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Financial Policy For Ivcs
Financial Policy For Ivcs
Financial Policy For Ivcs
TABLE OF CONTENTS
Sl Item Page No.
No.
1. INTRODUCTION
2. INTERNAL AUDIT
3. LINE OF AUTHORITY
4. SEGREGATION OF DUTIES
5. MANAGEMENT REPORTS
6. BUDGETARY CONTROL
7. ASSETS
8. CURRENT ASSETS
9. LIABILITIES
10. EQUITY
11. INCOMES
12. EXPENDITURES
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1 INTRODUCTION
1.1 Authority
This manual has been developed by the FSD, MBMA. Compliance with the systems and
procedures contained in this manual is mandatory for all the Integrated Village Cooperative
Societies.
The Meghalaya Basin Development Authority under its Integrated Basin Development and
Livelihoods Programme (IBDLP) has envisaged the setting up of home-grown community led
institutions in the villages to deliver access to financial services in the rural areas of the
State. This need for such institutions has arisen mainly because of the topography and the
thin spread of banking network and Micro Financial Institutions in the rural areas. Financial
inclusion cannot be achieved by relying solely on the formal banking network. Even in areas
where banking services are available, banking procedures are cumbersome, distant and
unfriendly to the rural population. The Primary Agriculture Credit Societies (PACS) or
Service Cooperative Societies (SCS) as they are known today which were created to provide
credit for agriculture and allied activities to the farmers/ entrepreneurs have been
unsuccessful primarily due to the large area of operation of the societies and other factors.
There is thus a strong need to innovate and design home-grown institutions rooted in
the local culture to deliver sustainable financial inclusion. The cause for such an institution is
further endorsed as it is felt that a grass root level institution can better understand the
needs of the community and can respond to the related demands in a more flexible, friendly
and expeditious manner.
Accordingly, the idea of supporting the Integrated Village Cooperative Societies
(IVCS) emerged. An IVCS in the simplest terms is a village self help group registered as a
Cooperative Society under the Meghalaya Cooperative Societies Act (which provides a legal
framework for functioning of these institutions) with joint liability of all members and
leveraging strongly on the social capital in the village communities of the State. The IVCS
can provide thrift, credit other financial services and intermediation and undertake other
economic income generating activities which can improve the welfare and livelihood of its
members. These societies can be formed and promoted by fifteen adult residents of a village
or along with adjoining villages in the case of small villages. Under the Meghalaya Livelihood
& Access to Markets Project, each IVCS should strive to mobilise at least 400 members for it
to become economically viable.
Although the idea of single village cooperative societies have been discussed at
various forums in the past in the country, the scales have always tipped in favour of large
sized cooperative societies which led to the creation and promotion of Primary Agricultural
Credit Societies (PACS) or Service Cooperative Societies (SCS) as they are known today.
The nationalisation of banks in the late 60s was also with a view to enabling the spread of
banking facilities to all parts of the country. These efforts and interventions have, to a large
extent, succeeded in their objectives but the lack of access to financial services and basic
banking facilities in the rural areas of Meghalaya is still a concern which needs to be
addressed to urgently. Considering that the efforts by banks to expand further in the rural
and interior villages in the State has slowed down owing, mainly to non-viability of operations
in such areas, the entry of IVCS as an intervention or initiative to tackle and resolve this
issue can be considered to be timely and highly innovative.
The Policy and procedural guidelines contained in this manual are designed to:
a) Protect the assets of the IVCS
b) Ensure the maintenance of accurate records of the Society’s financial activities.
c) Ensure compliance with the Meghalaya State Co-operative Societies Act, the
Society’s Bye-Laws.
d) Ensure the Society’s expenditure and liabilities are incurred only when necessary
and in accordance with pre-determined estimates.
e) The investment objectives of the IVCS shall be guided primarily by the safety and
liquidity of its funds, whether mobilised or borrowed, and a competitive rate of return.
2. INTERNAL AUDIT
The Finance Sub-Committee is responsible for performing the internal audit function to
ensure compliance to the financial procedures as they are set out in these manual and
approved by the Managing Committee from time to time.
During the course of their audit the Sub-Committee may raise issues in their report
concerning the administration of these procedures which the Secretary must comment on
appropriately.
3. LINE OF AUTHORITY
This will set out clearly who has the authority and financial responsibility for the Financial
Assets of the IVCS and provides guidelines for handling and controlling their accumulation
and consumption.
Managing Committee
a) The Managing Committee is the apex body in respect of operations and functioning
of the IVCS and has the authority to execute any policies it deems to be in the best
interest of the IVCS within the parameters of the Society’s Bye- laws.
b) The Managing Committee has the primary objective and responsibility for the
administration and establishing policies as to the mix and quality of the investment
and the benchmarks thereof, or engaging experts to advice on the same.
Finance Sub-Committee
a) The Finance Sub-Committee has the authority to design the Society’s Accounting
system and make spending decisions within the parameters of the approved budget.
Make decisions regarding the disposition of investment within the parameters of
investment policy and decisions regarding the purchase of fixed assets as well as
make decisions regarding the allocation of expenses.
b) The Committee has the authority to supervise the financial operations of the Society
and perform regular in-depths review of the Society’s Financial activity and oversee
the development of the annual budget.
