How to identify risk factors during internal audits of SACCOs

Risk management plays a pivotal role in the operations of Savings and Credit Cooperative Organizations (SACCOs), ensuring their stability and adherence to legal and regulatory frameworks. During internal audits, specific indicators of risk guide auditors in identifying potential areas of concern within SACCO activities.
Fraud Risk
- Competency of Staff: Overconfident staff or lack of coordination may lead to oversight, enabling fraudulent activities.
- Time Constraints: Pressure on auditors may result in reliance on management-provided evidence rather than independent testing.
- Resource Allocation: Insufficient resources may hinder internal auditors’ oversight and control over financial reports.
- Budget Exceedance: Unauthorized expenses and financial statement alterations may occur when budgets are exceeded.
- Employee Leave: Lack of leave may lead to increased fraud as employees face financial constraints.
- Influence of Related Staff: Collusion between staff and borrowers can circumvent regular loan procedures.
- System Changes: Inadequate training on system upgrades may facilitate fraudulent operations.
- Incentives: Pressure to meet financial goals for bonuses and compensation may motivate fraudulent behavior.
- Poor Controls: Weak internal controls create an environment conducive to fraudulent activities.
- Staff Involvement in Politics: Employee involvement in board election politics can compromise the integrity of the audit process.
- Vendor Management: Irregularities in vendor management, such as duplicate vendors or missing details, pose risks.
- Budget Fraud: Overstatement or understatement of the budget may lead to misuse of funds.
Error Risk
- Staff Competency: Inadequately trained accounting staff may lead to errors due to lack of knowledge.
- Record Keeping: Poor filing or loss of documents increases the risk of errors.
- Unexplained Variances: Differences between actual and expected transactions may indicate errors in accounting records.
Compliance Risk
- Tax Compliance: Ensuring timely response to tax summons and accurate tax payments mitigates compliance risk.
- SASRA Reports: Compliance with statutory and regulatory reports helps SACCOs avoid penalties.
- Statutory Regulations: Adherence to co-operative laws, financial sector regulations, and consumer protection laws is essential for legal standing and operations.