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INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF XYZ CO-OPERATIVE CREDIT UNION LIMITED We have audited the accompanying financial

statements of the Credit Union which comprise the balance sheet at 31st, December 2008 and the related statement of income and accumulated deficit and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Responsibility for the Financial Statements Those charged with governance are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying financial statements present fairly in all material respects, the financial position of the Union as of 31st December, 2008 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

GRENADA: 7th May, 2009 Accountants & business advisers:

Internal Control Checklist: Cash Yes


1. Does each teller have his own cash drawer? 1. Does each teller have bait money? 2. Are spare keys for cash drawers under a system of dual control? Determine this by inquiry during the cash count. Determine this during the cash count. Review internal controls with individuals responsible for the change fund during the cash count. Access to spare keys must be authorized by at least two individuals. Review this with the tellers by inquiry during the cash count.

No

3. Is there a system to identify the transfer of funds from the vault to individual tellers? 4. Is a change fund limit in place for the tellers, the vault and a total for each branch office? 5. Do teller transaction receipts identify the teller who performed the transaction? 6. Is the change fund balanced daily with the general ledger? 7. Does a written cash over and short policy exist?

A written change fund policy should include limits for the teller and vault change fund and branch offices. Transaction receipts should include a teller identification number.

Review the change fund records which compare teller and vault end-of-day totals with the general ledger balance. Tellers should balance cash daily. Review with management. The policy should include dollar and frequency limits concerning cash over and short differences. The policy should address disciplinary action.

. Credit Union Limited. Supervisory Committee Working Papers Examination as of (date) Prepared by . Reviewed by . Date Date .

Organisational Management 1 Does the credit union have the following? Mission Statement? Strategic Plan? Annual Work plan and Budget? Organisation Chart? Job descriptions, Job specifications and staffing plan? Does the Credit union have Policies and procedures that outline the following? Organisational Design Mission and Objectives Governing Rules and Regulations Standards of Professional Conduct

Yes No

Comments

Corporate Relations Organisational Structure Board and Staff Responsibilities and Relations Definition and Duties Job Description Working Relationships Board Committees Annual Planning Meetings of the Board Compensation Administration Recognition of Service Performance Review Member Referral Endorsements

Personnel Administration Human Resource Development Directors and Officers Liability Insurance Hours of Business Examinations and Audit Cash Management Travel Operating Policies Membership Qualification and Rights Loans to other Credit Unions Financial Administration Financial Accounting and Administration Capital Expenditure Investment Control Deposit Taking Guidelines Credit Administration General Guidelines General Restrictions Security Refinancing of Loans Business and Commercial Loans Delinquency Control Information Systems General Physical Security Production Applications Internet Access Password Usage Virus Policy

Yes No Comments

Risk Management General Practices Safekeeping and Security Insurance Protection against disasters Facilities General Administration Maintenance Equipment Alarm Systems Safety Measures Facilities and Equipment Insurance Disaster Recovery Plans Anti-Money Laundering Policy Marketing Promotion and Advertising Co-operative Education

Credit Union Limited INTERNAL CONTROL INTERNAL AUDIT CHECKLIST

Prepared by ... Reviewed by .. NO. GENERAL 1 Has the Board of Directors developed and approved an Internal Audit Charter? 2 Does the internal auditor report to and take direction from the Supervisory Committee, free from undue influence by management and/or the Board? 3 Does the internal auditor have the authority needed to perform the job i.e. free access to all records? a. Have a commitment to a programme of continuing education and professional development? b. Have a certification as an internal auditor or as a certified public accountant? c. Have audit experience and possess organizational and technical skills commensurate with the assigned responsibilities? d. Communicate well both orally and in writing? 5 Do audit staff supervisors possess adequate knowledge of audit objectives and an understanding of the audit procedures performed by staff? 6 Are the practices of the supervisor in assigning and supervising the tasks of the internal auditors adequate?

Date .. Date ... YES NO REMARKS

NO. STANDARDS FOR PERFORMING WORK 7 Does the internal auditor(s) performing the audit meet regulatory standards for performing audits? a. Adequate technical training and proficiency? b. Reasonable care? c. Work adequately planned and assistants properly supervised? d. Sufficient understanding of internal controls to determine nature, timing and extent of necessary testing? e. Use inspection, observation, inquiry and confirmation to obtain sufficient evidence? NO. INTERNAL AUDIT PROGRAMME ADEQUACY 8 Is there a documented record of work performed? 9 Do work papers exist and include audit work programmes and analyses that indicate the procedures performed the extent of testing and the basis for the conclusions reached? 10 Do audit programmes include: a. Surprise contacts when appropriate? b. Maintenance of control over records selected for audit? c. Review and evaluation of the credit unions policies and procedures and the system of internal control? d. Proof of detail to related control records? e. Verification of selected transactions through examination of supporting documentation, direct confirmation and physical inspection?

