Savings and Credit Cooperative Societies (Sacco) external Annual Audits are a standard practice undertaken by all Saccos in Kenya whether Deposit Taking or Non-Deposit Taking.
This routine has gone on for a long time but in most cases, External Audit has not yielded the necessary and much anticipated benefits to various Saccos. Good external audit depends most often on the attitude of the Management and Board members towards External Audit and their willingness to objectively appoint a Competent Auditor and interact with the Auditor to implement the recommendations.
SACCO management can leverage good audits to improve the efficiency, governance and performance of their Saccos and make the most out of the audits. The following are some of the areas of good external audits and how SACCOs in Kenya can leverage effective audits to enhance the efficiency, governance, and overall performance of their entities.
Key Aspects of Effective Audit for SACCOs in Kenya:
- Effective Audit of SACCO Loan Books (40-50% of Audit Time)
Most often, this audit should take 40-50% of the total audit time. Critical areas of Loan audits are as follows, accuracy in the Loan loss provisioning, credit processes and procedures, system configurations for various accruals of Interest Income and receivable and various journals and adjustments recorded in the Loan Book that may signal risk of Misstatements.
- Audit of Member Savings
Member savings represent a significant liability in Saccos’ financial statements. The audit should focus on detecting any misstatements in member balances to maintain the integrity of financial records. A transparent audit of member savings fosters trust among SACCO members and ensures accurate
financial reporting. Back office Savings (BOSA) and Front office Savings (FOSA) should adequately be examined to ascertain that all member Contributions are tallied to the Banks and the Cashbook and that the same collaborates with the Member register.
- Audit of IT General Controls and Systems
Auditors should assess inherent risks within the SACCO’s IT function, with special attention to the control environment. This ensures the integrity of IT systems, safeguarding sensitive member information and financial data. A review of the user access rights and the transactions undertaken by every user who collaborates with the job Description is important to ensure that there is no misuse of their rights. A good audit should incorporate IT expertise to examine this important area.
- Review of Governance Framework & Leadership
Governance and leadership are integral to SACCO management. Auditors should identify any issues or gaps in governance structures and leadership, providing recommendations for improvement. Addressing governance issues enhances the overall performance of the SACCO and ensures alignment with regulatory requirements. The Related Party transactions should thoroughly be examined to mitigate the risk of unauthorized Related Party transactions.
- Compliance with Laws & Regulations
Compliance is paramount for SACCO operations. Annual audits should thoroughly review compliance with regulatory guidelines and tax regulations. Auditors play a key role in ensuring SACCOs adhere to legal and regulatory requirements, safeguarding their reputation and fostering a culture of compliance. Key areas of Compliance will be and not limited to Compliance with Prudential ratios, Compliance with Tax Laws, Labour laws, Anti-money laundering, Data Protection Laws among others.
Effective audits for SACCOs in Kenya go beyond routine financial checks, delving into critical areas such as loan portfolios, member savings, IT controls, governance, and regulatory compliance. By allocating adequate time and attention to these aspects, auditors can significantly contribute to the improvement of governance and performance in SACCOs, ultimately fostering financial stability and sustainable growth.
CPA Ronald N. Bwosi. Group Managing Partner, Ronalds LLP.
+254 717 558 212 | info@ronalds.co.ke
Web: www.ronalds.co.ke | Email: clientrelations@ronalds.co.ke | Location: 136 Manyani East Road, off Waiyaki Way
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