BONCHARI BANANA FARMERS COOPERATIVE

SOCIETY LIMITED

FINANCIAL MANAGEMENT POLICY

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Contents
1.0 Introduction................................................................................................................ 4

1.1 The Objective..........................................................................................................4

1.2 The Purpose........................................................................................................... 4

1.3 Mission....................................................................................................................5

1.4 Specific Responsibilities for financial management................................................5

1.5 Policies................................................................................................................... 5

2.0 Budget........................................................................................................................6

2.1 Introduction............................................................................................................. 6

2.2 Budgeting Process..................................................................................................7

2.3 Procedures for preparing the budget......................................................................7

2.4 Types of Budgets....................................................................................................8

2.5 Budgetary control....................................................................................................8

2.6 Budget Review........................................................................................................8

3.0 Accountable and Accounting Documents...................................................................9

3.1 Objective.................................................................................................................9

3.2 Books of Accounts................................................................................................10

3.3 Cash Book........................................................................................................... 13

3.4 Revenues and Expenditure...................................................................................19

4.0 Management records............................................................................................... 20

4.1 Objective...............................................................................................................20

4.2 Payrolls................................................................................................................. 20

5.0 Fixed Assets Register.............................................................................................. 23

5.1 Objective...............................................................................................................23

5.2 Definition of fixed asset.........................................................................................23

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 5.3 Guidelines for fixed Assets................................................................................... 23

5.4 Fixed Asset Register.............................................................................................23

5.5 Procedure for Fixed Assets Register....................................................................24

5.6 Fixed Asset Unique Identifier number...................................................................24

6.0 Month and Year-End Procedures.............................................................................25

6.1 Objective...............................................................................................................25

6.2 Basic Routines......................................................................................................25

6.3 Hand-over............................................................................................................. 25

6.4 Audit......................................................................................................................26

7.0 Policy Approval and Review.....................................................................................27

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1.0 Introduction

Financial Management entails economy, effectiveness and efficiency in utilization of the

Co-operative’s resources. Resources include cash and other resources acquired by
use of cash or are held for conversion into cash. The financial management in the
society takes cognizance of the shares and savings contributed by members.

1.1 The Objective

The objective of these Financial Management Policies and Procedure Manual is to
simplify and document the manner of managing the financial function of the society.

1.2 The Purpose

The manual is meant to;

a) Define in writing the Policies and procedures both of a general and specific nature to
be followed by the Society in recording transactions.
b) Provide parameters within which information shall be generated to enable
management to make effective financial decisions.
c) Provide a guide to the management committee and staff involved in the preparation,
supervision and inspection of Society books of accounts.
d) Assist the Society achieves its Objectives.
e) Standardize the way of recording the Society transactions
f) Ensure documentation of procedures and controls to be enforced in the Society
g) Define roles and responsibilities in the Society i.e. who does what, where, when,
how, in what sequence and why.
h) Achieve a common understanding of terminologies used in the society Operations.
i) Establish uniformity in the manner in which the society’s reporting compares with
other organizations of a similar nature, and thereby facilitating comparability and
uniformity.
j) Provides a reference for staff in their day to day activities, as well as a reference for
management, auditors and other interested parties.
k) Be a basis for reporting changes in the way the Society activities are done where
any deviation shall require to be formally communicated including but not limited to
any changes in the system, procedures, controls or responsibilities.
l) Be used to train new staff in their duties and responsibilities including staff replacing
colleagues absent, on leave or sickness.

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1.3 Mission
To establish financial guidelines and Procedures for effective Financial Management in
BONCHARI BANANA Farmers Cooperative Society.

1.4 Specific Responsibilities for financial management.

a) It shall be the duty of the treasurer to generally manage or cause to be
managed the financial affairs of the society in a competent manner;
b) The treasurer shall ensure that a proper record is kept of all monies received
and paid out by the society, its assets, liabilities, capital reserve and its
income and expenses;
c) The treasurer shall ensure the safekeeping of the society money, securities
and books of accounts;
d) Where the society has recruited an Accountant/Bookkeeper, it shall be the
responsibility of that person to implement the Finance and Accounting
procedures in this manual and of ensuring that the manual is updated as and
when it becomes necessary.

