FINANCE & ACCOUNTING POLICIES & PROCEDURES MANUAL ©2021 PREPARED BY RESEARCH AND CONSULTANCY DEPARTMENT – KUSCCO LIMITED I BRAEMEG SACCO SOCIETY LIMITED PREAMBLE To ensure better internal monitoring controls, this manual is to be adhered to strictly as far as possible. Any deviations from the laid down procedures and controls must require authority from the Board. FINANCE & ACCOUNTING POLICY ii BRAEMEG SACCO SOCIETY LIMITED TABLE OF CONTENTS PREAMBLE ......................................................................................................................................................... II 1.0 OVERVIEW ................................................................................................................................................... 1 1.1 FINANCE/ACCOUNTING DEPARTMENT.................................................................................................................. 1 1.2 OBJECTIVES ..................................................................................................................................................... 1 1.3 PURPOSE OF THE MANUAL................................................................................................................................. 1 1.4 ACCOUNTING POLICIES ...................................................................................................................................... 2 1.4.1 Accounting Convention ...................................................................................................................... 2 1.4.2 Income ............................................................................................................................................... 2 1.4.3 Expenditure ........................................................................................................................................ 2 1.4.4 Fixed Assets........................................................................................................................................ 2 1.4.5 Fixed Assets Tag Numbers ................................................................................................................. 2 1.4.6 Taxation ............................................................................................................................................. 3 1.4.7 Currency of Account ........................................................................................................................... 3 2.0 SUMMARY OF PROCEDURES ..................................................................................................................... 4 2.1 3.0 PROCESS DESCRIPTIONS ........................................................................................................................... 5 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4.0 GENERAL LEDGER ............................................................................................................................................. 5 PETTY CASH BOOK ........................................................................................................................................... 5 PETTY CASH PROCEDURES.................................................................................................................................. 5 VARIANCE ANALYSIS ......................................................................................................................................... 5 LOOSE TOOLS .................................................................................................................................................. 5 TRAVEL .......................................................................................................................................................... 5 PROCUREMENT ................................................................................................................................................ 5 REPORTING ..................................................................................................................................................... 5 PAYROLL......................................................................................................................................................... 5 INDIRECT COSTS ........................................................................................................................................ 6 4.1 4.2 4.3 4.4 4.5 5.0 PURPOSE AND OBJECTIVES OF THE ACCOUNTING SYSTEM ......................................................................................... 4 CONTROL ACCOUNTS ........................................................................................................................................ 6 INTERFACE DESCRIPTION.................................................................................................................................... 6 SUMMARY OF PROCEDURES ............................................................................................................................... 6 THE GENERAL LEDGER....................................................................................................................................... 6 CASH BOOK PROCEDURES ................................................................................................................................... 6 PETTY CASH PROCEDURES ........................................................................................................................ 8 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 BUDGETING AND BUDGETARY CONTROLS.............................................................................................................. 8 FIXED ASSETS PROCEDURES ................................................................................................................................ 8 TRAVEL .......................................................................................................................................................... 8 PROCUREMENT OF GOODS AND SERVICES ............................................................................................................. 8 REPORTING ..................................................................................................................................................... 8 PAYROLL PROCEDURES ...................................................................................................................................... 9 INDIRECT COST RECOVERY SYSTEM ....................................................................................................................... 9 CONTROL ACCOUNTS ........................................................................................................................................ 9 6.0 RESPONSIBILITIES ................................................................................................................................... 10 7.0 PETTY CASH ............................................................................................................................................ 11 FINANCE & ACCOUNTING POLICY iii BRAEMEG SACCO SOCIETY LIMITED 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 8.0 DATA ...................................................................................................................................................... 14 8.1 8.2 8.3 9.0 POLICIES ....................................................................................................................................................... 11 PETTY CASH BOOK PROCEDURES ....................................................................................................................... 11 SUMMARY PETTY CASH PROCEDURES ................................................................................................................. 11 ACTIVITY PERFORMED BY ACCOUNTANT .............................................................................................................. 12 PETTY CASH PAYMENTS ................................................................................................................................... 12 MONTHLY PETTY CASH RECONCILIATION ............................................................................................................ 12 MAIN POLICY ................................................................................................................................................ 13 CASH PROCEDURES......................................................................................................................................... 13 POLICIES ....................................................................................................................................................... 14 DATA SECTION PROCEDURES ............................................................................................................................ 14 RECONCILIATION ............................................................................................................................................ 14 REFUNDS SECTION .................................................................................................................................. 15 9.1 9.2 9.3 10.0 10.1 10.2 10.3 10.4 10.5 11.0 11.1 12.0 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 13.0 13.1 13.2 13.3 14.0 14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8 14.9 14.10 POLICIES ....................................................................................................................................................... 15 PROCEDURES................................................................................................................................................. 15 ERRONEOUS DEDUCTIONS ................................................................................................................................ 15 MEMBERS PERSONAL ACCOUNTS ...................................................................................................... 16 POLICIES .................................................................................................................................................. 16 PROCEDURES ............................................................................................................................................ 16 DIVIDENDS AND INTEREST SECTION ............................................................................................................... 16 POLICY .................................................................................................................................................... 16 PROCEDURE OF DIVIDEND PAYMENT ............................................................................................................. 17 CHEQUE WRITING .............................................................................................................................. 