Primer on the Manual of Rules and

Regulations for Cooperatives with

Savings and Credit Services in the
Philippines

Manual of
 PRIMER ON THE MANUAL OF RULES AND REGULATIONS
FOR COOPERATIVES WITH SAVINGS
AND CREDIT SERVICES IN THE PHILIPPINES

1. What do the Manual of Rules and Regulations (MORR) for cooperatives

with savings and credit services contain?

The MORR contains rules and regulations, performance indicators and

standards that will serve as a guide for cooperatives with savings and credit
services. These guidelines are necessary to ensure the safety and soundness
of the institution, and to improve and strengthen their operations.
Compliance to these rules and regulations will help cooperatives engaged
in savings and credit operations become stronger, viable and sustainable
institutions with higher degree of public trust and confidence.

2. How will compliance to the rules and regulations set forth in this Manual
benefit the members of the regulated cooperatives?

Compliance will ensure good governance, better management, safe and

sound operations and continued growth of cooperatives. It will protect the
investments and savings of cooperative members and assure them of
reasonable returns. With strong credit cooperatives operating in a safe,
sound, viable and efficient manner, creative and innovative loan products
and financial services suited to the needs of its members will continuously be
offered and enhanced. By providing greater access to quality financial
products and services, cooperatives with savings and credit activities can
greatly contribute to the improvement of the lives and welfare of their
constituent-members.

3. Is the issuance of these rules and regulations for cooperatives with sav-
ings and credit services consistent within the mandate of the
Cooperative Development Authority (CDA) to develop and strengthen
the cooperative sector?

The rules and regulations set forth in this Manual are in accordance with the
rule making authority of the CDA (Section 13 of RA 6939). It states that “…
The Authority is hereby authorized to promulgate, after due public hearing
and upon approval of the President, such rules and regulations as may be
necessary to implement the provisions of this Act….”

Manual of Rules and Regulations for SCCs, page 2

4. How does the existing rules, regulations and issuances relate to the provisions
in the MORR?

Where applicable, existing rules, regulations and issuances as well as related

provisions of the Cooperative Code were incorporated in the MORR. If ever there
are any inconsistencies with any previous issuances of the CDA, the provisions of
the Manual will prevail.

SCOPE AND COVERAGE

5. What type of cooperatives will be covered by these rules and regulations?

All registered and prospective cooperatives that are currently engaged in or

intending to engage in savings and credit operations are covered by the
provisions of these MORR.

6. Why do cooperatives with savings and credit services need the rules and
regulations contained in the MORR?

Cooperatives with savings and credit services should comply with the rules and
regulations contained in the MORR because compliance to these rules will:

• ensure safe and sound operations of the cooperative;

• protect the cooperative member’s savings and share capital;

• help supervisors and management to determine the state of the

cooperative’s financial health; and

• provide the cooperative management with good governance and best

management principles that they can adopt and implement in their
respective areas of operations.

7. Who will regulate and supervise the savings and credit operations of
cooperatives?

The CDA is the legally mandated regulatory authority concerning cooperatives.

However, considering the number of cooperatives in the country vis-à-vis the
current resources of the CDA, it will deputize accredited cooperative federations
and unions to supervise and examine their member-primary cooperatives to
ensure their compliance with the provisions of the MORR. Cooperatives that are
not members of these accredited federations/unions will be directly supervised by
the CDA.

Manual of Rules and Regulations for SCCs, page 3

 BASIC REQUIREMENTS

8. What is initially required under the MORR?

Cooperatives that are engaged in or intending to engage in lending or credit

operations, whether as a single activity or as part of their multipurpose activities
shall be required to apply to the CDA for a License to Operate as a Savings and
Credit Cooperative.

9. What is the License to Operate?

The license to operate is a permit given to cooperatives to enable them to

continue engaging in credit operations and provide other financial services.
Cooperatives that are given the license to operate as a financial entity can carry
the name “Savings and Credit Cooperatives (SCCs).” SCCs can display at their
business offices a sign “Licensed by the Cooperative Development Authority
(CDA) to engage in savings and credit operations”.

10. Is registration the same as the License to Operate?

No. Registration grants the cooperative juridical personality as a cooperative

while the license to operate gives it the authority to undertake savings and credit
operations.

