The ATA Seeks New Ways to Improve Audit Services for Ethiopia’s Agricultural Cooperatives

Agricultural cooperatives support member farmers to increase both their productivity and their income. The Ethiopian Agricultural Transformation Agency (ATA), however, identified several systemic bottlenecks that have reduced the effectiveness of cooperatives in Ethiopia. A key area in need of improvement is the auditing functions of cooperatives throughout the country in terms of quality, quantity, and regularity of audits conducted. While annual audits are required by law in Ethiopia, only about 40 percent of cooperatives are audited each year.

The International Food Policy Research Institute (IFPRI) developed a new report, How regular financial audit services are provided to agricultural cooperatives elsewhere: Lessons for Ethiopia, at the request of the ATA.  The agency is exploring solutions to improve Ethiopia’s agricultural cooperatives with a focus on making the auditing system  more independent, efficient, and accountable—both to members of the cooperatives and to government.

Researchers undertook a short desk-study of how auditing systems are run in eleven countries—Brazil, Germany, Kenya, Netherlands, Philippines, Sri Lanka, Taiwan, Tanzania, Thailand, Uganda, and Vietnam—in order to identify possible auditing options for agricultural cooperatives in Ethiopia.  As a monitoring mechanism, regular financial audits promote trust and reciprocity, help address problems for the cooperative posed by free-riders or fraud, serve to buttress the reputation of the cooperative as a reliable commercial partner, and make sure that cooperatives comply with the expectations of their member-owners.

The report provides several recommendations for the ATA to pursue. Though Ethiopia currently lacks the capacity to carry out annual audits of all agricultural cooperatives, there are steps the ATA can take now to lay the groundwork for a strong cooperative auditing system.

  • Strengthen the existing cooperative audit system in Ethiopia, which is operated through the Federal Cooperatives Agency (FCA) and Regional Cooperatives Promotion Agencies (RCPA), rather than replacing that audit structure.
  • Make capacity strengthening in institutional, commercial, and financial management a priority for cooperative development in Ethiopia.
  • Create incentives for agricultural cooperatives in Ethiopia to conduct regular audits.
  • Establish mechanism through which cooperative members can lodge formal complaints concerning the way the finances or other resources of their cooperative are mismanaged, with rapid investigations following.

 

Researchers found that agricultural cooperatives will be sustainable and successful if the members have a vested interest in their efficient operation and insist on good management under member-led governance. Among the countries examined, Thailand and the Philippines provide models that the Ethiopian cooperative system might strive for in the medium-term, while the German model offers a useful long-term goal.

 

Read the full report here.