YES

NO

REMARKS

YES

NO

REMARKS

NO.

INTERNAL AUDIT PROGRAMME ADEQUACY 11 Are internal audit reports issued to the Supervisory Committee with recommendations for any required remedial actions? 12 Are follow-ups being performed on audit findings and remedial actions made? NO. INTERNAL AUDIT PROGRAMME EFFECTIVENESS AND REPORTING 13 Have the credit unions internal controls and operating procedures been adequately reviewed? 14 In the reporting process, are all findings and recommendations clearly and concisely communicated, pinpointing problems and suggesting solutions? 15 Are such findings and recommendations and the audit procedures and testing which led to them clearly documented in internal audit working papers? 16 Are such audit reports submitted timely after the audit work is finished? 17 Are deficiencies reported to the Supervisory Committee and communicated by them to management? 18 Are the official who received the report those who have both the responsibility and authority to implement suggested changes? 19 Is a prompt and effective management response made to the auditors recommendations? 20 Is the internal audit work acceptable (A) partially acceptable (PA) not acceptable (NA)? NO. SUPERVISORY COMMITTEE REVIEW 21 Did you interview the Supervisory Committee or a representative? 22 Did you review the Minutes of the Supervisory Committee? 23 Are you comfortable that the Committee is familiar with the credit unions operations, management and the state of the credit unions financial condition?

YES

NO

REMARKS

YES

NO

REMARKS

YES

NO

REMARKS

Credit Union Limited INTERNAL CONTROL EXTERNAL AUDIT CHECKLIST Prepared by : Reviewed by: . Date Date: YES NO REMARKS

NO. BANK RECONCILIATION 24 Are cheques that have been outstanding longer than 90 days transferred to Accounts Payable? 25 Is a procedure in place to follow up on cheques of a material size outstanding for substantial periods? 26 Are adjusting entries to the bank reconciliation cleared in a timely manner (not exceeding 60 days)? 27 Are deposits made in accordance with applicable rules and regulations? 28 Does someone who is not involved in other cash functions prepare the bank reconciliation? 29 Do the internal/external auditors periodically prepare bank reconciliations on a surprise basis? 30 Has the credit union established a procedure to ensure bank reconciliation is completed each month? 31 Are voided or spoilt cheques marked as such and retained? 32 Is signing blank cheques against credit union policy? NO. CHANGE FUND/IMPREST ACCOUNT 33 Is the daily change fund activity properly recorded and identified in the Journal and cash record? 34 Are cheques to replenish the fund made payable to the credit union only? 35 Has the Board of Directors approved adjustments to the size of the fund? 36 Are currency shipments received and counted under dual control?

YES

NO

REMARKS

.. Co-operative Credit Union Ltd. Prepared by ... Reviewed by .. Date .. Date ..

NO. 1 2

EXTERNAL AUDIT PROGRAMME ADEQUACY Is there a documented record of work performed? Do working papers exist and include audit work programme and analyses that indicate the procedures performed, the extent of testing and the basis for the conclusions reached? Do audit programmes include: a. Maintenance of control over records selected for audit? b. Review and evaluation of the credit unions policies and procedures and the system of internal control? c. Proof of detail to related control records? d. Verification of selected transactions of confirmation and physical inspection? Are audit reports brought before the Board of Directors with recommendations to management or responsible parties for any required remedial action? Does follow-up on audit findings and remedial actions take place?

YES

NO

REMARKS

NO. EXTERNAL AUDIT EFFECTIVENESS 6 Have the credit unions internal controls and operational procedures been adequately reviewed? 7 In the reporting process are all findings and recommendations clearly and concisely communicated, pinpointing problems and suggesting solutions? 8 Are timely audit reports submitted after the audit work is finished? 9 Do the audit designees communicate with or liaise with the internal audit and are results communicated to management raising deficiencies? 10 Are the officials who receive the report those who have both the responsibility and authority to implement suggested changes? 11 Is a prompt and effective management response made to the auditors recommendation? 12 For what period was the last external audit conducted? 13 Did the audit report comply with the terms of engagement letter? 14 Was the audit report prepared in accordance with the Regulations and Industry Standards? 15 Do audit programmes include evaluation of the credit unions compliance with applicable legislation? NO. AUDIT REPORT ACCECSS 16 Were you given unconditional access to the auditors management letter?