18 POLICIES .................................................................................................................................................. 18 ACCOUNTS OFFICE.............................................................................................................................. 19 GENERAL LEDGER ...................................................................................................................................... 19 CHECK LIST OF THE MONTHLY TASKS ............................................................................................................ 19 MONTHLY ACTIVITIES ................................................................................................................................. 19 OTHER ACTIVITIES ..................................................................................................................................... 19 RECORDING EXPENDITURE PROCEDURE ......................................................................................................... 19 RECORDING RECEIPTS PROCEDURES ............................................................................................................... 20 TRIAL BALANCE PROCEDURES ...................................................................................................................... 20 YEAR END JOURNALS.................................................................................................................................. 20 NEW FINANCIAL YEAR ................................................................................................................................ 21 CASH BOOK ........................................................................................................................................ 22 CASH AND BANK PROCEDURES ..................................................................................................................... 22 BANK RECONCILIATION ............................................................................................................................... 22 MONTHLY PROCEDURE ............................................................................................................................... 23 PAYROLL ACCOUNTING ...................................................................................................................... 24 PURPOSE ................................................................................................................................................. 24 RESPONSIBILITIES....................................................................................................................................... 24 SUMMARY OF SYSTEM ................................................................................................................................ 24 FORMS USED ............................................................................................................................................ 24 DESCRIPTION OF PROCEDURES...................................................................................................................... 25 MASTER SALARY RECORDS .......................................................................................................................... 25 OVERTIME ............................................................................................................................................... 25 PREPARATION OF PAYROLL .......................................................................................................................... 26 APPROVAL OF PAYROLL .............................................................................................................................. 26 MONTHLY ACCOUNTING ENTRIES ................................................................................................................. 27 FINANCE & ACCOUNTING POLICY iv BRAEMEG SACCO SOCIETY LIMITED 14.11 15.0 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 15.9 15.10 15.11 15.12 15.13 16.0 16.1 16.2 16.3 16.4 16.5 PAYROLL SYSTEM ...................................................................................................................................... 27 STOCK ACCOUNTING .......................................................................................................................... 28 PURPOSE ................................................................................................................................................. 28 RESPONSIBILITIES....................................................................................................................................... 28 SUMMARY OF SYSTEM ................................................................................................................................ 28 FORMS USED ............................................................................................................................................ 28 DESCRIPTION OF PROCEDURES ..................................................................................................................... 29 RECORDING RECEIPTS TO STORES ................................................................................................................. 29 RECEIPT TO STORES – MONTHLY PROCEDURES ................................................................................................ 29 RECORDING ISSUES FROM STORES ................................................................................................................ 29 COSTING OF STORES ISSUES ......................................................................................................................... 30 ISSUES FROM STORES-MONTHLY PROCEDURES ............................................................................................... 30 PHYSICAL STOCK COUNTS............................................................................................................................ 30 OVERALL ORGANIZATION ............................................................................................................................ 30 STORES RECONCILIATION ............................................................................................................................ 31 ASSETS ............................................................................................................................................... 33 FIXED ASSETS ........................................................................................................................................... 33 CURRENT ASSETS....................................................................................................................................... 34 INVESTMENT ............................................................................................................................................ 35 FEASIBILITY STUDIES................................................................................................................................... 36 REPORTING REQUIREMENTS ........................................................................................................................ 37 17.0 MANAGEMENT INFORMATION RETURNS ........................................................................................... 38 18.0 CAPITAL EXPENDITURE ....................................................................................................................... 39 19.0 BASIC FRAME WORK OF BUDGETING ................................................................................................. 40 19.1 19.2 19.3 20.0 POLICIES .................................................................................................................................................. 40 PROCEDURES ............................................................................................................................................ 41 STEPS IN PREPARING OPERATING BUDGET ..................................................................................................... 41 APPROVAL OF POLICY ........................................................................................................................ 42 FINANCE & ACCOUNTING POLICY v 1.0 OVERVIEW 1.1 Finance/Accounting Department The Finance or Accounting Department has the responsibility of producing financial information which complies with co-operative society’s Act and adheres to international accounting standards as modified from time to time. The department shall achieve this through an integrated financial system capable of producing accurate, timely and reliable financial information which ensures efficient utilization of resources that gives prudent base for decision making. 1.2 Objectives The Objective of the Finance/Accounting Department is to achieve the following:1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 1.3 Maintain records that produce accurate and reliable reports. Produce analytical representation of financial information to enable management make timely and effective decisions (Liquidity ratios, Prudential Standards). Strengthen internal controls system of the society. Ensure efficient processing of financial transactions. Achieve integrated and computerized financial system capable of meeting the diversification of the society’s activities. Increase financial base of the society. Achieve maximum returns on members’ investments. Improve and offer efficient and effective credit Administration. Appraise the society’s need to clear with tax authorities. Explore other avenues for generating revenue. Purpose of the Manual The purpose of this Accounting & Finance Policies and Procedures Manual is to record and present in a single document all the accounting policies and procedures to be adopted by: ● ● ● ● ● Recording all financial transactions. Monitoring and controlling expenditure. Satisfy statutory reporting requirements. Ensure timely and accurate financial and management reporting. Sound accounting policies. An effort has been made to simplify procedures as much as possible to make the manual easy to use and update. 1 BRAEMEG SACCO SOCIETY LIMITED 1.4 Accounting Policies 1.4.1 Accounting Convention The accounts of the society are prepared under the historical cost convention as modified by revaluation of assets. No account is taken of the effect of changing prices. Day to day transactions are recorded at the monetary value of the transactions. 