Chapter 2

INTERNAL CONTROL AND COMPANY BUSINESS OPERATIONS

The objectives of business organizations include profitability,

stability, efficiency of operations, growth, compliance to different laws

and regulations set by the government and others. However, there are

circumstances that hinder the achievement of these goals which include

internal and external factors such as fraud, inflation, changes in

economic condition, and other more. That is why, as much as possible,

the company should be able to lessen these risks in order to finally

realize its objectives.

Therefore, the company should formulate and establish certain

policies, rules and procedures that can prevent or if not, reduce these

risks. The company should efficiently and effectively implement its

internal control system, for it helps the company in achieving its

objectives.

I. Internal Control

Internal controls are systematic measures instituted by an

organization to conduct its business in an orderly and efficient manner,

safeguard its assets and resources, deter and detect errors, fraud, and

theft, ensure accuracy and completeness of its accounting data,

produce reliable and timely financial and management information, and

ensure adherence to its policies and plans. It includes five components

that support an organization in achieving its objectives namely: Control

Environment, Risk Assessment, Information and Communications,

Control Activities and Monitoring.

Emancipators Multi Purpose Cooperative has recognized the

integral role of internal controls in the companys success. As such, its

Board of Directors implements and maintains policies and environments

that promote transparency and accountability and deter fraudulent

activities that can possibly occur within their processes through its

internal control system which is divided into five components as stated

above.

A. Control Environment
Control Environment is the set of standards, processes, and

structures that provide the basis for carrying out internal control across

the organization. The board of directors and senior management

establish the tone at the top regarding the importance of internal control

including expected standards of conduct.

 There are different components of the control environment of

Emancipators Multi- Purpose Cooperatives. It encompasses the

Companys Objectives, Policy-Making Body, Audit Committee,

Organizational Structure, Personnel Policies and General Policies.

Companys Objectives
Emancipators Multi Purpose Cooperatives primary

objective is to help improve the quality of life of its members and

furtherance thereto shall aim to attain increased income, savings,

investments, productivity, and purchasing power, and promote

among themselves equitable distribution of net surplus through

maximum utilization of economies of scale, cost-sharing and risk-

sharing. It aims to provide optimum social and economic benefits

to its members, teach them efficient ways of doing things in a

cooperative manner and propagate cooperative practices and new

ideas in the business and management. Emancipators Multi

Purpose Cooperative aims also to allow the lower income and less

privileged groups to increase their ownership in the wealth of the

nation as well as to actively support the government, other

 cooperatives and people-oriented organizations in promoting

cooperatives as a practical means towards sustainable socio-

economic development under a truly just and democratic society.

Lastly, it aims to institutionalize a dynamic savings mobilization

and capital build-up schemes to sustain its developmental

activities and long-term investments, thereby ensuring optimum

economic benefits to the members, their families and the general

public.

Policy-Making Body
Emancipators Multi Purpose Cooperative has its own Board

of Directors which is composed of the Chairman, Vice Chairman

and the five members. They are responsible for providing general

policy direction, formulating the strategic developmental plan and

determining the organizational and operational structure. The

Board of Directors establishes policies and procedures governing

the whole institution for the effective operation and ensures

proper implementation of such.

Audit Committee/External Auditor/Internal Auditor

The company has its own audit committee which is composed

of three members and whose power and duty is to monitor the

adequacy and effectiveness of the cooperatives management

control system and audit the performance of the cooperative and

 its various responsibility centers. They review continuously and

periodically the books of account and other financial records to

ensure that these are in accordance with the cooperative principles

and generally accepted accounting procedures.

On the other hand, the financial statement audit is done by

the External Auditor of Emancipators Multi Purpose

Cooperative.

Organizational Structure
The Emancipators Multi Purpose Cooperative has its defined

organizational structure that provides a framework for planning,

directing, and controlling the entitys operations.

Organizational Chart ( Shown in figure )

Duties and Responsibilities

The assignment of responsibility and authority of Emancipators

Multi Purpose Cooperative is properly stated in its By-laws. As for the

General Assembly which is composed of all the members entitled to vote,

its primary functions are to determine and approve amendments to the

cooperative Articles of Cooperation and By-laws as well as to elect or

appoint the members of the board of directors, and to remove them for

cause. The Board of Directors is responsible for the strategic planning,

direction-setting and policy-formulating activities of the cooperative. The

Audit Committee has the duty to continuously monitor adequacy and

effectiveness of the cooperatives management control system and audit

the performance of the cooperative and its various responsibility centers.

The Election Committee is responsible in formulating and implementing

election rules and guidelines duly approved by the General Assembly as

well as supervising the conduct, manner and procedure of election and

other related activities. The Education and Training Committee, on the

other hand, is responsible for the planning and implementation of the

information, educational and human resource development programs of

the cooperative for its members, officers and the communities within its

area of operation. The Mediation and Conciliation Committee has the

duty to formulate and develop the Conciliation-Mediation Program and

ensure that it is properly implemented. The Ethics Committee is

responsible in developing Code of Governance and Ethical Standard to be

observed by the members, officers and employees of the cooperative

subject to the approval of the BOD and ratification of the GA. The Credit

Committee function is to process, evaluate and act upon loan application

and withdrawals of deposits, except when the applicant is a member of

the committee. In which case, the application shall be acted upon by the

Board of Directors. It must also exercise general supervision including

collection over all loans to members.