The Secretary
a) The Secretary of the IVCS will be the main person who will run and manage the day-
to-day activities, transactions and affairs of the IVCS.
b) The powers and responsibilities are spelt out in the Bye Laws of the IVCS.
4. SEGREGATION OF DUTIES
No one person should initiate a transaction from the beginning to the end. Ideally, there must
be segregation of duties as much as possible between initiation, authorization, execution,
custody and recording of financial transactions.
The Secretary will have the primary responsibility of maintaining the accounting system as
designed and ensuring all policies are complied with in all operations and transactions.
5. MANAGEMENT REPORTS
a) Timely and accurate financial information must be provided to the decision makers as
and when required or according to timelines set from time to time by the Managing
Committee.
b) Detailed financial reports are made available on a monthly basis for discussion by the
Managing Committee during the monthly meetings.
c) Monthly management reports will be provided by The Secretary to the Sub-
Committee on Finance.
Reporting Frequency
6. BUDGETARY CONTROL
Budget Preparation
Drafts are prepared by the Secretary, reviewed by the Finance Sub-Committee and
presented to the Managing Committee for approval. After approval by the Managing
Committee the Chairman tables the budget in the AGM for members to approve.
Budgetary Control
The Secretary will be required to prepare Performance Reports of the IVCS which would
help the Managing Committee effectively monitor the progress/ performance of the IVCS vis
a vis the approved Budget. This Report may be prepared on Monthly basis and will be put up
to the Managing Committee for review.
7. ASSETS
7.1 Safeguarding Assets
a) All excess cash will be kept in interest bearing accounts.
b) Bank statements are promptly reconciled on a monthly basis.
c) Documents on all securities and fixed assets will be kept in a locked fire-proof safe.
Inventory records will contain description, serial numbers, dates of purchase or
receipt, valuation, and date of valuation.
d) Appropriate insurance for all assets shall be maintained.
The criteria to be used in determining whether an item should be treated as fixed asset or
not includes the following:
a) The estimated useful life of the asset should span over one year.
b) Usage of the asset should be seen to contribute to the operational capability of the
IVCS
c) The Secretary will organize a physical verification of the fixed assets.
The IVCS will maintain a fixed assets register. After acquiring the asset, The Secretary will
enter the following information in the fixed asset register:
a) Type of the asset.
b) Date of purchase.
c) Location.
d) Cost of item.
e) Depreciation Rate/Useful life.
f) Date of sale if applicable.
7.2.3 Depreciation
The Secretary will add up depreciation charge for assets in the same category and pass the
following journal entry :
Dr. Depreciation costs xx
Cr. Accumulated depreciation xx
After posting the depreciation journal entry, the Secretary prepares the fixed asset
movement schedule using the fixed assets accounts and their respective provision for
depreciation accounts.
8. CURRENT ASSETS:
8.1 Policy and Administration
The IVCS’s objectives in relation to current assets are to:
a) Place the responsibility to safeguard each asset to a specific member of staff;
b) Maintain proper description and classification.
c) Maintain adequate and accurate records.
9. LIABILITIES
9.1 Current Liabilities:
9.1.1 Interest on members’ deposits and Dividends Payable:
Monthly provisions shall be made for dividends and interest payable on members’
deposits.
The rate applicable shall be the rate last approved by the AGM.
Payment:
a) Dividends shall be paid at a rate approved by the Managing Committee to all active
members whose names appear on the members register at the close of the financial
year to which the dividend relates.
b) Dividends will not be paid to dormant members. A dormant member is a member
who has contributed less than three months contribution (equal or less than to
thousand) for the financial year in which dividend is been paid.
c) A schedule of dividends payable including details of the member, deductions and the
net payable amount shall be prepared by the accountant.
d) Withholding tax on dividends and interest must be paid by 20th of the month
following the in which dividends are paid.
In order to meet the amounts required for dividend payment, the society shall set aside funds
in interest bearing accounts.
9.1.2 Internal Controls on Refunds:
Share Withdrawals:
a) Payments to members withdrawing from the society shall be made 60 days after the
receipt of a written notice of withdrawal from the member and guarantor
replacements in case the member had guaranteed other loanees.
b) Payments will be made net of any obligations to the society.
c) The member’s file after clearance by the Finance Sub-Committee will be handed
over to the Secretary, which shall process the payment.
d) All files of withdrawn members will be cancelled and archived.
10. EQUITY
10.1 Risk Fund:
a) The Risk fund shall be used to meet future obligations on outstanding loans.
11. INCOMES
Revenue is the gross inflow of economic benefits during the period arising in the course of
the ordinary activities of the society when those inflows result in increases in equity, other
than increases relating to contributions from shareholders.
12. EXPENDITURES
All expenditure requests will be initiated in writing and approved within the specified
authority. Only the Managing Committee can bind the society in agreements with third
parties and suppliers. All agreements must be in writing and duly signed.
The Secretary or Accountant obtains approval to make payments for all invoices from the
Chairman.