Resolution No. 742-2001: Approves Internal Audit Regulation for Savings and Credit Cooperatives Not Authorized to Operate with Public Funds

Lima, October 5, 2001
Superintendence Resolution
No. 742-2001
The Superintendent of Banking and Insurance

CONSIDERING:

That, item 3 of the Twenty-Fourth Final and Complementary Provision of the General Law of the Financial System and of the Insurance System and Organic Law of the Superintendence of Banking and Insurance - Law No. 26702 and its modifying norms, hereinafter General Law, establishes that the supervision of savings and credit cooperatives not authorized to operate with third parties is under the responsibility of the National Federation of Savings and Credit Cooperatives (FENACREP) or other cooperatives federations to which they voluntarily affiliate and that are recognized by this Superintendence;

That, item 6 of the Twenty-Fourth Final and Complementary Provision of the General Law establishes that this Superintendence supervises and controls the aforementioned cooperatives federations, regulates the operations of said cooperatives, and is empowered to order the adoption of necessary measures to correct detected financial or administrative deficiencies;

That, internal audit work constitutes a vital element for the sound and prudent administration of the cooperative itself, as well as adequate support for the supervision and control of the respective federation;

That, it is necessary to update the norms issued by this Superintendence regarding internal audit work in the aforementioned cooperatives, so that their Supervisory Boards adequately fulfill the oversight functions recognized in Article 31 of the Single Consolidated Text of the General Law of Cooperatives approved by Supreme Decree No. 074-90-TR, as well as the control function established in item 2 of the Twenty-Fourth Final and Complementary Provision of the General Law;

That, in accordance with what is stated in literal a) of Article 62 of the Regulation of Savings and Credit Cooperatives Not Authorized to Operate with Public Funds approved by SBS Resolution No. 540-99, FENACREP has presented a normative proposal on internal audit;

Being in accordance with the opinion of the Adjunct Superintendencies of Banking and Legal Advice; and,

In exercise of the powers conferred by items 7 and 9 of Article 349, as well as in the Twenty-Fourth Final and Complementary Provision of the General Law;

RESOLVES:

Article First.- Approve the Internal Audit Regulation for savings and credit cooperatives not authorized to operate with public funds, which forms an integral part of this Resolution.

Article Second.- This Resolution enters into force from the day following its publication in the Official Journal El Peruano, from which date Circular No. COOP-037-94 of January 21, 1994 is repealed.

Register, communicate, and publish,

LUIS CORTAVARRIA CHECKLEY
Superintendent of Banking and Insurance

INTERNAL AUDIT REGULATION FOR SAVINGS AND CREDIT COOPERATIVES NOT AUTHORIZED TO OPERATE WITH PUBLIC FUNDS

CHAPTER I
GENERAL PROVISIONS

Scope

Article 1.- The provisions of this Regulation are applicable to savings and credit cooperatives not authorized to operate with public money, hereinafter cooperatives, and, where pertinent, to savings and credit cooperative central organizations.

Definitions

Article 2.- For the application of this Regulation, the following definitions shall be considered:

a) Scheduled activities: Evaluations that must be considered permanently in the Annual Internal Audit Work Plan. b) Unscheduled activities: Special examinations not established in the Plan and carried out when deemed necessary for the evaluation of the functioning of the internal control system. c) General Assembly: General Assembly of partners or members, which includes, where applicable, the bodies indicated in Article 28 of the General Law of Cooperatives. d) Days: Calendar days. e) Federation: National Federation of Savings and Credit Cooperatives of Peru (FENACREP) or another Federation recognized by the Superintendence. f) Significant events: Events that expose or may potentially expose the cooperative to risks that could impact its solvency and liquidity, such that there is a possibility of affecting the fulfillment of its obligations with its partners. g) Identification and management of risks: Determination, measurement, monitoring, and control of the risks assumed by the cooperative. h) General Law of Cooperatives: Single Consolidated Text of the General Law of Cooperatives, approved by S.D. No. 074-90-TR and its modifying and complementary norms. i) General Law: General Law of the Financial System and of the Insurance System and Organic Law of the Superintendence of Banking and Insurance, Law No. 26702 and its modifications. j) Internal audit manual: Document containing the policies, functions, procedures, and audit techniques used to evaluate the functioning of the cooperative's internal control system. k) Plan: Annual Internal Audit Work Plan containing the general guidelines, objectives, and scope of the audit program, schedule, and scheduled activities to be developed during each fiscal year. l) Cooperatives Regulation: Regulation of Savings and Credit Cooperatives Not Authorized to Operate with Public Funds, approved by SBS Resolution No. 0540-99. m) Internal control system: Set of policies, procedures, and control techniques established by the cooperative to achieve adequate administrative organization, operational efficiency, reliability of reports, appropriate identification and management of the risks it faces, and compliance with applicable legal provisions. n) Superintendence: Superintendence of Banking and Insurance. o) IAU: Internal Audit Unit.