 The officers of the cooperative which include the Members of the

Board of Directors, Members of the different committees, general

manager, secretary, treasurer and members holding other positions shall

serve according to the functions and responsibilities of their respective

offices as follows:

a. Chairman
The Chairman sets the agenda for the board meetings in

coordination with the other members of the BOD and signs

contracts, agreements, certificates and other documents on behalf

of the cooperative as authorized by the BOD or by the GA.

b. Vice Chairman
The Vice Chairman performs all the duties and responsibilities

of the Chairman in the absence of the latter and other duties as

may delegated by the BOD.

c. Treasurer
The treasurer ensures that all cash collections are deposited in

accordance with the policies set by the BOD. He has the custody of

all funds, securities, and documentations relating to all assets,

liabilities, income and expenditures.He monitors and reviews the

financial management operations of the cooperative, subject to

 such limitations and control as may be prescribed by BOD. He also

maintains full and complete records of cash transactions as well as

a Petty Cash Fund and Daily Cash Position Report.

d. Secretary
The Secretary keeps an updated and complete registry of all

members Record, prepares and maintains records of all minutes of

all meetings of the BOD and the GA. He ensures that necessary

BODSs actions and decisions are transmitted to the management

for compliance and implementation. He prepares and issue Share

Certificates. He also keeps copy of the Treasurers report, Share

and Transfer Book and other reports and serves as a custodian of

the cooperative seal.

e. General Manager

The General Manager is the one who oversees the overall day-

today business operations of the cooperative by providing general

direction, supervision, management and administrative control over

all the operating departments subject to such limitations as may be

set forth by the BOD or the GA. He provides and submits to the BODs

monthly reports on the status of the coops operation vis--vis its

target and recommends appropriate policy or operational changes, if

necessary. He also represents the cooperative in any agreement,

contract, business dealings, and in any other official business

transactions as may be authorized by the BOD.

f. Cashier
The cashier, who shall be under the supervision and control of the

general manager, handles monetary transactions, receives or collects

payments and deposits, is responsible for money received and

expended and prepares reports on money matters.

g. Accountant
The accountant of the cooperative, under the supervision and

control of the general manager renders reports on the financial

condition and operations of the cooperative monthly, annually or

as may be required by the BOD or the GA. He provides assistance

to the BOD in the preparation of annual budget keeps, maintains

and preserves all book of accounts, documents, vouchers,

contracts and other records concerning the business of the

cooperative and make them available for auditing purposes to the

chairman of the Audit Committee.

e. Bookkeeper

The bookkeeper, under the supervision and control of the

accountant, records and updates books of accounts as well as

 provides assistance in the preparation of reports on the financial

condition and operations of the cooperative monthly, annually or as

may be required by the BOD or the GA

Personnel Policies
A core management team composed of a manager, cashier,

bookkeeper, accountant and other position as may be necessary or as

provided for in EMPCs Human Resource Manual shall take charge of

the day-to-day operations of the cooperative. As such, the Board of

Directors provides policies with regards to appointing and

compensating its management team.

a. Appointment of Management Team

The members of the management team, except for the

cashier, were appointed by the Board of Directors considering the

following qualifications:
Must be familiar with the business operation of the

Cooperative in the case of the manager

Bachelors degree in accountancy must be required for the

Accountant, however, the Bookkeeper must be

knowledgeable in handling monetary transactions,

accounting, and bookkeeping

 Must have at least two (2) years of experience in Cooperative

or related business
Must not be engaged directly or indirectly in any activity

similar to the business of the Cooperative

Must not be convicted of any administrative, civil or criminal

case involving moral turpitude, gross negligence or grave

misconduct in the performance of his/her duties

Must be of good moral character
Must not have been convicted of any administrative, civil or

criminal case involving financial and/ or property

accountabilities at the time of his/her appointment

Must undergo pre-service and/ or in-service trainings

In hiring the cashier, the qualifications and requirements that

the company sets include:

Must be a college graduate preferably in line with a

business course
Must be knowledgeable in handling monetary

transactions
Must be of good moral character

b. Compensation

Any compensation given to Emancipators Multi Purpose

Cooperative directors and officers is subject to the approval of the

general assembly, the members of the Board of Directors and

Committees may, in addition to per diems for actual attendance to

board and committee meetings, and reimbursement of actual and

necessary expenses while performing functions in behalf of the

cooperative, be given regular compensation which is in the form of an

honorarium and is given semi-annually; Provided, further, that the

directors and officers shall not be entitled to any per diem when, if

the preceding calendar year, the cooperative reported a net loss or

had a dividend rate less than the official inflation rate for the same

year. On the other hand, the cashier receives just compensation every

end of the month.

General Policies
Competence with Integrity
Each appointed officer must be competent enough to

perform the duty assigned to him/her and at the same,

exude the qualities expected of a morally upright person.

Empowerment
The board of directors encourages members to voice out

their suggestion for the improvement of the cooperative.

Transparency
All transactions and procedures, except those classified

as confidential, must be shown to the public.

B. Risk Assessment
Risk is a threat to the achievement of a companys objectives

that is caused by external or internal vulnerabilities, and that may

be avoided through preemptive actions. For Emancipators Multi

Purpose Cooperative, the risks they are facing include credit risk

or the risk of default on a debt that may arise from a borrower

failing to make required payments. The cooperative is also subject

to inherent risk on the theft of their assets, especially cash.

However, the company have set certain policies in order to mitigate

these risks which include having a credit committee to review

borrowers credit worthiness as well as setting credit limit.