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UNITED NATIONS SAVINGS AND CREDIT

CO-OPERATIVE SOCIETY LIMITED

ANNUAL REPORT

AND

FINANCIAL STATEMENTS

31 DECEMBER 2011

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2011

CONTENTS

Society Information

Statistical Information

Report of the Directors

Statement of Directors' Responsibi lities

Independent Auditors' Report

Financial Statements:

Statement of Financial Position

Statement of Comprehensive Income

Statement of Changes in Equity

Statement of Cash flows

Notes to the Financial Statements

PAGE

1

2

3-4

5

6-7

8

9

10

11

12 - 37

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED SOCIETY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2011

REGISTERED OFFICE:

United Nations Savings And Credit Co-operative Society Limited United Nations Complex, Gigiri P.O. Box 30552- 00100 NAIROBI

PRINCIPAL BANKERS:

Cooperative Bank of Kenya Limited Stima Plaza Branch P.O Box 38764 NAIROBI 00600

Citibank NA Upperhill.Branch P .0. Box 30711 NAIROBI 00100

Kenya Commercial Bank Gigiri Branch P.O. Box 39402 NAIROBI 00623

LEGAL AdVISORS

Ombonya & Company Advocates Harambee Co-operative Plaza, 7th Floor Uhuru Highway/Haile Selassie Avenue P.O. Box 53781-02100 NAIROBI

AUDITORS:

Ernst and Young Certified Public Accountants P.O.Box 44286 -00100 NAIROBI

1

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED STATISTICAL INFORMATION AS AT 31 DECEMBER 2011

Membership

Active Dormant

Total

Financial statistics

Total assets Members' deposits External borrowing Loans to members Investments Core capi tal Share capital Institutional capital Total revenue Total interest income Total expenses Interest on members' deposits Cash and cash equivalents

Employees of the Sacco

Key ratios

Capital adequacy ratio:

Core Capital/Total Assets Core Capital/Total Depos its Institutiona l Capital/Total Assets

Liquidity rat io (15%):

Liquid Assets/Total deposits and long term liabi lities

Operating efficiency/Loan quali ty ratios:

Total Expenses/Total income Interest on member deposits/Total income Interest rate on member's deposits Dividend rate on members share capital Total delinquency loans/Gross loan portfolio

Note 2011

3,944 ~

3,962

KShs

5,610,570,727 4.462,385,144

4,832,582,691 11,036.250

255,602,169 139,773,843 115,828,326 775,932,543 716,639,082 715,724,715 557,493,644 723,954,301

10

4.56% 5.73% 2.06%

16.21%

92.63% 71.85% 13.50% 20.00%

6.25%

2010

3,503

~

~

KShs

4,656,875,859 3,748,852,303

3,995 ,860,008 21,016,250

203,675,518 120,864,000

82,811,5 18 613,597,200 566,651,145 562,075,687 454, 569,061 608,262,909

12

4.37% 5.43% 1.78%

16.22%

92.14% 74.08% 13.56% 20.00%

5.58%

The statistical data is extracted from the statement of financia l position and statement of comprehensive income set out on pages 8 and 9 respect ively.

2

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2011

The directors submit their annual report together with the audited financial statements for the year ended 31 December 2011.

1. Incorporation

The Society is incorporated in Kenya under the Co-operative Societies Act. Cap 490 and licensed under t he Kenyan Sacco Societies Act No. 14 of 2008, and is domiciled in Kenya.

2. Principal Activity

3.

4.

The principal activity of the Society continues to be mobilizing members' savings and provision of loans to its members.

Results

2011 2010 KShs KSh s

Surplus before tax 60,207,828 51,521 ,51 3 Income tax expense (3 ,018,220) (3,301,052)

Net surplus after tax 57,189,608 48,220,461 20% transfer to statutory reserve (11,437,922) (10,134,092)

Surplus availab le for distribution ~751. 6.86 3_8_.086.369

Interest on members' deposits ,5_5~,493,§M ~54,569,061,

Dividend and Interest on Members' Deposits

The Board of Directors recommends payment of the first and final dividends of 20% per shareKShs. 27,954,769 (2010: first and final dividends of 20% per share - KShs. 24,172,800). They also recommend interest rebates on members' deposits of 13.5%- KShs. 557,493,644 (2010-13.56% - KShs. 457,617,189).