1.5 Policies
The society shall ensure an effective financial management system through adoption of
clear guidelines in keeping the books of accounts and preparing the financial
statements. The generally accepted guidelines are as provided here below: -

1.5.1. Accounting Policies

Accounting policies are principles, regulations, methods, procedures, conventions and
specific bases adopted by an organisation, as being the most appropriate to the
prevailing circumstances, in order to prepare financial statements.

a) Preparation of Accounts.
The Accounts of a Co-operative society will be prepared on historical cost convention,
except as may be modified by revaluation of certain fixed assets.

b) Fixed Assets;

Fixed Assets shall be defined as those assets acquired for use in the Co-operative
society and not for sale, which have estimated useful life of more than one year.

c) Depreciation.

Depreciation is the allocation of the depreciable amount of an asset over its estimated
useful life. The fixed assets of a Co-operative society shall be depreciated using the

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straight-line method and on the basis of the time they have been owned by the Co-
operative society, but ownership of fixed assets for periods less than one month shall be
ignored in calculations of monthly or annual depreciation charges. The depreciation
rates are applied for the different classes of fixed assets. The following depreciation
rates, which are in line with the provisions of the Kenyan laws, will be applied.

Class of Fixed Assets Duration Depreciation

rate
1. Motor Vehicles 5 years 25%
2. Computers, Software and computer accessories 3 years 33.33%
3. Office equipment (Photocopiers, fax machines 5 years 20%
etc.).
4. Office Furniture and Fittings 10 years 12.5%
5. Buildings 20 years 5%

d) Stock Valuation

Stock is defined as stock of unused stationery or other materials held in stock for use in
the business of a society. Stock shall be valued at cost or net realizable value
whichever is lower. Net realizable value is the estimated selling price less the estimated
selling expenses. The cost shall be as recorded in the stock card.

e) Recognition of Income.

Income is recognized in the statement of comprehensive income when an increase in

future economic benefits related to an increase in an asset or a decrease of a liability
has arisen that can be measured.

f) Recognition of Expenditure.

Expenses are recognized in the statement of comprehensive income when a decrease

in an asset or an increase in a liability has arisen that can be measured.

2.0 Budget

2.1 Introduction
A budget is as a detailed financial plan of the estimates of income and expenditure of
the Co-operative society for a given period of time. Society budgets are prepared on an

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annual basis and presented to the members three months to the start of the new
financial year in a Special General Meeting for approval as required by the law. The
management committee of a society shall therefore cause to be prepared the estimates
of the society’s income and expenditure. The expenditure including operating and
capital estimates shall be presented to the general meeting for approval at least three
months before the end of the proceeding financial year.

2.2 Budgeting Process

The budget preparation starts with an expression of the goals in line with the broad
objectives of the Society. These goals are quantified and expressed in monetary terms
and presented in periods of three months. The process becomes easier where the
society maintains proper records and updates the books of accounts regularly and
extracts the periodical statements and reports. Income and expenditure account, trial
balance, cash flow and economic reports are the critical factors in making a budget.

A variance analysis is employed to determine the budget figures. Variance analysis

deals with the determination of causes of deviations from the budgeted figures and
suggests appropriate changes needed to realize the budget objectives. It involves the
comparisons of the actual results achieved during the plan period with the expected
results. Variance analysis provides guidelines for control action and will aid in
forecasting for the projected period of time.

2.3 Procedures for preparing the budget

a) The Accountant/Bookkeeper receives guidelines, instructions and the annual
calendar for budget preparation from the Management committee.
b) The instructions are disseminated to all the staff involved in budget preparation.
c) The accountant/book keeper shall then convene a first meeting to:
 Review the instructions
 Review the implementation of the current budget
 Agree on the objectives for the year
 Brainstorm on the activities for the year
 Agree on the budget preparation framework
 Agree on the budget time table
d) The Sub Committees outline their activities for the year to form annual work plan.
They express these activities in monetary terms.
e) The Sub Committees then submit their inputs (work plan and budget) to the
Accountant/Bookkeeper.
f) He consolidates the various inputs to form the Society budget.

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 g) The Accountant/Bookkeeper calls a meeting to review the submissions and the
draft budget. They ensure compliance with the generally accepted accounting
procedures and guidelines.
h) He submits the budget to the members of management committee who in turn
present it to the members in the Special General Meeting.

2.4 Types of Budgets

a) Cash flow budget
The Society shall prepare cash flow projections for at least three (3) years,
separate from the Society’s budget. The cash projection will be composed of
anticipated cash receipts from sale of produce, members’ savings, sale of any
fixed assets, dividends or interest. In situations where the society anticipates
cash shortfalls based on the projections from internally generated funds, cash
inflows may be sourced externally.
b) Operating Budget - Shall consist of incomes and recurrent expenditures.
c) Capital Budget - shall consist of fixed assets whose use extends more
than one financial year.
Budgets will be accompanied by the relevant notes supporting the assumptions under
which each item on the budget was arrived at.