YES

NO

REMARKS

YES

NO

REMARKS

.. Co-operative Credit Union Ltd. Prepared by ... Reviewed by .. NO. TELLER CASH CONTROL 1 Is each Teller provided with adequate storage facilities for cash under his/her control both during business hours and overnight? 2 Do the Tellers have control over their cash at all times? 3 Do Tellers keep all cash storage facilities locked during their absence? 4 If applicable, are relief Tellers provided with separate cash and prevented from operating from regular Tellers cash during the relief period? 5 When a Teller is absent because of illness, is his/her cash counted in the presence of two employees and turned over to another Teller? 6 Is Teller cash counted the day Teller leaves for vacation? 7 Are systematic and unannounced detailed cash counts for funds held by Tellers, performed at least once monthly by senior personnel? (N.B.) an officer should not count the same Teller in consecutive months) 8 Does each Teller maintain a daily settlement sheet that summarizes all of his/her transactions and reflects the balance status of his/her cash? 9 Are cash transactions between Tellers signed for by the receiving Teller) (N.B. describe the method used for such transactions) 10 Does the Teller validate (by Teller stamp) all cheques, withdrawals and deposits processed by him/her? Date .. Date: . YES NO REMARKS

NO. TELLER CASH CONTROL 11 Does the Teller initial all passbook entries and does the printed deposit receipt identify the Teller? 12 Are Tellers prohibited from making out deposits slips for members? 13 Are changes in the cash total on slips initialed by member? 14 Are Tellers forbidden to take deposits as carry-over to the next business day? 15 Are Tellers required to transfer their cash items to the Head Teller or other control point? 16 Are Tellers instructed to put through general ledger debit or credit vouchers for shortages or overages in their statement within seven (7) days after occurrence, if not located by supervisory or control personnel? 17 Is a subsidiary record of shortages and overages kept for each Teller, to show the cumulative number and amount differences? 18 Are limits established as to the amount of cash a Teller may carry? What is the limit? 19 Does the institution keep daily record of Tellers differences? 20 Are Tellers cash limits adhered to? (Spot check cash drawers and drop safes, if applicable. Also review a sample of Tellers settlement sheets) 21 Are limits established as to the amount of cash a designated area may carry? What is the limit? 22 Are Teller workstations equipped with drop safes and are they being utilized as intended? 23 Are Tellers restrictions on cashing of cheques adhered to? 24 Do officers initial cheques cashed that require authorization?

YES

NO

REMARKS

. . Co-operative Credit Union Ltd. INVESTMENT CONTROL Prepared by: Date: Reviewed by: .. POLICY Does the credit union have written investment policies that include the following: a. Purpose and objectives. b. The characteristics of the investment such as issuer, maturity, and interest rate risk? c. A statement on the management of interest rate risk, including the amount of risk acceptable in the investment portfolio in relation to earnings and net capital? d. The designation of authority specifying persons, and/or committees and the extent of their authority? e. An approval list of safekeeping facilities if acceptable? f. A procedure addressing investments which fall outside Board policy, or fail to meet regulatory requirements, after purchase. g. Guidelines for trading activities if authorized by the Board? Does the Board review and revise investment policies at least annually? Are the written investment policies being adhered to by the credit union? Are all investment transactions properly authorized by the Board? Date: YES NO REMARKS

1.

2. 3. 4.

NO. BOARD AND INVESTMENT COMMITTEE 5. If an Executive or Investment Committee has been authorized to make investment transactions, has the Committee been provided with written guidelines and is a summary of all investment transactions reported to the Board? 6. Is the discussion reflected in the Board minutes adequate to demonstrate that the Board is made aware of the risk of investments and the portfolio? 7. Does the Board or Investment Committee review all investment transactions at least monthly and are these reviews incorporated into the minutes? 8. Does the Board review regular investment reports showing such data as type, amount, current valuation, maturity, distribution and yield? NO. REPORTING 9. Does the credit union maintain all documentation regarding an investment transaction as long as the investment is held and until it has been both examined and audited? 10. Does the credit union maintain adequate subsidiary records for investments? 11. If the credit union accrues interest on investments, is the General Ledger balance accurate? 12. Has any official, senior management employee or their immediate family member received anything of value in connection with any investment transaction? 13. Are there any indications of conflict of interest or kickbacks from investment companies to the credit union officials or senior management staff? 14. If the credit union uses an institution for safekeeping, does the credit union have a signed agreement with the institution?

YES

NO

REMARKS

YES

NO

REMARKS

NO. SAFEKEEPING 15. Is confirmed of purchase compared to the actual securities in safekeeping? 16. Does the credit union physically separate securities owned by it from securities held as collateral on loans? 17. Are transactions reviewed after the fact by an authorized officer or other responsible person 18. Are detailed subsidiary records maintained independently from records maintained by the custodian that contain a full description, including identification numbers and related income data? 19. Is a formal record maintained of the reconciliation for later review? 20. Is Investment income reviewed periodically and compared with the investments to determine if all income has been received fully and promptly accounted for? 21. Is there adequate segregation of duties among those who approve, have access to, record and reconcile investments? 22. Is authorization required for all write down of investments? 23. Are adequate records maintained for all investments, which have been written off? 24. Are securities periodically inspected and counted on a surprise basis? 25. Is the accounting for and classification of the various investment types evaluated periodically to ensure their conformity with International Accounting Standards?