5. Board of Directors

The directors who served during the year and to the date of this report were:

Mary Oyugi Kimani Macharia Angela Mwai Washington Wanjau James Gichana James Ndale Jul ius Chokerah Richard Opiyo Pauline Nderi Martin Okun Vincent Omingo

Chairperson Vice Chairperson Honourable Secretary Treasurer Member Member Member Member Member Member (Retired on 4 March 2011) Member (Retired on 4 March 2011)

3

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2011

6. Supervisory Committee

Rael Odhiambo Stephen Ndeti Gordon Onyatta

7. Chief Executive Officer

Clement Tongi

8. Auditors

Chairperson Secretary Member

Acting

Ernst & Young were appointed during the year in accorda nce with Section 44 of the Kenyan Sacco Societies Act, and have expressed their willingness to continue in office in accordance with the Kenyan Sacco Societ ies Act. ·

rder of the Board

~

wtcvvJ 23 ......... ..... .... ......... ... ... ... ..... 2012

4

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE YEAR ENDED 31 DECEMBER 2011

The Kenyan Sacco Societies Act requires the Board of Directors to prepare f inancial statements for each yea r which give a true and fair view of the state of affairs of the society as at the end of the financial year and of its operating resu lts for that year in accordance with IFRS It also requires the Board of Directors to ensure that the society keeps proper accounting records which disclose with reasonable accuracy at any time the financial pos ition of the society. They are also responsible for safeguarding the assets of the society and ensuring that the business of the society has been conducted in accordance with its object ives, by-laws and any other resolutions made at the society's general meeting.

The directors accepts responsibility for the annual financial statements, wh ich have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards and in the manner requi red by the Kenyan Sacco Societies Act. The directors are of the opinion that the financial statements give a true and fair view of the state of the f inancial affairs of the society and of its operating results in accordance with the International Financial Reporting Standards. The directors further accept responsibility fo r the maintenance of accounting records which may be relied upon in the preparation of financi-al statements, as well as adequate systems of internal financial control.

Nothing has come to the attention of the directors to indicate that the society will not remain a going concern for at least twelve months from the date of this statement.

............ ~=: ..... ~ ........................... Chairperson

~~ .................. ~ .................................. Treasurer

· ~ ...... .. ................. .. .. ...................... Honourable Secretary

M(J/VcL ~3 .. .......... .. ... ....... ....... . ... . .. ....... .... 2012

5

IIIIIIIIIIIIIIIIIIIIIIIIIJIIIIIIIIIII'''''. ill ERNST & YOUNG Ernst & Younq Certified Public Accountants Kenya·Re Towers. Upperh!ll Off Ragati Road P.O. Box 44286 00100 Nairobi GPO · Kenya

Tel: +254 20 2715300 Fax: +254 20 2716271 E-mail: [email protected] www.ey.com

REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED

Report on the Financial Statements

We have audited the accompanying financial statements of United Nations Savings and Credit Cooperative Society Limited, which comprise the statement of financial position as at 31 December 2011, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory inform·ation. as set out on pages 8 to 37.

Directors' Responsibility for the Financial Statements

The society's directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Sacco Societies Act, and for such internal control as the directors determines is necessary to enable the preparation of financial statements that are free from material misstatement. whether due to fraud or error.

Auditors' Responsibility

Our responsibili ty is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financia l sta tements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of materia l misstatement of the financial statements , whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effect iveness of the entity's internal control. An audit also includes evalua ting the appropriateness of accounting policies used and the rea sonableness of accounting estimates made by the directors, as well as eva luating the overa ll presentation of t he financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial posit io n of United Nations Savings and Credit Co-operative Society Limited as at 31 December 2011. and of its financial performance and its cash fl ows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Sacco Societies Act.

6 Other Offices: NAKURV, MOMBASA.

P.M. Kamau, G.G. Karuu, J.K. £heboror, A.S. G11ani, P.N. Anchinga, C.O. Atinda, H.C. waslke. G. Gltahl

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Emphasis of Matter

We draw attention to note 30 to the financial statements which describes the lapses in the society's internal control system from prior years that resulted in fraud and directly impacted on the accounting records. Our opinion is not qualified in respect of this matter.

Other Matter

The financial statements of United Nations Savings and Credit Co-operative Society Limited for the year ended 31 December 2010 were audited by another auditor who expressed an unmodified opinion on those statements on 16 February 2011.