2.5 Budgetary control

2.5.1 Objective
Budgetary control is a continuous process of comparing the actual expenditure for each
line item against the budget. The purpose is to ensure that the actual expenditure does
not exceed the budget and where there is a variance a report is generated for review by
the management committee.

2.5.2 Guidelines for Budgetary control.

a) It shall be the responsibility of the treasurer to prepare cost benefit analysis
reports (budget performance reports) on a monthly basis
b) The management committee shall exercise care by taking action on unusually big
variances, whether favorable or unfavorable.

2.6 Budget Review

The budget shall be reviewed semi-annually and adjusted as deemed advisable
through Management Committee action. In cases where variances are significantly
high, investigation and documentation of variances shall be forwarded to the
Management Committee for review and policy direction.

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3.0 Accountable and Accounting Documents

3.1 Objective.
 To render an explanation of a transaction.
 Process the recorded transactions into a comprehensible form.
 To communicate information to the interested parties.
3.1.1 Accountable documents
All official pre-printed pre-numbered/serialized) documents that before use are kept
under lock and key, are only issued by signature on a register and have to be fully
accounted for (all books and all serial numbers).

3.1.2 Maintenance of accountable documents.

The treasurer is responsible for all the accountable documents, registers, used books
and all books of accounts and records prepared from accounting documents. The
accountable documents, used books are stored in the offices of the Society for at least
ten (10) years after an audit has been completed and the necessary returns made in all
the relevant offices. They can be destroyed following an authorisation from the
management committee and a government auditor or they can be archived.

3.1.3 Accountable documents register.

The Accountant/Bookkeeper is responsible for accountable documents. He/she keeps a
register in which all the movements of these documents are recorded. At any moment, a
staff member should not keep more than one accountable document of the same type.

3.1.4 Accountable Documents.

a) Petty Cash Receipt Vouchers

b) Cash payment vouchers
c) Bank payment vouchers
d) Cheque books
e) Purchase requisition vouchers
f) Order Voucher
g) Goods Received notes.
h) Stock Release voucher
i) Sales receipt books
All should be pre-numbered either directly by an accounting system or in a printer

3.1.5 Accounting Documents

These are the source documents used for preparation of books of accounts and records
irrespective of whether they are internally generated or whether they originate from
outside. Some used accountable documents together with accounting documents from

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outside make up the total complement of accounting documents. Accountable
documents shall include but not limited to;

a) Used Cash Receipt Vouchers

b) Used Cash payment vouchers
c) Used Bank payment vouchers
d) Used Cheque books
e) Used Purchase requisition vouchers
f) Used Order Voucher
g) Used Goods Received notes.
h) Used Stock Release voucher
i) Used sales receipt books
j) Delivery notes
k) Suppliers/ Purchases invoices.

3.1.6 Specific purpose of accounting documents

The specific purposes of each of the above-mentioned accounting documents are:

a) Cash Receipt Voucher

To acknowledge receipt of cash

b) Cash Payment Voucher

To support all cash payments

c) Bank Payment Voucher

To support all bank payments

d) Suppliers/ Purchases Invoice.

To support payments for goods and services

e) Goods Received Note

To acknowledge receipt of goods, the type of goods received and the quantity.

3.2 Books of Accounts

3.2.1 Objective.
The objective of having books of Accounts is to record all the Society Accounting
transactions using double entry principles. The books of Accounts include but not
limited to;
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 a) Petty cash book
b) Cash book
c) Creditors ledger
d) Stock ledger
e) Fixed assets register
f) General ledger

3.2.2 Petty cash book

A book of account where a record is made of all petty cash receipts and payments.