Responsibility of the General Assembly and the Board of Directors

Article 3.- The General Assembly, as the supreme authority of the cooperative and primarily responsible for its control, must adopt the necessary actions so that the Supervisory Board performs both the oversight functions indicated in Article 31 of the General Law of Cooperatives and the control functions established in item 2 of the Twenty-Fourth Final and Complementary Provision of the General Law, as well as performs adequate follow-up on the compliance with the provisions of this Regulation. The Board of Directors is responsible for providing the resources and other facilities necessary for the development of these functions.

CHAPTER II
ON INTERNAL AUDIT WORK

Responsible for internal audit work

Article 4.-
1 The Supervisory Board is responsible for carrying out the minimum internal audit work indicated in Article 6 of this Regulation, through an Internal Audit Unit or an Internal Auditor, in the following cases:

a) Level 2 cooperatives that register total assets greater than thirty-two thousand two hundred Tax Units (32,200 UIT) and Level 3 cooperatives must have an Internal Audit Unit whose main function is the permanent evaluation of the functioning of the internal control system. This unit is organizationally and functionally dependent on the Supervisory Board and reports periodically to said body. b) Level 2 cooperatives that register total assets less than or equal to thirty-two thousand two hundred Tax Units (32,200 UIT) must have a full-time or part-time internal auditor in accordance with what is established in Article 10 of this Regulation.

Level 1 cooperatives may assign internal audit functions to members of the Supervisory Board, choosing one of them as responsible for audit work; this member must meet the minimum requirements indicated in Article 11 of this Regulation.

In these cases, the Superintendence, based on the magnitude and complexity of the operations and structure of the cooperative, may relax the requirements indicated in literals a) and b) of said Article.

Independence

Article 5.- Those responsible for carrying out internal audit work in accordance with the previous Article must have sufficient independence to perform their functions effectively, efficiently, and timely, having all the necessary powers to achieve their objectives. All of them must be effectively separated from the operational and administrative functions of the cooperative.

Functions

Article 6.- The internal audit functions that the Supervisory Board must perform at minimum through the corresponding persons in charge of internal audit work are the following:

1 Article substituted by SBS Resolution No. 480-2019, published on 7-2-2019.

a) Evaluate the design, scope, and functioning of the internal control system, as well as ensure its efficiency and effectiveness; b) Evaluate compliance with the legal provisions governing cooperatives. This includes compliance with norms contained in the General Law of Cooperatives, norms issued by this Superintendence, the Bylaws, and provisions issued by the Federation, among others; c) Evaluate the functioning of information systems and the mechanisms established by the cooperative for their security; d) Evaluate compliance with the policies, manuals, procedures, contingency plans, and other internal norms of the cooperative, as well as propose, if applicable, modifications to them; e) Perform permanent follow-up on the implementation of observations and recommendations made by the Federation, external auditors, as well as those made by the Supervisory Board itself; f) Prepare the Plan and make it known to the General Assembly of partners in the next session, as well as carry out scheduled activities and prepare the reports derived from them; g) Perform unscheduled activities when deemed convenient or upon request of the General Assembly of partners or by suggestion of the Board of Directors or the Manager; h) Maintain an updated file of all manuals and other internal norms of the cooperative, as well as those documents determined by the Federation; i) Communicate to the Board of Directors and to the Federation, immediately and simultaneously, the occurrence of significant events, once the corresponding investigations are concluded; j) Evaluate compliance with those aspects determined by the Federation; and, k) Others that are of interest to the cooperative.

Likewise, the Supervisory Board must ensure that the Board of Directors includes a summary of the significant events, reports, and decisions indicated in the second paragraph of Article 12 of this Regulation in the periodic information to members referred to in literal i) of Article 13 of the Regulation of Savings and Credit Cooperatives Not Authorized to Operate with Public Funds, approved by SBS Resolution No. 0540-99.

All functions corresponding to internal audit work performed by those in charge of internal audit work must be contained in the respective internal audit manual, which must be approved by the Supervisory Board and be available to the Federation.

Adequate infrastructure and other resources

Article 7.- Those in charge of internal audit work must have adequate infrastructure, as well as technical and logistical resources according to the nature of their activities, which must relate to the magnitude and complexity of the operations and structure of the cooperative.

