Republic of the Philippines

Surigao del Sur State University

Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.nemsu.edu.ph

eHM-CM -COOPERATIVE MANAGEMENT

Module 4
Audit, Inquiry and Members Right to Examine
Allocation and Distribution of Net Surplus

DISCLAIMER:

This module is a compilation of works from the internet sources, manuals and
books from different authors and this will be used for Educational purposes
only. Due recognition is given to the authors who are the source of some
 Republic of the Philippines
Surigao del Sur State University
Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.nemsu.edu.ph

parts found in this module. The compiler/owner does not claim copyrights to
any part taken from other sources.

INTRODUCTION:

A member shall have the right to examine the records required to be kept by the
cooperative during reasonable hours on business days and he/she may demand, in
writing, for a copy of excerpts from said records without charge except the cost of
reproduction. As the members deserve to be ensured of good governance of their
contribution to the cooperatives, audits are being conducted.

The audits are intended to ensure the correctness of availment of the tax
exemptions/incentives and to effectively monitor the tax compliance of cooperatives,
effective and efficient management. As members contribute assets, return of such
contribution is expected. Generally, the distribution of a cooperatives surplus is
determined by-laws. Surplus is determined at the close of a coops fiscal year or as
prescribe by its by-laws. Members allocate surpluses for any or all of the following
purposes: developing the cooperative by setting up reserves, part of which should at
least be indivisible; benefiting members in proportion to their patronage of the
cooperative's business, and, supporting other activities approved by the
membership. This module covers the following aspects:

o Audit, Inquiry and Members Right to Examine

o Allocation and Distribution of Net Surplus

INTENDED LEARNING OUTCOMES

1. Discuss the rights of the members to examine, audit and inquire;

2. Identify and understand the concepts and principles involved in net surplus
allocation; and

3. Respect members rights to examine.

 Republic of the Philippines
Surigao del Sur State University
Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.nemsu.edu.ph

INSTRUCTIONAL MATERIALS
Lecture Notes
Audit, Inquiry and Members Right to Examine

Annual Audit

Cooperatives registered under this Code shall be subject to an annual financial,

performance and social audit. The financial audit shall be conducted by an external
auditor who satisfies all the following qualifications:

1. He is independent of the cooperative or any of its subsidiary that he is

auditing; and
2. He is a member in good standing of the Philippine Institute of Certified Public
Accountants (PICPA) and is accredited by both the Board and Accountancy
and the Authority.

The social audit shall be conducted by an independent social auditor accredited by

the Authority.

Performance and social audit reports which contain the findings and
recommendations of the auditor shall be submitted to the board of directors.

Audit Report

The auditor shall submit to the board of directors and to the audit committee the
financial audit report which shall be in accordance with the generally accepted
auditing standards for cooperatives as jointly promulgated by the Philippine Institute
of Certified Public Accountants (PICPA) and the Authority.Thereafter, the board of
directors shall present the complete audit report to the general assembly in its next
meeting.

Nonliability for Defamations

The auditor is not liable to any person in an action for defamation based on any act,
done, or any statement made by him in good faith in connection with any matter he is
authorized or required to do pursuant to this Code.

Right to Examine

A member shall have the right to examine the records required to be kept by the
cooperative during reasonable hours on business days and he may demand, in
writing, for a copy of excerpts from said records without charge except the cost of
production.

Safety of Records
 Republic of the Philippines
Surigao del Sur State University
Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.nemsu.edu.ph

Every cooperative shall, at its principal office, keep and carefully preserve the
records required by this Code to be prepared and maintained. It shall take all
necessary precaution to prevent its loss, destruction or falsification."

Allocation and Distribution of Net Surplus

Net Surplus

The net surplus of cooperatives shall be determined in accordance with its bylaws.
Every cooperative shall determine its net surplus at the close of every fiscal year and
at such other times as may be prescribed by the bylaws.

The net surplus shall not be construed as profit but as an excess of payments made
by the members for the loans borrowed, or the goods and services availed by them
from the cooperative or the difference of the rightful amount due to the members for
their products sold or services rendered to the cooperative including other inflows of
assets resulting from its other operating activities and which shall be deemed to have
been returned to them if the same is distributed as prescribed herein.

Order of Distribution

The net surplus of every cooperative shall be distributed as follows:

1. An amount for the reserve fund which shall be at least ten per centum (10%)
of net surplus: Provided, That, in the first five (5) years of operation after
registration, this amount shall not be less than fifty per centum (50%) of the
net surplus:
2. An amount for the education and training fund, shall not be more than ten per
centum (10%) of the net surplus. The bylaws may provide that certain fees or
a portion thereof be credited to such fund. The fund shall provide for the
training, development and similar other cooperative activities geared towards
the growth of the cooperative movement:
3. An amount for the community development fund, which shall not be less than
three per centum (3%) of the net surplus. The community development fund
shall be used for projects or activities that will benefit the community where
the cooperative operates.
4. An optional fund, a land and building, and any other necessary fund the total
of which shall not exceed seven per centum (7%).
5. The remaining net surplus shall be made available to the members in the form
of interest on share capital not to exceed the normal rate of return our
investments and patronage refunds.
 Republic of the Philippines
Surigao del Sur State University
Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.nemsu.edu.ph