1.4.2 Income The Society’s income comprises interest, and trading income from various trading activities, which the society may decide to undertake from time to time. 1.4.3 Expenditure Expenditure comprises expenses incurred directly or indirectly from trading activities. These are recognized when they are incurred. Appropriate accruals are made for expenditure incurred and not paid for, at the year-end. 1.4.4 Fixed Assets Fixed assets for the society are defined as tangible or intangible assets, which are acquired with the intention of being used on a continuing basis for a period exceeding one year. All assets must be included in the society assets register. To facilitate proper financial and management control, fixed assets have been grouped into the following categories:1. Land and buildings 2. Computers and accessories 3. Software 4. Motor vehicles 5. Office equipment 6. Machinery 7. Office furniture and fittings 8. Loose tools Fixed assets should be stated at cost of purchase price. Purchase of fixed assets is treated like purchases/payments for reporting purposes. The Fixed Assets Register is maintained for control purposes only (Memorandum Account). 1.4.5 Fixed Assets Tag Numbers The tag for the computers and accessories, machinery, office equipment furniture and fittings will be based on the asset class and department. A four digit number tag will be used. The first digit will represent the asset class. The second digit will represent the department where the asset is located. The third two digits will be the number of the asset in the class. FINANCE & ACCOUNTING POLICY 2 BRAEMEG SACCO SOCIETY LIMITED For motor vehicles, the registration numbers will be sufficient. While for land and buildings the land reference number will be sufficient. 1.4.6 Taxation Provision is made for taxation payable as it is expected that the society will not be exempted from taxation. On acquisition of assets the society should always ascertain from the government the extent to which it is tax exempt. It is expected that the society will always enquire on the taxation status of any goods or assets it is purchasing and will apply to the Kenya Government to enjoy tax benefits, privileges or exemptions it may be entitled to. 1.4.7 Currency of Account The accounts of the society are presented in Kenya Shillings. FINANCE & ACCOUNTING POLICY 3 BRAEMEG SACCO SOCIETY LIMITED SUMMARY OF PROCEDURES 2.1 Purpose and objectives of the Accounting system The objectives of the society’s accounting system are:1) To record and classify all transactions accurately and completely 2) To maintain a complete record of all:● Revenue received ● Expenditure incurred ● The budget and budgetary controls ● Assets owned by the Society ● Liabilities to third parties 3) To report to the Management committee all financial information required 4) To prepare Financial reports (Annual Financial Statements and other periodic reports). FINANCE & ACCOUNTING POLICY 4 BRAEMEG SACCO SOCIETY LIMITED PROCESS DESCRIPTIONS 3.1 General Ledger Monthly totals of revenue, other receipts and expenditure on activities and other transactions relating to assets and liabilities shall be posted to the General Ledger as a basis of Preparation of Annual Accounts. 3.2 Petty Cash Book Recording cash transactions in the cash book and all petty cash control procedures. 3.3 Petty Cash Procedures This will involve recording petty-cash transactions in the petty cash book and all petty cash control procedures. The petty cash expenditure should be adequately prepared, checked and authorized. All expenditure should be supported and classified to cost centers. 3.4 Variance Analysis At the end of the period, a comparison shall be done of the budget and actual expenditure, using budget code on monthly and cumulative basis. Any exceptional expenditure shall be investigated and corrective action shall be done or disciplinary action taken against whomever is in charge of control of the expenditure. 3.5 Loose Tools Maintain manual records of all loose tools. Loose tools are items whose life is beyond 1 year and cost is less than 2,000/=. 3.6 Travel Recording transactions relating to travel which involves travel allowance, night outs, and all other expenditure involving out of station expenditures should be adequately supported by receipts and should be limited to the individual grade which is pre-determined and allowed in the budget. 3.7 Procurement For recording of transactions relating to procurement of goods and services, the procurement unit should adhere to the laid down procedures. The invoices should be supported by a requisition, purchase order, delivery note and goods received note. Before any purchase is authorized, it should be checked that the expenditure is adequately budgeted and there is availability of funds. 3.8 Reporting Preparation of monthly, quarterly and annual reports should be timely and accurate, immediate action should be undertaken without delay, and should clearly indicate which officer is responsible. 3.9 Payroll Recording transactions relating to employees’ emoluments, the payroll should maintain records regarding employees’ increment dates, leave days, travel allowance, any unaccounted imprest, advances to be recovered or any other financial penalties against employees. FINANCE & ACCOUNTING POLICY 5 BRAEMEG SACCO SOCIETY LIMITED INDIRECT COSTS These are expenses that cannot be apportioned to any particular activity. Computation of indirect costs should always be undertaken to ensure they are allocated to the necessary cost centre. The impact it has on the budget should be scrutinized to ensure that it was previously recognized and should not exaggerate the cost envisaged. 4.1 Control Accounts Recording of transactions between the inter units in the amalgamated account. 4.2 Interface Description FROM 1. Cash Book 2. Cash Book 3. Petty Cash 4. Petty Cash 5. Budget book 6. Cash book 7. Cash book 8. General Ledger 4.3 TO General Ledger Petty Cash General Ledger Budget General Ledger Fixed Assets Budget Monthly Financial Receipts and Expenditure Posting Replenishment of Petty Cash Receipts and expenditure Posting Expenditure posting Budget figures New purchases of fixed Assets Expenditure posting Preparation of reports And budget Reports Summary of Procedures The procedures presented in this manual are summarized below:4.4 The General Ledger The general ledger contains a summary of records of all transactions relating to the society’s assets, liabilities, members shares, revenue, and expenses. It is the backbone of the society’s accounting system as it holds financial and non-financial data for the organization. a) b) c) d) e) f) g) Recording expenditure Posting other payments Recording receipts Extracting a monthly Trial Balance Preparing year end journals Preparing/extraction of a year-end Trial Balance Reversing year-end accruals after close of the financial year. Note: A cash journal is a simple document that is used to make immediate accounting entries of both receipts and expenditures. 4.5 Cash book procedures a) Posting receipts to the cash book b) Preparing vouchers for payment c) Recording payments from vouchers to the cash book FINANCE & ACCOUNTING POLICY 6 BRAEMEG SACCO SOCIETY LIMITED d) e) f) g) Bank reconciliation Monthly procedures Imprest application Imprest accountability FINANCE & ACCOUNTING POLICY 7 BRAEMEG SACCO SOCIETY LIMITED PETTY CASH PROCEDURES ● ● ● ● ● 5.1 Recording petty cash book Advance payment from petty cash Replenish of petty cash Monthly procedures Petty cash controls Budgeting and Budgetary Controls ● ● ● ● ● ● 5.2 Fixed Assets Procedures ● ● ● ● 5.3 To prepare annual budgets To prepare operational budgets Recording the original (or revised) budgets Recording monthly expenditure in the budget book Obtaining activity approvals Economic reports (variance analysis) Recording opening asset balances Updating the asset register for additions Updating the asset register for disposals Performing periodic physical counts and verification of documents of title. Travel ● Preparation of proposed itinerary ● Authorization of imprest application ● Accounting for travel advances 5.4 Procurement of Goods and Services ● ● ● ● 5.5 Invitation of tenders/quotations Consideration and awarding of tenders/quotations Committing funds for contracts/LPO/ LSO Monitoring of contract performance Reporting ● ● ● ● Preparation of monthly reports Preparation of quarterly reports to the Board Preparation of final financial reports for each activity Preparation of quarterly, annual and final performance reports FINANCE & ACCOUNTING POLICY 8 BRAEMEG SACCO SOCIETY LIMITED 5.6 Payroll Procedures ● ● ● ● ● ● ● 5.7 Personal payroll records Overtime payments Salary advances Preparation of payroll Payment of salaries Part time employees Accounting entries Indirect cost recovery system ● Computation of provisional indirect cost rate. 5.8 Control Accounts ● Maintenance of inter unit account transactions records. FINANCE & ACCOUNTING POLICY 9 BRAEMEG SACCO SOCIETY LIMITED RESPONSIBILITIES Function General Ledger Cash book Petty cash book Budget and Expenditure Payroll Fixed Asset Reports FINANCE & ACCOUNTING POLICY Person Responsible For accounting duties For Approvals Head of Accounts General Head of Accounts General Accounts Assistant Accountant Accountant Accountant Accountant Accountant Internal Auditor Accountants Accountant Accountant Accountant C.E.O 10 BRAEMEG SACCO SOCIETY LIMITED PETTY CASH 7.1 Policies ● The Society may maintain petty cash float to cover sundry office expenses and members/ staff payments not exceeding Kshs100,000/- at the office which is paid by cash. ● Petty cash shall be maintained by the treasurer only. ● All petty cash shall be maintained independent of each other in case of more than one float. ● Petty cash fund shall be kept in a secured till. ● Access to the safe shall be restricted to the cashier only ● Responsibility for accounting for the petty cash balance shall rest with the cashier. ● Cheques for reimbursement shall be in the name of the cashier. ● In the event the cashier is not in, the responsibility shall be transferred to a designated staff to be nominated by the Accountant, after proper handing over. ● Petty cash shall be reconciled daily by the cashier and before any reimbursement. ● The float of petty cash shall be reviewed from time to time. ● All petty cash imprest shall be accounted for within 24 hours. Failure to which the staff salary should be attached for full recovery of the imprest. ● All petty cash shall be authorized by the Accountant. 7.2 Petty Cash Book Procedures The purpose of petty cash procedures is to ensure that: ● All petty cash float is properly accounted for. ● There is separation of responsibility of handling the cash and that of recording and authorization of the same. ● All petty cash transactions are properly captured by the general ledger system. ● All petty cash payments are properly verified and approved prior to payment by the Accountant. ● All petty cash reimbursements are made through the cheque system. ● All petty cash vouchers and supporting documentation are properly stamped paid before payment. ● Petty cash book should be maintained for each float. 