a) Guidelines for Petty cash book

 A society shall keep a minimum cash fund from which to pay the day-to-day
office expenses whose amount shall be determined by the size of the Co-
operative.
 Petty Cash shall be managed under imprest system, meaning the amount of
petty cash replenishment is limited to the expenditure whose accountability is
satisfactory.
 Petty Cash payments shall only be made on duly approved cash payment
vouchers.
 Petty Cash payment shall only be made when there is a proper supporting
document such as suppliers’ invoices, receipts or goods received notes.
 The cashier, the payee and the treasurer who is the approving authority of the
money shall always sign the Cash Payment voucher.
 All petty cash payments shall be credited to the Petty Cash book and each
payment entered in the petty cash book shall make specific reference to the
payment voucher on which it is approved.
 The petty cash book shall have a column specifically reserved for the petty
cash book payment voucher number.
 Receipts into the Petty cash book shall normally be drawn from the bank, but
even if they are to be from other sources, they shall be recorded in the Petty
Cash book by debiting the petty cash book and crediting the bank or other
source that has supplied the money.
 For all the money received into Petty Cash book, the cashier shall issue a
Receipt voucher stating the source of the money and the amount.
 The cashier shall always keep the petty cash book posted up to date and be
able to carry out a daily self-check of comparing the physical cash balance
with the book balance as per the petty cash book.
 The Cashier shall total all receipts and payments to show the petty cash book
balance at the end of the month. The treasurer or an independent party to the
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 petty cash transactions shall on monthly basis verify the petty cash book
balance by carrying out physical count of the cash balance available.
Impromptu inspections are however recommended as part of the internal
control mechanism of the Co-operative.

b) Procedures for maintaining the Petty Cash book.

j) Petty cash receipts

 The cashier receives petty cash.

 He/ She raises the petty cash receipt voucher in three copies and signs on
the receipt:
Original - the payee

Duplicate - for posting the petty cash book

Triplicate - Book copy

 The cashier puts the money received into the cash box/safe.
 He/she then uses the duplicate copy to post into the debit side of the petty
cash book.
 At the end of the day he/she balances the petty cash book.
Double entry:
Dr. petty cash

Cr Bank

ii) Petty cash Payments.

 A requisition of funds is made by completing a cash Payment voucher which
clearly specifies the expenditure line and the amount sought.
 It is forwarded to the Treasurer for approval
 The cash payment voucher is approved and returned to the cashier for
payment.
 The cashier pays and the beneficiary signs to acknowledge receipt of the
money.
Original - Posting petty cash book
Duplicate – Payee
Book copy

 He/she then uses the original copy to post to the credit side of the petty cash
book.
 At the end of the day he/she balances the petty cash book.
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 Double entry:
Dr. Expenditure

Cr Petty cash

iii) Accounting for imprest

 The amount of money paid from petty cash in advance must be accounted for
immediately the assignment is done. Amounts that are not justified must be
reported to the Treasurer who will take appropriate measures.

 Following the expenditure, the requisitioning officer submits the original

documents justifying the expenditure as well as the remaining balance, to the
cashier. The cashier fills the release voucher in duplicates by indicating the
details of the amount. The balance must be indicated on the petty cash voucher.

 In case of any anomaly noted in the cash box, the Accountant/Bookkeeper refers
the matter, in writing, to the treasurer.

3.3 Cash Book

The Cash book is used to record all bank transactions i.e. cash receipts, cheque
receipts, direct credits on the bank accounts and payments by cheques, payment orders
or direct debits on the bank accounts.

3.3.1 Guidelines for maintaining cash books

 Pre- numbered and printed receipt vouchers shall be raised for all receipts
on the bank accounts, and they shall be reference documents for debiting
the receipts in the cashbooks.
 All receipts that constitute the Income of a Co-operative society shall be
recorded in the cashbooks.
 All cheque payments shall be made on pre-numbered bank payment
vouchers, which shall be signed by the treasurer or the person so authorized
to sign on his behalf, who approves the payments and the payee or recipient
of the cheque. Supporting documents include: suppliers’ invoices, goods
received notes and service contracts.
 All bank payments (bank payment vouchers) shall be credited to the
Cashbook.
 The bank payment voucher has a code in accordance with the chart of
Accounts, so that by crediting the payment in the cashbook a corresponding

