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income) for the vegetable cooperatives in 2006/07 was R36000 and the lowest was R2300.
With regards to poultry cooperatives, the highest turnover was R150000 and the lowest was R4800. The bakery cooperative had a turnover of R180000 in 2006/07 and the beef cooperative did not generate any income at the time of the survey since the cooperative was still breeding cattle.
4.5 Financial management of selected cooperatives
53 4.5.2 Turnover and distribution of net surplus
Table 4.9 shows the amount of turnover (gross income), the trend in turnover generated by each selected cooperative in 2006/07 and the distribution of any surpluses among members.
The bakery cooperative generated the highest turnover per annum (R180000), followed by poultry cooperative 1 with R150000. The relatively high bakery turnover may be a result of the greater production generated with the use of advanced equipment for baking bread and other products, and a ready market for their product. The bakery cooperative not only supplies its neighbours but also receives large orders from local shops. Vegetable cooperative 3 had the least turnover per annum (R2300).
Table 4.9: Turnover (gross income) of selected cooperatives per annum, KwaZulu-Natal, 2006/07.
Cooperative type Turnover per annum (R)
Trend in turnover since establishment
Distribution of surplus among
members
Vegetable cooperative 1 26000 No change Equally
Vegetable cooperative 2 6600 Increased Equally
Vegetable cooperative 3 2300 Increased Equally
Vegetable cooperative 4 5650 Increased Equally
Vegetable cooperative 5 36000 Increased Equally
Beef cooperative Not applicable since the cooperative is still
breeding cattle until 2009
Not yet applicable Not yet applicable
Bakery cooperative 180000 Increased Equally
Poultry cooperative 1 150000 Increased Equally
Poultry cooperative 2 68000 Increased Equally
Poultry cooperative 3 4800 Decreased Equally
Seven of the chairpersons reported that the turnover of their enterprise had increased since establishment though most of it was used to repay the loan and purchase inputs. The chairpersons of poultry cooperative 3 and vegetable cooperative 1 reported that there has been a decrease and no change in the turnover of their enterprises, respectively, due to limited growth assets. With regards to the beef cooperative, no turnover was generated at the time of
54
the interview. Any surplus generated by the selected cooperatives was distributed equally among members. Thus, as expected in a traditional cooperative, returns were not proportional to individual investment. The beef cooperative is currently not generating any surplus.
4.5.3 Growth
The chairpersons of two selected cooperatives (vegetable cooperatives 4 and 5) mentioned that for growing their business they had considered joint ventures with larger food chain organisations (such as fruit and vegetable stores or Pick ‘n Pay for organic foods) to add value to their produce; e.g., through warehousing, processing, branding and labelling (see Table 4.10). Joint ventures allow cooperatives to exploit economies of scale (Gripsrud et al., 2000).
Table 4.10: Growth opportunities considered by selected cooperatives, KwaZulu-Natal, 2007.
Type of growth opportunity
Number of cooperatives acknowledging factor
Cooperatives considering joint venture only 2
Cooperatives considering converting to investor-owned firm (IOF)
only 4
Cooperatives considering joint venturing and eventually converting to
an IOF 3
Cooperatives not considering either joint venture or converting to IOF
as a growth opportunity 1
According to Hardesty (2004), joint ventures may be the only way cooperatives can afford to own part of an expensive facility or market a new product nationally. With regards to converting to investor-owned firms (IOFs), four chairpersons confirmed that they had considered eventually converting to an IOF once their cooperatives were well established.
Only one cooperative (vegetable cooperative 2) had not considered either joint venturing or converting to an IOF because, the chairperson stated, they were still at an early stage of development.
4.5.4 Auditing
The Cooperative’s Act of 2005 states that an audit of the affairs of a cooperative must be conducted annually in respect of each financial year in order to ensure financial statements are drawn up in conformity with generally accepted accounting practices (Government Gazette,
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2005). In addition, the auditing report should state whether the assets and facilities of a co- operative are being properly managed and the operations of a cooperative are being conducted in accordance with cooperative principles (Government Gazette, 2005). All selected cooperatives had their books audited (either internally or externally) thereby revealing their willingness to promote good corporate governance. Internal auditing is an independent evaluation function established within an organisation to examine and evaluate its activities to improve the effectiveness of risk management, control and governance processes. External auditing, on the other hand, is a periodic examination of the books of account and records of a company conducted by an independent third party (an auditor) to evaluate the efficiency, economy and effectiveness of the company’s internal control systems and business activities (Jackson and Stent, 2007). External auditing promotes transparency and, hence, accountability to investors (Lyne, 2008).
According to Chorafas (2001), well-planned and properly structured auditing programmes are essential to effective risk management and adequate internal control systems for any organisation. In addition, effective internal and external audit programmes are a critical defence against fraud and provide vital information to the board of directors about the effectiveness of internal control systems (Chorafas, 2001). Auditing allows cooperatives to take account of their financial business transactions, how much stock they acquired, how much they sold and to rectify any errors detected. Seven of the selected cooperatives carry out internal auditing while only three cooperatives use external auditors. External auditing is done by Ithala Bank whilst internal auditing is done by extension officers. All the selected cooperatives mentioned that they are audited at least once a year.