7.3 Summary Petty cash procedures There are three activities:1) Replenishment of petty cash 2) Petty cash payments 3) Petty cash reconciliation FINANCE & ACCOUNTING POLICY 11 BRAEMEG SACCO SOCIETY LIMITED 7.4 Activity Performed by accountant The detailed instruction of replenishing petty cash is as follows:1. 2. 3. 4. 5. 7.5 Raise a payment voucher to replenish petty cash. Present payment of voucher with supporting documents to the treasurer for authorization and raising of the cheque. Raise a cheque. Take cheque, voucher and supporting documents to the signatories. Update petty Cash Book Accounting entries i.e. Dr: Petty Cash Control Account Cr: Bank Account Petty Cash Payments ● Receive verbal request and check petty cash balance. Petty cash will only be paid out in respect of goods/services included in the annual budget. Payments for goods/services that have not been budgeted for will only be made with the approval of the Board of directors. ● Raise petty cash voucher, all payments out of petty cash must be done through pre-numbered petty cash vouchers which must be supported by evidence of invoice/receipt of goods/services from third parties. The vouchers should be used in order of their serial numbers. Each payment voucher should indicate which account to be charged. ● The treasurer should approve by signing the petty cash voucher. Petty cash payment should be paid up to a maximum of Kshs 10,000 or as will be reviewed from time to time. ● On fulfilling the above conditions, then petty cash can be paid. ● The recipient should sign and have his identification number recorded in the petty cash voucher and supporting documents paid in order to minimize the risk of duplicate payments. ● Enter details of petty cash voucher into the petty cash-book. Accounting entries are as follows :Dr: Expenses Account Cr: Petty cash control Account ● File petty cash voucher by number. Once the petty cash payments have been recorded in the petty cashbook the accounts clerk should file the voucher in the petty cash voucher file. This file will be maintained in serial number order. Request for petty cash reimbursement is after expensing two thirds (2/3) of the petty cash float. ● 7.6 Monthly Petty Cash Reconciliation 1) The CEO should reconcile the physical cash in hand with the balance in the petty cash control account. Any discrepancies should be investigated and reported to the Board. FINANCE & ACCOUNTING POLICY 12 BRAEMEG SACCO SOCIETY LIMITED 2) 7.7 It is highly recommended that the CEO should make surprise checks and reconcile the petty cash book on regular basis. At any time the accountant should be having full amount of petty cash of various categories in cash, petty cash vouchers or combination of the two. All imprest given should be accounted for before the end of the business day. Main Policy 1) 2) 3) 4) 7.8 A bound, pre-numbered receipt book in triplicate plus a book copy shall always be available whenever cash or cheques are received. Receipt books should be in custody of one individual (Accountant) who is responsible for receiving and issuing of the bound receipts books. All cash and cheque receipts shall be banked intact and immediately. All cheque through mail or otherwise shall be registered immediately and sent to cashier for receipting and banking. Cash Procedures The accountant on issuing receipts should give the original to the client, duplicate to data for necessary adjustments before forwarding the same to ledger. The book copy is passed to accounts general with daily reconciliation summary. 1. A notice should be posted in cash office that for any payment made a client should receive a receipt otherwise the client should inform the Accountant. 2. A bank deposit slip is to be prepared for each receipt or number of receipts and deposited to the bank as soon as practically possible. The reverse of all paying in slips must record all receipt numbers banked under the paying slip. 3. For all receipts a deposit slip duly stamped by the bank should be attached and lodged with the Accountant for posting to cash book and subsequent reconciliation of the bank statement. 4. All monies received through bank via deposits, wire, inter-bank transfer or telegraphic transfers, standing orders etc. should be receipted upon receipts of the bank statements or advice from bank. FINANCE & ACCOUNTING POLICY 13 BRAEMEG SACCO SOCIETY LIMITED DATA Data section occupies a central position of the society communicating with its new and old members through their employers. 8.1 Policies ● All members are deducted their shares/deposits contributions, loans, interest and any other adjustments they may require promptly. ● All loans issued are fully recovered as per the stipulated loan agreements. ● All erroneous deductions are promptly stopped. ● All interest are promptly charged to members. ● All benevolent fund contributions are recovered as stipulated. ● All variations in accordance with members’ instructions are carried out promptly and efficiently. 8.2 Data Section Procedures a) b) c) d) Receive and effect all cheques in respect of loans issued to members for recovery. Receive and effect instructions from new and old members. Receive and effect receipts from cash office for direct payments by members. Receive and effect adjustments done through MPA (Member Personal Account) and for those members’ instructions who have not attached a payslip. e) Receive and effect instructions for refunds for those members who have withdrawn from the society including any erroneous deductions which needs to be stopped. f) Receive and effect instructions on all loans given through the branch. g) Effect all defaulted loans to be paid by guarantors. h) Receive and effect instructions from members who exercise the option of Capitalization of their dividends. 8.3 Reconciliation On receipt of the by-products, Data section carries out reconciliation to ensure that all deductions have been received. In a situation whereby the instruction has not been carried out as expected an inquiry is undertaken to establish reasons as to why deduction were not made by the employer. FINANCE & ACCOUNTING POLICY 14 BRAEMEG SACCO SOCIETY LIMITED REFUNDS SECTION This section deals with refunds of the following nature: ● Withdrawals due to voluntary closure of account and retirement. ● Refunds due to death, the processing begin immediately so long as all documents required are attached. ● Erroneous deductions are processed immediately the by-products from employers and receipt of a letter from the member. 9.1 Policies A member who desires to withdraw or ceases to be a member should fulfill the following:1. Any refund of deposits on withdrawal will be processed within a maximum of 60 days from the day the withdrawal letter is received (retirement or voluntary). 2. Refund shall be made if a member has been cleared by Guarantors and from any other obligation to the society. 3. No withdrawal shall be allowed where members’ loans are more than deposits. 4. Withdrawal shall not be processed unless applied for in writing in prescribed form duly completed and endorsed appropriately. 9.2 Procedures Retirement and voluntary withdrawal a) b) c) d) e) f) The file shall be referred to refund section to establish if the member has any loans not posted. The file is passed to MPA for the updating of the members statement card since joining the society. To ensure that there is no loan or interest which has not been paid. Stoppage of any shares contribution is done on receiving the file with withdrawal form in data section. The file is referred to dividends section to establish if there are any unpaid/overpaid dividends. However at this stage the file is taken to refunds for payment process. The file is referred to Guarantors section, to ensure that he/she has not guaranteed another member, and is free from any obligation to the society. No refund shall be made where a loan is under performing without ensuring recovery. 9.3 Erroneous deductions 1. Refunds of this nature shall be made as soon as possible, provided the by-product will have been received from the employer. 2. Registry will pass the file to MPA to update the statement card. 3. File is passed to Data for stoppage and the member is advised. Refunds shall be paid immediately after the receipt of the by-product and the instructions from the member. 4. File is finally passed to refunds for computation, and instruction to cheque writing for the cheque. 5. If the member chooses to utilize the funds to reduce loan or increase shares necessary journals are passed by accounts after passing it to Data Section for effecting. 6. Communicate to members or correspond to members on issues of refund. FINANCE & ACCOUNTING POLICY 15 BRAEMEG SACCO SOCIETY LIMITED MEMBERS PERSONAL ACCOUNTS 10.1 Policies ● Every member must have a ‘Member Personal Account’. ● Every member must have a membership number. ● Every member is entitled to periodical statements of account relating to his share, loan and interest balance once every six months. ● It is the responsibility of the Accountant to maintain, update and cause to be maintained appropriate MPA’s report. 10.2 Procedures 1. Ledger section opens Members’ cards after the application is effected by Data Section. 2. The ledger cards are updated using the by-products from the employer. 3. Any item deducted from the member by the employer either through by product, or through voucher, or direct payment to the society must be posted in the MPA card, within the following month. 4. Any overpayment or over deduction through the by-product is held in the MPA until the member advices otherwise. 5. Any erroneous deduction being claimed by a member necessitates the updating of the card. 6. After six months a member is entitled to ask for a loan, and on receiving the application the MPA are required to update, before being processed by the loans section. 7. Any erroneous deduction detected by MPA staff is posted in the card to await instructions from a member. 8. Detect any none performing loans and advice data to re-effect it or if it is overdue pass it to defaulters to recover from guarantors 9. Issue periodic members statements every six months 10. Reconcile members statements cards to General Ledger 11. Ensure that all adjustments into the MPAs pass through Data Section for adjustments. 12. Ensure that transactions on a members’ card are up-dated before passing file for refund/dividend/benevolent/loan processing. 13. Correspond to members in regard to their enquiries, in respect to their accounts. 10.3 Dividends and Interest section The Society has maintained relatively steady dividend and Interest policies which maximize the equity value of the society. Dividends increase after a relative increase in earnings which appears sustainable. 