11. Who are required to apply for the License to Operate?

All prospective and duly registered cooperatives that intend to or will continue to
engage in savings and credit activities are required to apply for a License to
Operate as SCC in accordance with the following schedule:

• With Minimum Paid-in Capital of TEN MILLION PESOS (PHP10,000,000) AND

ABOVE – Immediately upon date of effectivity of this Manual;

• With Minimum Paid-in Capital of SEVEN MILLION PESOS (PHP7,000,000) AND

ABOVE – Three (3) years from date of effectivity;

• With Minimum Paid-in Capital of FIVE MILLION PESOS (PHP5,000,000) AND

ABOVE – Four (4) years from date of effectivity; and

• With Minimum Paid-in Capital of THREE MILLION PESOS (PHP3,000,000) AND

ABOVE – Five (5) years from date of effectivity.

Manual of Rules and Regulations for SCCs, page 4

12. Who are not required to apply?

Cooperatives that are not engaged in or intending to engage in savings and

credit operations are not required to apply for a license to operate. In the same
manner, Cooperatives engaged in savings and credit operations that have not
reached the minimum paid-in capitalization according to the above-mentioned
schedule also need not apply for a License but as soon as the minimum paid-in
capitalization has been reached, they are required to secure a License if they
intend to continue with their credit operations.

13. What will happen to those cooperatives engaged in savings and credit
operations with less than the minimum paid-in capitalization?

Cooperatives with less than the minimum paid-in capitalization will not be
covered by the provisions in the MORR and will not be supervised by any
supervising authority. They are, however, expected to comply with the
guidelines provided for in Appendix A of the MORR. These guidelines are those
provided for in the Cooperative Code and are applicable to all cooperatives.
Strict adherence to these guidelines will also prepare the cooperative to move
towards a regulated environment.

14. What will happen to those cooperatives that are required to apply for a
license to operate but do not have one?

Cooperatives that are required to apply for a license to operate but do not have
any either because their application was disapproved or they simply do not
want to apply for a license, shall immediately terminate and cease from
engaging in any credit activity. They can, however, continue their savings
operations and use their resources for productive activities other than credit.

15. What is the Provisional License to Operate?

The provisional license to operate grants the cooperative temporary authority to

conduct credit operations while it complies with all the requirements for a regular
License. It is effective for one (1) year from issuance within which the additional
requirements should be complied with.

16. What are the Minimum Requirements for a Provisional License?

The following are the minimum requirements that must be complied with before
a cooperative is granted a provisional license to operate.

a. A Board of Directors Resolution indicating:

Manual of Rules and Regulations for SCCs, page 5

 • Intention to continue or start savings and credit operations

• Allocation of the required minimum paid-in capital

exclusively for savings and credit operations.

• Separate books of accounts for the savings and credit

operations in the case of MPCs.

b. Proof of the minimum paid-in capitalization

• For new cooperatives: A depository Bank Certificate of

deposits of the cooperative’s paid-in capital allotted for this
purpose;

• For existing cooperatives: the duly audited financial

statement of the immediate preceding year;

• Duly notarized Treasurer’s Affidavit indicating that the paid-

in capital has been allocated.

17. What are the other Additional Requirements for the Regular License?

To be able to be given the regular license to operate, the applicant cooperative

shall:

a. Within one year from receipt of the provisional license:

• Submit a Board Certification that the Resolution of the Board

of Directors required in getting a provisional license (as
mentioned in no. 16a of this Primer) has been confirmed by
the General Assembly;

• Establish the business site which shall be equipped with

facilities, furnitures, forms and stationeries, and vault;

• Effect and complete the training/seminar of directors and

officers of the SCC;

b. Thirty (30) days prior to expiration of provisional license complete/

submit the following:

• Amended Articles of Cooperation and By-Laws

• Letter request for ocular inspection of the premises to

Manual of Rules and Regulations for SCCs, page 6

 determine compliance with the minimum technical
specification required by the CDA

• Certificate of required trainings/seminars of officers and

employees of the cooperative

• List of management officers and their designation

• Bio-data sheets, NBI/BIR clearance, statement of assets and

liabilities, income tax returns for the immediate past year of
directors/officers

• Certificate of attendance in the special seminar on financial

intermediation and good governance for the members of
the BOD conducted by the BSP, CDA or by its accredited
institutions

• Chart of Organization

• Manual of operations embodying SCC policies and

operating procedures

• Pro-forma (two (2) sets) of accounting and other forms in

conformity with the Standard Chart of Accounts (SCA) and
the accounting manual

• Contract of contract for the use of the cooperative

premises

• Copy of the insurance coverage of the SCC office and

premises

• Copy of the bonds of accountable officers and employees

• Excerpts of the minutes of meetings confirming all

transactions relative to activities undertaken to prepare the
cooperative to operate as SCC

• Certification by the Secretary of the Board that no person

who is the spouse or a relative within the 2nd degree of
consanguinity or affinity of any officer of the cooperative
has been appointed to said positions in the SCC

• Appointment of officer of the registered cooperative who

shall have undergone orientation on the reportorial
requirements of the CDA, and a certification by the

Manual of Rules and Regulations for SCCs, page 7

 Manager that he is fully aware of said reportorial
requirements and the respective deadlines for submission to
the CDA.

