by the cooperative. Documents which are supposed to be considered as very important by the business are treated as if it were just mere ordinary papers. The financial statements primarily are kept in a file cabinet in the Consumer Store which is a very accessible place. Anybody can have an access to those documents since such is just kept in a file cabinet that does not even have a lock. Moreover, the documents are not properly compiled. Some are at the store whereas others are kept at the office of the secretary. If some documents will be needed urgently, the secretary would not be able to determine its location immediately because as stated, the documents are scattered. Proper diligence on safekeeping the document is not observable. Some are even destroyed due to the improper keeping by the secretary or the store custodian. Other weakness that can be observed were that certain questions in the questionnaire were answered as yes whereas, based from observation and interview, such internal control procedure is not really implemented such as the following: There are no gift acceptance policies maintained and distributed.

35

There are no job descriptions on file for each of the members of the organization. Persons who are to approve expenditures are not clearly identified. There is no written investment policy. Documents are not kept in a safe place.

Opportunities Opportunities are more likely to be present in every organization depending on the situation in which the organization is in. For the EMPC, since it is a cooperative, there are only a few opportunities existing for it. Most of which are even just advantages of the internal control that the organization has been implementing. Based from the aforementioned strengths of the internal control of EMPC, certain opportunities have been spotted. One of which would be that the Consumer store can have another outlet or have another branch. This would likely increase the sales of the cooperative. In addition to that, the lending business can be open to nonmembers provided that a higher interest rate would be implemented to their loan. Thus, more loans can be granted and the cooperatives lending business can expand. Lastly, loan application to financing entities can easily be granted.

36

Threats Certain conditions might be out of the control of the entity. However, such conditions must be faced and eventually overcome by the entity. One of which is the threat of theft of products in the Consumer Store. Another threat would be unauthorized persons may have an immediate access to confidential documents since such documents were not kept in a secured storage area. Lastly, damages to the documents of the company due to raindrops from the roof and or mites.

37 Chapter 4 RECOMMENDATION

After evaluating the internal control of the EMPC, certain strengths, weaknesses, opportunities and threats were identified and were discussed. From such, recommendations may be formulated so as to further improve the existing internal control of the cooperative. The strengths identified should be maintained if it is not possible to be improved further. The opportunities on the other hand, should be taken by the cooperative as an advantage and therefore they should make the most of it to achieve its goals and to further improve the standing of the organization. With regard to the weaknesses, certain measures should be implemented by the cooperative to reduce such or to improve the current condition. The cooperative must maintain an updated version of the documents like the organizational structure. In addition to that, provide an organizational chart that clearly defined the lines of authority and responsibility. It is advisable that a supervisor would take responsibility in verifying the transactions of the employee-clerk. The manager should accompany the store custodian in purchasing of goods that are to be sold in the store. A proposed flowchart for disbursement in the Consumer Store for such is illustrated as Figure 8.

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TREASURER
PCF Request

B.O.D.
Evaluation and Approval of Request

STORE CUSTODIAN & MANAGER

B

Voucher Approved PCF request Check

Approved PCF request

Purchasing of Inventory

Voucher Check

2 Receipt N a

Figure 8: PROPOSED CONSUMER STORE DISBURSEMENT CYCLE

39

In cases wherein there are several customers in the store, the employee should not let anyone who purchased goods on credit or even in cash to move out of the vicinity of the store without the store custodian properly documenting such transaction by listing the amounts that are due. A proposed flowchart for the revenue transactions is illustrated as Figure 9.
Collections of payment from customers can come from cash sales and credit sales. If the collection came from the credit sales, it is advised that such would be recorded in the Customer Credit Ledger and is subject for countersigning by the member. This proposed collection cycle is illustrated by Figure 10. In addition to that, it is highly recommended that the Consumer store would have a Consumer Store Credit Ledger wherein all the accounts or credit purchases of the members would be listed and verified by the members themselves by signing on the amount which the employee will list. The format for such is illustrated as Figure 11. For the asset security of the cooperative, it is recommended that they dispose assets which are already fully depreciated and replace such with new ones so as to improve or maintain the efficiency and effectiveness of the employees in working with such. With regard to the safekeeping of documents of the cooperative, it is advised that the file should be well filed which would mean that it is classified according to date. In addition to that, it must be kept in a file cabinet with at least a lock to secure it from any unauthorized persons access. The documents must be kept in a safe place wherein only a few people, particularly the

