Chapter 1

COMPANY PROFILE

A cooperative is a unique form of business used by people and

businesses for their mutual benefit. It is an association of persons, small

producers or consumers, who have come together voluntarily to achieve

some of common purpose by a reciprocal exchange of services through a

collective economic enterprise working at their common risk and with

resources to which all contribute.

The aim of cooperative is to produce goods and deliver services,

and to satisfy the legitimate needs of members and also to promote

cooperation, relations, participation and consequently to promote

interpersonal connections. In terms of economic and social development,

cooperatives promote the fullest participation of all people and facilitate a

more equitable distribution of the benefits of globalization. They

contribute to sustainable human development and have an important

role to play in combating social exclusion. Thus, the promotion of

cooperatives should be considered as one of the pillars of national and

international economic and social development.

Regardless of the type, size, geographical location or purpose,

cooperatives should provide a unique tool for achieving one or more

economic goals in an increasingly competitive global economy.

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I. Brief History

The dream of a young man, former Mayor of Agoo, Jose Luis M.

Aspiras and his vision, his desire to HELP the poor people of Agoo, La

Union in order to free them from poverty was the eye- opener to the idea

behind the organization of the CBLU (Cooperative Bank of La Union). The

plan to establish the cooperative was under the initiative of Chairman,

Amparo M. Aspiras of the La Union Laidies Association, together with the

support of Dir. Felipe R. Fronda of Cooperative Union of the Philippines,

CDA Officer Ms. Anita Abellera and other cooperative leaders in La

Union.

Cooperative Bank of La Union (CBLU) was conceptualized on

September 9, 1991. The cooperative was given a Certificate of Authority

to operate as a bank by BangkoSentral ng Pilipinas (BSP) on November

24, 1993. On December 15, 1993 the Cooperative Development Authority

(CDA) issued a Certificate of Registration as a cooperative entity.

Cooperative Bank of La Union started its operation on January 18, 1994.

Cooperative Bank of La Union is also involved to different

community services such as Tree Planting, Feeding Program. The CBLU

is also sponsoring Barangays and Town Fiestas as well as its members,

schools and other agencies.

As it continually grow, CBLU also created affiliations with

Philippine Deposit Insurance Corporation, BangkoSentral ng Pilipinas,

Cooperative Development Authority, Luzon Federation of Cooperative

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Banks, Cooperative Union Of The Philippines, Cooperative Insurance Of

The Philippines, Country Bankers Insurance Corporation, La Union

Chambers Of Rural Banks, Rural Bankers Association Of The

Philippines, Municipal Cooperative Development Council, Provincial

Cooperative Union, Provincial Cooperative Development Authority,

Regional Cooperative Development Council.

The bank has initial 26 coop members, with only P 2.7 million

paid-up capital. At present, it has a total of 171 cooperative members

while total capital of the bank as of December 31, 2017 is P

33,664,940.00 with Paid-up Capital of P 21,510,900.00. As an update,

the bank has transferred to its new building located at National Highway

Sta. Barbara, Agoo, La Union.

Company’s Logo

Figure 1.1 Company Logo

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II. Company’s Vision and Mission

Vision Statement

A financially stable and growing Cooperative Bank in Northern

Luzon practicing good governance by providing affordable and effective

banking services that responds to the needs of its stakeholders in the

countryside development.

Mission Statement

Committed to deliver financial packages through innovative

products and services;

Be an active player in the economic group of mandated sectors:

AGRI-AGRA and MSMEs;

Lead in the advocacy for saving mobilization, financial literacy and

eventually, independence, and;

Undertake appropriate seminars and trainings for the professional

growth of officers and staffs towards their excellence.

Goals and Objectives

1. Forge partnership with COOP movements for programs benefiting

stakeholders

2. Expand membership base and deepen sense of ownership mind set

among members

3. Launch new and innovative products and timely implementation of

remedial actions
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4. Translate financial literacy into a culture if savings among the

stakeholders

5. Comply fully to the rules promulgated by regulatory bodies

6. Observe professionalism and excellence among officers and staff

III. Services offered

The cooperative offers different services as to its clients’ demands and

such are the following:

1. Bank Services

2. Savings Deposits

3. Time Deposits

4. Special Time Deposits

5. Lending Services

CBLU also offers different kinds of loans such as:

1. Agricultural loan

2. Commercial loan

3. Industrial loan

4. Tricycle loan

5. Auto loan

6. Jewerly loan

7. Farmers loan

8. Cooperative loan

9. Other loans ( Salary, OFW, Pension)

It also offers different programs to its clients such as:

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1. Smart Deposits under lending Microfinance Program

2. Barangay Officials Credit Assistance Program

IV. Location and Contact Information

Cooperative Bank of La Union is currently located at Dona TorilbaAspiras

Road, Consolacion, Agoo, 2504, La Union, Agoo, La Union with the

contact number (072) 521 0006.

PNB

TO MARKET TO DMMMSU-SLUC

LANDBANK

METROBANK TO LBC
MA
NILA
BALIWAG LECHON
CHICKEN
COOPERATIVE BANK OF AGOO-SAN FERNANDO
LA UNION BUS STOP

7- ELEVEN

Figure 1.2 Location Map

V. Nature of the Business

The Cooperative Bank of La Union offers bank services, different types of

deposits as well as lending services. It also offers different kinds of loans

to its clients to meet their demands. With the objective of helping the

people to be freed from poverty and achieving its economic goals and

objectives, CBLU is engaged in different programs that will contribute to

the social development.

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Duties and Responsibilities

Election Committee

They supervise the conduct, manner, procedure of election and

decide on election-related cases except those involving the Election

Committee or its members.

Audit Committee

The Audit Committee is responsible in overseeing the financial

reporting framework including the financial reporting process, practices

and controls. They also monitor and evaluate the adequacy and

effectiveness of the internal control system.

Mediation and Conciliation Committee

The Mediation and Conciliation Committee shall be responsible in

formulating, developing and monitoring the conciliation-mediation

program and ensure that it is properly implemented.

Risk Management/ Oversight Committee

It shall oversee the system of limits to discretionary authority that

the Board delegates to management, ensure that the system remains

effective, that the limits are observed and that immediate corrective

actions are taken whenever limits are breached.

Credit Committee

Its main function is to process and scrutinize loan applications

and recommend approval or rejection to the Board of Directors

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Corporate Governance Committee

It is the responsibility of the committee to ensure the Board’s

effectiveness and due observance of corporate governance and principle

and guidelines. It shall also oversee the periodic performance evaluation

of the Board and its Committees and executive management and shall

also conduct an annual self-evaluation of its performance

Ethics Committee

The Committee shall develop, disseminate, promote, implement

and monitor Code of Governance and Ethical Standards to be observed

by the members, officers and employees of the Cooperative. The

committee shall also conduct initial investigation or inquiry upon receipt

of a complaint involving Code of Governance and Ethical Standards.

Gender and Development Committee

The Gender and Development Committee will perform duties and

responsibilities in accordance with existing policies of GAD.

General Manager

The General Manager is the one who oversees the overall day-today

business operations of the cooperative by providing general direction,

supervision and ensuring that the Cooperative Bank’s activities and

operations are consistent with the strategic objectives, risk strategy,

corporate values and policies of the Cooperative Bank.

Secretary
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He shall record, prepare and maintain records of all minutes of

meetings of the Board of Directors and the General Assembly. He shall

ensure that necessary Board of Directors’ actions and decisions are

transmitted to management for compliance and implementation.

Treasurer

The treasurer has the custody of all funds, securities and

documentations relating to all assets, liabilities, income and

expenditures. He shall also have to keep full and complete records of

cash transactions and make the necessary reports as maybe required by

the Board of Director.

Chief Compliance officer

The Chief Compliance officer is a full-time senior officer who shall

oversee the design of an appropriate compliance system for the

Cooperative Bank, administer and promote its effective implementation

and address breaches that may arise.

Internal Auditor

He shall also review the application and effectiveness of risk

management. He has also the responsibility of assessing the accuracy

and reliability of the accounting system and of the resulting financial

reports.

Loan Officer/Loans and Credit Head

The Loan Officer/Loans and Credit Head is responsible in

preparing credit application and presentation of loan applications to the

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Credit Committee among other functions prior to the conferral of the

loan. He ensures compliance to all policies, guidelines and procedures of

credit.

Remedial Management Officer

The Remedial Management Officer is the one who ensures

immediate collections of all past due and loans in litigation. He

represents the Bank in court litigation of loans or foreclosure

proceedings and implements all policies regarding past due accounts,

loans in litigation and Real & Other Properties Acquired (ROPA) by the

Bank.

Appraiser/Credit Investigator

Appraiser/Credit Investigator is responsible in investigating and

checking trade dealings, credit background on pending or decided court

cases of the prospective borrower.

Collection Officer

Collection Officer has a function of Loan Monitoring wherein he

prepares monthly aging of loan receivable based on Portfolio at Risk

(PAR) classifies the loan portfolio according to the purpose of the loan,

and verifies the actual application of the loan to the borrower after the

release.