The various persons in charge of internal audit work in accordance with Article 4 of this Regulation must receive permanent training in matters related to their functions.

Audit procedures and techniques

Article 8.- The audit procedures and techniques employed by those in charge of internal audit work must comply with the provisions established by this Superintendence and, in its absence, with what is stated in the Generally Accepted Auditing Standards (GAAS) and the International Standards on Auditing (ISA). Likewise, said audit procedures and techniques must be contained in the respective internal audit manual.

Coordination with external audit firms and the Federation

Article 9.- The Supervisory Board must establish the necessary coordination with the corresponding external audit firm and the Federation, in order to permanently evaluate the functioning of the internal control system.

CHAPTER III
ON THE INTERNAL AUDITOR AND THE PERSON RESPONSIBLE FOR INTERNAL AUDIT WORK

Selection

Article 10.- In cases where the establishment of the IAU is mandatory, it must be headed by a full-time Internal Auditor with exclusive dedication, whose selection is the responsibility and attribute of the Supervisory Board.

In the case of cooperatives indicated in literal b) of Article 4 of this Regulation, the Internal Auditor selected by the Supervisory Board may be part-time when permitted by the magnitude, complexity of operations, and structure of the cooperative, and this condition does not affect the adequate development of the functions assigned in this Regulation, an aspect that will be evaluated by the Federation.

Cooperatives must make the selection of internal auditors or the person responsible for the Supervisory Board's audit work known to the Federation within a period not exceeding fifteen (15) days from the time of selection, attaching a copy of the corresponding curriculum vitae.

Requirements and impediments

Article 11.- Those in charge of carrying out internal audit work in accordance with Article 4 of this Regulation, as applicable, must have moral solvency, appropriate knowledge, and experience for the corresponding function, and must meet the following minimum requirements:

a) Hold a professional degree and specialization in matters related to the functions of the IAU; b) Have no less than two (2) years of experience in audit activities or have held managerial positions in cooperatives or financial system companies for a period of no less than two (2) years, as applicable; c) Have no criminal record; d) Not be subject to any of the impediments indicated in item 3 of Article 33 of the General Law of Cooperatives and in Article 11 of the Regulation of Savings and Credit Cooperatives Not Authorized to Operate with Public Funds approved by SBS Resolution No. 540-99 of June 15, 1999; e) Not have been sanctioned by this Superintendence or by the Federation for the commission of infractions considered serious; f) Not have been sanctioned by any public or private body for the commission of infractions that, in the opinion of this Superintendence or the Federation, are considered serious; g) Not be in situations that limit their independence in the exercise of their functions; and,

h) Others established by this Superintendence, at the request of the Federation.

Responsibilities

Article 12.- Those in charge of carrying out internal audit work in accordance with Article 4 of this Regulation, as applicable, are responsible for complying with the obligations assigned to them in this Regulation, as well as for immediately and simultaneously informing the Supervisory Board and the Federation about any situation that significantly affects the development of their functions and independence.

Likewise, they must also immediately and directly inform the Federation, the Board of Directors, and the Supervisory Board, simultaneously, of the significant events they have detected during their internal audit work. The timing with which said boards receive these reports and the decisions adopted regarding them must be recorded in the corresponding minutes books.

Removal

Article 13.- The removal of the internal auditor or the member of the Supervisory Board responsible for internal audit work must be communicated previously to the Federation indicating the reasons justifying such measure. If deemed convenient, the aforementioned Federation may summon the internal auditor or member of the Supervisory Board responsible for internal audit work subject to removal.

In cases where removal is made effective, a copy of the Agreement of the Supervisory Board or General Assembly session, as applicable, in which the removal agreement is recorded, must be sent to the Federation. The vacancy situation cannot last more than thirty (30) days.

CHAPTER IV
ON THE ANNUAL WORK PLAN

Minimum content of the Plan

Article 14.- The Plan must be approved by the Supervisory Board, a copy of which must be sent to the Federation before December 31 of the previous year. Said Plan must consider, at least, the following aspects:

a) Diagnosis of the functioning of the internal control system; b) Annual objectives and scope of the audit program; c) Audit procedures and techniques to be used; d) Schedule of activities, examinations, and reports; and, e) Human, technical, and logistical resources available for the fulfillment of the Plan, indicating the list of professionals forming the IAU, their positions, and their professional training, and, if applicable, additional resources required for the fulfillment of the Plan. In the case where the establishment of the IAU is not required, the aforementioned information must be related, as applicable, to the internal auditor or to the members of the Supervisory Board in charge of internal audit work.

