Standard on Internal Control for Credit Savings Cooperatives (CEC)

Banque de la République d’Haïti (BRH) 37 STANDARD ON INTERNAL CONTROL FOR CREDIT SAVINGS COOPERATIVES (CEC)

In accordance with Articles 7 and 12 of the Law of June 26, 2002, on Credit Savings Cooperatives (CEC), the following provisions regarding minimum internal control standards must be observed.

1. Definition of Internal Control Internal control is the set of systems established and maintained by management to facilitate the achievement of objectives and, as far as possible, ensure the orderly and efficient conduct of a CEC's activities (e.g., policies, procedures, accounting systems, job descriptions, internal control checklists, etc.). A key obligation of a CEC is to satisfactorily demonstrate to its members and the BRH that it manages its affairs and that its risks are handled in a sound and prudent manner.

2. Internal Control Framework Every CEC must implement an internal control system covering all aspects of its organization and operations, enabling it to prevent and detect irregularities and to conduct assessments regarding:

3. Its financial policies and practices;

4. The quality and reliability of its accounting;

5. The effectiveness of control activities;

6. The compliance of its operations with legislative and regulatory texts, its governing statutes, professional and ethical standards and practices, as well as with the management guidelines and standards established by its Board of Directors;

7. The quality, completeness, and reliability of information, whether intended for the BRH, the CEC's Board of Directors, its management, its General Assembly, and its Federation, where applicable;

8. The conditions for assessing, recording, retaining, and accessing this information.

9. Scope of Internal Control The internal control system must be tailored to the nature, volume of activities, and size of the CEC, as well as to the various types of risks to which it is exposed.

Banque de la République d’Haïti (BRH) 38 4. Internal Control Responsibility Any CEC with assets exceeding fifty million gourdes (50,000,000.00 gdes) must designate an internal control officer or, if deemed necessary, a department responsible for ensuring the consistency and effectiveness of its internal control, and who reports to the CEC's management on the execution of its duties. The CEC's Board of Directors appoints this officer or department and is informed by management of the designated person's or department's work plan and work report. The internal auditor reports directly to the Board of Directors. The internal auditor must, at least once a year, prepare an assessment of the cooperative's control environment. The officer is also required to send a copy of their report to the supervisory committee. It should be noted that hiring an internal auditor does not diminish the responsibilities of the supervisory committee. The Board of Directors must obtain the supervisory committee's non-objection agreement to dismiss the internal control officer. In the event of a disagreement between the Board of Directors and the supervisory committee, the dismissal decision must be submitted to the vote of the members' assembly. The internal auditor must ensure that the standards, procedures, and regulations to which the cooperative is subject are applied and respected. Under no circumstances may the internal auditor participate in the management of operations or decision-making.

5. Accounting Organization Every CEC must ensure that the accounting organization established to finalize the balance sheet, income statement, and any other financial statements guarantees the existence of a set of procedures enabling:

1. The chronological reconstruction of transactions;
2. The substantiation of any information by an original document from which it must be possible to trace uninterrupted back to the summary document and vice versa;
3. The explanation of balance evolution from one fiscal year to the next through the retention of movements affecting accounting items. Accounting information included in reports submitted to the BRH must comply with at least paragraphs 1 and 2. Each amount appearing in quarterly financial statements and their annexes, as well as in other documents submitted to the BRH, must be verifiable, particularly from the detail of the elements composing it.

6. Retention of Documentation Every CEC is required to retain all files and any other accounting records necessary to substantiate documents for at least ten years, starting from the end of each fiscal year.

7. Credit Operations In managing its credit operations, every CEC must comply with the relevant circular as well as the credit policy in effect within the CEC and, where applicable, that of its Federation. It must also examine the purpose of the requested credit, the source of repayment available to the borrower, and their repayment capacity.

Banque de la République d’Haïti (BRH) 39 CEC management must conduct, at least annually, a post-facto evaluation of the profitability of credit operations.

8. Granting of Loans or Commitments Procedures for approving loans or commitments, particularly when organized through the delegation of authority, must be clearly formalized and adapted to the characteristics of the CEC, especially its size, organization, and the nature of its activities.

9. Quarterly Analysis of Commitment Quality Every CEC must conduct, at least at the end of each quarter, an analysis of the evolution of the quality of its commitments. This review must, in particular, enable it to determine appropriate provisioning levels and to make the required accounting entries accordingly.

10. Supervision of Internal Control Activities At least once a year, the CEC's Board of Directors reviews the internal control activities and results based on information transmitted to it for this purpose by the person or department responsible for internal control. It prepares a report on the conditions under which internal control is ensured. This report includes, in particular: • The main deficiencies identified and a follow-up on corrective measures; • A description of significant changes made in the field of internal control during the supervised period; • A description of the conditions for applying procedures established for new activities; • A presentation of the main planned actions in the field of internal control. This report is submitted annually to the BRH, no later than the end of the second month following the end of the fiscal year.

11. Report to the Board of Directors Regularly, but at least once a year, CEC management informs the Board of Directors of essential elements and key lessons that can be drawn from internal control activities.

12. Procedures Manual Every CEC must develop and maintain an up-to-date procedures manual covering its various activities. This document must, in particular, describe the methods for recording, processing, and reporting information, accounting frameworks, and commitment procedures for operations. It must also establish, under the same conditions, documentation specifying the measures intended to ensure the proper functioning of internal control, including:

Banque de la République d’Haïti (BRH) 40 • The different levels of responsibility; • The frequency of controls; • The delegated duties and resources allocated to the functioning of internal control; • Procedures related to information and communication system security; • A description of risk measurement systems. The documentation must be organized to be easily understandable and made available, upon request, to executives, employees, the federation if affiliated, the external auditor, and BRH inspectors.

13 Sanctions In the event of a violation of the provisions of this circular, the BRH will impose an administrative sanction on the CEC in accordance with Articles 139 and 140 of the Law of June 26, 2002. Administrative sanctions imposed by the BRH must be addressed during the CEC's annual general meeting, pursuant to Article 43(g) of the Law of June 26, 2002.

14 Entry into Force of this Circular The provisions of this circular shall enter into force on _______________. Port-au-Prince, _______________________ 2008 Charles CASTEL Governor