10.4 Policy 1. Dividends and interest can only be paid out of the year’s declared surplus as provided by the law. 2. Dividends/REBATE may be declared by directors at the close of the financial year from available earnings of that particular year but not from retained earnings of past years 3. Dividends are payable to ownership shares subject to making transfers to the prescribed statutory reserves 4. No dividend/REBATE shall be paid when the society is insolvent. 5. Dividend/REBATE for defaulters shall be used to reduce their outstanding loan. FINANCE & ACCOUNTING POLICY 16 BRAEMEG SACCO SOCIETY LIMITED 6. Dividend/REBATE slips will be sent to members. 7. The Society will pay market and competitive dividend/REBATE rates to members. 8. The Society will consider paying dividends after careful analysis of long-term financial decisions. This will address financing projected growth in operations and building of institutional capital to required levels. The two needs will have to be met from surplus before any dividends is recommended. 9. The Society will pay dividends as a return to members. However, the Society will strike a balance between financial prudence and weak governance where the board gives in to members’ pressure for high dividends at the expense of institution’s financial needs. 10. The Board of Directors will be guided by the provisions in the Bylaws on Legal standard of care to exercise the prudence and diligence of ordinary men of business and shall be held jointly and severally liable for any losses sustained through any of their acts. This calls for high integrity in making recommendation and decisions of paying dividends. BRAEMEG SACCO’s Board and Management undertake to excel in this regard. 10.5 Procedure of Dividend payment ● Schedule of share/DEPOSITS balance as at 31st December every year is prepared. ● Apply dividend rate on pro-rata declared at the annual general meeting. ● Dividend payroll is prepared net of withholding tax. ● Computation shall be made by the society and payable dividends net shall be forwarded through members’ accounts. ● The Accounting on proposed dividends Dr. Appropriation Cr. Dividend provision On payment of dividend Dr. Dividend Provision Cr. Bank/cash Upon a member’s decision to capitalize his shares, the entries are - Dr Dividend provision - Cr. Shares Upon netting the dividends against loans, the entries are - FINANCE & ACCOUNTING POLICY Dr Dividends Cr Loans 17 BRAEMEG SACCO SOCIETY LIMITED CHEQUE WRITING This section is charged with responsibility of raising cheques for payment except for dividends and salaries. The security of the cheque shall be the responsibility of the accountant. 11.1 Policies 1. Cheques presented to signatories for signing should have the name of the payee, amount in closely spaced words and figures, and crossed payee only. 2. Cancelled cheques should be crossed and written the word cancelled by the Credit Committee/Accountant across the face of the cheque, perforated and filed in secure cabinets. 3. A register of Cheques shall be maintained to ensure their safety and proper use. The register and the Cheques should be kept under lock and key in the safe. This should be the responsibility of the accountant. 4. Cheque stubs should be left intact once payment is made and details of the payee filled in as appropriate. 5. The Accountant should regularly be checking all cheque stubs and unused cheque books to ensure that they tally with what is in the cheque register and any cancelled cheque has not been misused. 6. All Cheques to be signed should be in a register. FINANCE & ACCOUNTING POLICY 18 BRAEMEG SACCO SOCIETY LIMITED ACCOUNTS OFFICE This is a section of Finance/Accounting department charged with the responsibility of maintaining society’s books of account. 12.1 General Ledger 1. General Ledger is a central accounting record in which all transactions are recorded either in detail or in periodic control totals. There is one General Ledger in the society. All postings to the General Ledger are made from journal vouchers. 2. At the end of each month the Accountant shall review and sign all journals. 3. On completion of posting, a draft trial balance is extracted from the general ledger. 12.2 Check List of The Monthly Tasks No. Description i.Cash receipts ii.Remittances iii.Petty cash iv.Dividends v.Loans vi.Gross salaries vii.Other payments viii.Depreciation ix.None standard journal x.Loan journals xi.Bank reconciliation 1. 2. 3. 4. Responsible Person Accountant CEO Treasurer/Accountant Accountant Loans officer Assistant Accountant Cashier Accounts Assistant Accounts Assistant Assistant Accountant Accounts Assistant Source Main cash book “ “ Petty cash book Dividends payroll Main cash book Payroll summary The Accountant will be responsible for producing all final general ledger outputs, among the principal responsibilities. Receipt and allocation of all source information Verification of expenses, income, budget, remittances, revenue, assets and liabilities. Production of reports to budget holder and other interested parties. 12.3 Monthly Activities Monthly activities in accounts general include:- Record expenditure per activity - Record receipts received during the month - Extract monthly trial balance - Extract monthly financial statements. 12.4 Other Activities - Identify and pass journals for accrued charges, interest and prepayments - Maintain vote book to accompany all payments. 12.5 Recording Expenditure Procedure 1) Journal voucher for cash transactions or direct posting form petty cash book is to update the expense accounts and crediting the bank account in the general ledger; FINANCE & ACCOUNTING POLICY 19 BRAEMEG SACCO SOCIETY LIMITED Dr. Expense accounts (various) Cr Petty cash account (Being recording of expenses for the month of xxxxxx) 2) All journal vouchers should be viewed together with the source record for correctness and completeness by the section head. 3) The journals should be authorized for the general ledger, and filed according to numbers. 12.6 Recording receipts procedures Remittances or any other income should be acknowledged by issuing a receipt, by the cashier. Post revenue receipt of whatever nature to the income account:Dr. Cr. Cash/Bank account Income account 12.7 Trial Balance Procedures a) Extract balance of each ledger account from the general ledger. b) List all debit balance in one column and all credit balances to the right hand side of the debits. If all entries have been made correctly twice i.e. double entry system maintained, total debits on the trial balance should exactly equal the credits. c) Check and correct any errors identified by passing journal entries. 12.8 Year End Journals Accruals for the following should be identified as follows: 1. Creditors: Invoices received and not yet paid at year end should be listed down. Totals for each activity should be shown separately. 2. Deposits and prepayments: Portion of unexpired expenses for prepayments made during the year should be computed. Prepare year end journals and post to general Ledger as follows:- 3. Dr Cr Dr Cr Creditors…….….Other activity Expense accounts (individually for unpaid invoices at year end) Creditors account Debtors & Prepayment Activity Expenses Accounts (individually) FINANCE & ACCOUNTING POLICY 20 BRAEMEG SACCO SOCIETY LIMITED 4. File year end journals and supporting documents and computations in the monthly trial balance file. 5. Extract year end trial balance after above transactions, ensuring that they balance. 12.9 New Financial Year Accruals for the previous year are revised at the beginning of New Year At the start of the next financial year, open new general ledger accounts and bring forward the previous year’s closing balances from the balance sheet. Reverse the accruals for creditors, deposits and prepayments by posting journals for the reverse of the entries made respectively in the previous year. FINANCE & ACCOUNTING POLICY 21 BRAEMEG SACCO SOCIETY LIMITED CASH BOOK 13.1 Cash and Bank Procedures The purpose of cash procedures aims to ensure that: 1. 2. 3. 4. 5. 6. 7. 8. 9. All cash received is properly accounted for. All cash received is banked intact in the respective accounts. Clear separation of responsibility of handling cash and of recording. All cash transactions are properly captured by Accountant. All payments are properly verified and approved prior to payment. Creditor payment should be paid either through cheque or cash. All vouchers and supporting documentation are properly stamped “paid” before cheques are dispatched. Proper and timely bank reconciliations are prepared. Remittances from members should not be mixed with any petty cash or any other money. The activities in cash book procedures can be summarized as follows; a) Posting income/receipts to the cash book. All payment vouchers shall be fully authorized/ approved to enable cheque writing. The cheques and vouchers shall be checked simultaneously by the accountant before approval by General Manager or authorized persons. b) Posting payments to cash book. c) Bank reconciliation. d) Monthly procedure. 13.2 Bank Reconciliation This is to ensure that entries in the cash book correspond to the entries in the bank statement and differences are identified and reconciled. a) Compare bank statement balance and cashbook balance. Tick all items which are in both records. Check also the bank statement for arithmetical accuracy. b) Record all bank charges into the cash book. c) Identify and record in the cash book any debits in the bank statement, which are not in the cash book. Record these debits in the cash book. d) Identify any credits on the bank statement, which have not been recorded in the cash book, adjust by recording these items in the cash book. e) All reconciling items should be examined for genuineness and any unusual items investigated. On completion of the above, prepare reconciliation as follows:1. 2. 3. 4. Balance as per bank statement Less unaccredited items Add Un-presented Cheques Cash book balance FINANCE & ACCOUNTING POLICY 22 BRAEMEG SACCO SOCIETY LIMITED The bank reconciliation should be presented to the Senior Accountant for approval. File the approved bank reconciliation in the “reconciliation file” ***Bank reconciliation for each activity account that has a bank account must be done monthly***. 13.3 Monthly procedure If the society’s system is still manual the following should be undertaken each month: - Rule off the cash book for the transactions for that month. Total up all Columns and cross cast for both receipts and payments. - Review the cash book for accuracy and completeness. Sign cash book as evidence of review. This should be by a Senior Officer of Accountant 1 level and above. - Begin the new month cash book transactions on a new page. FINANCE & ACCOUNTING POLICY 23 BRAEMEG SACCO SOCIETY LIMITED PAYROLL ACCOUNTING 14.1 Purpose Describe the system and procedures to be followed, and the documentation to be used, in preparing the payroll for salaried employees. 