YES

NO

REMARKS

.. Co-operative Credit Union Ltd. ANTI-MONEY LAUNDERING Prepared by: Date: Reviewed by: .. Date: NO. GENERAL 1. Does the credit union have a Compliance Officer with adequate job description? 2. Does the credit union have an Alternate Compliance Officer? 3. Are the Compliance Officer and Alternate working as a team? 4. Are there Board approved Anti-Money Laundering Policies and Procedures? 5. Are there sufficient copies of the relevant Act and Regulations available to staff and committee members? 6. Does the credit union subscribe to Anti-Money Laundering journals or periodicals? 7. Is there evidence that the Compliance and Alternate Compliance Officers are upgrading their skills on Anti-Money Laundering procedures? 8. Is there documented evidence that new knowledge is transferred to all parties at the credit union? 9. Does the Compliance Officer arrange training for the Board, Committees and staff? 10. When was the last time that training was organized by the Compliance Officer? 11. Are all staffers well trained with the administration of Anti-Money Laundering policies and procedures? 12. Do all the employees adhere to the procedures for Anti-Money Laundering? YES NO REMARKS

NO. GENERAL 13. Is the process of interviewing a member with large transactions or multi-transactions or suspicious transactions thorough? 14. Is there a clear audit trail to indicate that there has been thoroughness with regards to interviews of members 15. Is there evidence of know your customer or employee? 16. Is there a register of suspicious transactions reported to the Compliance Officer but not filed with the Authority? 17. Is the Board presented with monthly updates on Anti-Money Laundering activities at the credit union? 18. Is there evidence that the appropriate forms are completed and submitted where necessary to the Anti-Money Laundering Supervisory Authority? 19. Are all employees capable of completing all the required forms accurately? 20. If the Compliance Officer requires information, does he or she have a readily available contact at the Supervisory Authority? 21. Does the Compliance Officer keep records stored in a secure place? 22. Is there a register in which transactions and activities reported to the Authorities are recorded? 23. Is documentation filed in chronological order? 24. Is there evidence that the credit union complies with all requirements of applicable Anti-Money Laundering Laws, Regulations, and Procedures? 25. Is there a register of enquiries made by the Supervisory Authority? 26. Are there internal controls to ensure ongoing AntiMoney Laundering compliance? 27. Is there independent testing of compliance by the Internal Auditor or an outside party?

YES

NO

REMARKS

Credit Union Ltd. LOANS COLLECTION Prepared by: .. Date: Reviewed by: .. Date: NO. COLLECTIONS DEPARTMENT 1. Does the credit union have a separately staffed Collections Department? 2. Are persons who approve or disburse loans denied access to cash and record keeping (including access to terminals where loan payments can be changed?) 3. Do supervisors regularly review reports showing: a. Changes in delinquency status? b. Changes in repayment terms? c. Changes in repayment terms? d. Prepaid loans? e. Unusual interest rates? f. Unusual date of first payment? g. Unusually small loan payments? Do supervisors regularly review employees loans? YES NO REMARKS

4.

. . Co-operative Credit Union Ltd. SURVEY OF ADMINISTRATIVE AND OPERATING ENVIRONMENT

Prepared by . Reviewed by NO. Organizational Management 1 Does the credit union have the following? Mission Statement? Strategic Plan? Annual Work plan and Budget? Organization Chart? Job descriptions, Job specifications and staffing plan? Does the Credit union have Policies and procedures that outline the following? Organizational Design Mission and Objectives Governing Rules and Regulations Standards of Professional Conduct Corporate Relations Organizational Structure Board and Staff Responsibilities and Relations Definition and Duties Job Description Working Relationships Board Committees Annual Planning Meetings of the Board Compensation Administration Recognition of Service Performance Review Member Referral Endorsements Personnel Administration Yes

Date Date .... No REMARKS

Human Resource Development Directors and Officers Liability Insurance Hours of Business Examinations and Audit Cash Management Travel OPERATING POLICIES Membership Qualification and Rights Loans to other Credit Unions Financial Administration Financial Accounting and Administration Capital Expenditure Investment Control Deposit Taking Guidelines Credit Administration General Guidelines General Restrictions Security Refinancing of Loans Business and Commercial Loans Delinquency Control Information system General Physical Security Production Applications Internet Access Password Usage Virus Policy

YES

NO

REMARKS

YES

NO

REMARKS

Risk Management General Practices Safekeeping and Security Insurance Protection against disasters Facilities General Administration Maintenance Equipment

Alarm Systems Safety Measures Facilities and Equipment Insurance Disaster Recovery Plans 9 Anti-Money Laundering Policy Marketing Promotion and Advertising Co-operative Education