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 entry is completed in the General Ledger by debiting the appropriate
Account.
 All bank payments shall be posted on daily basis to keep the cashbooks up
to date.
 Direct credits or debits on the bank statement shall be captured from the
bank statement and be brought into the cashbooks. Receipt and payment
vouchers shall be raised respectively for the receipts and payments. The
vouchers raised become the reference documents in the cashbooks.
 Maintenance of the Cashbooks shall be the responsibility of the treasurer or
the Accountant/Bookkeeper or the person authorized by the central
management committee.
 The treasurer or the person authorized to work on his behalf shall at the end
of the month total all bank receipts and payments and take into account the
opening balance, to arrive at the closing balance. He shall also cause a bank
reconciliation to be done at the end of the month.
 The Accountant/Bookkeeper shall prepare bank reconciliation statements
and forward them to the treasurer for approval.
 All bank payment vouchers and supporting documents shall be stamped
“paid” and then properly and serially filed.
 All cheques paid out shall be recorded in a cheque register, the information
to be recorded shall include the name of the payee, the cheque number,
amount, the bank on which the cheque is drawn and the date of issue of the
cheque. The recipients of the cheques must sign the cheque register to
acknowledge the receipt of the cheques.
 Security should be exercised over cheque books. Unused cheque books
shall be under lock and key under the custody of the
Accountant/Bookkeeper.
 Cheque stubs shall be completed with date, name of payee, amount and
voucher number.

3.3.2 Procedures of maintaining Cash book(s).

i. Receipts

 The cashier receives cash/cheque.

 He/ She raises a cash receipt in three copies and signs on it:
Original - the payer

Duplicate - for posting the cash book

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 Triplicate - Book copy

 The cashier puts the cash received into the cash box/safe.
 He/she then uses the duplicate copy to post into the debit side of the cash
book.
 At the end of the day he/she balances the cash book.
Double entry:
Debit DR Bank

Credit CR Income

ii) Bank Payments.

 The payment process is commenced by preparing a bank Payment voucher
which clearly specifies the account code and the amount sought.
Original - Posting cash book
Duplicate – Payee
Book copy
 The book keeper attaches all supporting documents: order voucher, invoice,
delivery note, goods received note, service contract etc.
 It is forwarded to the treasurer /Accountant/Bookkeeper for approval
 The bank payment voucher is approved and returned to the cashier for cheque
preparation.
 The cheque with supporting bank payment voucher is forwarded for authority and
signatures.
 The signatories sign the cheque and return it to the cashier
 The cashier enters the cheque in the cheque register and issues it to the payee.
 The payee signs on the register to acknowledge receipt.
 The cashier uses the original copy to post to the credit side of the cash book.
 At the end of the day he/she balances the cash book.
Double entry:
Debit DR Expenditure/creditors

Credit CR Bank

3.3.3 General Ledger.

The General ledger shall contain all the ledger accounts of the Society. General ledger
has subsidiary ledgers and entries are automatically debited or credited in its ledger
accounts when posting is made in the primary books of Account. Balances extracted
from the General ledger are used to prepare monthly, quarterly or annual trial balances.

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 a) Creditors and Invoice Register/Creditors Ledger.
The creditors’ ledger provides a record of creditors’ accounts.

d) Guidelines of maintaining the creditors’ ledger.

 The liability is recognized immediately after delivery of goods or services to the
Society. On receipt of the supplier invoice and supporting documents and based
on the invoice, the supplier’s account shall be credited, with the corresponding
debit entry going to the relevant expense or asset account.
 Any discounts received or other deductions made from the suppliers’ accounts
are debited to the suppliers’ accounts with the corresponding credits in the
discount received or other appropriate accounts to which the deductions relate.
 When supplier is paid his/her account is debited and the bank account is
credited.
 A list of creditors’ balances shall be extracted from the creditors’ ledger on
monthly or annual basis for inclusion into the Trial Balance and the final
accounts.

ii) Creditors Procedures

 The Accountant/Bookkeeper receives the suppliers invoice.
 He matches it with his copy of the Order Voucher, delivery note, goods received
note, service contracts etc.
 On confirmation that the invoice is supported, he uses it to post to the creditors
ledger.
 He then forwards the invoice for payment.
 Invoice payment – see Bank payments procedures on 4.5.2
Double entry

Liability: DR Expenditure/Asset

CR. Creditors –Supplier’s a/c.

Payment: DR Creditors- supplier’s a/c.

CR – Bank

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iii) Stocks and Procurement Procedures
Guidelines
 Procurement should be in line with the national procurement guidelines
which require that: Each public procurement entity put in place an Internal
Tender Sub- Committee. The Management Committee determines the
structure and the method of functioning for the tender Sub-committee. The
responsibilities of the Internal Tender Committee are:
 Planning for procurements

 Preparation of the tender documents;

 Opening and evaluation of bids

 Award of contracts in accordance with the threshold.