14.2 Responsibilities The CEO is responsible for reporting to the accounts department all engagements, discharges, changes in employment, salaries payable and standard deductions to be made from salaries. The accounts department is responsible for the proper implementation of the relevant accounting procedures, and for the payment of salaries. 14.3 Summary of System The main features of this system are as follows:a) Master salary record cards are maintained to record the current rates of pay, allowance and standard deductions of employees. b) Overtime payments are based on approved overtime claim forms. c) The Human Resource department prepares the payroll, in relevant computer software system such that the payroll and individual employees pay slips are produced simultaneously. d) Employees may be paid either by cash or transfers to their bank accounts. 14.4 Forms Used The principal forms used are; 1. 2. 3. 4. 5. 6. 7. Master salary record card Master salary record card amendment Overtime claim form Payroll Pay advice Pay sheet Gross pay reconciliation FINANCE & ACCOUNTING POLICY 24 BRAEMEG SACCO SOCIETY LIMITED 14.5 Description of procedures The payroll procedures are described below under the following headings: a) b) c) d) e) f) g) Master salary records Overtime Preparation of payroll Approval of payroll Monthly accounting entries Payment of payroll Quarterly procedures 14.6 Master Salary Records For each employee payroll section maintains a Master Salary Record Card in the relevant forms. a) b) c) This serves as a permanent record of the standing data to be included in the monthly payroll. Amendments to standing data are notified to the payroll section by the Human Resource officer and a Master Salary Record Card Amendment Form. After approval by the Human Resource officer the form is forwarded for approval in duplicate to the Accountant and the Chief Executive (if the change relates to the appointment of a new employee or a promotion). After the Master Salary Record Card has been updated the duplicate of the form is returned to the Human Resource Officer and the original is retained by the payroll section. 14.7 Overtime Employees are required to complete part I of an overtime claim form and obtain approval prior to working overtime i. After completion of overtime part II of the form is completed and after approval, the form is forwarded to the payroll section. ii. After calculation and checking of the amount due to the overtime claim form is approved by the Payroll Supervisor. FINANCE & ACCOUNTING POLICY 25 BRAEMEG SACCO SOCIETY LIMITED 14.8 Preparation of Payroll a) The payroll is prepared by Payroll Accountant in salaries section. On a salary computer software payslips and the payroll are prepared simultaneously. Information for the payroll is obtained from the Master Salary Record Cards and approved overtime Claim forms. b) Once the payroll has been prepared it is then summarized onto pay sheets which show how payment is to be effected by location (i.e. bank payments, cashier, Cheques). c) Following completion of the payroll and pay sheets these are passed to Human Resource officer for checking. These checks are evidenced by ticking in red ink against each calculation. d) After preparation and checking of the individual payrolls a payroll summary is then prepared showing grand totals for each type of payment, for all departments. e) Finally, a reconciliation of gross pay to that of the previous month is prepared using the relevant forms. The reconciliation is prepared by reference to:i. Last month reconciliation ii. Master salary record card amendment forms iii. Current months overtime claim forms iv. Current months payroll 14.9 Approval of Payroll The following officials approve the payroll after carrying out the following checks;a) Human Resource i) Review payroll, pay sheets and ensures that all calculations have been checked by a person other than the preparer. Evidences approval by signature on all sheets of payroll summary and initialing of payroll and pay sheets. ii) - iii) Checks gross pay reconciliation as follows: Agrees previous month’s figures to previous month’s reconciliation. Agrees amendments by reference to processed Master Salary Record Card Amendment Forms. Agrees total current months overtime to total of approved overtime Claim Forms. Agrees current month’s gross payroll to payroll summary. Review gross pay reconciliation and ensures that all Master salary Record Card Amendment Forms have been processed to the payroll by checking with his retained copies; Accountant to verify all the forms and the relevant reconciliations. Chief Executive to give Final Approval for the payroll. FINANCE & ACCOUNTING POLICY 26 BRAEMEG SACCO SOCIETY LIMITED 14.10 Monthly Accounting Entries A monthly journal voucher is raised before the end of the month by the Payroll Accountant with the following entries:DR CR CR CR Salaries Expense (basic, overtime, housing or any other benefit) Payroll Control (net pay) Payroll Control (PAYE, NSSF, etc) Debtors (Loan recoveries/and any other recoveries) Journals are raised as per monthly accounting routines. 14.11 Payroll System a) Payment of Payroll The authorized payroll summary for posting into the accounts. b) Statutory and voluntary deductions The cheques are drawn and passed to the relevant organizations. c) Quarterly Procedures On a monthly basis the Chief Executive checks the accuracy of all standing data held on the Master Salary Record Cards by reference to their personnel files. FINANCE & ACCOUNTING POLICY 27 BRAEMEG SACCO SOCIETY LIMITED STOCK ACCOUNTING 15.1 Purpose Describes the systems and procedures to be followed and the documentation to be used in accounting for stocks. 15.2 Responsibilities The Storekeeper is responsible for the safekeeping of stores and the raising of accounting documentation in respect of all movements into or out of their stores. Stores ledger clerks are responsible for the maintenance of detailed stock records. Accounts maintain stock control accounts. 15.3 Summary of System The main features of this system are as follows:a) b) c) d) e) For all stocks, formal receiving and issuing procedures are prescribed; only bin cards are maintained by storekeeper. Detailed stock records are maintained by the storekeeper Financial accounts in total for the main categories of stock are derived from the evaluation of the receipt and issue documents on a first-in first-out (FIFO) basis; The detailed stock records are reconciled to the stock control accounts on a monthly basis; Physical stock checks are carried out on a quarterly basis; these are evaluated and compared with the balance on the detailed records. Significant discrepancies are investigated. 15.4 Forms Used The principal forms used are:Description Goods received Note Bin Card GRN Register Stores Requisition Note Goods Issued Note GIN Register Monthly GIN Summary Monthly Store Reconciliation Stores Reconciliation Stock sheet FINANCE & ACCOUNTING POLICY 28 BRAEMEG SACCO SOCIETY LIMITED 15.5 Description of Procedures The procedures for accounting for stocks are described below under the following headings:a) Recording receipts to stores b) Receipts to stores – monthly procedures c) Recording issues from stores d) Costing of stores issues e) Issues form stores – monthly procedures f) Physical stock checks 15.6 Recording Receipts to Stores Upon receipt of goods the storekeeper raises a three-part pre-numbered note as described in purchases accounting. i. ii. The triplicate is retained by the store man and the relevant Stores Bin Card updated. The original and duplicate GRNs are forwarded to Accounts who check the calculation of the unit cost on the GRN before entering details of the GRN into the GRN register and updating the stores ledger. After signing the GRN’s the original copy is forwarded to accounts for purchases accounting (from where the entry to the stock control account arises.) 15.7 Receipt to stores – Monthly Procedures The stores ledger clerk is responsible for ensuring that all GRN register and stock records are updated. The GRN register is reviewed by the Senior Accountant at the end of each month and explanations obtained for any GRN’s which have not been accounted for within a reasonable period of time. The Senior Accountant signs the GRN register as evidence of his review. At the end of each month the store man prepares a monthly summary showing the total value of stocks booked into the stores during the month. After approval by the Senior Accountant this summary is forwarded to Accounts for reconciliation to the control account on entries made during the month. Differences are investigated and appropriate action taken. 15.8 Recording Issues from Stores i) Upon receipt of an approved Stores Requisition Note, goods are issued and a three part pre-numbered Goods Issued Note is raised. ii). The original is given to the recipient of the goods and the triplicate is retained by the store man. The store man updates the relevant Bin Card. iii). The duplicate GIN is forwarded to the stores ledger officer who is responsible for calculating the unit cost to be applied to the issue in accordance with the procedures described below under “Costing of Stores Issues”. Details of the GIN are then entered into the GIN register and the stores ledger updated. The store man allocates a general ledger account code to which the issue is to be charged. FINANCE & ACCOUNTING POLICY 29 BRAEMEG SACCO SOCIETY LIMITED 15.9 Costing of Stores Issues Stores issues are valued on a first-in first-out (FIFO) basis such that the balance of stock on hand represents the actual cost of purchasing those stocks. Issues are valued by the store man from details of previous receipts and issues recorded in the stock records. 15.10 Issues from Stores-Monthly Procedures The store man is responsible for ensuring that all GIN’s are accounted for in the GIN register and stock records. The GIN register is reviewed by the Accountant on a monthly basis and explanations obtained for any GIN’s which have not been accounted for within a reasonable period of time. The Accountant signs the GIN register as evidence of his review. At the end of each month the store man prepares a monthly GIN summary showing the value of stocks issued from the store during the month and the allocation of each issue. After approval by Accountant this summary is forwarded to Accounts office to raise the necessary journal voucher. 15.11 Physical Stock Counts Physical stock counts are carried out on a monthly basis. The Accountant is responsible for ensuring that stock counts are carried out and that accounts staff are in attendance. The Accountant is also responsible for notifying the Internal Auditor prior to stock counting in order that the Internal Auditors may attend the count if they so desire. Although the detailed procedures to be followed at each count location must of necessity vary, certain procedures must be applied to all stock counts. 