• Other documents which may be required by the CDA.

18. What are the privileges of a cooperative that has been given the license to
operate?

Duly licensed cooperatives shall include in their names the term “Savings and
Credit Cooperative (SCC)” and display at their business office the following sign
“Licensed by the CDA to operate as Savings and Credit Cooperative (SCC).”

19. Will the applicant cooperative be required to pay a license fee? If so, how
much?

Cooperatives applying for a license to operate will be required to pay for the
following license fee:

a. Provisional License – Two thousand pesos (P2,000.00)

b. Regular License – Five thousand pesos (P5,000.00)

The CDA shall review the amount of fees every two (2) years and shall adjust
such fees as necessary.

ORGANIZATION, MANAGEMENT AND GOVERNANCE

20. Who are the officers of the SCC?

The officers of the SCC shall be comprised of the members of the Board of
Directors, the Secretary, the Committee members and the key management
officers (i.e. General Manager/Chief Executive Officer, Treasurer and the
Accountant).

21. What are the minimum qualifications of the members of the Board of Direc-
tors (BOD)?

The members of the BOD should at least possess the following qualifications:

a. At least twenty one (21) years of age at the time of election

b. At least college level or have at least three (3) years experience in
business
c. Must be a member in good standing for at least two (2) consecutive

Manual of Rules and Regulations for SCCs, page 8

 years prior to election except in the case of newly registered SCC

22. Who are the key management officers of the SCC?

The key management officers of the SCC are the following: the General
Manager or its equivalent rank, the Treasurer and the Accountant.

23. What are the Qualifications for Key Management Officers?

The key management officers of an SCC should at least possess the following
qualifications:

a. At least twenty-one (21) years of age

b. At least college graduate
c. Have at lest three ()3) years of experience in operations or related
activities
d. Have undergone training in SCC/banking operations or will undergo
training within 6 months upon assumption of office
e. Other qualifications prescribed under existing laws and the SCC’s by-
laws

24. What are the mandatory committees in an SCC?

The SCC by-laws shall provide for the creation and establishment of the following
committees:

a. Audit
b. Credit
c. Election
d. Education/Training and Membership
e. Mediation and Conciliation; and
f. Other committees necessary for the proper conduct of the affairs of
the SCC.

25. Can the Board of Directors and committee members receive compensation
from the SCC? If so, how much?

The members of the BOD and the committee members of an SCC are allowed to
receive reasonable compensation in the form of per diems as set by the General
Assembly. The payment of per diem shall not exceed two (2) meetings in a
month. Only per diems shall be paid during the first year of existence of the
cooperative. In succeeding years, additional compensation may be granted to
directors/committee members provided that such additional compensation shall
be approved by a majority of the members with voting rights at a regular or
specific general assembly meeting.

Manual of Rules and Regulations for SCCs, page 9

26. Are bonds required for accountable officers and employees?

Yes, every officer or employee handling funds, securities or property on behalf of

the SCC shall execute and deliver adequate and appropriate bonds. The BOD
shall determine the adequacy of the bond. The bond of the cashier, assistant
cashier, treasurer and other employees having money accountability shall not
be less than their average daily accountability for the immediately preceding
three (3) month period.

REPORTORIAL REQUIREMENTS

27. What are the reportorial requirements for an SCC?

SCCs are required to submit the following reports to the CDA:

a. Category A1 – reports to be submitted on a regular basis to the

Authority
b. Category A2 – reports and schedules to be prepared and main-
tained at all times within the SCC
c. Category B – reports to be submitted on an annual basis or as
changes occur

28. What are the Category A1 Reports?

The following reports are under Category A1 and should be submitted to the
CDA on a quarterly basis:

Manual of Rules and Regulations for SCCs, page 10

 Type of Report Date of Submission
Statement of Financial Condition May 15
August 15
November 15
February 15
Statement of Operation May 15
August 15
November 15
February 15
Statement of Cash Flows May 15
August 15
November 15
February 15
Notes to Interim Financial State- May 15
ments and Other Discrepancies August 15
November 15
February 15
Summary of Aging Reports May 15
August 15
November 15
February 15
Statement of Utilization of Statu- May 15
tory Funds August 15
November 15
February 15

29. What are the reports under Category A2?

The following reports are under Category A2 and are required to be prepared on
a monthly basis and should be maintained at all times in the SCC.

