Business Page – August 01, 2004

 On the Line – Guyana Public Service Credit Union




Today’s Business Page for the first time reviews the financial statements of an entity that would generally but incorrectly not be considered falling within the definition of a business entity. The Credit Union which was the subject of considerable adverse publicity and court action recently held its Annual General Meeting on Sunday on July 11, 2004 at which the financial statements for the years 1995 – 2001 were presented to members. This was the first Annual General Meeting held since 1999 and the Chairman sought to address the years 1999 – 2003 without as he said ‘trying to make excuses.’ The Report was presented on behalf of the Management Committee with a membership of approximately twelve persons the PSU President Mr. Patrick Yarde.  

 There is also a Supervisors’ Report which seeks to highlight the activities and functioning of the Credit Union. That Report reflected adversely on the current Management Committee which is blamed ‘fully for the tardiness’ in submitting the Annual Report. The Supervisors Correll Jackson, Michael Brown and Grace McKend also highlighted a number of deficiencies including the failure to implement ‘credible Accounting Tender Board procedures on a particular situation, the issuing of loans contrary to Loans Policy; and the improper drawing up of employment contracts. Incredibly, the Supervisors reported that its offer to train staff was never even acknowledged.  

 While the Committee must be commended for the accelerated pace with which it addressed the backlog of annual accounting reports and while the accounts were audited, members should have been cautioned that the financial statements presented to the auditors were in effect unauditable and the auditors rightly refused to give an opinion on them. Here are some of the principal reasons:


Ø         Management did not carry out an evaluation of loans – the largest item in the balance sheet - that are inadequately secured or not secured at all to determine possible bad and doubtful debts for the years 1995 to 2001. Indeed, there are no provisions for bad and doubtful debts which render the financial statements almost meaningless.


Ø         The auditors were unable to verify the amounts shown as Capital, the second largest item in the balance sheet.


Ø         The auditors could only verify 8% of the $59n. shown as Cash and Bank at December 31, 2001, usually the easiest item to audit.


The Credit Union is by far the largest in the country with total assets at December 31, 2001 of close to G$1Bn. but it is difficult from the report to ascertain the number of members at the end of each year. However, the downsizing of the public service and migration has resulted in a fall in membership of over one thousand members. However, despite its size and the value and volume of transactions, the Credit Union is registered and regulated under the Co-operative Societies Act, Chapter 88:01. This Act is clearly unsuitable for this entity which as its Chairman says would have ‘outgrown the dreams of its founders.’


Income Statement


The statements show a steep rise in net income over the seven year period. Interest income which is taken up only on a cash basis has increased by 578% while expenses have increased from $10M in 19995 to $30M in 2001 – a more modest 200%.


But this has to be considered illusory because of the failure to recognize one of the major costs in a savings and loans entity – bad debts. The cumulative amount of retained income is shown as $154Mn., but this could be easily wiped out by any provisioning exercise, particularly if the provisioning Guideline under the Financial Institutions Act was applied.



Balance Sheet


Total assets have also risen substantially from $127M in 1995 to $881M in 2001 – an increase of 594%. Loans to members increased from $124M in 1995 to $849M in 2001 (584%) but there must be considerable doubts about the collectibility of this amount since there is no provision against these debts.


Indeed the audit report raises questions about the existence and correctness of the balance shown as cash and bank of $59M!


This condition should make any investor nervous but the capital contributed by members continues to grow – again by close to 600%, perhaps attracted by unsustainably high rates of interest.


Cash Flow


Under normal conditions, a cash flow statement is usually a reliable indicator of the strength and financial well-being but with the closing bank balance being the subject of major audit reservation, assessment of the cash flow statement is risky.


Loans disbursed have exceeded loan repayments in every year since 1994. This has been made possible by the continued confidence shown by those willing to invest in the share capital of the company. For example, in 2001, loans disbursed amounted to $481Mn. while loan repayments were $318Mn.




While there are genuine attempts to resolve some of the problems facing the Credit Unions over the past several years, the Report is evidence of the absence of proper governance in the past which is still not being adequately addressed. Attendance at meetings by some members of the Management Committee is poor while the accounting policies are clearly archaic and inadequate.


The conflict between the Credit Union and the Regulator appears to have left a bitter taste while the appropriateness of a credit union controlling such large sums is highly questionable.


This column has repeatedly argued for credit unions over a certain threshold should be designated as a “financial institution” under the Financial Institutions Act and regulated by the Bank of Guyana. The financial statements for the year 2002 we are told will be presented to the Annual General Meeting in 2005. But can the Committee not have statements for 2002 and 2003 presented at a special meeting this year. Members have a right to more timely reporting and a better





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