The sum allocated for patronage refunds shall be made available at the same rate to
all patrons of the cooperative in proportion to their individual patronage: Provided,
That:

a. In the case of a member patron with paid-up share capital contribution, his
proportionate amount of patronage refund shall be paid to him unless he
agrees to credit the amount to his account as additional share capital
contribution;
b. In the case of a member patron with unpaid share capital contribution, his
proportionate amount of patronage refund shall be credited to his account
until his account until his share capital contribution has been fully paid;
c. In the case of a non-member patron, his proportionate amount of patronage
refund shall be set aside in a general fund for such patrons and shall be
allocated to individual non-member patrons only upon request and
presentation of evidence of the amount of his patronage.
d. If within any period of time specified in the bylaws, any subscriber who has
not fully paid his subscribed share capital or any non-member patron who has
accumulated the sum necessary for membership but who does not request
nor agree to become a member or fails to comply with the provisions of the
bylaws for admission to membership, the amount so accumulated or credited
to their account together with any part of the general fund for nonmember
patrons shall be credited to the reserve fund or to the education and training
fund of the cooperative, at the option of the cooperative

PROCEDURES/LESSON DEVELOPMENT
1. Communicate to the students the topics, learning objectives, activities and its
rubrics and the time allotted for this module.

2. Introduce the lecture notes to the students.

Stress the fact that the lecture notes are guide for further readings/research.
Ask the students to take note important concepts and its implication for oral
discussion to ensure understanding of the topic.

3. Introduce the learning activities to the students.

Lead students into seeing the implications of putting into practice the
theories/concepts discussed through solving cases and answering quizzes
and integrating current issues and trends that challenge businesses.

4. Give the module test to assess learning of the students.

 Republic of the Philippines
Surigao del Sur State University
Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.nemsu.edu.ph

EVALUATION/ASSESSMENT
The performance of the students will be assessed using the following:
1. Group report
2. Oral discussion
3. Quizzes
4. Final Countdown
5. Research Output

Rubric. The following rubric will be used to rate the students’ outputs. It will also
serve as a guide as they make their outputs.

Features Expert Accomplished Capable Beginner

10 8 6 4

Quality of Answer is very Answer is Answer gives Answer gives

Writing informative somewhat some new no new
(80%) and well informative and information but information
organized. organized. poorly and very
organized. poorly
organized.
Grammar, Virtually no Few spelling A number of Many spelling,
Usage and spelling, punctuations spelling, punctuation
Mechanics punctuation and punctuation and
(20%) and grammatical and grammatical
grammatical errors. grammatical errors that it
errors. errors. interferes with
the meaning.
 Republic of the Philippines
Surigao del Sur State University
Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.nemsu.edu.ph

SUMMARY

Under RMO 07-2020, the BIR shall issue Electronic Letters of Authority (eLAs)
for the audit of cooperatives for taxable year 2018 and onwards. The following
cooperatives shall be prioritized for audit:

1. Cooperatives which transact business with both members and non-members

whose accumulated reserves and undivided net savings is more than
P10,000,000; and
2. Cooperatives with income not related to their principal business under their
Articles of Cooperation.

The audits are intended to ensure the correctness of availment of the tax
exemptions/incentives and to effectively monitor the tax compliance of cooperatives.

A cooperatives surplus is not profit in the usual sense of the word. Surplus is
considered excess payment by the members or the loans they borrowed or the
goods and services they bought from the cooperative. As far as the coop is
concerned, this excess payment or surplus is considered as having been returned to
the members if the surplus is distributed in the following manner.

First priority goes to the reserve fund at least 10 percent of the net surplus.
The reserve funds are meant or stabilize coop operations and may be used only for
investments allowed by the code.

Second priority goes to the Education and Training fund which is not more
than 10 percent of net surplus. Fees and fines may also be credited of such funds.
Normally, this fund is shared equally between the cooperative and is apex
organization.

Third priority is an optional fund, a land and building fund, community

development fund and any other necessary funds. After all these have been
allocated, the remainder is available to the general membership in the form of
interest on his investment and patronage refund. Nevertheless, interest in share
capital should exceed normal rate of return on investment.
 Republic of the Philippines
Surigao del Sur State University
Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.nemsu.edu.ph

References

Areola, E. Q, and Singgaoat, J. P. (2017). Entrepreneurship. Manila: JFS Publishing

Services

Biore, C., Gonzales, R., Caparas, J., Burgos, N. and Ballada, W (2015). Good
Governance and Social Responsibility. Sampaloc, Manila : Domdane Publishers

Flores, M. F. (2016). Personal Financial Management: Text and Cases. Manila:

Mindshapers Co., Inc

Kunhu, Shemeera (2011). Co-Operative Management and Administration. Retrieved

from
https://www.academia.edu/26621294/CO_OPERATIVE_MANAGEMENT_AND_A
DMINISTRATION

Kurimoto, Akira et.al (2015). Guidance Notes to the Co-operative Principles.

International Cooperative Alliance

Lawal, K.A. et al (2017). Cooperative Management and Organizing. Nigeria: National

Open University of Nigeria

Lynch, Richard (2015). Strategic Management(7th Ed). Pearson Education Limited:

United Kingdom

McConnell, C. R. (2017). Contemporary Labor Economics. New York: Mc-Graw Hill

Education, 11th Edition

NCBA CLUSA (2019), “Differences Between Cooperatives and Other Enterprises”

retrieved from
https://ncbaclusa.coop/blog/differences-between-cooperatives-and-corporations/

RA 9520 PHILIPPINE COOPERATIVE CODE OF 2008

Sibal, Jorge (2020). A Century of the Philippine Cooperative Movement retrieved

from
https://philippinecooperative.blogspot.com/2008/09/century-of-philippine-cooperative.
html

https://cda.gov.ph/

https://cda.gov.ph/issuances/republic-act-9520/

https://www.upcounsel.com/difference-between-corporation-and-cooperative

End of Module 4