Type of Report Frequency of Reporting

Accounts Reconciliation Monthly

Aging of Loans Receivables Monthly

Loans Receivables, Savings/Time Monthly

Deposits, Subscribed and Paid-in
Share Capital
Investments Monthly

Accounts Payables Monthly

Loans Payables Monthly

Accrued Expenses Monthly

Property and Equipment Monthly

Manual of Rules and Regulations for SCCs, page 11

What are the reports under Category B?

The following reports are under Category B and should be submitted annually to
the CDA or as changes occur:

Type of Report Date of filing

Audited Financial Statements May 15
including notes and disclosures
COOP-PESOS Report (using Au- May 15
dited Financial Statement
Annual Report to CDA 60 days after end
of fiscal year
List of Directors/Officers Thirty (30) days after
and their Bio-data the GA meeting
Fifteen 915) days following as-
sumption of office
Report on Crimes and Losses Fifth (5th) business day from
knowledge of crime or incident
31. How will reports be filed?

Reports shall be submitted to the Authority either personally or via registered mail,
or special delivery through couriers, or through electronic means.

32. Are there penalties for non-submission or delays in the submission of the re-
quired reports?

Yes, Php 100.00 per report per business day of default will be imposed on the
SCC for willful delay in the submission of required reports. Delay or default shall
start to run on the day following the last day required for the submission of
reports. If the deadline falls on a holiday, delay or default shall start to run on the
day following the next working day.

33. What types of crimes and losses should be reported to the Authority?

SCCs shall report the following crimes and losses to the Authority:

a. Crimes whether consummated, frustrated or attempted against

property/facilities and other crimes involving loss/destruction of SCC
property when the amount involved is P20,000.00 or more
b. Crimes involving officers and employees even if amount involved is
less than P20,000.00
c. Incidents involving material loss, destruction or damage to the
cooperative property/facilities, other than arising from a crime,
when the amount involved per incident is P100,000 or more.

Manual of Rules and Regulations for SCCs, page 12

 CAPITALIZATION

34. What is Net Worth?

Net Worth is comprised of the member’s equity, donations and grants, reserve
funds less the unbooked allowances for probable losses on loans, investments
and other assets, and other capital adjustments as may be required by the CDA.

35. What are considered risk assets?

Risk Assets refers to the total assets of the SCC minus the following:

a. Cash on hand
b. Evidences of indebtedness of the Republic of the Philippines and of
the BSP and other evidences of indebtedness or obligations the
servicing and repayment of which are fully guaranteed by the
Republic of the Philippines
c. Loans covered by hold-out on deposits
d. Land owned by the SCC used for operations
e. Building and land improvements, net of depreciation
f. Furniture, fixtures and equipment, net of depreciation
g. Real estate mortgage loans insured by Home Insurance Guaranty
Corporation (HIGC), to the extent of the amount of the insurance.
h. Other non-risk asset items as authorized by the CDA

36. What is the Net worth to risk assets ratio?

The net worth to risk assets ratio is an indicator that determines if the SCC’s
current net capital is still sufficient to meet competitive pressure and adverse
economic conditions as they arise. An SCC that complies with the prescribed
net worth to risk assets ratio has a relatively adequate capital for any
contingencies.

37. What is the required Net Worth to Risk Assets Ratio?

The net worth of the SCC shall at all times not be less than an amount equal to
eight percent (8%) of its risk assets. The following categories will apply in
determining whether an SCC has sufficient capital for safe and sound opera-
tions:

a. Well-capitalized: > or = 10%

b. Adequately capitalized: > or = 8% but < 10%
c. Undercapitalized: > or = 6% but < 8%
d. Significantly undercapitalized: > or = 2% but < 6%
e. Critically undercapitalized: < 2%

Manual of Rules and Regulations for SCCs, page 13

38. What if the SCCs do not meet the required net worth to risk assets ratio or are
capital deficient?

An SCC that is categorized as either undercapitalized or significant

undercapitalized shall submit for approval a rehabilitation plan containing
measures which the SCC shall adopt and implement to correct the capital defi-
ciency in two (2) years time.

Undercapitalized SCCs are also restricted from:

a. Distributing interest on share capital and patronage refund

b. Increasing its risk assets
c. Expanding operations unless part of the rehabilitation plan

39. What specific actions of the Authority will be done for critically undercapital-
ized SCCs?

For critically undercapitalized SCCs and depending on the gravity of the SCC’s
financial condition, the Authority will either appoint a conservator, receiver or
liquidator, who will be responsible in the management and operations of the
SCC. This is primarily done to immediately conserve and preserve whatever
available assets are left with the SCC.