 The procurement process should be properly documented. The

documentation should be retained and be properly kept.
 Planning: Each Co-operative society is required to plan for prospective
tenders to be awarded during the financial year.
 Internal Tender Sub - Committee of Co-operative’s award contracts in
accordance with the approved thresholds.
 The Stores Officer shall make note on the goods received note of short
deliveries or defective goods and initiate a follow up.

iv) Procedures
 The Accountant/Bookkeeper/book keeper identifies stock needs from time
to time. He then prepares a list of the stock items required.
 The Accountant/Bookkeeper/bookkeeper prepares a bid document
 He puts an advertisement through the local media/social gatherings/posters
 Potential suppliers asked to buy bid documents
 Suppliers given 14 days to return completed bid
 Suppliers returns completed bid documents in sealed envelopes
 Bids are opened in public in the presence of potential suppliers
 The Tender Sub- Committee members sign on all pages of the offers in the
presence of bidders
 The Internal Tender Sub- Committee carries out Technical and Financial
evaluation
 The Committee then writes to the Winners and Losers informing them
accordingly
 The Winner signs a contract with the Co-operative Society.
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  The winner is asked to deliver materials within a specified period after the
award
 The Bookkeeper prepares an Order Voucher
 He/ She then signs on the Order
 The bookkeeper takes the Order to the treasurer for authorization
 The Management Committee authorize the purchase by signing on the
Order
 The Accountant/Bookkeeper/bookkeeper then dispatches the 1st copy of
the Order Voucher to the supplier

v) Receiving procedure

 The Store Officer receives materials accompanied by the Delivery

Note/Invoice.
 He matches the Order Voucher with the Delivery Note and ensures that all
details are correct
 He then checks the quantity and quality and all the other specifications of
the Order
 He ensures that the Supplier has signed on the Delivery Note.
 He receives the goods in the store and signs on the Delivery Note
 The Stores Officer raises a Goods Received Note
 The Stores Officer gives a copy of the GRN and Delivery Note to the
Supplier
 He/ She then uses the stores copy of GRN to post into the Bin Card

vi) Issuing Procedure

 The Stores Officer receives request for materials
 He ensures the requisition is properly authorized. He/ She then issues the
item
 The person requisitioning receives the item and signs on the received by
section of the Stores Issue Voucher
 The Stores Officer uses the Stock Release Voucher to post to the Bin Card

vii) Stock Taking Procedures

 The Accountant/Bookkeeper prepares the stock taking instructions

 In preparation for the stocktaking, She/He:

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  Communicates the date and circulates the stock taking procedure
and instructions internally and to the External Auditors
 Assigns responsibilities
 Prepares resources
 Stationery
 Transport
 The stock takers physically count the stock
 The stock takers identify slow moving or obsolete stock
 They record the count on the stock sheet
 They reconcile the physical count with the bin cards
 They ascertain any discrepancies
 The Accountant/Bookkeeper carries out investigation on the discrepancies
 She/He then writes off with authority
 She /He contemplates/takes disciplinary action on the responsible
staff

viii) Accounting entry

 On receipt of goods

Dr Stock

Cr Cash/Bank/Creditors

 On issue of goods

Dr Expenditure

Cr Stock

3.4 Revenues and Expenditure

a) Income from Donors, other sources

Accounting Entry

Dr: Bank.

Cr: Funds from Donors and other sources.

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 b) Cash expenditures;

Dr: Specific Line expenditure account.

Cr: Cash.

c) Expenditures on credit;

Dr: Specific line expenditure account.

Cr: Creditors (Supplier) account

d) On payment to supplier;

Dr: Creditors (Supplier) account

Cr: Bank

4.0 Management records

4.1 Objective
Management records are not kept on double entry principles but are kept to supplement
the accounting records and to provide information for management to make appropriate
decisions. Decisions such as effective and efficient use of human resources or the
control of the use of stocks and other assets of the Co-operative society.

4.2 Payrolls
A payroll is a record of the salary bill paid by the Society. It includes the gross amount
paid to each employee, the deductions including contributions to pension schemes,
other contributions, salary advance recoveries, income tax deductions and the net pay.
The pay roll gives the total of each component for each employee and for all the
employees.

4.2.1 Procedures of preparing the payroll.

 The responsibility of preparing the payroll rests with the Accountant

/Bookkeeper

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  The Accountant/Bookkeeper receives his copy of inputs for payroll from the
Human Resources Department
 He keys in the inputs into the payroll.
 He then generates the payroll
 The Accountant/Bookkeeper will ensure that all accounts generated from the
payroll are properly treated in books of Accounts.

