EMPC Narrative

7/31/2019 EMPC Narrative

1/44

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


2/44

2

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.


3/44


4/44

4

Figure 1: ORGANIZATIONAL CHART

AUDIT ELECTION CREDIT EDUCATION

STORE

CUSTODIAN

TREASURER CASHIERAUDITORBOOKKEEPERSECRETARY

GENERAL

MANAGER

BOARD OF

DIRECTORS

COMMITTEES MANAGE-

MENT


5/44

7

Table No. 1: Names and Responsibilities of the Officers of theCooperative

POSITION RESPONSIBILITIES NAME

Board ofDirectors

Passed resolutions andpolicies

Provide decisions withregard to disbursements

Chairperson: SusimoAsuncion

Vice-Chairperson: ClaritaAlmoite

Directors:Librada SanchezMelchor DuraoRoberto BolaoenNestor Pagaduan

Editha RamoleteTranquilino TomacderRodolfo Balatero

Audit Committee Audit internal recordsand cash

Jocelyn SupsupLorie Capistrano

Credit Committee Process and assess loans Leovic AnchetaElizabeth MortaSeverino Pagaduan

EducationCommittee

Provide seminars toemployee and members ofthe organization.

Clarita Almoite

ElectionCommittee

Facilitates the election ofthe Board of Directors

Magdalena EspantoJoel Rimando

General Manager Manage managerial staff Rosmin Reyes

Secretary Take minutes duringBOD meetingsKeeps record of the office

Josephine Bernas

Treasurer Issue or deposit checks orcash to bank

Alma Montero


6/44

8

Bookkeeper Bookkeeping Luz Samera

Auditor Auditing financial

statements

Lora Daquep

Janet Mortela

Cashier Collection of payments

from lending business

Alma Montero

Store Custodian Purchases goods to be

soldSells products to

consumersLists amounts involved inpurchasing and selling of

goods

Madelin Ramos


7/44

9

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 Micro-

Financing 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


8/44


9/44


10/44

12

Yes

No

Figure 3: CONSUMER STORE REVENUE CYCLE

Store

Custodian

Cash

sale?

Bookkeeper

End

Selling

Updating

Records

Recording

of Credit

Sales

List of Credit

Sales

Updated

Records


11/44

13

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 micro-

financing. 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).


12/44

14

Yes

No

Figure 4: CONSUMER STORE COLLECTION CYCLE

Store

Custodian

Collection

From

Cash

Sale?

Update

CreditRecords

Listing of

Collection

List of Credit

Collections

End

BookkeeperUpdated

Records


13/44

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


14/44

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.


15/44

17

MEMBER CREDIT COMMITTEE B.O.D

Yes Yes

No

Figure 5: LENDING DISBURSEMENT CYCLE

Assessment

of Loan

Application

Form

B

Is it

approved?

End

B

Approval of

Loan

Application

Form

Assessed

Loan

Voucher 1

Check


16/44

18

TREASURER BOOKKEEPER

Figure 5: LENDING DISBURSEMENT CYCLE

Preparation& Issuance

of Check

B

B

Updating &

Recording

Voucher 2

C

Updated

Records2

Voucher 1

Check


17/44

19

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.


18/44

20

Yes

No

Figure 6: LENDING COLLECTION CYCLE

Treasurer

Is

collection

in cash?

Computation of

Monthly

Amortization

2

Updating

Records Updated

Records

2

Receipt 1

MemberBookkeeper

List of Monthly 1

Amortization

DAR

Personnel

Collections

List of Monthly 1

Amortization C


19/44

21

MEMBER TREASURER

YES

NO

Figure 7: GENERAL DISBURSEMENT CYCLE

Voucher 1

Reporting of

Necessary

Disbursements

Preparation and

Issuance of

Check

Preparation

of

Disbursemen

t Request

Large

Amounts?

2

Voucher 1

B

A

N

B

CheckCheck

B


20/44

22

TREASURER B.O.D.

Figure 7: GENERAL DISBURSEMENT CYLE

A

Evaluation

and Approval

Disbursement

Request

B


21/44

23

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.


22/44

24

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.


23/44

25

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 statutesand codes.

Powers and limitations ofeach member and officerwere communicated to them.

All signatories namely themanager and the treasurer inare duly authorized by theBoard of Directors.

Bank accounts were in thename of the organization andall large monetary amountsrequire immediate recordingand greater level ofauthorization.

All documents in the Lendingbusiness were kept for filingand verification purposes.

Bank reconciliations werecarefully prepared and weremonitored.

The vouchers and checkswere pre-numbered.

Recommendations

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.


24/44

26

Deposits were made dailywhenever there is a collectionof loan.

Signed checks were mailedpromptly or given

immediately by whoeversigned the check.

Requests for reimbursementand other invoices werechecked for mathematicalaccuracy and reasonablenessbefore approval.