Report on Other Legal Requirements

The Kenyan Sacco Societies Act requires that we report the following matters to the Sacco Societies Regulatory Authority (SASRA). We report that:

(i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

(ii) in our opinion, except for the matter discussed in the emphasis of matter paragraph, we have no evidence of irregularities or il legal acts that have been committed by directors, employees or the sacco society itself; and

(iii) we have no grounds to believe that the sacco society is insolvent or that there is a significant risk that it may become insolvent.

.. ~ .. ~ .. ) .. 6~ . ., .... 2012

7

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED STATEMENT OF FI NANCIAL POSITION AS AT 31 DECEMBER 2011

Note 2011 ASSETS KShs

Cash and cash equivalents 6 723,954,301 Trade and other receivables 7 34,819,184 Amount due from related parties 8 3,362,198 Tax recoverable 9 63,916 Loans to members 10 4 ,832,582,691 Investments 11 11 ,036,250 Operating lease 12 Intangible asset 13 154.720 Equipmen t 14 4,597,467 Bond premium 15

TOTAL ASSETS 5,610,570,727

EQUITY AND LI ABILITIES

EQUITY

Share capital 16 139,773,843 Reserves 17 115,828.326

TOTAL EQUITY 255,602,169

LIABILITIES

Members' deposits 18 4,462,385, 144 Provision for interest on members' deposits 19 557.493,644 Trade and other payables 2 1 72,890,041 Members' savings accounts 22 262,199' 729

TOTAL LIABILITIES 5,354,968,558

TOTAL EQUITY AND LIABILITIES 2,61Q,570,_I21

2010 KShs

608 ,262,909 18,459,643

1.989,494 3 ,995 ,860,008

21 ,016,250 4,364,522 2,536,350 4,325,003

6 1.680

4,656.875, 859

120,864,000 82,811,518

203,675,518

3,748,852,303 457,6 17,189

16,571,702 230,159 , 147

4,453,200,341

.4..Q5_6,.875' 852

The f inancia l statements were approved by the Board of Directors on ..... R3.r4 . ../.¥.1~~ .. 2012 and signed on its behalf by:

~ Q

~ .... . .......... ilL~ .Treasurer

........... .................................................. Honourable Secretary

8

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2011

2011 2010

Notes KShs KShs INTEREST INCOME

Int erest on members' loans 23 716,639,082 566,65 1,145

INTEREST EXPENSE

Interest on members' savings accounts 24 (6,536,636) (5,6 10.477)

Interest on members deposits 19 (557.493,644) (454,569,06 1)

TOTAL INTEREST EXPENSE (564,030,280) (460, 179 ,538)

NET INTEREST INCOME 152,608,802 106,471 ,607

Other income 25 "59,293.461 46,946,05 5

OPERATING EXPENSES

Staff expenses 26 (43,865,635) (34, 105,324) Administrative expenses 27 (56,688,908) (61 ,062,087)

Directors expenses 28 (7,599,167) (6, 728,738)

Provision for fraud loss 30 {43,540,7252

NET OPERATING SURPLUS BEFORE TAX 60,207,828 51,52 1,513

INCOME TAX EXPENSE 9 (3,018,2202 (3,301,052)

SURPLUS FOR THE YEAR 4a.220.461

9

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2011

Share Retained Statutory Revaluat ion capita l earnings reserves reserve Total

KShs KS hs KShs KShs KShs Year ended 31 December 2010

Balance as at 1 January 2010 121 ,000,000 10,855,284 32,353,691 995,958 165,204,933 Contr ibutions for the year 38,000 38,000 Surplus for the year 48,220,461 48,220,461 20% transfer to statutory reserve (10,134.092) 10,134,092 Amortization of revaluation reserve 284,560 (284,560) Adjustment to share capital (note 16) (174,000) 174,000 Long outstanding bank credits 1,373,047 1,373,047 Unclaimed interest on deposits 1,019,934 1,019,934 Prior year adjustment (6,544,301) (6,544,301) Write-off of ledger differences

~-- ------(~,63Q..;;592 -~,636,556)

At the end of the year ,12() ,864,000 3Q,6_12._33_7, 4_~A8Z. 7J3J I11.3.2J~ Z03,2.I5 .. ~!i18

Year ended 31 December 2011

Balance as at 1 January 2011 120,864,000 39,612,337 42..487,783 711,398 203,675,518 Contributions for t he year 18,909,843 18,909,843 Surplus for the year 57,189,608 57,189,608 20% transfer to statutory reserve (11,437 ,922) 11,437,922 Dividends paid (24,172,800) (24 ,172,800) Amortization of revaluation reserve ----- - 711,398 (711 ,398)