40. What is the difference between a conservator, a receiver and a liquidator?

What conditions of the SCC will merit the appointment of a conservator, a
receiver or a liquidator?

When an SCC is critically undercapitalized or is in a state of continuing illiquidity

or is unwilling to maintain a condition of liquidity that is necessary to protect the
interest of members and creditors, a conservator may be appointed. The
conservator will take over the management of the SCC, take charge of its assets
and engage in very minimal operations until the SCC is already stable to engage
in normal operations. The conservator has the power to overrule or revoke the
actions of the previous management and BOD of the SCC if he so deems that
such action is necessary to preserve its assets.

If the conservator determines, however, that the SCC will suffer additional loss to
its members or creditors if it continues operation, the conservator may then
recommend receivership and/or liquidation depending on the SCC’s condition.
The receiver shall gather, take charge of and administer all the assets and
liabilities of the SCC, and exert all efforts in collecting all realizable outstanding
receivables that the SCC has. Aside from administrative expenditures, the
receiver, shall not pay or commit any act that will involve the transfer or
disposition of any asset of the SCC.

Once collection efforts have already been exhausted, the SCC’s remaining
assets will then be placed under liquidation for disposition/payment /transfer for
any legal claims against it.

Manual of Rules and Regulations for SCCs, page 14

 DEPOSIT LIABILITIES

41. Who are allowed to open deposit accounts with the SCC?

Only members of the SCC and its affiliate laboratory cooperative may open
savings and/or time deposit accounts with the SCC. Depositing minors shall be
organized into a laboratory cooperative.

42. What is the liquidity reserve fund?

The liquidity reserve fund is a restricted fund that is to be set aside by the SCC to
provide for its liquidity requirements in case of contingencies such as massive
withdrawal of deposits by its members. At least two percent (2%) of the SCC’s
savings and time deposit liabilities shall be set aside as liquidity reserve fund.

43. What is the form and composition of the liquidity reserve fund?

The composition of the liquidity reserve fund shall be:

a. At least 10% in the form of cash and on hand and/or cash in bank
b. The remaining amount in the form of evidences of indebtedness or
obligations of the government, its political subdivisions or
instrumentalities.

LOANS AND INVESTMENTS

44. What should be the basis of the SCC in granting loans to its members?

In granting loans to its members, the SCC shall use the four “Cs” of credit:
Character, Capacity to Pay, Circumstances and Collateral.

45. Who will set the lending policies of the SCC?

The Board of Directors shall be responsible for setting written loan policies of the
SCC. These loan policies should reflect among other things the following: limits
on loan amounts, loan maturities and repayment terms, acceptable collateral
and interest rates. These shall be used by the key management officers as a
guide in the conduct of the lending operations of the SCC.

46. What is the loan limit to a single borrower of an SCC?

Loans granted to member-borrowers shall at no time exceed the following

percentages of the net worth of the SCC:

a. Ten percent (10%) for individual member-borrower; and

b. Fifteen percent (15%) for member-borrower and his/her immediate
family member up to the first degree or consanguinity or affinity.

Manual of Rules and Regulations for SCCs, page 15

47. What will happen if the SCC violates the loan limit for a single borrower?

The SCC will pay a daily fine of one-tenth of one percent (1/10th of 1%) of the
excess over the loan limit but not to exceed Php500 per day. This fine will be
imposed on the SCC and on each of the directors voting for the approval of the
loan or credit accommodation in excess of the ceiling. The penalty for
exceeding the ceiling shall be computed based on the average amount of
loans in excess of the said ceiling during the same week.

48. What is the maximum term for loans granted by an SCC?

Loans granted by an SCC shall have a maximum term of not more than five (5)
years except loans adequately secured by unencumbered real estate for the
purpose of home building and home development which may be granted
maturity dates not exceeding fifteen (15) years.

49. How will the loans to Directors, Officers, Staff and their Related Interests be
treated?

Loans granted to Director, Officers, Staff and their related interests shall have a
written approval of the majority of the directors of the SCC, excluding the
director concerned. A monthly aging report of these loans (DOSRI accounts)
shall be regularly reported to the Board. The SCC shall make these reports and
records available for inspection by the Authority.

