." SUPERVISORY COMMITTEE Annual Report for the Year Ended December 31., 201.0
<fi' The Supervisory Committee (SC) commends the Honorable UN-SACCO members through whose patronage the UN-SACCO has continued on the success trajectory. We also wish to thank the UN- SACCO staff for their diligent stewardship of the UN-SACCO members' resources. We commend the Board of Directors for their efforts in providing overall policy direction for the prudent management of the UN-SACCO. A. OVERALLPERFO~NCE Taking cognizance of the very competitive, challenging and dynamic financial environment during the year 2010, the following statistics are a testament to the good performance by our SACCO: (a) Membership grew by 6% from 3468 to 3692 (b) Members' deposits increased by 25% from Kshs 3.0 billion to Kshs 3.7 billion (c) Total income increased by 27% from Kshs 482 million to Kshs 613 million" (d) Surplus before finance costs grew by 21% from Kshs 425 million to Kshs 514 million While it is evident that interest income on members' deposits decreased from 15% to 13%, it is important to take into account one major contributory factor to this reduction: regulatory rates on the provisioning of all outstanding loans to members as follows. (a) 1% of all loans classified as 'performing' - loans which are well documented and performing according to contractual terms. (b) 5% of loans classified as 'watch' - loans that have remained unpaid for one day to thirty days or where one installment is outstanding (c) 25% of loans classified as 'substandard' - loans that have remained unpaid between 31 to 180 days or where 2 to 6 installments have remained outstanding (d) 50% of loans classified as 'doubtful' -loans that have remained unpaid between 181 to 360 days or where 7 to 12 installments have remained outstanding (e) 100% of loans classified as 'loss' -loans considered uncollectible and have remained unpaid for more than 360 days or where more than 12 installments have remained outstanding This being the base year since the introduction of these new rules by the recently established Sacco Societies Regulatory Authority (SASRA), members will notice that the level of provisioning on outstanding loans has increased by 97% from Kshs 384,116 to Kshs 37,584,932. Considering the impact of loans' provisioning on the future profitability of the UN-SACCO the SC urges members to not only service their loans regularly but also check whether guaranteed members are doing the same. 2 "-
SUPERVISORY COMMITTEE B. FINANCIAL PERFORMANCE Based on the financial statements laid before the members during this annual general meeting and its supervisory work during the year, the Supervisory Committee considers that the UN-SACCO has achieved optimal financial performance in the year 2010. This is to say that while we appreciate the good results that we have today; we can still do more to achieve better results through; (a) Member recruitment drives need to be enhanced to achieve the growth rate of 10% envisioned by our strategic plan (b) Innovative efforts are necessary to drive the UN-SACCO's'marketing strategy to ensure increased patronage of the UN-SACCO products (c) Publicity drives within the duty stations where potential UN-SACCO members serve to enhance SACCO not only the visibility but also the excellent historical performance by the UN- (d) Assurance to current and potential members that their funds are secure at the UN-SACCO (e) Prudent management of the UN-SACCO loan book targeting as much as possible a near " 100% performing classification of all loans Whilst majority of the income and expense items were within the budget, members will have noted some variances on some items as tabulated below; Item. Actual Budget Variance Variance Actual Management Comments/ (2010) Percentage (2009) (2010 -ActuallBudget) Explanations Audit Fees 290,00J SOO,OOJ 261,616(F) 52% 551,616 Change of Auditors where a new fee was negotiated. Committee 1,716,624 1,300,00J 416,624(A) 32% 1,063,011 -SASRA implementation trainings Education -Most members training in 2009. did not take StaffSub. & 1,566,456 1,2oo,00J 54,661(A) 30"10 1,254,661 New Committees - The property travelling Committee and By-Laws. The GM and the Deputy attend the property and By-Laws committee meetings. Members Nil 1,2oo,00J 1,2oo,00J (F) 100% 825,425 No Member's education day was Education held in 2010, postponed to 2011. Staff Training and 797,910 950,00J 152,090(F) 16% 363,100 More staff went 'for training in 2010 seminars as compared to 2009 however the budget was not fully utilized due to work demands Key: F - Favorable, A - Adverse 3 "-
<fi' C. UNCOLLECTED DIVIDENDS The Supervisory committee initially brought this matter to the attention of members through its report for the year ended 31 December 2007. At that time, the value of un-claimed dividends was Kshs 41 million. The current balance of unclaimed dividends now stands at Kshs3 million. We ask members to scrutinize the list of names published on the UN-SACCO website and submit claims for these dividends or inform known members to do so. The Supervisory committee has also recommended to the board that the list should be circulated to members through the UN-SACCO members' mailing list. D. UNCREDITED DEPOSITS This matter was initially brought to the attention of members through the Supervisory committee's report for the year ended 31 December 2007. While much effort has been directed towards ensuring that all deposits or direct credits by members are credited to their respective accounts, there is still a great challenge as a number of member do not provide their full membership details when making such deposits or electronic transfers. Consequently, it has been difficult to clear these unidentified credits. While the Supervisory committee has made a number of recommendations to the board including pioneering a general 'SACCO's unique deposit slip' especially with local banks (similar to those used by schools and colleges), we note that the members bear a greater