At the end of the year ,1.:12,.7:? 3,84;3 ~§J ,_2Q_~, . .921 .~~.92_~_7.02 ==--~--=-=-=

2_52_,602,,!_6_9,_

10

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2011

2011 OPERATING ACTIVITIES Note KShs

Surplus before tax 60,207,828

Adjust ments for: Amortisation of prepaid operating leases 12 4,364,522 Amortisation of intangible assets 13 2,528,556 Depreciation 14 1,160,950 Amortization of premium bond 15 61,680 Gain on disposal of equipment Unclaimed customer credits Unclaimed dividends Prior year adjustment Interest on members' deposits 19 557,493,644

625,817,180 Changes in working capital Increase in amounts due from related parties (3,362,198) (lncrease)/decrease in trade and other receivables (16,359,541) lncrease/(decrease) in trade and other payables 56,318,339

Cash generated from operations 662,413,780 Management honoraria paid Staff bonus pa id . Tax paid (1,092,642)

Net cash generated from operating activities 661,321,138

INVESTING ACTIVITIES Purchase of equipment (1,433,414) Purchase of intangib le asset (146,926) Proceeds from disposal of equipment Net increase in loans to members (836,722,683) Investment in Wanamataifa Investment Company Limited (10,000) Purchase of shares in KUSCCO (10,000) Proceeds from maturity of treasury bond 10,000,000

Net cash used in investing activities (828,323,023)

FINANCING ACTIVITIES Net increase in members' deposits 713,532,841 Shares contribution 18,909,843 lncrease/(decrease) in members' savings 32,040,582 Entrance f ees received Dividends paid (24, 1 72,800) Interest on members' deposits paid (457,617,189)

Net cash generated from financing activities 282,693,277

Net increase in cash and cash equivalents 115,691,392 Cash and cash equivalent at the start of the year 608,262,909

CASH AND CASH EQUIVALENT AT THE END OF THE YEAR 6 723.954,30_1

11

2010 KShs

51,521,513

1,735,810 2,661,870 2,089,056

238,590 251,588

1,373,047 1,019,934

(5,843,307) 454,569,061

5_09,617,162

2,833,610 (2 ,635,891)

509,814,881 (945,425) (950,000)

(3,115,391)

504,804,065

(1,339 ,114)

42,000 (728,875,393)

(730,172,507)

738,300,937 38,000

(52,490, 139) 770,000

(405,359,157)

281,259,641

55,891,199 552.371,710

608.262.90.2

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011

1. BASIS OF PREPARATION

The financial statements are prepared in compliance with International Financial Reporting Standards (JFRS) as issued by the International Accounting Standards Board (IASB). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in functional currency, Kenya Shillings CKShs).

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgement in the process of applying the society's accounting po licies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

2. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

The accounting policies adopted are consistent with those of the previous financial year. excep t for the following new and amended IFRS and IFRIC interpreta tions effective as of 1 January 2011:

• lAS 24 Related Party Disclosures (amendment) effective 1 January 2011. • lAS 32 Financial instruments: Presentation (amendment) effective 1 February 2010. • IFRIC 14 Prepayments of a Minimum Funding Requirement (amendment) effective 1

January 2011. • Improvements 'to IFRSs (May 2010).

The adoption of the standards or interpretations is described below:

lAS 24 Related Party Transactions (Amendment) The IASB issued an amendment to lAS 24 that clarifies the definitions of a related party. The new definitions emphasize a symmetrical view of related party relationships and clarify the circumstances in which persons and key management personnel affect related party relationships of an entity . In addition, the amendment introduces an exemption from the general related party disclosure requiremen ts for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the f inancial position or performance of the society.

lAS 32 Financial instruments: Presentation (Amendment) The IASB issued an amendment that alters the definition of a f inancial liability in lAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the ex isting owners of the same class of an entity's non-derivative equity instruments, to acquire a fixed number of the enti ty's own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the society because the society does not have these types of instruments.

12

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2011

2. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS (continued)

IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment) The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as a pension asset. The society is not subject to minimum funding requirements, therefore the amendment of the interpretation has no effect on the financial position nor performance of the society.

Improvements to IFRSs

In May 2010, the IASB issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard.