There was a password for theapplications used in storing

information in computers.

Computer applications werelogged-off when the user isaway from the terminal orPC.

Back-up disks weremaintained of all criticalinformation.

The assets were routinelychecked and monitored.

Assets were immediatelyrepaired upon determination

that it is not functioningproperly.

Assets were kept in a safeplace.

All checks and vouchers arepre-numbered and are usedsequentially.

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.

Maintain.

Weaknesses

Some of the documents ofthe cooperative were notupdated such as theorganizational structure.

Does not have organizationalchart that clearly defined thelines of authority andresponsibility.

Maintain an updated versionof the documents like theorganizational structure.

Provide an organizationalchart that clearly defined thelines of authority andresponsibility.


25/44

27

There was no master pricelist for the goods available forsale.

There was no consumer storecredit ledger for the creditpurchases incurred by themembers of the cooperative.

Credit sales lack properverification of the buyers orcustomers.

For cash sales, there was nolist for sales incurred.

There was lack of segregationof duties in the Consumer

store. The store custodian not

supervised by someone whohas a higher rank than him.

Documents were located indifferent locations.

The following were observedand were contradicting withthe answers in the

questionnaire:

There were no giftacceptance and investment

policies maintained anddistributed.

There were no jobdescriptions on file for eachof the members of theorganization.

Documents were notkept in a safe place.

Provide a master price list forgoods available for sale andplace it in the ConsumerStore for the customers tosee.

Provide a Consumer StoreCredit Ledger for creditpurchases.

Verification or countersigningof recorded amount.

Provide a logbook or securednotebook.

Emphasize the segregation ofduties in the manual.

Manager must make surprisevisits and observation of thestore custodian.

Compile documents in onearea with other copies inanother area.

Read more carefully thequestionnaire before

answering.

BOD must formulatesuch and communicate

such to employees.

Provide specificdescriptions per job.

Secure the file cabinetand place of storage ofdocuments.

Opportunities

Consumer store can haveanother outlet or haveanother branch.

The lending business can be Evaluate and execute.


26/44

28

open to non-members

provided that a higherinterest rate would beimplemented to their loan.

Loan application to financingentities can easily begranted.

Evaluate and execute.

Evaluate and execute.

Threats

Theft of products in theConsumer Store.

Unauthorized persons mayhave an immediate access to

confidential documents. Damage to the documents of

the company due toraindrops from the roof andor mites.

Storage of products musthave lock and must not beaccessible to customers.

Documents must be storedand filed by the Secretary.

Secure the storage area ofdocuments.

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.


27/44

29

Based on the questionnaire, interview and observation that we

have conducted, there was a strict adherence to statutes, codes and up-

to-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


28/44

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 pre-

numbered 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


29/44

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


30/44

32

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.


31/44

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.


32/44

34

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 anddistributed.


33/44

35

There are no job descriptions on file for each of the membersof the organization.

Persons who are to approve expenditures are not clearlyidentified.

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 non-

members 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.


34/44

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.


35/44

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.


36/44

38

Figure 8: PROPOSED CONSUMER STORE DISBURSEMENT CYCLE

TREASURER B.O.D. STORE CUSTODIAN & MANAGER

PCF

Request

Approved PCF

request

Approved PCF

request

Evaluation

and

Approval of

Re uest

N

A

A

NB

B

Purchasing

of Inventory

Receipt

Voucher 1

Check

2Voucher 1

Check


37/44

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


38/44

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.


39/44

41

Yes

No

Figure 9: PROPOSED CONSUMER STORE REVENUE CYCLE

Store

Custodian

Cash

sale?

Recording to

Credit Ledger &

Countersigning

by Member

Updated

Credit

Ledger

End

Selling


40/44

42

Yes

No

Figure 10: PROPOSED CONSUMER STORE COLLECTION CYCLE

Store

Custodian

From

cash

sale?

Recording toCredit Ledger

&

Countersignin

g by Member

Updated

Credit

Ledger

End

Collection


41/44

43

EMANCIPATORS MULTI-PURPOSE COOPERATIVESan Fernando City, La Union

Registration/Confirmation No.: CDADAG1721TIN No.: 001-239-737 NV

CONSUMER STORE CREDIT LEDGER

Name:

Date Credit Payment Balance Signature

Figure 11: PROPOSED CONSUMER STORE CREDIT LEDGER


42/44

44

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


43/44

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, theConsumer store.

Confidential manual information is not kept in a secured storagearea.

Documents are located in several different locations. Documents which are to be considered as primary documents are

not being observed.


44/44

46

Certain questions in the questionnaire were answered as yeswhereas, based from observation and interview, such internal

control procedure is not really implemented such as the following:

There are no gift acceptance policies maintained anddistributed.

There are no job descriptions on file for each of themembers of the organization.

Persons who are to approve expenditures are notclearly 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

ofFebruary 17, 2011, the companys internal control was not effective.