Cashier

The Cashier acts as a co-custodian of cash in vault and collateral/

credit folders and acts as a custodian of Petty cash Fund and other cash
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items kept inside the vault including passbooks of depository banks. He

ensures that all deposits of the Bank with depository bank are intact and

reflected in passbooks and ensures proper preparation/ issuance of

Cashiers or Corporate checks.

Accountant

The Accountant is the one who acts as the Controller of the Bank.

He sees to it that financial statements and all other reportorial

requirements are promptly submitted to the General Manager, Board of

directors and other government entities. He ensures correct consolidation

of daily proof sheet of Sections/Department and ensures that all daily

transactions are properly posted to the general and subsidiary ledgers.

Bookkeeper

The bookkeeper is the one who is responsible in the processing of

annual registration of books of accounts clearances to the BIR. He

provides an accurate computation of interests on savings, SMART, and

time deposits. He prepares individual subsidiary ledgers of clients.

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Chapter 2

INTERNAL CONTROL AND COMPANY BUSINESS OPERATIONS

Cooperative Bank of La Union sets its objectives which will be their

basis in formulating rules, regulations, and policies within the company

for which compliance is a must in order for those company objectives to

be achieved. The company’s objectives includes profitability, professional

growth of its officers and staff towards excellence, efficiency of its

operations, compliance with the established rules and regulations within

and outside the company, financial literacy, delivery of innovative

products and services, and many more. However, factors that can hinder

in the fulfilment of such objectives are unavoidable. The company, in

order to achieve its desired goals, should lessen those factors which

threaten the fulfilment of the company objectives.

The company should therefore establish an effective internal

control system in order to lessen the risk that the company objectives

will not be achieved. The company should formulate rules and

regulations that can prevent, or lessen the risk of these factors. The

company should ensure that such internal control system will be

effectively and efficiently observed and implemented, in order to achieve

the desired goals and objectives.

I. Internal Control

Internal controls are measures effected by those charged with

governance to provide reasonable assurance that the company’s

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objectives will be achieved. These controls are geared towards the

attainment of the company objectives such as effectiveness and efficiency

of operations, compliance with laws and regulations, and the reliability of

financial reporting. Internal control has five components that helps the

company achieved its objectives namely: Control Environment, Risk

Assessment, Information and Communication System, Control Activities,

and Monitoring.

Established internal controls of Cooperative Bank of La Union

(CBLU) play an integral role in ensuring the effectiveness and efficiency

of its operations. It served as the primary framework towards the

attainment of the bank’s objectives and goals. In line with it, the bank’s

Board of Directors (BOD) is responsible for approving and overseeing the

implementation of the CBLU’s strategic objectives, risk strategy,

compliance program, corporate governance, and corporate values. The

BOD sees to it that organizational rules, by-laws, or other similar

documents setting out its organization, rights, responsibilities, and key

activities are periodically updated and maintained.

A. Control Environment

Control environment sets the tone of an organization, influencing

the control consciousness of is people. These are set of standards,

processes, and structures that provide the basis for carrying out internal

control across the organization. The Cooperative Bank’s Officers set the

tone of the company regarding the observance of the internal control

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system of the bank. Officers shall promote the good governance practices

within the bank by ensuring that policies on governance are consistently

adopted across the bank.

The control environment of Cooperative Bank of La Union (CBLU)

is comprised of the Company Objectives, Policy-Making Body, Employee

Discipline, Audit Committee, Organizational Structure, Personnel

Policies, and General Policies

 Company Objectives

Cooperative Bank of La Union’s primary objective is to help the

poor people of Agoo to be freed from poverty and to be an active player in

the economic growth. CBLU aims to launch new and innovative products

and timely implementation of remedial actions. The cooperative aims to

provide affordable and effective banking services that respond to the

needs of its stakeholders in the countryside development. It also aims to

forge partnership with cooperative movements for the different programs

that will benefit its stakeholders. Also, the cooperative aims to translate

financial literacy into a culture of savings among its stakeholders. CBLU

also aims to accept or mobilize savings of its members and the general

public. The cooperative also aims to observe professionalism and

excellence among its officers and staff through the continuing trainings

which will expound their knowledge and in order to undertake their

duties and responsibilities effectively and efficiently. CBLU also aims to

comply fully with the rules and promulgated by regulatory bodies. The
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cooperative aims to carry on its banking and credit services effectively

and efficiently to create good relationship with its clients as well as form

a good image of the cooperative to the general public. The Cooperative

Bank of La Union objectives are established concerning key areas such

that financial reporting, compliance, and operations of the bank.

 Policy Making Body

The Cooperative Bank of La Union has its own Board of Directors

(BOD) which is responsible in the direction and management of business

affairs. It is composed of seven members or which two are independent

directors. The corporate powers of a Cooperative Bank shall be exercised,

its business conducted and all its property controlled and held, by its

Board of Directors. The directors hold their office charged with the duty

to exercise sound and objective judgement for the best interest of the

bank. The board is also responsible in establishing strategic objectives,

risk strategy, compliance program, corporate governance and corporate

values. The board of directors is also responsible in overseeing and

monitoring the performance of the Cooperative Bank.

 Employee Discipline

All employees are expected to perform their duties with diligence. It

should be ensured that they meet the work standards of the Cooperative

Bank of La Union as well as complete the tasks and work assignments

within the time prescribed by their superiors. Furthermore, employees’

ethical values are essential in order to contribute to the building of a

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good image of the company to the public. The attitude and values of such

employees are also essential in the achievement of the company

objectives. The primordial duty of the management is to see that order

and discipline are maintained and that general interest of the bank is

safeguarded. In doing so, the Cooperative bank sets rules and

regulations in order to ensure that all the officers and employees of the

Cooperative Bank are duty bound to protect and promote the interest of

the institution at all times.

CBLU has a written Code of Conduct which is directed toward all

the employees of the bank. The Cooperative Bank has set in its manual

the disciplinary actions applicable for employee misconduct which may

also be a ground for dismissal after due process. Fighting and

quarrelling, intoxication, gross discourtesy, insolence, disrespect and

insulting behaviour are considered by the bank as serious misconduct.

Wilful disobedience of bank rules, regulations and instructions includes

insubordination, violations of rules and regulations such as excessive

absences, excessive tardiness, conflict of interest, gambling, betting or

taking part in any game of chance while in the bank premises or property

and wasting time or loitering while on duty. Accordingly, unauthorized

and unexcused absences for two (2) but not more than six (6)

consecutive working days shall be considered as excessive absences and

tardiness for five (5) times or an accumulated tardiness of one hundred

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fifty (150) minutes within any thirty (30) day period starting from the first

day of tardiness shall be considered as a single and separate offense.

Neglect of duties of managerial or supervisory employee, fraud or

any other breach of trust like unauthorized use of bank facilities or

equipment, theft or unauthorized appropriation of bank property, cash

shortage of collecting officers, shortage in money accountability,

revelation of employee of confidential matter or information and

falsification of work reports, commission of crimes which are punishable

by law and directly affects the bank, or a criminal offense that may not

directly affect the bank but is serious enough to show lack of fitness or

qualification of the employee shall be grounds for dismissal after due

process are also included in the Cooperative Bank’s Code of Ethics. For

employee resignation, employees are required to serve advance written

notice of resignation thirty (30) days before the date of intended

resignation.

When an offense is discovered, the superior of the erring employee

of the bank will submit a written report to the General Manager.

Accordingly, when the offense charged involves the penalty of dismissal,

the Personnel Committee shall review the proceedings and may affirm or

modify the penalty, and until the review is completed. The General

Manager’s decision with regard to the penalty is implemented after the

conduct of the review. For penalties lover than dismissal, decisions by

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the General Manager may be appealed to the Board of Directors whose

decision shall be final.

The written Code of Conduct of CBLU is reviewed at least annually

by the Board of Directors or when a need for review arises.

 Audit Committee/ External Auditor/ Internal Auditor

The Audit Committee is responsible in overseeing the financial

reporting framework including the financial reporting process, practices

and controls. They also monitor and evaluate the adequacy and

effectiveness of the internal control system. They are also responsible in

the appointment, remuneration and dismissal of internal auditor as well

as the appointment, fees and replacement of external auditor. Also, this

committee oversee the financial reporting process, practices, and controls

and ensure that the reporting framework enables the generation and

preparation of accurate and comprehensive information and reports. The

Audit Committee also conducts surprise cash audit while financial

statements are audited at the end of each month. While the Internal

Auditor is the one who reviews the reliability and integrity of financial

and operating information and the means used to identify, measure,

classify and report such information. The internal auditor is also

responsible in reviewing the banks operations or programs to ascertain

whether results are consistent with established objectives and goals and

whether the operations or programs are being carried out as planned.

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 Organizational Structure

The Cooperative Bank has its own defined organizational structure

which serves as the framework in the planning, directing and controlling

the entity’s conduct of operation. The organizational structure serves as

the building block of the company in the performance of its personnel’s

duties and responsibilities. The Cooperative Bank’s organizational

structure is reviewed by the senior management annually. Also, all the

bank’s operations are centralized.