40 authorized personnel would have access to it. The documents must also be filed together in one location with the back-up copies in another location so as to avoid misplacement as well as confusion as to the documents whereabouts when such would be needed.

41

Store Custodian

Selling

Cash sale?

Yes

End

No

Recording to Credit Ledger & Countersigning by Member

Updated Credit Ledger

Figure 9: PROPOSED CONSUMER STORE REVENUE CYCLE

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Store Custodian

Collection

From cash sale?

Yes End

No Recording to Credit Ledger & Countersignin g by Member

Updated Credit Ledger

Figure 10: PROPOSED CONSUMER STORE COLLECTION CYCLE

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EMANCIPATORS MULTI-PURPOSE COOPERATIVE San Fernando City, La Union Registration/Confirmation No.: CDADAG1721 TIN No.: 001-239-737 NV CONSUMER STORE CREDIT LEDGER Name: Date Credit Payment Balance Signature

Figure 11: PROPOSED CONSUMER STORE CREDIT LEDGER

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Chapter 5 CONCLUSION The management of the Emancipators Multi-Purpose Cooperative (EMPC) is responsible for establishing and maintaining adequate internal control over financial reporting. EMPCs internal control system was designed to provide reasonable assurance to the companys management and board of directors regarding the reliability of financial reporting, the effectiveness and efficiency of operations and compliance with laws and regulations. However, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. In the performance of the control procedures, errors can result from

misunderstanding instructions, mistakes of judgment, carelessness, or other personal factors. Control procedures which require segregation of duties can be circumvented by collusion. Similarly, control procedures can be circumvented intentionally by management. Over a period of time, with changing conditions, control procedures may deteriorate or become inadequate. The conduct of study with regard to the internal control of Emancipators Multi-Purpose Cooperative (EMPC) was facilitated by conducting certain procedures. The initial procedure conducted was the

45

providing of questionnaire to the knowledgeable and reliable member of the organization. Based from the questionnaire we believe that, as of February 17, 2011, the companys internal control was effective. However, further procedure such as interview and observation to confirm the validity and accuracy of the answered questionnaire reveals the following weaknesses in the companys internal control: There is no master price list for the goods available for sale. There is no consumer store credit ledger for the credit purchases incurred by the members of the cooperative. Credit sales lack proper verification of the buyers or customers. For cash sales, there is no list for recording of sales. There is lack of segregation of duties in the Consumer store. The clerk or employee is not being supervised by someone who has a higher rank than him. Documents are kept in a very accessible place, in such case, the Consumer store. Confidential manual information is not kept in a secured storage area. Documents are located in several different locations. Documents which are to be considered as primary documents are not being observed.

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Certain questions in the questionnaire were answered as yes whereas, based from observation and interview, such internal control procedure is not really implemented such as the following: There are no gift acceptance policies maintained and distributed. There are no job descriptions on file for each of the members of the organization. Persons who are to approve expenditures are not clearly identified. There is no written investment policy. Documents are not kept in a safe place. The authorization, processing, check signing,

recording and bank reconciliation functions is not clearly segregated. Investing activities of the organization rarely occurs.

In making the assessment of internal control, the student auditors used the Philippine Standard on Quality Control 1 (PSQC1) and Philippine Auditing Standard on Auditing 315. Because of the

weaknesses enumerated in the preceding paragraph, we believe that, as of February 17, 2011, the companys internal control was not effective.