The Federation may make observations on the content of the Plan within thirty (30) days following its presentation.

Scheduled Activities

Article 15.- The Plan must consider as permanent activities, at least, those indicated below:

a) Review at least quarterly of compliance with policies and procedures implemented for granting, follow-up, evaluation, classification of debtors, as well as for recovery and write-off of credits; b) Verification of the adequate and timely accounting recording, as applicable, of current placements, refinanced, overdue, and in judicial collection, as well as of provisions, interest, suspended interest, commissions, and other corresponding charges; c) Selective verification at least quarterly of the calculation of provisions for the different credit modalities granted by cooperatives, in accordance with current norms; d) Verification of compliance with the operational limits of the cooperative, both individual and global; e) Verification of the calculation of risk-weighted assets and effective equity; f) Evaluation of the information technology risks they face; g) Verification at least quarterly of the adequate accounting recording and valuation of investments made by cooperatives and their corresponding provision establishment; h) Evaluation of the level of claims presented by cooperative partners and the treatment given; i) Verification of the update of the partner registry; j) Verification of compliance with General Assembly agreements; k) Evaluation of compliance with recommendations made by the Supervisory Board, external auditors, and by the Federation; l) Verification of the calculation of the premium payable to the FSDC and evaluation of the database that the Coopac must have regarding deposits covered by the FSDC; and, 2 m) Other evaluations and reports that Coopacs must perform periodically in accordance with current provisions of this Superintendence. 3

Modifications to the Plan

Article 16.- Substantive modifications made to the Plan must be communicated to the Federation within fifteen (15) days of approval, attaching a copy of the agreement of the respective Supervisory Board session, where the reasons that gave rise to them are specified.

Report on Plan Progress

Article 17.- The Supervisory Board will present to the Federation, within twenty (20) days following the close of each quarter, with a copy to the Board of Directors, a quarterly report on the progress of the Plan, indicating the fulfillment of the corresponding objectives and activities.

A list of all reports prepared during the respective quarter will be included in said report, indicating whether they derive from scheduled or unscheduled activities, date, and brief summary of the content, detailing the main observations and recommendations. Together with the aforementioned quarterly report, reports prepared regarding literals a) and c) of Article 15 of this Regulation must be sent.

The Federation may determine models for the aforementioned reports, as well as for those included in Article 20 of this Regulation.

2 Literal substituted by SBS Resolution No. 5646-2019 of 29.11.2019.
3 Literal incorporated by SBS Resolution No. 5646-2019 of 29.11.2019.

CHAPTER V
OF THE REPORTS

Minimum Content of Reports

Article 18º.- The reports derived from examinations carried out by those responsible for performing internal audit work, in accordance with Article 4 of these Regulations, must contain, at a minimum, the following information:
a) Reason for the preparation of the report, indicating, as appropriate, the reference to the scheduled or unscheduled activity or to the body that requested the report, and, if applicable, referring to the existence of significant events; b) Objective and scope of the evaluation; c) Audit procedures and techniques employed; d) Evaluation of the status of the reviewed activity or operation as of the date of the report, identifying the risks detected and their impact on the cooperative, as well as the evaluation of the procedures and controls used by the cooperative; e) Corrective measures recommended and/or adopted to remedy the identified problems or deficiencies, as appropriate; f) Personnel in charge of the examination; and, g) Start and end dates of the examination.

Presentation and Archiving of Reports

Article 19º.- The Supervisory Council must present to the Board of Directors all reports related to the internal audit work it prepares in fulfillment of its functions. This body must evaluate the respective reports no later than in the immediate subsequent session following their presentation. The timing by which this body becomes aware of the reports and the decisions adopted regarding them must be recorded in the respective Minutes Book.

The Supervisory Council must maintain a file containing the aforementioned reports prepared and the communications with the different units of the cooperative, as well as the supporting documentation for them. This information must be available to the Federation and to external auditors.

Follow-up of Reports

Article 20º.- The Supervisory Council must present quarterly to the Board of Directors and to the Federation, within twenty (20) days following the close of each quarter, a report on the follow-up of the implementation of observations and recommendations formulated by the Federation, external auditors, as well as those made by the Supervisory Council itself.

TRANSITIONAL PROVISION

Compliance Period

First.- Cooperatives will have a deadline ending on December 31, 2001, to adapt their Plan to the provisions of this regulation, as well as to appoint, as appropriate, those responsible for internal audit work in accordance with Articles 4, 10, and 11 of these Regulations.