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Company’s Organizational Structure

Figure 2.1 Company’s Organizational Structure

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 Duties and Responsibilities

In the by-laws of the Cooperative Bank of La Union, the

assignment of its responsibility and authority is clearly stated. Specific

lines of authority and responsibility have been established to ensure the

cooperative bank’s compliance with the Cooperative Development

Authority, BangkoSentral ng Pilipinas, Bureau of Internal Revenue, and

Philippine Deposit Insurance Corporation. As for the General Assembly

which is composed of cooperative organizations which are regular and in

good standing. One of its primary responsibilities is to determine and

approve amendments to the cooperative’s Articles of Corporation and By-

Laws. It is also tasked to elect and appoint members of the Board of

Directors and member of the Election Committee.

The Audit Committee is responsible in overseeing the financial

reporting framework including the financial reporting process, practices

and controls. They also monitor and evaluate the adequacy and

effectiveness of the internal control system. They are also responsible in

the appointment, remuneration and dismissal of internal auditor as well

as the appointment, fees and replacement of external auditor. The

Election Committee is responsible in formulating and implementing rules

and guidelines duly approved by the General Assembly. They also

recommend necessary amendments to election rules and guidelines in

consultation with the board of directors, and subject for approval of the

General Assembly. They supervise the conduct, manner, procedure of

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election and decide on election-related cases except those involving the

Election Committee or its members. The Mediation and Conciliation

Committee shall be responsible in formulating, developing and

monitoring the conciliation-mediation program and ensure that it is

properly implemented. They shall submit reports of cases to CDA within

fifteen days after the end of every semester and submit recommendations

for improvement to the Board of Directors. The Risk Management/

Oversight Committee shall be responsible for the development and

oversight of the risk management for the bank and its trust unit. It shall

oversee the system of limits to discretionary authority that the Board

delegates to management, ensure that the system remains effective, that

the limits are observed and that immediate corrective actions are taken

whenever limits are breached. The Credit Committee’s main function is

to process and scrutinize loan applications and recommend approval or

rejection to the Board of Directors. The Corporate Governance Committee

shall review and evaluate the qualifications of all persons nominated to

the board as well as those nominated to other positions requiring

appointment by the Board of Director. It is the responsibility of the

committee to ensure the Board’s effectiveness and due observance of

corporate governance and principle and guidelines. It shall also oversee

the periodic performance evaluation of the Board and its Committees and

executive management and shall also conduct an annual self-evaluation

of its performance. The Ethics Committee shall develop, disseminate,

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promote, implement and monitor Code of Governance and Ethical

Standards to be observed by the members, officers and employees of the

Cooperative. The committee shall also conduct initial investigation or

inquiry upon receipt of a complaint involving Code of Governance and

Ethical Standards. The Gender and Development Committee will perform

duties and responsibilities in accordance with existing policies of GAD.

The officers of Cooperative Bank of La Union shall be the

Chairperson, Vice- Chairperson, Chief Executive Officer/ General

Manager, Secretary, Treasurer, Chief Compliance Officer and Internal

Auditor and other officers whose position and duties are defined in the

By-Laws, or are generally known to be the officers of the bank either

through pronouncement, representation, publication or any kind of

communication made by the bank. The duties and responsibilities of the

officers were as follows:

a. Chief Executive Officer/ General Manager

The Chief Executive Officer/ General Manager is the one who sees

to it that all laws, rules, regulations, directives, circulars, memoranda

and instructions by the Bangko Sentral ng Pilipinas (BSP), Philippine

Deposit Insurance Corporation (PDIC), Cooperative Development

Authority (CDA) and other regulatory or supervisory bodies covering

bank operations are strictly complied with and implemented. The

General Manager is also in-charge on the over-all management,

operation, and supervision of the employees.

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b. Secretary

The Secretary keeps the records of the cooperative bank and shall

keep an updated and complete registry of all members. He shall record,

prepare and maintain records of all minutes of meetings of the Board of

Directors and the General Assembly.

c. Treasurer

The Treasurer ensures that all cash collections are deposited in

accordance with the policies set by the Board of Directors. The treasurer

has the custody of all funds, securities and documentations relating to

all assets, liabilities, income and expenditures. He shall also have to keep

full and complete records of cash transactions and make the necessary

reports as maybe required by the Board of Director.

d. Chief Compliance Officer

The Chief Compliance officer is a full-time senior officer who

oversees the design of an appropriate compliance system for the

Cooperative Bank, administer and promote its effective implementation

and address breaches that may arise.

e. Internal Auditor

The Internal Auditor undertakes internal audit functions such as

examination and evaluation of the adequacy and effectiveness of the

internal control system. He also reviews the application and effectiveness

of risk management. He has also the responsibility of assessing the

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accuracy and reliability of the accounting system and of the resulting

financial reports.

f. Collection Officer

The Collection Officer has the Loan Collection, Asset Recovery and

Administrative Functions wherein he is responsible for the immediate

collection of all accounts, and recovery of charged off and written off

delinquent accounts, submits and prepares monthly loan collection

report and supervises loan collectors.

g. Cashier

The Cashier acts as a co-custodian of cash in vault and collateral/

credit folders and acts as a custodian of Petty cash Fund and other cash

items kept inside the vault including passbooks of depository banks. He

ensures that all deposits of the Bank with depository bank are intact and

reflected in passbooks, and ensures proper preparation/ issuance of

Cashiers or Corporate checks.

h. Accountant

The Accountant is the one who acts as the Controller of the Bank.

He sees to it that financial statements and all other reportorial

requirements are promptly submitted to the General Manager, Board of

directors and other government entities. He monitors the bank's cash

position report, forecasting and maximizing use of cash to maintain

liquidity requirements of the Bank. He ensures correct consolidation of

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daily proof sheet of Sections/Department and ensures that all daily

transactions are properly posted to the general and subsidiary ledgers.

i. Bookkeeper

The bookkeeper is the one who is responsible in the processing of

annual registration of books of accounts clearances to the BIR.He

prepares individual subsidiary ledgers of clients. He also prepares

accounting entries, correcting and adjusting entries, if necessary. He

prepares tickets and proof sheets related to accounting entries and

consolidated proof sheet. He posts and balances entries to subsidiary

ledgers.

 Personnel Policies

The Cooperative Bank of La Union management team is composed

of the General Manager, Accountant, Bookkeeper, and other officers who

are involved in the day to day operations of the company. The Board of

Directors set policies with regard to the appointment and compensation

of the CBLU’s management team.

a. Appointment of Management Team

The Board of Directors set minimum requirements that an

individual should possess in order to be qualified in the management

team of the Cooperative Bank. The following are the minimum

requirements that an officer should have:

 He shall be at least twenty-one (21) years of age

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 He shall be at least college graduate, or have at least five (5) years’

experience in banking or trust operations or related activities or in a field

related to his position and responsibilities, or have undergone training in

banking or trust operations acceptable to the BSP.

 General Manager shall have actual banking experience

 Must fit and proper for the position he is being proposed/

appointed to. In determining whether a person is fit and proper for a

particular position, the following matters must be considered:

integrity/probity, competence, education, diligence and experience/

training.

 General Policies

The bank fills vacant positions through intensive selection and

evaluation of candidates who apply for such positions. The candidates

shall possess the following requirements:

 Education and Training

These refer to the educational background and completed training

programs relevant to the responsibilities of the position to the filled.

 Experience and Accomplishments

These include occupational history, work experience, awards and

outstanding accomplishments worthy of special commendation.

 Physical Characteristics and Personality Traits

These refer to the physical fitness, attitudes and personality traits

of the candidate, which may have a bearing on the position to be filled.

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 Potential

These refer to the indicators of the capability of the individual to

assume higher-level responsibilities such as human relations and

leadership.

 Integrity and Competence

Must be competent enough to perform the duties assigned to

him/her and at the same time possess qualities of an ethical and morally

upright person.

Cooperative Bank of La Union adheres to the ideals of

BangkoSentral ng Pilipinas with regard to the efficiency and effectiveness

of internal control measures in the banking system and will therefore

attend seminars that will maintain and improve the employees’

competence as well as periodically reshuffle employee assignments of

each department for three months.

B. Risk Assessment

Businesses faced different risks that hinder them from achieving

its desired goals and objectives. Risks are threats that the company

objectives will not be achieved which is caused by either internal or

external factors. Such threats are avoided by establishing policies,

guidelines and other parameters that are used to monitor and manage

these risks. For Cooperative Bank of La Union, late payment of loans and

the possibility that loans cannot be collected from the borrower (credit

risk) is one of the risks they are facing. Another thing is that the
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possibility that employees will not act in accordance with the Cooperative

Bank’s established policies may it be in terms of the performance of their

duties and responsibilities or the proper handling of Cooperative bank’s

assets(operational risk). Risk on operation also pertains to situations

wherein the bank’s operation results to a negative. Another risk that the

Cooperative Bank is facing is the risk arising from negative perception on

the part of the customers, investors, shareholders, debt holders, and

other relevant parties that can adversely affect the bank’s ability to

maintain existing or establish new business relationships and continued

access to sources of funding which is also referred to as the reputational

risk. However, to mitigate the risk of loan delinquency, the Cooperative

bank policy specifically with regard to Salary Loan, is that payments of

the loan availed are deducted from the member’s salary.