The adoption of the following amendments resulted in changes to accounting policies, but no impact on the financial position of the society:

• IFRS 7 Financial Instruments - Disclosures: The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantita tive information in context. ·

• lAS 1 Presentation of Financial Statements: The· amendment clarifies that an entity may present an analysis of each componen t of other comprehensive income maybe either in the statement of changes in equity or in the notes to the financial statements .

Other amendments resulting from Improvements to IFRSs to the fol lowing standards did not have any impact on the accounting policies, financial position or performance of the society:

• IFRS 3 Business Combinations (Contingent consideration arising from business combination prior to adoption of IFRS 3 (as revised in 2008))

• IFRS 3 Business Combinations (Un-replaced and voluntarily replaced share-based payment awards)

• lAS 27 Consolidated and Separate Financial Statements • lAS 34 Interim Financial Statements

The following interpretation and amendments to interpretations did not have any impact on the accounting policies, financial position or performance of the society:

• IFRIC 13 Customer Loyalty Programmes (determining the fair value of award credits) • IFRIC 19 Extinguishing Financial Liabil ities with Equity Instruments • IFRS 3 Business Combinations: The measurement options available for non-controlling

interest CNCI) were amended. Only components of NCI that constitute a present ownership interest that enti tl es their holder to a proportionate share of the entity's net assets in the event of liquidation should be measured at either fair value or at the present ownership instruments' proportionate share of the acquiree's identifiable net assets. All other components are to be measured at their acquisi tion date fair value.

• The amendments to IFRS 3 are effective for annual periods beginning on or after 1 July 2011.

13



Standards issued but not vet effective

Standards issued but not yet effective up to the date of issuance of the society's financial statements are listed below. This listing of standards and interpretations issued are those that the society reasonably expects to have an impact on disclosures, financial posit ion or performance when applied at a future date. The society intends to adopt these standards when they become effective.

lAS 1 Financial Statement Presentation - Presentation of Items of Other Comprehensive Income: The amendments to lAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or 'recycled') to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has there no impact on the society's financial position or performance. The amendment becomes effective for annual periods beginning on or after 1 July 2012.

lAS .12 Income Taxes - Recovery of Underlying Assets: The amendment clarified the determination of deferred tax on investment property measured at fair va lue. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fairvalue model in lAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred ta x on non-depreciable assets that are measured using the revaluation model in lAS 16 always be measured on a sale basis of the asset. The amendment b-ecomes effective for annual periods beginning on or after 1 January 2012.

lAS 19 Employee Benefits (Amendment): The IASB has issued numerous amendments to lAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The amendment becomes effective for annual periods beginning on or after 1 January 2013.

lAS 27 Separate Financial Statements (as revised in 2011): As a consequence of the new IFRS 10 and IFRS 12. what remains of lAS 27 is limited to accounting for subsidiaries. jointly cont rol led entities , and associates in separate financial statements. The society does not present separa te financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013.

lAS 28 Investments in Associates and Join t Ventures (as revised in 2011): As a consequence of the new IFRS 11 and IFRS 12. lAS 28 has been renamed lAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after 1 January 2013.

IFRS 7 Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements: The amendment requires additional disclosure about f inancial assets that have been transferred but not derecognised to enable the user of the society's financial statements to understand the rela tionship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with, the entity's continuing involvement in those derecognised assets.

14



Standards issued but not yet effective (continued)

The amendment becomes effect ive for annual periods beg inning on or after 1 July 2011. The amendment affects disclosure only and has no impact on the society's financial position or performance.

IFRS 9 Financial Instruments: Classification and Measurement. IFRS 9 as issued reflects the first phase of the IASBs work on the rep lacement of lAS 39 and applies to classification and measurement of f inancial assets and financial liabilities as def ined in lAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The completion of this project is expected over the course of 2011 or the first half of 2012. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the society's financial assets, but will potentially have no impact on classi ficat ion and measurements of financial liabilities. The society wi ll quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

IFRS 10 Consolidated Financia l Statements: IFRS 10 replaces the portion of lAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolida ted financial statements. It also includes the issues raised in SIC-12 Consolidation -Special Purpose Entities. IFRS 10 establishes a single control model that applies to all enti t ies including special purpose enti ties. The changes introduced by I FRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent. compared with the requirements that were in lAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013.

IFRS 11 Joint Arrangements: IFRS 11 replaces lAS 31 Interests in J oint Ventures and SIC-13 Jointly-con tro lled Entities - Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolida tion. Instead. JCEs that meet the definition of a joint venture must be accounted for using the equity method. This standard becomes effective for annual periods beginning on or after 1 January 2013.