50. What is the basis for providing for the Allowance for Probable Losses on
Loans?

The portfolio at risk (PAR) shall be used in determining the amount to be provided
for the allowance for probable losses on loans with a thirty (30) day grace period.
The following allowances are required:

Loans with PAR less than 12 months – 35%

Loans with PAR over 1 year – 100%

51. Can an SCC make an investment? What are the allowable investments?

SCCs can make an investment in any of the following:

a. Shares or debentures of the federation or union of which it is a

member;
b. Securities issued by cooperatives as may be authorized by law;
c. Any reputable bank;
d. Bonds, securities and other obligations issued by the Government of
the Philippines, not exceeding at any one time, 10 percent of the
total assets of the SCC;
e. Real estate and improvements, including equipment, which shall not
exceed fifty percent (50%) of the SCCs net worth;
f. In any other manner as may be authorized by the CDA.

Manual of Rules and Regulations for SCCs, page 16

The SCC shall not invest in any one entity of more than 20% of the book value of
its net worth.

INTERNAL CONTROL

52. Why should there be regulations on internal control for SCCs?

The regulations on internal control for SCCs are established for the following
reasons:
a. To safeguard the SCC’s assets;
b. To check on the accuracy and reliability of accounting data;
c. To promote operational efficiency; and
d. To encourage adherence to prescribed managerial policies.

53. What are the components of internal control?

The components of internal control are:

a. Accounting control which includes a plan of organization,

procedures and records that are concerned with the safeguarding
of assets and the reliability of financial records;
b. Accounting system which pertains to the series of tasks in an entity
by which transactions are processed as a means of maintaining
financial records;
c. Administrative control that includes, but is not limited to, the plan of
organization and the procedures and records that are concerned
with the decision processes leading to management’s authorization
of transactions.

54. How should the management of an SCC be structured to ensure that there is
sufficient internal control?

The SCC should provide for a management structure with clear accountability, a
board of directors with ability to provide independent check on management
and independent audit and compliance functions, and should follow the “four
eyes” principle i.e., segregation of various functions, cross checking, dual control
of assets and double signatures. It is equally important that management
conducts regular review of the internal control procedures.

55. What records are needed during regular examination?

The following records shall be compiled and made available for inspection by
the duly authorized examiner:

a. Records showing compliance with independent balancing

procedures. These records should indicate the accounts and the
periodic balancing procedures performed.
b. Statements of actual duties of persons assigned to handle cash and
securities
Manual of Rules and Regulations for SCCs, page 17
 c. All internal control audit reports or their equivalent
d. Information/data on the direct and/or indirect equity shareholdings
in connection with any firm, partnership, corporation or other
cooperatives of all the directors, officers as defined should be
maintained.
e. Information/data pertaining to the electronic data processing (EDP)
department of the SCC particularly on organization, input controls,
processing controls, output controls, software controls, program and
documentation standards, logs on the operation of mainframes and
peripherals, hardware controls and such other EDP internal control
standards prescribed in existing separate rules and regulations.

56. What is the role of the internal auditor? How is the internal auditor related to
the Audit Committee?

The internal auditor is a full time employee of the SCC and reports directly to the
Audit Committee. He is not a member of the Audit committee. He is primarily
tasked to ensure that:

a. Internal controls are established and effectively maintained to

achieve the SCC’s financial reporting objectives which must be
sufficient to satisfy the requirements of the audit committee;
b. The SCC’s accounting records and financial reports are promptly
prepared and accurately reflect operations and results;
c. The relevant plans, policies, and control procedures established by
the board of directors are properly administered;
d. Policies and control procedures are sufficient to safeguard against
error, conflict of interest, self-dealing and fraud; and.
e. The SCC complies with the rules and regulations promulgated by the
CDA.

57. Who is the compliance officer of the SCC?

The internal auditor shall be designated as the compliance officer of the SCC.

58. Is the SCC required to have an external auditor? What should be the
qualifications of the external auditor?

Yes, the SCC is required to have an external auditor. The external auditor should
be an independent certified public accountant duly recognized/accredited by
the CDA to audit an SCC’s books of accounts at least once a year.

59. What should be included in the external audit report?

The audit report shall contain a statement of the assets and liabilities of the SCC,
including earnings and expenses, amount of net surplus as well as losses and bad
debts.