15.12 Overall Organization a) The overall organization of stock counts is controlled by the Manager. b) Written instructions are prepared covering the organization of stock counts. c) Stocktaking teams consist of:- Storekeeper (to identify stocks) Head of Accounts The management (Storekeeper should form part of count teams) A meeting is to be held before counting commences to discuss queries on procedures. d) Arrangement of Stock Before the count the store man is to arrange all stocks into a manner convenient for counting. e) Cut-off Stores are to be closed during the period of the count; FINANCE & ACCOUNTING POLICY 30 BRAEMEG SACCO SOCIETY LIMITED 1. The last GRN and GIN document numbers up to the time of the stock take are to be established before the count commences; 2. Prior to comparing physical and book stock the processing of the last documents to the stock records and the stock control account is to be checked. f) Stock taking 1. The Accountant in charge of the count is responsible for issuing Pre-numbered and Preprinted stock sheets to the stocktaking teams and ensuring that Stock sheets are returned after the count. 2. Stock counting procedures is as follows:● Storeman identifies the stock ● Counter counts stock ● Checker records description of item, unit of measurement and quantity on stock sheet in ink ● Checker re-performs count ● Counted stock is marked to prevent recounting ● Stock sheets are signed by all members of the count team, including the storeman. After completion of the stock count the Head of Accounts inspects the stores’ ledgers and notes the book quantities of stock onto the stock sheets, ensuring that all books stock is included. The actual cost of the quantities counted is then calculated from the stock ledgers in accordance with the laid down principals. The stock ledgers are updated for the quantity and value of stock actually counted. The Accounts office then calculates the quantity variance between physical and book quantities and the cost of physical stock (counted quantity multiplied by unit cost) The stock sheets are returned to Senior Accountant where, after the calculations have been checked by another accounts staff a summary is produced comparing the value of stock counted with the value as per the general ledger control accounts. The stock sheets and summary are submitted to the Accountant who determines what quantity variances should be investigated and whether investigation of the difference between physically evaluated stock and the stock control account requires detailed evaluation. 15.13 Stores Reconciliation Reconciliation Date …………………………………….. Last Reconciliation Stock held at reconciliation date …………………………………….. Quantity…………….. Cost Kshs……….. (By reference to stores receipts) Reconciliation Opening stock- last reconciliation date Receipt (at actual cost) FINANCE & ACCOUNTING POLICY 31 BRAEMEG SACCO SOCIETY LIMITED Issuers (at predetermined rate of Kshs.) State held as above Difference to be adjusted ……………………… ……………………… ……………………… MONTHLY STORES RECONCILIATION Opening stock Receipt (see below) Issues (See GIN summary) Closing stock GRN SUMMARY GRN’s booked to stores During month Value of GRN’s General stores Working stores Input stores ……………… ……………… ……………… Prepared by…………………………… Stores Ledger Clerk Reviewed and Approved …………….. Snr. Accountant FOR HEAD OFFICE USE Recorded to control account………………………. Received and approved by ……………….. Snr. Accountant FINANCE & ACCOUNTING POLICY 32 BRAEMEG SACCO SOCIETY LIMITED ASSETS 16.1 Fixed Assets It is to describe the systems and procedures to be followed and the documentation to be used in accounting for fixed assets. Departmental heads are responsible for maintaining custodial controls over assets while Finance/Accounting department is responsible for maintaining records of fixed assets. 1) Procedure The main features of the system are as follows: - Detailed registers are maintained for all fixed assets. Fixed assets are physically verified annually against documents of title. 2) Acquisition The user department raise purchases requisition and obtain appropriate authorization and pass it to Tender Committee who will call for quotations or tender it ( It is assumed here that the item had already been budgeted for and funds are available). The Accountant after obtaining the relevant authorization raises an LPO. On receipt of goods they are checked by the store man then goods receive notes are raised. The accounts department matches suppliers invoices with copy of purchase orders, goods received notes and investigate any discrepancies to ensure that the invoice are properly authorized for payment. The principal documents necessary before payment is effected are:a) b) c) d) e) Purchase requisition Purchase order Goods received note Invoice and Payment advice 3) Asset Register The asset register shows the following:1. Date of purchase 2. Details of the asset 3. Asset reference number 4. Depreciation rate 5. Cost of the asset 6. Depreciation 7. Net book value The fixed asset register is updated monthly from details of additions derived from the cash book. At times of updating the register asset reference number is allocated and the department under whose custody the asset falls is notified accordingly in order that the asset may be physically marked with this reference number. FINANCE & ACCOUNTING POLICY 33 BRAEMEG SACCO SOCIETY LIMITED 4) Disposal The disposal and write offs of fixed assets require the approval of the annual general meeting or the Management Committee depending on the value prior to the updating of the register. A disposal account for each asset is opened in which accumulated depreciation, charge for the year and cost of the asset is debited. Similarly the disposal value is credited. The difference may be gain or loss in the disposal of the asset and transferred to income and expenditure account. Depending on the nature of the asset the disposal shall be determined by the Management Committee or the Annual General Meeting. 5) Revaluation Similarly revaluation should be authorized by the Board, the capital gains should be taken to capital reserve which will not be distributed. The total cost of fixed assets as recorded in the fixed assets registers is reconciled to the relevant cost figures in the general ledger by the responsible officials for maintaining the registers. To be reviewed by the Assistant Accountant and approved by the Head of accounts. All fixed assets are verified by the accounts staff at the end of every year using details as recorded in the asset register and asset reference numbers to aid identification. Section heads are responsible for explaining any variations between assets physically counted and those recorded in the register. All documents of title shall be kept in the safe in the custody of the Chief Executive. If any title is to be charged it will require express authority of the annual general meeting who will give the maximum borrowing powers. 16.2 Current Assets These are classified into two groups:1. Assets in form of cash or items which can be converted shortly into cash e.g. marketable securities or short term receivables. 2. Short term commitments which will be sold in future or consumed in the process of production. For balance sheet purpose current assets are presented in the order of liquidity as follows: 1. Cash 2. Marketable securities 3. Short term receivables 4. Inventories and 5. Short term prepayments The policy and procedures on cash is as covered above. However, optimum cash and debtors shall be calculated from time to time in line with working capital management policy. 1. Policy i. ii. iii. All assets shall be acquired and disposed through competitive tendering Assets shall be used in the cause of the society’s business Assets shall be disposed at the expiry of its economical life. FINANCE & ACCOUNTING POLICY 34 BRAEMEG SACCO SOCIETY LIMITED 2. Procedures The purpose of fixed asset procedures is to ensure all assets are safeguarded by recording their details and monitoring their location and conditions. 3. Activities i. Record opening balances of existing fixed assets in the asset register ii. Update asset register for additions iii. Update assets register for disposal. The Asset Register records shall include the names of supplier, date of transaction, any written down depreciation and a balance carried forward in the progressive manner year after year. 16.3 Investment Investment means acquisition by own or borrowed funds of long term assets, intended for promotion of the economic interests of the society and its members. 1. Policy on investment i. Should promote the goals and objectives of the society. ii. Promote long term financial needs at the most governable conditions. iii. The investment must facilitate attainment of the primary objective of the Society. iv. The primary investment of the society is to provide savings and loans services to members’ at the most favorable conditions. v. There must be a genuine need for such investment. vi. The Society shall not invest on commercial buildings or houses to rent out except to facilitate individual members to buy shares. vii. The Society shall invest excess funds in fixed bond deposits or other assets which are secure and easily converted into liquid funds. viii. Any diversification on investment in new areas of operation shall be promoting the core function. ix. Investment should provide accessibility to new sources of income. x. Provide social welfare services to the local population. xi. Provide diversification of services to members or the service in great demand by the members, provided that it enhances profitability to the society. xii. Aim at getting access to new income sources. xiii. Diversification should be undertaken if the society is administratively strong and it has excess capacity or special reason for it. 2. i. Financial Investment - Procedure Financial Investments comprise a) b) c) Purchase of Bonds and Shares in co-operative and non-co-operative institutions Fixed Deposits in Stable Banks and Financial institutions Purchase of shares and bonds in private companies must be discouraged unless the society is guaranteed and certain rights or have a high degree of influence or control. FINANCE & ACCOUNTING POLICY 35 BRAEMEG SACCO SOCIETY LIMITED ii. Member Based Investments a) Any investments by the society outside the core business of the society, individual members shall contribute funds towards the acquisition of the project and be registered and managed as a separate entity. b) The society must have its own funds in all types of investments c) The portion of own funds in the long term investments i.e. land and building must be at least 25% and short term investments must be at least 40%. d) Members shall be provided with share certificates corresponding with their contributions and shall reap the benefits realized inform of dividends. e) Investment projects are retained for the benefit of all members shall have all their investment assets valued periodically. f) Any member wishing to withdraw shall be afforded the opportunity to redeem his/her shares at the price of the latest valuation of the assets. The valuation shall be approved at the Annual General Meeting provided the price shall not be below par value of the shares. g) Members who wish to retain their shares in the investment shall be allowed to retain their investment and continue reaping the benefits. h) A member willing to sell their shares will only sell to existing members or members of their family, provided that it does not exceed to 5% of the initial cost of the building. iii. For any Investment the society must ensure that they have access to personnel with necessary management and technical capabilities. iv. Management performance can also be improved through training of staff. v. All society investments must be adequately secured. vi. Ownership like land and buildings must be ascertained by formal documents vii. All assets must have been insured and premiums paid up to date. viii. Investment proposal must be thoroughly discussed and approved by the Annual General Meeting. 