The bank has mechanisms in place to anticipate, identify, and

react to risks presented by changes in government, economic, industry,

regulatory, operating, or other conditions that can affect the achievement

of the bank’s goals and objectives. The risk factors or drivers are stressed

in order to deepen management’s understanding of the bank’s

vulnerabilities. The board of directors ensure that a robust internal

reporting system is in place in order for each employee to be able to

contribute to the appreciation of the bank’s overall risk exposure.

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C. Information and Communication System

Established internal controls should be communicated to the

company employees and staff in order for these controls to be

implemented and properly observed. Information and Communication

System helps relevant parties understand the established internal

controls and how these controls will contribute in achieving the company

objectives. It is also the determination whether the existing internal

controls are well designed, communicated, and observed properly.

Financial reporting objective consists of procedures and records

established to initiate, identify, clarify records, process, and report entity

transactions and to account for related assets and liabilities Information

system is relevant in order to achieve such financial reporting objectives.

Cooperative Bank of La Union transactions involves revenue processing,

cash receipts, cash disbursement and payroll processing. The

transactions are done manually with the intervention of a database

system of the cooperative bank. Payroll transactions are being processed

manually. The system is where the revenue and disbursement

transactions are entered into. The database system that CBLU is using is

the CyberOne Online Solutions which is purchased by the bank. The

database system serves as a record storage of the bank where

transactions are entered in the system. The transaction entry in the

system can be done when there’s internet connection, if there is none

then the personnel who is responsible in entering the transaction in the

 31

system will wait until there’s an internet connection.Before granting a

loan to a borrower, it is ensured that the loan was duly approved by

appropriate officers. For unsecured loans, there should be two co-makers

who have the capacity to pay. The co-maker’s capacity to pay is proved

by the supporting documents. For loans with collateral, the collateral is

made sure it is registered in the Registry of Deeds and if the property is

not in the name of the borrower, Special Power of Attorney is a

requirement. After authorization of the loan, the bank also conducts

Credit Investigations to make sure that the borrower is capable of paying

the loan granted. With regard to petty cash disbursement, for less than

Php500, the manager approved such disbursement. For disbursements

of more than Php500, voucher check is prepared and also approved by

the General Manager.In payroll processing, an email is sent to the bank

which will then be responsible in crediting the salaries to the employees’

accounts. The bank’s general ledger of accounts is properly maintained

by authorized personnel which is the Acountant. The bank also

maintains trial balances, adjustments and supporting workpapers to

document the process of closing the general ledger and preparing

financial statements and financial statement note disclosures.

Reconciliations of subsidiary ledgers to control accounts are reviewed by

the Accountant on a monthly basis. The bank maintains and follows up

procedures for record filing, retention, and disposition. Financial reports

are presented by the bank’s General Manager to the Board of Director

 32

every month during board meetings. The senior management review the

financial results and performance measures during the board meeting.

Internal communication is done by conducting a meeting preceded

by the Cooperative Bank’s manager or through the means of posting in

bulletin boards in disseminating information or any modifications in the

Cooperative Bank’s policies, duly approved by the Board of directors, to

their employees. Cooperative Bank of La Union conducts General and

Special Meetings. General Assembly meeting is held annually on ay day

of April at a place within the province where the principal office is

located. If an annual regular meeting cannot take place due to justifiable

circumstances, the meeting to be called thereafter shall be considered a

special meeting. During the General Assembly Meeting, annual reports of

the Chairman of BOD, General Manager and other officers, and the

External Auditor’s audit report should be presented. Also, the approval of

development plan/ annual plan and budget is discussed during the

general meeting. Special General Assembly meeting may be called at any

time by a majority vote of the Board of Directors, or as provided in the

By- Laws. The Board of Directors may also call for a Special meeting

within one (1) month after receipt of a written request with justifiable

reason. All employees were provided with the Cooperative Bank’s Manual

in order to be fully aware of the policies and procedures of the bank for

which they should abide.

 33

D. Control Activities

Control activities are policies and procedures that help ensure that

management directives are carried out. These activities are put in place

to mitigate risks of error, noncompliance, and fraud. The following

control activities are being carried out by Cooperative Bank of La Union:

 Performance Review

A continual assessment of the performance of company’s

employees is a must. By conducting such assessment, employees would

be able to carry out the duties and responsibilities assigned to them with

the appropriate skills and skills. Conducting employee evaluations point

out the strength and weakness of an employee in undertaking the duties

assigned to him.

A semi-annual self- assessment of employees’ performance is

undertaken for the purpose of maintaining a satisfactory standard of

service for each employee’s particular job. The result of the assessment is

also used to determine promotion, merit increase, placement, reduction

in force, and to find out requirements for training programs and

personnel development. An employee of the Cooperative Bank evaluates

himself as to how he met his required performance targets and on the

critical factors of job performance. In contrary, the CBLU Manual

indicated that the department head of the employee should be

responsible in evaluating the performance and providing comments as to

the employee’s strengths and weaknesses, and recommends training on

 34

specific field for that employee, as well as proposes for him to be

promoted or assigned to other jobs.

 Information Processing

In order to ensure the accuracy of transaction processing,

information system is established. In Cooperative Bank of La Union,

transactions involving documents in the accounting operations are being

reviewed, verified, and signed by different employees involved in order to

ensure that transactions are being processed properly and with the

appropriate attached documents. The general manager, loan officer,

bookkeeper, or accountant ensures that documents are prepared

accurately which will be used in the accounting operations.

 Physical control of assets

Physical controls are controls established by the company to

secure its assets and to limit their use for purposes directly related with

the bank’s operations.

Cooperative Bank of la union has effective cash management

program to ensure adequate internal control measures and optimum

utilization of its resources, in the pursuit of the bank’s vision, mission

and goals. Petty cash fund is handled by the employee duly authorized

by the General Manager. The bank maintains an amount of Php

10,000.00 petty cash for its small disbursements. The cashier has the

custody of cash on hand and checks secured in the cash division’s

vault.Cash collections and receipts is the responsibility of the Cashier

 35

which is deposited intact daily, not later than the next banking day. With

regard to the petty cash fund, the cashier has the responsibility for such

and for other cash items which are kept inside the cash division’s vault

including passbooks of depository banks.

For bank’s records, the bank ensures that records are saved in

hard drives for back up. There are three hard drives where the records

are saved, one is kept in the vault, the other is given to their depository

bank, and the third one is handed to the General Manager. Trial

balances and loan folders are kept inside the bank’s filing cabinets

secured with a pod lock where the keys are in the hands of the General

Manager while cash, proof sheets, and loan files with collaterals are kept

inside the bank’s vault.

The vault room is secured by an alarm, password,and grills. Two

authorized personnel should enter the vault, the Accountant and the

other personnel who will accompany her. Before the personnel can enter

to the vault, the vault is dis-alarmed by the Compliance Committee

officer. There is also log in and log out of personnel who entered the vault

room.The personnel who has the custody of the vault key is substituted

by another knowledgeable staff in the absence of the former.

Inventory supplies of the bank which are frequently used must be

adequate for six months. Accordingly, an annual physical inventory of all

supplies and properties of the bank is conducted by all employees with

the supervision of their respective department heads. The bank’s

 36

telephones were used only for official business and for emergencies. All

bank equipment and tools are used strictly for business related purposes

and should not be taken out of the bank premises without the General

Manager’s approval.

For the bank’s computer system, all employees assigned to use

such for the discharge of their function are responsible for keeping it

clean. The bank’s computer units are limited only to official matters and

only by bank employees designated to do so. The employees are

prohibited to use the computer for playing games. The computer units

are inspected after use and before leaving the office by the employee

using the same. Employees authorized to access the computer system of

the bank have their own passwords, username/ terminal ID which is

used to determine who entered a specific transaction in the computer

system. The time when the transaction is entered into the computer

system is also indicated in the program. The teller, in the release of cash,

immediately records such cash release through the use of the bank’s

computer system.

All accountable forms, important documents/ transactions

prepared and files are kept inside the filing cabinet secured with a pod

lock for safekeeping and prevention of fire. The bank’s documents

especially those related to the business operations are to easily detect

losses of such documents. The General Manager or Cashier is

responsible in safeguarding these documents as follows:

 37

a. Cash Department

- Signature cards, accountable office supplies (passbooks, time

deposit certificates, cashier’s checks, official receipts), and duplicate

keys.

b. Loan Department

- Loan files, and asset acquired files.

c. Accounting Department

- Daily transactions and proof sheets, back-up diskettes, and

general and subsidiary ledgers.

d. Others

- Board resolutions, Approved minutes of meeting by the Board,

CBLU Manual of Operations, Policies and procedures, and Conventions’

kit or manual attended.

The bank’s office is safeguarded by a security guard. Also, closed-

circuit televisions (CCTVs) are installed in the building. And with regard

to bank’s supplies, they are stored in cabinets.