4.2.2 Salary advances

Accounting entry
Dr: Salary advance.
Cr: Cash/Bank.

On recovery of Salary advance;

Dr: Salaries and wages (expense)

Cr: Salary advance.

4.2.3 Staff Loans.

Accounting entry
Dr: Staff loan.
Cr: Cash/Bank.

On recovery of staff loan;

Dr. Salaries and Wages (Expense)
Cr. Staff Loan

4.2.4 Booking the net pay

Dr Salaries and Wages (Expense)
Cr Salaries and Wages (payable)

4.2.5 Pay as You Earn (P.A.Y.E) retained at Source.

Accounting entry
Dr. Salaries and Wages (Expense)
Cr. P.A.Y.E

4.2.6 National Social Security Fund.

Accounting entry
Dr. Salaries and Wages (Expense)

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 Cr. National Social Security Fund (Employees’ contribution)

4.2.7 Employers’ contribution

Dr. NSSF - Employer’s Contribution.
Cr. National Social Security Fund (employer’s contribution.)

4.2.7 National Hospital Insurance Fund (NHIF) retained at Source.

Accounting entry
Dr. Salaries and Wages (Expense)
Cr. NHIF

4.2.8 Housing Levy retained at Source.

Accounting entry
Dr. Salaries and Wages (Expense)
Cr. Housing Levy (Employees Contribution)
4.2.9 Employers’ contribution
Dr. Housing Levy - Employer’s Contribution.
Cr. Housing Levy (employer’s contribution.)

4.2.9 Other deductions retained at Source.

Accounting entry
Dr. Salaries and Wages (Expense)
Cr. Other deductions

4.2.9 Net Pay.

Accounting entry
Dr. Salaries and Wages (payable)
Cr. Bank

4.2.9 Statutory and other deductions payment

Accounting entry
Dr PAYE
Dr NSSF
Dr Other deductions
Cr Bank

4.2.9 The employer’s Contribution to National Social Security Fund is not deducted
from the employee’s Pay but is taken into account when computing NSSF.

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4.2.9 The Salary advance and Loan Accounts are debited at the time the money is
paid to the employee a credit entry is made when there is a recovery from the
employee. This will cancel the debit. The balance remaining in Salary advance or
Loan accounts will represent the employee’s indebtedness to the Society.
4.2.9 Pay as You Earn account represents the Liability to Kenya Revenue Authority in
respect of income tax on employee’s remuneration. When the Co-operative
settles the liability the Account reduces to nil balance. It is the responsibility of
the Accountant/Bookkeeper to ensure that P.A.Y.E is paid within the period
stipulated by law. The law requires that P.A.Y.E should be paid by the 15 th day of
the month following the one in which it is deducted.
4.2.9 The credit entries in the National Social Security Fund Account represent the Co-
operative liability to N.S.S.F. One part is deducted from the employee’s
remuneration and another one is paid by the employer. Once the liability is
settled the Account should read nil balance. The law requires that the N.S.S.F
obligations be settled on quarterly basis. It is the responsibility of the
Accountant/Bookkeeper to ensure that the N.S.S.F obligations are settled within
the stipulated time. Failure to correctly calculate and pay the N.S.S.F obligation
in accordance with the law will expose the Co-operative to heavy financial
penalties.
4.2.9 All the deductions retained at source shall be paid promptly to their final
destinations. The payroll deduction accounts are transitory accounts and shall all
finally have nil balances.

5.0 Fixed Assets Register

5.1 Objective.
To identify the capital expenditure that constitutes fixed asset and highlight the
procedures of managing and recording fixed assets.

5.2 Definition of fixed asset

Fixed Assets represent the resources acquired by the Co-operative that are for use in
the Co-operative, not for resale and have estimated useful life of more than one year.

5.3 Guidelines for fixed Assets.

 A fixed asset should be purchased only when the provision for its purchase is in
the Co-operative’s budget.
 The purchase of fixed assets shall be authorized by the management committee.
 Fixed Assets acquired through donations shall be brought into the fixed assets’
register at cost.
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  Expensive or highly specialized items of fixed assets shall be supplied with
performance guarantee or warranty agreements
 The technical specifications and the fixed asset capacity shall be part of the
supply agreement and it is on the basis of the specifications that the performance
guarantee shall be given.

5.4 Fixed Asset Register.

All the fixed assets of a Co-operative society shall be maintained in a Management
record called a fixed asset register. The fixed asset register shall have the following
information:

 The Fixed asset description.