16.4 Feasibility Studies Prior to any investment all project proposals shall be subjected to feasibility studies, Financial and/or economic appraisals. Economic, Social and organizational aspects are ascertained before decision to invest is made. FINANCE & ACCOUNTING POLICY 36 BRAEMEG SACCO SOCIETY LIMITED 16.5 Reporting Requirements Financial reports are a basis of sound decision making tools to aid planning and control. To satisfy this need all activities or sections shall prepare the following reports:a) b) c) d) e) f) g) h) Daily bank balance position Monthly trial balance Management financial statements incorporating budgetary Cash flow statements to be reviewed monthly Monthly debtors schedules Monthly creditors schedule Monthly bank reconciliations Monthly activity reports All reports must comply with the International Accounting Standards and Co-operative Societies Act. The Society shall be audited every end of financial year. The audit report shall be in accordance to accepted Auditing standards carried out by an independent auditor appointed in the General Meeting. FINANCE & ACCOUNTING POLICY 37 BRAEMEG SACCO SOCIETY LIMITED MANAGEMENT INFORMATION RETURNS Many factors influence the success of the society in achieving objectives of growth, effectiveness and efficiency in the long term; some are external to the society and outside its control. Many are capable of being directed by conscious action on the part of management, either in initiating activities or in response to changes in the economy or the co-operative sector environment. The role of management is thus:1. To plan the future course and pattern of activities to meet corporate objectives that are themselves determined in the light of expected economic and business situations. 2. To control activities on a day to day basis in accordance with previously made plans. 3. In the day to day operational activities, there are a number of key areas that require to be controlled, in particular management must ensure that:a) Savings and loaning are carried out in accordance with the relevant provisions of the bylaws, Co-operative Societies Act and Finance Act. b) All costs incurred by the society are acceptable costs to a satisfactory level of service to members. c) Direct and overhead costs are reasonably minimized. d) Adequate working capital is maintained by prompt collection of all revenue due to the society and proper control of disbursements. e) Staff at all levels is contributing effectively in carrying out their proper duties and responsibilities. Each one of the above has got its own policy constraints, which would be decided on at Management Committee level or at an appropriate lower management level. The best way of controlling such operational activities within policy constraints is to set targets and standards of performance and to measure achievements or output against appropriate action to correct any undesirable lack of progress and achievements or the other hand to avoid the incidence of surplus capacity. The objective of management information system is therefore to provide managers with information that they need to plan and control the activities of the society of which they are responsible, by measuring and reporting on the performance of the resources they are accountable for and the extent of the achievements of the objectives, the maximum use of management control purposes, relevant information should be provided quickly and accurately, both regularly or when the situation occurs that is likely to call for management decision, so that timely action can be taken to correct or prevent an unsatisfactory situation. The Chief Executive shall be responsible for providing an explanation of any important event that has occurred in the month under review. The management information returns forms should be filled along with the closure of the General Ledger. The forms used are as follows:a) b) c) d) e) f) Income and expenditure statement Balance sheet Cash flow statement Capital and development expenditure statement and Key financial ratios Variance Analysis Reports FINANCE & ACCOUNTING POLICY 38 BRAEMEG SACCO SOCIETY LIMITED CAPITAL EXPENDITURE Annual budgets of the requested capital and special revenue expenditure must be submitted to the Board. The objectives are:1. To indicate capital expenditure which is necessary to the achievement of production budgeted for in the year or forecast in the long term. 2. To give preliminary indication of the cash requirement. Submission of capital expenditure in the annual budget does not constitute authorization to proceed with individual capital, a special revenue proposal contained therein shall be authorized as the need arises. FINANCE & ACCOUNTING POLICY 39 BRAEMEG SACCO SOCIETY LIMITED BASIC FRAME WORK OF BUDGETING A budget is a detailed plan for the acquisition and use of financial and other resources over a specified period. It represents a plan for the future expressed in formal quantitative terms. The use of budgets to control society’s activities is known as budgetary control. As a result expenditure is restricted to predetermined allowable amount. 1. The society has used budgets as a method of: i. Communicating management plan throughout the society. ii. It has forced management to think about and plan for the future otherwise management could be dealing with the current emergencies as they occur. iii. Budgeting allows management to allocate resources to the sections of the society where it can be used effectively. iv. Budgets can uncover potential bottlenecks before they occur, and corrective measures can be undertaken. v. Budgets co-ordinate the activities of the society and ensure that it is pulling towards one direction. vi. Budgets can serve as benchmarks for evaluating subsequent performance. vii. Every manager should be held responsible for those expenses which fall under his control. viii. All society budget must be co-ordinated and acceptable to all management. 2. Procedure of budget preparation The initial flow of budget data in the society flows from lower levels of responsibility to higher levels of responsibility. Each person with responsibility for cost control will prepare his own budget estimates and submit them to the next higher level of management. These estimates are reviewed and consolidated as they move upwards in the society. A budget system uses both expected results and historical or actual costs. It changes behavior and decisions, any prospective difficulties are foreseen and avoided, hence without budgeting management may veer from one crisis to another. 19.1 Policies The Budget should summarize the objectives of all sub units of the society and quantifies the expectations regarding future income, cash flows and financial position and supporting plans. It is the society policy that the budget should provide budgets which; 1. 2. 3. 4. 5. 6. Compel planning Evaluate performance Co-ordinate activities Implement plans Create conducive communications Motivate and authorize action FINANCE & ACCOUNTING POLICY 40 BRAEMEG SACCO SOCIETY LIMITED 19.2 Procedures When formulated intelligently budgets; 1. Compel planning 2. Provide performance criteria 3. Promote communications and co-ordination The expected performance and express managerial targets are formulated considering future plans and avoiding current problems not to derail what is desired. The budget should have direct or indirect bearing on the influence of the strategic plan. Elaborate income and expenses projections formulated to give the basis of the preparation of the budget which takes into consideration the overall organizational strategies. The actual past results are used as a basis for projecting future expected results. This will assist employees know what is expected of them, although caution should be exercised to avoid passed inefficiencies to inflate the budget. The budget should be prepared having in mind the relationship within departments in the organization and the society as a whole. Any weakness exposed in the organizational structure revealed by the budget should be addressed immediately. The budget must receive respect, changed conditions call for changes in plans, and it must not be revered to prevent a manager from taking prudent action 19.3 Steps In Preparing Operating Budget - The revenue (remittances) forecasting is the starting point of budgeting - Loans budget is prepared both short and long term and compare with revenue being raised. - When the level of loans has been determined the following schedules are required; 1. Labor costs 2. Overhead or administrative cost 3. Financial and professional costs 4. Budgeted income and expenditure statement and 5. Committee or members expenses The budget shall be presented to the Annual General Meeting for approval before it is operational. FINANCE & ACCOUNTING POLICY 41 BRAEMEG SACCO SOCIETY LIMITED APPROVAL OF POLICY This document was discussed and approved for implementation as the Finance & Accounting policies and procedures manual of the Society with effect from It was approved under Minute Number 2021. of Management Committee Meeting held on . APPROVED BY: Date 10th March 2021 Vice Chairman Josephat Okora Date 10th March 2021 Hon. Secretary James Anyika Date 10th March 2021 Treasurer Joseph Thuo Date 10th March 2021 CEO____Paul Asewe________________________ Date 10th March 2021 Chairman Rowland Njagi FINANCE & ACCOUNTING POLICY 42