 Segregation of Duties

Segregation of duties ensures that no single employee processes a

transaction in its entirety. This control sees to it that the authorization,

recording, and custody of asset functions are vested to different

personnel in order to avoid possible fraud in processing the transaction.

In cash disbursement, requisitions for items or services over Php 500.00

have the approval of the General Manager. For requisitions of fixed

 38

assets amounting to more than Php 100,000.00, a Bidding Committee is

organized by the Board of Directors. The purchase of office supplies is

centralized and is the responsibility of the Office of the General Manager.

The cashier is responsible in the preparation of the cashier’s check for

cash disbursements. But payments for small expenditures such as those

amounting to less than Php 500.00 are made through petty cash fund

which is in the custody of the teller. An amount of cash is given by the

cashier to the teller who will release cash for payments or disbursements

but remaining cash amount is returned to the cashier together with the

teller’s blotter. Voucher is prepared by the accounting assistant. Posting

to the General Ledger is the responsibility of the bank’s accountant.

For the payroll transaction, the guard is responsible for summarizing the

daily time record of the employees. The accounting assistant is

responsible in the preparation of the payroll voucher while the Cashier is

responsible for the preparation of the cashier’s check. The accountant is

responsible in posting the payroll transaction to the General Ledger.

As to cash receipts, the Cashier is responsible in the collection and

acceptance of payments and other cash items. At the end of the day, the

cashier deposits the cash to the bank. The accounting assistant is

responsible in posting the collection to the Subsidiary Ledger while the

bank’s Accountant is responsible in posting to the General Ledger.

 39

 Authorization and Approval

Cooperative Bank of La Union has established its control policy to

ensure transactions are valid and in accordance with the management’s

objectives. In processing credit, loans amounting to Php 100,000.00 or

less whether secured or not are subject to the approval of the General

Manager. For loans amounting to more than Php 100,000.00 not

exceeding Php 500,000.00 are subject to the approval of the bank’s

Credit Committee whether to grant such loan. Loans with an amount

exceeding Php 500,000.00 are subject to the approval of the Board of

Directors.

E. Monitoring

Monitoring is done to ensure that planned activities are being

done, policies and procedures are effectively and efficiently implemented,

and appropriate corrective actions are administered when necessary. The

monitoring is done by the bank’s General Manager and the Board of

Directors. They have the responsibility to ensure that each department of

the bank as well as the committees are being effective and efficient in

carrying out its functions. Also, the manager and the board sees to it

that the bank is complying with the laws and regulations as well as the

requirements of BSP, PDIC, COA, and other regulatory bodies.

II. ACCOUNTING OPERATIONS

Lending businesses are engaged in granting loans to its clients.

These businesses served as a medium for the circulation of money in the

 40

industry and will then contribute to the improvement of the economy of

the country. Personnel involved in transactions of this type of business

should be competent, responsible, and knowledgeable in order to

undertake their responsibilities. Every person responsible for every

transaction should be competent enough to accomplish the process of

complex transactions and operations of the business in order for the

business to maintain harmony in its operation.

A. Revenue and Collection

Revenue Cycle

Loans served as the bread and butter of Cooperative Bank of La

Union being the main source of income in order to continue the business’

operations.

The prospective borrower will go to Loan Processor for an interview

of what loan he would like to avail and loan processor will provide the

information of necessary requirements to avail such loan (e.g.

Memorandum of agreement from Provincial Government of La Union for

Salary Loan of its employees.). The prospective borrower will then

conform the necessary requirements and should fill up the loan

application set comprising of the Credit Approval Memorandum Form,

Credit Proposal, and Cash Flow Analysis coming from the loan section,

comprising of one (1) copy of the application form and two (2) copies of

promissory note. After the application set has been filled up by the

borrower, the latter should submit such to the loan officer which will be
 41

forwarded to the approving body (For loans amounting to PHP

100,000.00 or less whether secured or not, to the General Manager. For

loans more than PHP 100,000.00 but not exceeding PHP 500,000.00 to

the Credit Committee. And for loans more than PHP 500,000.00, to the

Board of Directors). After the approval, the requirements (e.g. title of the

land for collateral and documents of the co-maker for unsecured loans)

submitted by the borrower will be kept in the vault and will only be

return upon full payment of loan by the borrower. The application set

will be given to the loan officer who will then conduct an interview with

the prospective borrower which serves as the assessment stage. With

regard to Real Estate Loans, part of the assessment of the prospective

borrower is the Credit Investigation of the property. After the assessment

stage, the loan officer will update the accounts receivable subsidiary file

through a computer (refer to Figure 2.2a Revenue Cycle Flowchart). The

Loan Officer will prepare two (2) promissory note and subsequently give

the loan application set and two (2) Promissory note to the loan

bookkeeper. The loan bookkeeper will then make three (3) copies of loan

disclosure and schedule (refer to Figure 2.2b Revenue Cycle Flowchart).

The loan disclosure contains the information about the loan that the

borrower availed specifically the type of the loan and the amount while

loan schedule contains the information about the schedule of loan

payments. The loan application set and the three (3) copies of the loan

disclosure and schedule is passed to the cash division specifically to the

 42

cashier. The cashier will prepare a cashier’s check and a duplicate (refer

to Figure 2.2c Revenue Cycle Flowchart). The loan application set, three

(3) copies of the loan disclosure and schedule, and cashier’s check and

its duplicate are given to the manager for signing (refer to Figure 2.2d

Revenue Cycle Flowchart). After the manager signed the cashier’s check

and its duplicate, it will be returned to the cashier who will also sign the

checks. The cashier’s checks duly signed by the manager and cashier will

be given to the teller who will encash the check. The cash will be given by

the teller to the borrower. The original copy of the loan disclosure, copy

schedule, and promissory note will be given to the borrower. The

application form set, copy of promissory note, loan disclosure and

schedule are sent to the loan officer and will be responsible for filing the

same in a filing cabinet (refer to Figure 2.2c Revenue Cycle Flowchart). A

copy of loan disclosure, cashier’s check, and schedule is sent to the

Accounting Assistant. The duplicate of the cashier’s check is sent to the

Cashier who will file the check in a filing cabinet. The Accounting

Assistant will update the subsidiary ledger. After updating the Subsidiary

Ledger, the copy of loan disclosure, cashier’s check, and schedule is sent

to the accountant who will update the General ledger and prepare the

proof sheet at the end of the day. The copy of loan disclosure, cashier’s

check, proofsheetand schedule is filed by the Accountant(Refer to Figure

2.2e Revenue Cycle Flowchart).

 43

Collection Cycle

For REM Loan, Business Loan, and Car/Auto Loan, the borrower

will issue post-dated check which will be warehoused to different banks

by the accounting division. After the checks are warehoused to the bank,

the bank will call the borrower if there is an available fund with regard to

the check (Refer to Figure 2.3 Collection Cycle Flowchart for REM,

Business and Car Loan).

For Salary Loan, payment for such will be deducted from the salary

of the borrower. The cooperative’s collector will then pick up the check

with an aggregate amount deducted from the employees’ salary together

with the breakdown list of those employees who have paid in the form of

salary deduction.

For walk- in customers, payment is made in the form of cash. If

the customer has a schedule, the customer will immediately pay to the

cashier. But if the customer doesn’t have schedule for payment, the

customer or borrower will go to the loan bookkeeper. The borrower will

ask the amount that he/she should pay, and the loan bookkeeper will

inform the borrower of the amount to be paid and its breakdown to

principal and interest based on the customer record which the

cooperative maintain in a folder for each borrower. After which, the

borrower will give cash or check to the teller. The cashier will then

update the Accounts receivable subsidiary through a computer terminal

and issue three (3) copies of official receipt. The original copy of the
 44

official receipt will be given to the borrower, the second copy will be filed

in the vault, and the third copy will be attached to the proof sheet for

consolidation purposes. At the end of the day, such attachments in the

proof sheet will be used by the accountant for consolidation and will be

posted to the general ledger (Refer to Figure 2.4 Collection Cycle

Flowchart for walk-in).

