Reflections on Statutory Fund of Cooperatives (Part 3)

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In the three previous write ups, we dealt on the three other statutory funds namely education and training fund, community development fund and optional fund. Let us now tackle the fourth statutory fund, the reserve fund or previously referred as general reserve fund.

Cooperatives follow the Standard Chart of Accounts in the presentation of financial reports. Some adhere to the provisions of their by-laws and the Code on the 10% allocation for Reserve Fund. For newly registered cooperative, the need to allocate 50% of its Net Surplus for a period of 5 years is mandatory. The question is “Is the allocated statutory fund provided with a fund?” The purpose of the statutory fund is to serve as buffer fund in case of operational losses. When the cooperative incurs deficit, the best source is not from borrowing but should be from internally generated fund allocated for the purpose. The Code and by-laws clearly states that this is a restricted fund.

Some cooperatives fail to recognize the importance of this statutory fund. But to those who had experiences operational losses, they can attest to the usefulness of this required fund. Observations and results of inspection of cooperatives in the past indicate that some cooperatives claim to have allocated statutory funds from the net surplus. Others claim to have been funded? However, looking into the financial statements reveals the opposite. A glance at the financial statement especially on the statutory funds and cash in bank can somehow give an idea that they might have allocated funds. But it might not have been placed in a bank account as the amount could have been plowed back to the operations or worst used for other purposes.

As cooperatives must be self-reliant and proactive in its business operations, the need to allocate an amount purposely for the statutory fund is a must. The Cooperative Development Authority through its authorized inspectors      monitors annually the compliance of every cooperative on this matter. Whether CDA looks into the funding and its usage, it is the cooperative members, officers and staff that must adhere to such provision of the law. Non-adherence could indicate a problem on the ability of the officers and staff to follow governance. After all, the business is owned and operated by members and whatever happens, the accountability and responsibility is for them to explain.

The month of May is meant for the greatest creatures of this universe, HAPPY MOTHERS DAY!

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