 Manufacturer’ serial number and model
 The date of acquisition.
 The name of the supplier
 Location and state the item.
 The Purchase price in Kenya Shillings
 Internal identification number.
 The depreciation rate.
 Depreciation
 Accumulated depreciation and
 Balance – net written down value

5.5 Procedure for Fixed Assets Register

 The Accountant/Bookkeeper receives documents to support the purchase of a
new asset
 He/she uses the document to post all the above details into the fixed assets
register
 Depending on the reports frequency he uses the depreciation rate to calculate
depreciation which he indicates on the depreciation column of the fixed assets
register
 He then works out the accumulated depreciation and posts the amount on the
accumulated depreciation column of the fixed assets register
 The Accountant/Bookkeeper then works out the net book value of the asset.

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5.6 Fixed Asset Unique Identifier number
 Each fixed asset of the Co-operative shall be given a unique identification
number and it shall be indicated on a label, which shall be fixed on each fixed
asset.
 Fixed Assets in each office shall be listed and the list shall be posted in a clearly
visible place within that office.
 The Accountant/Bookkeeper is responsible for the Fixed Assets’ register and
shall keep track of how the fixed assets are distributed within the different
departments of the Co-operative society.
 Annual physical verifications shall be carried out and results agreed with the
Fixed Assets Register
 Movements of assets from one place to another, or from one department to
another shall be authorized by the Project Manager. In all instances a transfer
form shall be filled out.

6.0 Month and Year-End Procedures.

6.1 Objective
 To describe the procedures to be followed in preparing month and year end
financial reports and ensuring that the resulting information is relevant, reliable
and timely.
 It shall be the responsibility of the Accountant/Bookkeeper to ensure that monthly
and year- end reports are prepared and presented to management within the
stipulated deadlines.

6.2 Basic Routines

 Preparation of weekly /monthly financial reports.
 Weekly /monthly cash status reports or cash requirements report.
 Accounts payable aging, including commitments.
 Bank reconciliation and review of the cashbooks.
 Petty cash reconciliation
 Payroll, creditors’ reconciliation.
 Preparation of supporting schedules.
 Cut - off procedures.
 Accruals
 Preparation of economic reports - monthly variances against budget
 Income and Expenditure Account.
 Balance sheet.
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  Preparation and submission of Income tax returns in respect to Pay As You Earn.
(P.A.Y.E).

6.3 Hand-over
 The staffs responsible for the financial registers, for funds and other assets are
replaced in their posts only after their accountability has been proved and
according to the procedure governing the official handover with their designated
successors. This handover is done in the presence of two witnesses.
 A discharge is obtained by carrying out physical inventory of the assets in order
to ensure that the registered balances correspond to the existing assets.
 The financial registers are verified or reconciled in order to ensure their accuracy.
Physical inventory and reconciliation with the balances in the books are carried
out by the two parties who jointly sign the control documents as a proof of
accepting the handover report.
 At the end of the verification, the outgoing and incoming officers, together with
the witnesses, sign the discharge (handover) report or statement. The outgoing
officer remains accountable for any loss incurred during his/her term of office.
 The same verification also applies to the discharge or handover by temporary
personnel
 In case of the change of specimen signatures on the bank account, the bank is
notified immediately in writing by the Chairman management committee.

6.4 Audit
 An Independent Auditor shall perform annual audits. An audit report shall be
submitted to the central management committee on the year under review.
 Internal control issues that the independent auditor may come across during their
audits shall be communicated to the Management by way of a management
letter.
 The Independent Auditor shall produce a draft report and present it to the central
management committee who shall respond to the issues raised, in consultation
with management, before the final report is produced for presentation to the
members at the general assembly.
 The central management committee will ensure that the audit observations and
recommendations are implemented, or otherwise dispensed before the next
audit.
 The preparation and presentation of financial statements is the responsibility of
the central management committee. The external auditors shall just be
responsible for expressing an independent opinion on the financial statements.

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7.0 Policy Approval and Review

The society may review, amend or repeal this financial policy wholly or in part. Any
review and amendment shall be subject to approval by the management committee and
ratified by the general meeting.

Approved in a board meeting held on…………………under Minute

no…………………...

Chairman

Name………………………………………………. Signature…………………………
Date……………...

Hon Secretary

Name……………………………………………… Signature…………………………
Date……………...

Treasurer

Name……………………………………………... Signature…………………………
Date……………...

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