 45

LOAN OFFICER APPROVING BODY

Borrower Application Set

Necessary
Requirements
Application set
Necessary
Requirements Approve
Loan

Application Set
Application Set
Necessary
Requirements Necessary
Requirements

Temporary
filed

Computer
Terminal

Update A/R
A/R sub
sub. file
file

Application Set
Promissory note E
1
Promissory note 2

Application
form
A Promissory
note 1
Schedule 2

Figure 2.2a Revenue Cycle Flowchart

Figure 2.1 Revenue Cycle Flowchart
 46

LOAN BOOKKEEPER

Application Set
Promissory note
1
Promissory note 2

Prepare loan
disclosure and
schedule

Application
form
Promissory
note 1
Promissory
note 2
Loan
2
Disclosure 1
Loan
Disclosure 2
Loan
2
Disclosure 3

Schedule
2 1

Schedule 2

Schedule 3

Figure 2.2b Revenue Cycle Flowchart

Figure 2.1 Revenue Cycle Flowchart
Figure 2.1 Revenue Cycle Flowchart
 47

CASH DIVISION

D
B

Application
Application form
form
Promissory
Promissory
note 1
note 1
Promissory
Promissory
note 2
note 2
Loan
Loan 2
2 Disclosure
Disclosure 1
Loan
1
Loan Disclosure
Disclosure 2 2
Loan
Loan Disclosure
2 2
Disclosure 3
Schedule 31
Schedule
2 1 Schedule
2
2
Schedule
Schedule 2
3
Cashier’s
Schedule
Check 1
3
Cashier’s
Check 2

Application Prepare
Application Sign and encash
form cashier’s
form
checks Cashier’s checks
Promissory Promissor
note 1 y note 1
Promissory Promissor
note 2 y note 2
Loan Loan
2
Disclosure 1 2 Borrower
Disclosure
Loan
Loan
1
Disclosure 2
Disclosure
Loan Loan
2
2
Disclosure 3 Disclosure 3
Schedule 1 2
2 Schedule 1
2
Schedule 2 Schedule 2
Schedule 3 Schedule 3
Cashier’s
Cashier’s
Check 1 E F
Check 1
Cashier’s
Cashier’s N
Check 2 C Check 2

Figure 2.2c Revenue Cycle Flowchart

Figure 2.1 Revenue Cycle Flowchart
 48

MANAGER

Application
form
Promissory
note 1
Promissory
note 2
Loan
2
Disclosure 1
Loan
Disclosure 2
Loan
2
Disclosure 3

Schedule
2 1

Schedule 2

Schedule 3
Cashier’s
Check 1
Cashier’s
Check 2

Application Sign
form Cashier’s
Promissory checks
note 1
Promissory
note 2
Loan
2
Disclosure 1
Loan
Disclosure 2
Loan
2
Disclosure 3

Schedule
2 1

Schedule 2

Schedule 3
Cashier’s
Check 1
Cashier’s
Check 2 D

Figure 2.2d Revenue Cycle Flowchart

Figure 2.1 Revenue Cycle Flowchart
 49

ACCOUNTING ASSISTANT ACCOUNTANT

F Loan
Disclosure 3
Schedule 2
2
Cashier’s
Loan Check 1
Disclosure 3
Schedule 2
2
Cashier’s
Check 1
Record and General
Prepare ledger
Proof sheet

Record to
Subsidiary Subsidiary
Ledger ledger
Proof Sheet
Loan
Disclosure 3
Schedule 2
2
Cashier’s
Loan
Check 1
Disclosure 3
Schedule 2
2
Cashier’s
N
Check 1

Figure 2.2e Revenue Cycle Flowchart

Figure 2.1 Revenue Cycle Flowchart
 50

TREASURER

Borrower

Post-dated Check

Verify
Check

Post-dated
Check

Bank

Figure 2.3 Collection Cycle Flowchart for REM, Business and Car Loan
 51

CASHIER ACCOUNTANT

Borrower Official Receipt 3

Cash/Check
Attach to
proof sheet General
Ledger

Computer
Terminal

Update A/R
Official Receipt 3
subsidiary File A/R sub
File Proof sheet

Cash/Check
Official Receipt 1
Official Receipt 2
Official Receipt 3

Borrower

Figure 2.4 Collection Cycle Flowchart for walk-in

customers
 52

B. Purchase and Disbursement

A bill is received by the company. Upon the receipt of the bill, the

accounting assistant prepares two (2) copies of voucher. These vouchers

are sent by the accounting assistant to the cash division. The cashier in

Cash Division will update Expense file through a computer terminal. A

cashier’s check and a duplicate of cashier's check will also be

immediately prepared by the cashier (Refer to Figure 2.5a Purchases and

Disbursement Flowchart). The cashier sends the cashier's check and its

duplicate that are attached to the bill and the vouchers to the accounting

department to be reviewed by the accountant (Refer to Figure 2.5b

Purchases and Disbursement Flowchart). Right after the review, the

accountant forwards it to the general manager for approval. Upon

approval, one copy of voucher, and one copy of cashier's check are sent

to the teller and the bill and other copy of the voucher and cashier’s

check is sent to the Accounting Assistant (Refer to Figure 2.5c Purchases

and Disbursement Flowchart). The teller is responsible for the

encashment of the cashier’s check (Refer to Figure 2.5d Purchases and

Disbursement Flowchart). After the encashment, the voucher and

cashier’s check are sent back to the cashier and will be filed. The

Accounting Assistant, upon receipt of the bill and voucher and cashier’s

check copy, will update the subsidiary ledger (Refer to Figure 2.5a

Purchases and Disbursement Flowchart). After updating the subsidiary

ledger, the bill, and voucher and cashier’s check is sent to the
 53

Accountant who will then update the General Ledger and will prepare the

proof sheet. The bill, voucher,cashier’s check copy and proofsheet will be

filed by the accountant.(Refer to Figure 2.5b Purchases and

Disbursement Flowchart)

*In case the disbursement is equal or less than 500, petty cash

fund is used as mode of payment instead of check and will be recorded in

the petty cash book.

 54

ACCOUNTING ASSISTANT CASHIER

Employee Bill
Voucher 1
Voucher 2
Bill

Computer Terminal

Prepares
Voucher Update
expense file Expense
File

Bill
Voucher 1
Bill
Voucher 2
Voucher 1
Voucher 2
Cashier’s
D
Check 1
Cashier’s
Check 2
Bill
Voucher 2
Cashier’s A
Check 2

F
Record
Subsidiary
Subsidiary
ledger
Ledger
Voucher 1
Cashier’s
Bill Check 1
Voucher 2
Cashier’s
Check 2
E

Figure 2.5a Purchases and Disbursement Cycle

Flowchart
 55

ACCOUNTANT

A F

Bill Bill
Voucher 1 Voucher 2
Voucher 2
Cashier’s
Cashier’s Check 2
Check 1
Cashier’s
Check 2
Record and
General
Prepare
ledger
Proof sheet
Review
Check

Proof Sheet
Bill
Bill Voucher 2
Voucher 1 Cashier’s
Voucher 2 Check 2
Cashier’s
Check 1
Cashier’s N
Check 2

Figure 2.5b Purchases and Disbursement Cycle

Flowchart
 56

MANAGER

Bill
Voucher 1
Voucher 2

Cashier’s
Check 1
Cashier’s
Check 2

Approve
Check

Bill

Voucher 1

Cashier’s
Check 1
Voucher 2

Cashier’s
Check 2

Figure 2.5c Purchases and Disbursement Cycle

Flowchart
 57

TELLER

Voucher 2
Cashier’s
Check 2

En-cash
Check

Voucher 2
Cashier’s
Check 2

Figure 2.5d Purchases and Disbursement Cycle

Flowchart
 58

C. Payroll

The guard is responsible in monitoring the time in and time out of

the employees of Cooperative Bank of La Union

Every 15th and end of the month, guard sends the daily time

records to the Accounting Division. Based on the hours reflected in the

time records, the employee pay rate and withholding information in the

employee file, and the tax rate reference file, the accounting assistant

calculates gross pay, withholdings, and net pay for each employee, and

afterward prepares a payroll summary consisting of the breakdown of the

salary of each employee (Refer to Figure 2.6a Payroll Cycle Flowchart).

The accounting assistant forwards the payroll summary to the

accountant for review and subsequently sends to the General Manager

for the approval (Refer to Figure 2.6b Payroll Cycle Flowchart). Upon

approval, the payroll summary will be sent back to the Accounting

Division specifically to the Accounting Assistant. The Accounting

Assistant will then update the subsidiary ledger. After updating the

subsidiary ledger, the payroll summary will be passed to the Accountant.

The accountant will then update the General Ledger. The accountant will

now make a letter stating that the amounts in the payroll summary are

to be credited on each employee’s account. The letter and the payroll

summary are scanned by the accountant and sends to the bank through

e-mail (Refer to Figure 2.6a Payroll Cycle Flowchart). The Accountant

payroll summary in the accounting division’s vault and the letter will be
 59

passed to the General Manager who will file the same. The salaries of

each employee will be credited on their respective account. The

employees will now withdraw their salaries through ATM.

 60

ACCOUNTING ASSISTANT ACCOUNTANT

Guard Payroll
Summary

Daily file Review

records Payroll

Prepare Payroll
A
Payroll Summary

Payroll Summary
Payroll
Summary
Daily file
records Prepare
Letter, Proof General
Sheet and ledger
Record

N Payroll
Summary
Letter

Computer
Payroll Summary Terminal

SCAN, and EMAIL

Record Subsidiary
Subsidiary ledger
Ledger
N
Payroll
Summary
Letter
Payroll Summary C

Figure 2.6a Payroll Cycle Flowchart

 61

MANAGER

Payroll Summary

Approve

Payroll

Payroll Summary

Letter

Figure 2.6b PayrollCycle Flowchart

 62

Chapter 3

STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS

ANALYSIS

The determination of the business’ strengths, weaknesses,

opportunities, and threats is a useful strategy in order to maintain the

business’ competitive position in the industry. It helps the business have

a clear understanding of the company’s competitors which can help the

business be successful. Through the SWOT analysis, it helps the entity

to focus more and maintain its strengths, look for ways for the

improvement of its weaknesses, minimize threats identified, and take the

greatest possible advantage opportunities available.

