1. SASRA REQUIREMENTS AMONG THE DTS ICPAK WORKSHOP - MOMBASA
Presented on
6th February 2017 at Naivasha

2. Legal requirements for Auditors.
Previously not covered by the Cooperative societies Act and hence the practices differed from one sacco to another.
The sector thus lobbied for Sacco specific Act depending on where they were in Sacco development continuum (Sacco theories- Agency theory, stewardship theory, degeneration theory)
Sacco societies Act section 44 and 45 expressly provides for external Auditors roles in deposit taking Saccos. It is further strengthened by regulation 56 of Sacco Regulations. Contents are:-
Sec 44 and 45 provides that Auditors are qualified as per Companies Act (CPA, ICPAK membership, etc)

3. Legal Requirements cont….
Approved by AGM
Appointed as such by the Authority and his role is:-
To make report to the Authority stating (a) The solvency of Sacco Society’s business and any other concern with respect to financial condition of the Society’s business. (b) Violation of prudential standards and ( c) any other contravention of this Act.
Regulation 56 further adds that:-
To communicate any evidence of irregularities or illegal acts that have been committed by the directors, employees or Sacco society itself
To inform the Authority if the Sacco is insolvent or that there is a significant risk to make it insolvent.

4. Legal Requirements cont….
To provide opinion if the Sacco has significant policies and manuals to safeguard the Sacco’s assets.
Thus what is the Relationship between Sasra and Auditors ( Police,strategic patners, bureaucratic govt officers, Indefferent professionals).
What is the Saccos Obligation to the Authority? Next Slide

5. SACCO SASRA REQUIREMENTS
Sacco to have an effective internal Auditor
Monthly returns on all important facets/ratios
Audited accounts( expected to be in harmony with returns) and inclusion of key audit matters
Management letters emphasizing on areas of Sacco system weaknesses and recommendations on how to correct them
All internal stakeholders trainings (Board, management, supervisory Board and other employees)
Keeping records and relevant policies guiding employees on all critical areas.

6. SACCO REQUIREMENTS CONT…
Declaration on insider lending on monthly basis
Auditors appointments on yearly basis and the changes after every three years.
Approval seeking on branches and satellite stations
Approval seeking on new loan products
Approval of Audited accounts among others.

7. Current Situation
Auditors doing professional work and very proud of their work – A class e.g auditors who stated all the clients weaknesses in a management letter.
Auditors who are indifferent to the Saccos situation provided they are paid (normally work to please the client)
Auditors who collude the client to provide erroneous information.

8. Sources of information on quality of Audit
Offsite Surveillance
Onsite Surveillance
Third party evidence - Written
Internal stakeholders – Employees, Board, supervisory Com and ordinary members.

9. Other Sasra Data Sources
Returns:
The primary source of data is from regulatory returns submitted to the Authority either on monthly or quarterly or annual basis. These include:
Monthly returns:
Capital adequacy (Form 1)
Liquidity (Form 2)
Deposit Return (Form 3)
Statement of financial position (Form 6)
Statement of Comprehensive income (Form 7)

10. Other Sources of Data cont…
Quarterly Returns
Loan Asset and risk classification return(form 4)
Investment return (form 5)
Annual Returns
Audited financial returns for other years
Other disclosures (form 8)

11. 1. Introduction
The Authority is mandated to monitor financial condition of the deposit-taking Saccos through predefined indicators namely:
Capital adequacy
Asset quality
Earnings and
Liquidity
Data is collected on a monthly, quarterly and annual basis to carry out both financial and qualitative analysis.
The Authority also conducts onsite inspection on Sacco’s identified through offsite risk-based analysis and complemented by member complaints.

12. 2. OTHER SOURCES OF DATA CONT’D
2.2 Management reports:
Board minutes
AGM minutes
Strategic /Business plan
Product /new branch study reports
Economic reports
Audited financial statements
Supporting schedules e.g. loan listings, deposit listing etc.

13. 3. STABILITY INDICATORS Regulatory Standards Audited Accounts
Regulatory Standards
Audited Accounts
Unaudited Dec 2016
2013
2014
2015
A. CAPITAL ADEQUACY
Core Capital (Millions)
Min. Kshs. 10M
26,850
33,252
41,732
58,174
Core Capital/Total Assets
Min. 10%
7.74%
11.20%
12.17%
14.80%
Core Capital/Total Deposits
Min. 8%
10.90%
16.40%
17.57%
21.33%
Institutional Capital/Total Assets
Min.8%
2.84%
5.42%
8.75%
8.66%
B. ASSET QUALITY
Non Performing Advances(30) (Milllions)
8,902
13,098
13,218
13,712
Gross Advances (Millions)
188,597
228,524
258,264
291,677
NPL/Gross Advance
Max. 5%
4.72%
5.73%
5.12%
4.70%
Earning Assets to Total Assets
82.62%
79.45%
80.54%
75.63%
C. EARNINGS RATING
Return on Assets(ROA)
2.32%
2.56%
1.87%
2.6%
Cost Income Ratio
65.38%
65.04%
66.76%
80.51%
Operating Expense Ratio
4.87%
4.49%
5.13%
34.81%
D. LIQUIDITY RATING
Liquidity Ratio
Min. 15%
7.76%
47.32%
56.01%
50.87%
External Borrowing/Total Assets
Max. 25%
6.23%
6.43%
5.31%
5.14%
Liquid Assets/Total Assets
10.93%
9.99%
11.89%
9.39%
Gross Loans/Total Deposits
108.06%
110.95%
108.74%
106.94%

14. 3. Sacco Sub-sector Growth Indicators
Status
2013
2014
2015
Dec 2016*
Total Assets
DTS
241,621
301,537
342,959
393,136
Non-DTS
73,486 -
Total
315,107
Deposits
172,526
205,974
237,512
55,021
227,547
272,749
Loans
184,538
223,230
251,161
291,677
56,496
241,034
TurnOver
33,715
39,339
48,220
52,730
7,611
41,326
Membership
2,612,250
3,008,497
3,145,565
3,456,975*
472,276
3,084,526

15. Data Analysis - Consequences
The Trend especially in the stability
Sharp fluctuations – what caused it?
Consequences
More clients to some auditors
Possibility of blacklisting auditors ?
Conflict among members of the same profession – the opinion of the previous audit vs current one?
Likelihood of a litigation?

16. 4. Challenges in monitoring Financial Stability
Resource contraint
Lack of computerized data analysis system
Financial resources for onsite inspection
Data quality:
weak internal and accounting controls
Inadequate and ineffective MIS controls
Historical financial mismanagements:
Reporting of Material unreconciled assets and liabilities
Creative accounting
Weak governance systems
Lack of clear role separation between board and Management staff
Management incompetency

17. Stop!