Manual of Rules and Regulations for SCCs, page 18

60. What are the requirements for the audited financial statements?

The audited financial statements should meet the following requirements:

a. Standard format in the presentation of the audited financial

statements with comparative figures of the immediately preceding
year;
b. Strict observance of the notes to Financial Statements and other
disclosures as required by Section A of the SFAS No. 1;
c. Indirect method presentation of the Statement of Cash Flows and
Statement of Changes in Statutory Funds with comparative figures of
the immediately preceding year;
d. Summary of auditor’s findings, to include financial ratios and
recommendations; and
e. Statement of representation of the external auditor to the AUTHORITY

PERFORMANCE STANDARDS

61. What will be used as performance standards for cooperatives with savings
and credit services?

The COOP-PESOS will be used as the performance standards for SCCs. The
COOP-PESOS is a set of indicators and standards which is comprised of two
components:

a. COOP which is a checklist of questions that gives information on the

SCC’s compliance with legal and administrative requirements. It has
specific list of questions on the following:

• Compliance
• Organization
• Operations and governance
• Plans and programs/performance

b. PESOS which provides specific indicators and standards that deter-

mines the financial performance of the SCC. It has the following
components:

• Portfolio quality
• Efficiency
• Stability
• Operations
• Structure of Assets

Manual of Rules and Regulations for SCCs, page 19

62. How is the COOP-PESOS computed?

The equivalent raw score for both the COOP and PESOS indicators are given the
appropriate rating based on the prescribed point scoring system. The overall
rating will be computed using a 20 percent weight for the COOP rating and 80
percent weight for the PESOS rating. The evaluator, in assessing the performance
of the SCC will use the following rating scale:

a. Rating 1 (90 to 100) – Excellent

b. Rating 2 (80 to less than 90) – Very Good
c. Rating 3 (70 to less than 80) – Good
d. Rating 4 (60 to less than 70) – Fair
e. Rating 5 (below 60)- Poor

BRANCHING

63. Can an SCC open a branch? What are the requirements?

Yes, an SCC can open a branch provided that the SCC has paid the branching
fee, complied and submitted the following requirements prescribed in the MORR
90 days prior to its opening:

a. Amendment of article of cooperation and by-laws if the proposed

branch is outside the area of operations
b. Establishment of appropriate internal control measures for the
branch
c. Approval of the GA, as certified by the Chairman and the Secretary
d. Certified true copy of the resolution of the BOD authorizing the
establishment of the proposed branch indicating the proposed site
e. Facilities and services to be offered
f. Organization set-up showing the staffing pattern of the proposed
branch
g. Installation of the necessary security devices
h. Duly notarized sworn statement of the members of the Board and
the General Manager that the SCC has no existing nor continuing
major violations with regard to the provisions of this Manual.

SUPERVISION AND EXAMINATION

64. What is being done during examination of an SCC?

During examination, the books and records, business affairs, administration and
financial condition of an SCC is verified, reviewed, investigated and inspected to
determine compliance with existing laws, circulars, rules and regulations and
other issuances. It may also include the reproduction of the SCC’s records,

Manual of Rules and Regulations for SCCs, page 20

taking possession of the SCC’s books and records and keeping them under the
CDA and/or deputized supervisor custody after giving proper receipt therefore.
It shall also include the interview of the directors and personnel of the SCC
including its Electronic Data Processing (EDP) service provider. Books and
records referred to shall include, but not limited to data and information stored in
magnetic tapes, disks, printouts, logbooks and manual kept and maintained by
the SCC or the EDP service provider, necessary and incidental to the use of EDP
systems by the SCCs.

65. How frequent shall an SCC be examined?

The Authority shall conduct an examination of the SCC at least once a year and
at such other times as it may deem necessary.

66. Who will supervise and examine SCCs?

The CDA shall, in accordance with the approved accreditation criteria, deputize
a cooperative federation and/or union to conduct the examination of their
member primaries. In cases where a SCC is a member of two or more deputized
federations and/or unions, such cooperative shall choose only one (1) deputized
federation and/or union where it will be subject to supervision and examination.

SCCs that are not members of a deputized cooperative federation and/or union
will be directly supervised and examined by the CDA until such time that the SCC
becomes a member of a deputized cooperative federation and/or union.

67. Will the CDA supervise the deputized supervisors?

The CDA shall regularly monitor and validate the performance of deputized
federations and/or unions with regard to its supervision and examination
functions. If the CDA finds them violating the supervision guidelines and
procedures, the CDA shall revoke their deputization status.

68. How much is the supervision and examination fee?

SCC shall pay to the deputized cooperative federation and/or union a

supervision and examination fee equivalent to 1/10th of 1% of the SCC’s Average
Assessable Assets (AAAs). SCCs that will be supervised and examined by the
CDA shall pay a supervision and examination fee equivalent to 1/9th of 1% of the
SCC’s AAAs. The term “AAAs” shall be the sum of the end-of-month total
assessable assets divided by the number of months in operation during the
particular assessment period. The term “Total Assessable Assets” shall refer to
total assets (end-of-month total assets per balance sheet), after deducting cash
on hand and cash in bank. The fees shall be reviewed every two (2) years and
may be adjusted by the CDA, in consultation with the deputized federations/
unions, as it may deem reasonable.