The strengths and weaknesses identified were based on the

observation of the student auditors who conducted the study. It is also

based on the series of interviews conducted by the student auditors with

the general manager, accountant, and the head of the audit committee.

The opportunities and threats were determined through observation and

analysing the weaknesses identified by the student auditors.

Strengths:

The following are the activities or policies that should be maintained by

the cooperative:

 The bank’s accountant conducts reconciliation and consolidation

of transaction documents from the three sections such as the loan

 63

section, cash section, and bookkeeper to ensure that accurate amounts

for corresponding transactions were entered into.

 The bank maintains the policy of pre-numbering its documents

such as receipts, checks, and vouchers to easily detect if a certain

document is missing.

 The company has a centralized database system. The system was

being accessed by authorized personnel only by the use of passwords

and terminal IDs. The system views the terminal ID of the personnel who

entered the transaction and the time when the transaction is entered

into the system.

 The cashier deposits cash collections intact daily. It is assured that

no cash is left in the hands of the bank’s cashier.

 The Audit Committee conducts surprise cash counts. Surprise

Cash Audit is conducted to verify cash balances.

 Monthly review of the loan financial statement is conducted by the

bank’s Audit Committee. Financial statements prepared are reviewed by

the bank’s Audit Committee.

 The General Manager monthly reports to the Board of Directors the

financial status of the Cooperative bank. The financial reports were

prepared by the bank’s Accountant and were reviewed by the Audit

Committee which is communicated by the General Manager to the BOD

during their meeting.

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 The bank has an Ethics Committee which monitors the employees’

compliance with the Code of Governance and Ethical Standards and also

conduct initial investigation or inquiry when a complaint is received

involving a violation in the Code of Governance and Ethical Standards.

 The organizational structure of the bank was annually reviewed by

the Board. The organizational structure is reviewed to determine if there

are necessary changes that should be applied.

 The bank maintains filing cabinets in each section (Loans, Cash,

and Bookkeeper). The filing cabinets are secured with pod locks for

security purposes and to avoid document losses.

 The cooperative have its own CCTVs. The CCTVs are installed in

different areas of the office to monitor the employees in the conduct of

their work assignments.

 The General Manager conducts meeting with the cooperative’s

employees. After the meeting with the Board of Directors, the General

Manager conducts a meeting with the cooperative’s employees to

disseminate the things discussed with the Board of Directors.

 Bulletin boards are immediately updated. Bulletin boards are

updated if there are new announcements which need to be disseminated

to the bank’s employees.

 Employees attend seminars. The bank’s employees attend

seminars to maintain and improve their degree of competence in the

conduct of their duties and responsibilities.

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 The bank has Risk Management/Oversight Committee. The Risk

Management/ Oversight Committee which monitors the level of CBLU’s

risk exposures and develops strategies for preventing losses and

minimizing the impact of such losses when they occur.

 The bank’s vault is secured with an alarm, and grills. The vault

can be accessed by authorized personnel only. There is also a log in and

log out of employees who accessed the vault. A personnel not involved

with cash is responsible in dis-alarming the vault. It is required that

whoever enters the vault should have a companion who is not a part of

the cash division.

 The bank maintains back up files stored in hard drives. CBLU

ensures that records are stored in hard drives. There are three hard

drives where the record is stored, one is kept in the vault, the other is

given to their depository bank, and the third one is handed to the

General Manager.

Weaknesses:

The following are the activities or policies that need to be improved by the

cooperative:

 The logbook is the basis for the employees’ time record. The

employees signed the logbook for their time in and the guard is

responsible for the employees’ timeout. The guard records his own time

in and time out and was not being monitored.

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 Some of the employees were not fully aware of the process of the

cooperative’s operations. Based on the interviews conducted, some of the

bank’s employees seem to be not fully aware of the process of the bank’s

operations.

 The employees conduct only self- assessment with regard to

performance evaluation. In the CBLU Manual, the department head

should be the one conducting the performance evaluation of the

employees but the bank is evaluating the performance of the employees

through self- assessment.

 The Credit Investigation is conducted after the loan is approved by

the approving body. Loans amounting to Php 100,000.00 or less whether

secured or unsecured needs the approval of the General Manager, the

Credit Committee approves loans amounting to more than Php

100,000.00 but not exceeding Php500,000.00, and the Board of

Directors are the ones who will approve the loans amounting to more

than Php 500,000.00.

 The bank has no Computer Information System Department. The

operation of the bank is a combination of a manual process and with the

use of the database system. The absence of the CIS department is

evident by the bank’s organizational chart (Refer to Figure 1.3 Company’s

Organizational Structure).

 The computer units are checked by the employees using such. The

employees are responsible for keeping the computer units clean and
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effectively functioning. In the CBLU Manual, it is indicated that computer

units should be inspected by the department head, but the bank allows

an employee to inspect the unit that he is using.

Opportunities:

The following are the activities that must be considered by the

cooperative:

 The cooperative should consider having paperless and ledger less

accounting system. The BIR is allowing a business to have paperless

accounting system upon compliance with all the requirements needed in

order to employ such. In order to minimize errors committed in

recording in the books, as well as minimize the burden of maintaining

the books and entering transactions in the system, the bank should

consider applying for paperless accounting system.

 The bank may consider expanding the size of the office. The bank

should consider expanding the office in order to accommodate more

clients and provide a good working environment for employees.

 The bank may consider online payment of bills. In order to pay the

bills of the bank in a faster way, the bank may consider online payment

of the bills. With online payment, it would not be time consuming for the

employee/s to pay the bills (Electricity, Water, etc.) of the bank.

Threats:

The following are the activities that must be considered by the

cooperative:
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 The possibility of change in the client’s attitude towards the

cooperative. Because of the emerging competitors, clients’ attitude

towards the bank may also change. There is a possibility that some

clients will shift company especially if an issue arises regarding the

service of the cooperative which can destroy the public image of such.

 The possibility of non-payment of client’s dues. In a situation

where the economy is unstable, some of the borrowers may not be able to

pay their loans when they became due. When non-payment is high, it

therefore affects the financial stability of the cooperative.

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Chapter 4

CONCLUSION AND RECOMMENDATIONS

Every business desires to have an effective and efficient internal

control implemented in the conduct of business operation. The

continuous improvement of its conduct of business with appropriate

controls being applied is of essence for the continuance of the business

itself.

I. CONCLUSION

After the study conducted with regard to the Internal Control

System of the Cooperative Bank of La Union which comprises of

procedures and guidelines established which help in the undertaking of

the business operations as well as in the preparation of a reliable

financial statement, we have concluded that the internal control system

of CBLU is effective and efficient except for some policies established

which were not observed. Sufficient and appropriate evidence essential in

the study were gathered through conducting interviews, providing set of

questionnaires, and through observation. Due to inherent limitations of

performing an audit, we can only provide a reasonable assurance.

CBLU has clearly defined policies and procedures which are

implemented in the conduct of business operations but there are some of

the policies established which were not strictly observed. For instance,

the monitoring or checking of the bank’s computer units where done by

the personnel using the same which is contrary to the policy established
 70

where such function should be performed by the department head. Also,

in the performance evaluation of the employees, the employees are

conducting self-assessment which is also contrary to the policy indicated

in the CBLU Manual wherein performance evaluation should be done

semi-annually by the department head.

II. RECOMMENDATIONS

Table 4.1 Summary of Strengths, Weaknesses, Opportunities, Threats

Analysis and Recommendations

Strengths Recommendation

 The bank’s accountant  Maintain

conducts reconciliation and

consolidation of transaction

documents from the three

sections such as the loan

section, cash section, and

bookkeeper daily.

 The bank maintains the policy  Maintain

of pre-numbering its documents

 The company has a centralized  Maintain

database system.

 The cashier deposits cash  Maintain

collections intact daily.

 71

 The Audit Committee conducts  Maintain

surprise cash counts.

 Monthly review of the loan  Maintain

financial statement is

conducted by the bank’s Audit

Committee.

 The General Manager monthly  Maintain

reports to the Board of Directors

the financial status of the

Cooperative bank.

 The bank has an Ethics  Maintain

Committee monitors the

employees’ compliance with the

Code of Governance and Ethical

Standards.

 The organizational structure of  Maintain

the bank was annually reviewed

by the Board for necessary

changes to be applied.

 The bank maintains filing  Maintain

cabinets in each section (Loans,

Cash, and Bookkeeper) secured

 72

with pod locks.

 The cooperative bankhave its  Maintain

own CCTV.

 The General Manager conducts  Maintain

a meeting with the cooperative’s

employees to disseminate the

things discussed with the Board

of Directors.

 Bulletin boards are immediately  Maintain

updated for new

announcements.