responsibility to ensure that the UN-SACCO receives full details of all deposits or direct credits made into the UN- SACCO bank accounts. E. REVIEW OF LOAN TERMS During the last annual general meeting, the supervisory committee recommended that a professional review of all lending terms at the UN-SACCO (interest rates, bandings and loan terms) be carried out. This exercise is still pending. The Supervisory committee urges the board to execute this resolution and communicate the results to members as requested last year. F. In addition, the Supervisory committee is aware that there are many members who will be granted permanent or continuing contracts in line with the new human resources related decisions by the UN-General Assembly. The Supervisory committee urges the board to take this matter into consideration in the review of the overall lending terms. SERVICE TO MEMBERS The SC notes that service delivery to members has improved in the year 2010 based on the estimated level of complaints received from members as compared to previous years. This can be attributed to the fact that the UN-SACCO staff have improved their service delivery not to mention the fact that the new system procured in the year 2009 is now working optimally. In this connection the SC would like to propose; 4 ',-
~i. (a) That the UN-SACCO looks into the expansion of the office space to cater for the increased number of UN-SACCO staff members due to the growth of the UN-SACCO business coupled by the increase of members expected to be housed within the UN Gigiri complex. (b) That the UN-SACCO enhances its security systems including but not limited to the CCTV system (c) That the UN-SACCO should create an intranet where all sensitive internal documents can only be accessed by members and staff using passwords. Currently there is a considerable amount of UN-SACCO information which in our view should not be available on the public domain such as the illegal access tp our strategic plan which we are aware has been accessed and pm~sibly plagiarized by competitors in the industry. G. STAFF MATTERS The UN-SACCO has lost a number of staff members in the recent past mainly to UN- Agencies. While it is the right of the staff to move on to greener pastures a,s and when such opportunities are available, the SC proposes that the provident fund rules (into which the UN-SACCO contributes 25% of individual staff basic salaries) be amended to ensure that benefits for longer serving staff are higher than those for short service within the confines of the Retirement Benefits Authority rules. The SC proposes that if admissible, future new employees of the UN-SACCO can be provided as follows: Years of service Provident fund contribution by UN- SACCO 1-5 10% 5-10 15% 10-15 20% 15 - onwards 25% The Supervisory committee reiterates its support for the payment of bonuses to the UN- SACCO staff. However, we propose that the staff appraisal system be improved in terms of substance and ratings to ensure that excellent performance attracts a higher bonus than performance which is below expectation. H. GOVERNANCE The good governance of any organization is a pre-requisite to the achievement of its goals and objectives. While the new SASRA rules are expected to enhance the governance of deposit taking SACCOs, the Supervisory committee is of the view that we the members of the UN-SACCO should complement these regulations by improving on the nomination processes of our board members - while still ensuring that we operate within the cooperative movement rules and spirit. 5 "'-..
+- The SC therefore proposes that the profiles of members nominated to vie for elective positions on the board should be posted on the SACCO website and circulated on the members' mailing list well before the AGMs. This will afford members an opportunity to familiarize themselves with would be directors before they are formally elected. I. NEW DEVELOPMENTS IN 2010 The new SACCO Societies (Deposit -Taking SACCO Business) Regulations were gazetted on 18thJune 2010. These rules herald a new era in the management and regulation of SACCOs in the country. We wish to request members to appraise themselves with the requirements of these new rules as they affect the way we have done business in the past. A considerable number of functions previously executed by the supervisory committees in many SACCOs will now be handled by the Audit committee. We the UN-SACCO Supervisory committee in collaboration with supervisory committees from other SACCOs have petitioned the Minister to reconsider some of the duties taken,.. away from the supervisory committees such as the investigation of members' complaints, review of internal controls and internal audit reports among others. Though the Supervisory committee will carryon its oversight role on behalf of the members, we have submitted that some of these duties can only be effectively executed by a committee which has considerable independence from the board. The Supervisory committee hopes that the Minister will favorably consider our submission. In accordance with these new SACCO Societies Regulations, our SACCO will now require to hire an in-house internal auditor. Although this is a welcome development, the Supervisory committee expressed reservations regarding the reporting structure, where the internal auditor will be required to report both administratively and functionally to the board's audit sub committee instead of the Supervisory committee. These reservations have also been made in writing to the Ministry in collaboration with supervisory committees from other SACCOs. J. CONCLUSION The Supervisory committee appreciates the support received from the membership during the year 2010. The committee is committed to the service of members to the best of its ability and will continue to execute its oversight responsibilities as expected. ~ou ~, and God bless you. Dh.\h,, GordonOnyatta ~o Chairman. Secretary. 28 February 2011 28 February 2011 6 ~. Stephen Ndeti Member. 28 February 2011 / ',.