Manual of Rules and Regulations for SCCs, page 21

69. What happens if the SCC refuses to be examined?

Any SCC which shall willfully refuse to permit examination shall pay a fine of
P3,000.00 daily from the day of refusal and for as long as such refusal lasts.
Refusal to permit examination shall mean any act or omission which impedes,
delays, or obstructs the duly authorized examiner from conducting an
examination, including the act of refusing to accept or honor a letter of authority
to examine presented by representatives of the Authority.

GENERAL SANCTION PROVISIONS

70. To what particular provisions of the Manual will the general sanctions apply?

Violations of any of the provisions of the Manual shall be subject to the

applicable general sanctions except in certain provisions where specific
sanctions are clearly defined.

71. Who will impose the sanctions? Can a deputized federation impose the
sanctions?

No. Only the CDA, through a decision of the Board of Administrators, can
impose the sanctions provided for in the Manual subject to certain conditions
and limitations, and after due process.

72. What are the types of sanctions that the CDA may impose?

Depending on the particular circumstances surrounding the violation, the CDA

may impose one or a combination of any of the following sanctions:

a. Monetary Penalty
b. Prohibition, Suspension or Removal of Directors/Officers
c. Cease and Desist Order

73. In the case of a monetary penalty, how will the amounts be determined?

Monetary penalties are grouped into three major classifications: (1) minor
offense, (2) less grave offense and (3) grave offense. In assessing the amount of
the penalty, the CDA shall consider the gravity of the violation, the history of
previous violations, the respondent's financial resources, good faith, and any
other matters as fairness and justice may require.

74. What should primarily be considered by the CDA before undertaking steps to
prohibit, suspend or remove an erring SCC director or officer?

In determining whether an officer or director should be removed, prohibited or

suspended, primary consideration shall be made by the CDA as to whether the
SCC, officer or director took appropriate action to stop, or to prevent the
recurrence of the violation as defined in the applicable Section of the Manual.
Manual of Rules and Regulations for SCCs, page 22
75. Under what circumstances will a cease and desist order be immediately
effective?

Pending the outcome of a hearing on the case, a cease and desist order can be
issued with immediate effectivity if:

a. The violation or threatened violation or the unsafe or unsound

practice or practices, as specified in the notice of charges served
upon the SCC, or the continuation thereof, is likely to cause
insolvency or significant dissipation of assets or earnings of the SCC,
or weaken the condition of the SCC or otherwise prejudice the
interests of its member-depositors.

a. The SCC’s books and records are incomplete or inaccurate that the
Authority is unable, through the normal supervisory process, to
determine the financial condition of that SCC; or the details or the
purpose of any transaction or transactions may have an adverse
material effect on the financial condition of the SCC.

76. What if the SCC does not comply with the cease and desist order?

Should the SCC fail to comply with the cease-and-desist order, the CDA may
revoke the license to operate as SCC or cancel the cooperative’s registration.

77. Will the SCC and/or the concerned Director or Officer be given due process
before any sanction is imposed?

Yes. the Manual clearly defines an appeal and hearing process that should be
undertaken for each of the major classification of sanctions before an order is
deemed to be final and executory.

TRANSITORY PROVISIONS

78. How much time is given to the SCCs to comply with the requirement to fund
the statutory reserves?

SCCs should set aside at least twenty percent (20%) of the unfunded reserves
annually until it is fully funded. This means that within a five-year period from the
effectivity of the MORR, the SCC’s reserve should be fully funded.

79. How much time is given to the SCCs to comply with the two percent (2%)
deposit cash reserve level requirement and the required composition of
liquidity reserve fund?

The SCC is given two (2) years from the date of the effectivity of the manual to
comply with the liquidity reserve fund requirement.

Manual of Rules and Regulations for SCCs, page 23

80. How much time will be given to the SCC for it to fully provide for the Allow-
ance for Probable Losses on Loans?

The SCC is given three years to fully comply with the prescribed Allowance for
Probable losses on loans. The following schedule may be followed by the SCC:

Year 1: at least 30% of the total APLL requirement

Year 2: at least 70%; and
Year 3: 100%

81. When will the MORR be effective?

The provisions of the MORR shall take effect upon approval by the President of
the Philippines or his duly designated representative and fifteen (15) days after
publication in the Official Gazette or in two (2) newspapers of general
circulation.

Manual of Rules and Regulations for SCCs, page 24