 Employees attend seminars  Maintain

 The bank has Risk  Maintain

Management/Oversight

Committee which monitors the

level of CBLU’s risk exposures

and develops strategies for

preventing losses.

 The bank’s vault is secured with  Maintain

an alarm, and grills.

 The bank maintains back up  Maintain

files stored in hard drives.

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Weaknesses Recommendation

 The logbook is the basis for the  The bank should employ

employees’ time record. biometrics which will

monitor the time in and

time out of employees.

Also, the bank should

have a time-keeping

clerk who will monitor

such.

 Some of the employees were not  The bank should provide

fully aware of the process of the orientations regarding

cooperative’s operations. the operations of the

bank. Also, the bank

should have strict

requirements in hiring

employees to appoint

applicant who is

competent and qualified

for the position.

 The employees conduct only  The department heads

self- assessment with regard to should assess the

performance evaluation. performance of the

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employees to accurately

point out matters that

the employees should

improve in the

performance of their

duties and

responsibilities.

 The Credit Investigation is  The bank should

conducted after the loan is conduct the Credit

approved by the approving Investigation before the

body. approval of the loan in

order to assess the

credibility of the

borrower in paying the

loan.

 The bank has no Computer  The bank should have a

Information System Computer Information

Department. System Department who

will monitor and assess

the database system

that the bank is using in

its operation if such is

 75

functioning based on its

intended function.

 The computer units are checked  The bank should follow

by the employees using such the policy established

units. wherein the checking of

computer units is done

by the department head.

Opportunities Recommendation

 The cooperative should  CBLU should apply

consider having paperless having paperless and

and ledger less accounting ledgerless accounting

system system to BIR.

 The bank should consider  CBLU should consider

expanding the size of the space expansion to

office. accommodate more

clients and provide

employees with good

working environment.

 The bank should consider  CBLU should consider

online payment of bills. online payment of bills

to save time of the

employee/s who is
 76

responsible in paying

the bill.

Threats Recommendation

 The possibility of change in the  CBLU's employees

client’s attitude towards the should be very much

cooperative because of the friendly giving much

emerging competitors. emphasis on customers'

preferences. The bank

may also venture on

online banking.

 CBLU should schedule

 The possibility of non-payment the payments of the

of client’s dues is high when client in more frequent

there’s instability in the terms to encourage the

economy. borrower to pay on time

especially when money

is available for payment.

The aforementioned with their respective recommendations have

been enumerated by the student auditors:

Strengths:

The bank’s accountant conducts reconciliation and consolidation

of transaction documents from the three sections. such as the loan

section, cash section, and bookkeeper daily.

 77

The bank maintains the policy of pre-numbering its documents to

detect if there’s a missing document or record of the bank.

The company has a centralized database system which is accessed

only by authorized personnel with the use of terminal IDs and

passwords.

The cashier deposits cash collections intact daily ensuring that no

single amount of cash is being withheld by the former.

Monthly review of the financial statement is conducted by the

bank’s Audit Committee in order to oversee the financial reporting

framework.

The General Manager monthly reports to the Board of Directors the

financial status of the Cooperative bank through financial reports which

were prepared by the bank’s Accountant and were reviewed by the Audit

Committee

The bank has an Ethics Committee monitors the employees’

compliance with the Code of Governance and Ethical Standards and also

conducts investigations when complaint is received which involves

violation of the Code.

The organizational structure of the bank was annually reviewed by

the Board to determine if there are necessary changes to be applied.

The bank maintains filing cabinets in each section (Loans, Cash,

and Bookkeeper) which are secured by pod locks.

 78

The cooperative bank have its own CCTVs which monitors the

employees in the conduct of their given responsibilities.

The General Manager conducts a meeting with the cooperative’s

employees to disseminate the things discussed with the Board of

Directors during their meeting.

Bulletin boards are immediately updated for new announcements

to inform and disseminate such announcements and information to the

employees.

Employees attend seminars that will improve their knowledge and

skill and increase their degree of competence in the conduct of their

duties and responsibilities.

The bank has Risk Management/Oversight Committee which

monitors the level of CBLU’s risk exposures and develops strategies for

preventing losses.

The bank’s vault is secured with an alarm, and grills. The vault

can be accessed by authorized personnel only. There is also a log in and

log out of employees who accessed the vault

The bank maintains back up files stored in hard drives where

records are saved. The records are stored in three hard drives (one is

kept in the vault, the other is given to their depository bank, and the

third one is handed to the General Manager).

 79

Weaknesses:

The logbook is the basis for the employees’ time record. The

employees signed the logbook for their time in and the guard is

responsible for the employees’ timeout. The guard records his own time

in and time out and was not being monitored. The bank should consider

the use of biometrics to monitor the time in and out of the employees.

Also, the bank should have a time keeping clerk who will monitor and be

responsible for the time in and out.

Some of the employees were not fully aware of the process of the

cooperative’s operations. Some of the bank’s employees seem to be not

fully aware of the process of the bank’s operations. Therefore, the bank

should provide orientations regarding the operations of the bank. Also,

the bank should have strict requirements in hiring employees to appoint

applicant who is competent and qualified for the position.

The employees conduct only self- assessment with regard to

performance evaluation. The department heads of the bank should

conduct the performance evaluation of the employees to point out the

strengths of the employees as well as the needed improvements.

The Credit Investigation is conducted after the loan is approved by

the approving body. In order to ensure that the borrower is capable of

paying the loan granted to him, the bank should conduct the Credit

Investigation before the approval of such loan.

 80

The bank has no Computer Information System Department. The

bank should have a Computer Information System Department who will

oversee the performance of the database system if such is functioning

according to what has been intended for it to do. Also, the CIS

department will identify if modifications is needed for the database

system.

The computer units are checked by the employees using such. In

order to safeguard the bank’s assets, the department heads of the bank

should be the one overseeing and monitoring the conditions of the

computers and if such are being used according to its intended purpose.

Opportunities:

The cooperative should consider having paperless and ledger less

accounting system. In order to lessen errors in recording the

transactions in the books, as well as lessen the burden of maintain

books of accounts, the bank should consider applying for a paperless

and ledgerless accounting system to the BIR.

The bank may consider expanding the size of the office. To

accommodate more clients and provide the employees with a good

working environment, the bank should consider space expansion.

The bank may consider online payment of bills in order to save

time. The employees assigned in paying the bills would be able to spend

his time productively because online payment provides more faster

transaction compared to the personal payment of bills.

 81

Threats:

The possibility of change in the client’s attitude towards the

cooperative. Because of the emerging competitors, client’s attitude

towards the bank may also change. There is a possibility that some

clients will shift company especially if an issue arises regarding the

service of the cooperative which can destroy the public image of such. In

order to retain clients, CBLU's employees should be very much friendly

giving much emphasis on customers' preferences. The bank may also

venture on online banking.

The possibility of non-payment of client’s dues. In a situation

where the economy is unstable, some of the borrowers may not be able to

pay their loans when they became due. In order to avoid non-payment of

loans of borrowers, CBLU should schedule the payments of the client in

more frequent terms to encourage the borrower to pay on time especially

when money is available for payment.

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STUDENT AUDITORS’ REPORT

To the Cooperative Bank of La Union (CBLU):

We have audited the internal control system of the Cooperative

Bank of La Union (CBLU).

Management’s Responsibility

The creation, implementation and maintenance of the internal

control are the responsibility of the management. This internal control

system will help them in performing their business operations and in the

preparation of reliable financial statements that are free from material

misstatements.

Student Auditors’ Responsibility

Our responsibility is to express an opinion as to the effectiveness

and efficiency of the internal control system of the company. The audit

procedures conducted includes inquiries, and observations to obtain

sufficient appropriate evidence which will support the opinion that will

be issued.

Our study on internal control involves performing procedures to

obtain evidence about the strength of the internal control system of the

company. The procedures selected depend on the student auditors’

judgement, including the determination of possible strengths,

weaknesses, opportunities, and threats of the internal control system.

The study includes observation of the company’s operation, implemented

rules and regulations, and inquiries of concerned persons.

 83

We have evaluated the appropriateness of the policies and

procedures made by the management regarding their internal control.

We believe that the evidence we have obtained is sufficient and

appropriate to support and provide a basis for our opinion.

Basis for Qualified Opinion

As observed during the study and based on the interviews

conducted, given the cited weaknesses of the entity, the logbook is the

basis for the employees’ time record, some of the employees were not

fully aware of the process of the cooperative’s operations, the employees

conduct only self- assessment with regard to performance evaluation, the

Credit Investigation is conducted after the loan is approved by the

approving body, the bank has no Computer Information System

Department, the computer units are checked by the employees using

such units affect pervasively the safeguarding of assets, and the

effectiveness and efficiency of operations of the entity.

Qualified Opinion

In our opinion, because of the significance of the matter(s)

describes in the basis for the Qualified opinion issued, the internal

control system of the Cooperative Bank of La Union is effectively and

efficiently implemented except for the policies which are not observed by

the company (cited in the basis for Qualified opinion).

 84

Anza, Charish Jeanelle Garcia, Gabriel

Morla, Mylene Dumaua, Cristian