IFRS 12 Disclosure of Involvement with Other Entities: IFRS 12 includes all of the disclosures that were previously in lAS 27 related to consolidated financial statements, as well as a ll of the disclosures that were previously included in lAS 31 and lAS 28. These disclosures relate to an entity's interests in subsidiaries, joint arrangements. associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 1 January 2013.

IFRS 13 Fair Va lue Measurement: IFRS 13 establishes a single source of guidance under IFRS f or all fair value measurements. IFRS 13 does not change when an entity is required to use fair value. but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. This standard becomes effective for annual periods beginning on or after 1 January 2013.

The di rectors anticipate tha t the adoption of these standards will have no material effect on the financial statements of the society in the period of initial application. but additional disclosures will be required.

15


3. SIGN IFICANT ACCOUNTING POLICIES

a) Revenue Recognition

Revenue is recogn ized to the extent that it is probable that the economic benefits will flow to the Society and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding ta xes or duty. The Society assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Society has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:

Interest on members' loans

Interest on loans to members is calculated on a reducing balance method. Interest income is recognized on a time proportion basis by reference to the principal outstanding and the effective interest rate applicable.

For all financial instruments measured at amort ized cost and interest bearing financial assets classified as available for sale, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the statement of comprehensive income.

Dividends

Revenue is recognized when the Society's r ight to receive the payment is established.

b) Critical accounting estimates and judgements

Estimates and judgements are con tinually evaluated and are based on historical experience and other factors, including experience of future events that are believed to be reasonable under the circumstances.

Critica l accounting estimates and assumptions The society makes estimates and assumptions concerning the future. The resulting accounting estimates will , by definition, seldom equal the related actual results. In particular, estimates are made by the directors in determining the recoverable amount of impaired receivables.

In the process of applying the society's accoun ting policies, management has made judgements in determining:

• t he classification of financial assets and leases • whether assets are impaired.

16


3. SIGNIFICANT ACCOUNTING POLICIES (continued)

c) Property and equipment

All property and equipment are ini t ially recorded at cost. Certain classes of property and equipment are subsequently shown at revalued amounts, based on periodic valuations by the independent valuers. All other property and equipment are stated at historical cost less accumulated depreciation and impairmen t losses.

Increases in carrying value arising on revaluations are credited to other comprehensive income and accumulated in revaluation reserves in equity. Decreases that offset previous increases of the same asset are charged against the revaluation reserve. All other decreases are charged against the profit or loss .

Depreciation is calculated using the straight line method to write down the cost of each asset to its residual value over its estimated useful life. The annual depreciation rates in use are:

Office furniture Motor vehicles Computers, hardware and accessories Off ice equipment

12.5% 25% 25%

12.5%

The assets' residual values and useful lives are reviewed and adjusted if appropriate at each reporting date. Gains or losses on disposal of property and equipment are determined by reference to their ca r rying amount and are taken in to account in determin ing operating surplus.

De recognition

The carrying amount of an i tem of property and equipment sha ll be derecognised:

(i) on disposal; or (i i) when no future economic benefits are expected from its use or disposal.

The gain or loss arising from derecognition of an item of property and equipment shall be included in profit or loss when the item is derecognised (unless lAS 17 requires otherwise on a sale and leaseback). Gains sha ll not be classified as revenue.

d) Intangible assets

Software license costs are stated at histor ical cost less estimated accumulated amor t ization and accumulated impairment losses. Amortization is calculated on reducing balance method to write down the cost of the software to its residual value over the estima ted useful life using an annual rate of 33.3%.

17



e) Operating leases

Leases of assets where a significant proportion of the risks and rewards are retained by the lessor are classified as operating leases. Payments made under the operating leases are charged to the statement of comprehensive income on a stra ight line basis over the lease period. Prepaid operating lease rentals are recognized as assets and are subsequently amortized over the lease period.

i) Investments

Investments are recognised initially at the trade accounting date which is the date the Society commits itself to the purchase or sale and are recorded at the fair value of the consideration given plus the transaction costs except for those financial assets classified as fair value through profit or loss CFVTPL). which are initially measured at fair value.

Financial assets are classified into the following categories: financial assets 'held-to-maturity' investments, 'available-for-sale' financial assets and 'loans and receivables'. The class~fi cation depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

(i) Held-to-maturity investments

Financial assets with fixed or determinable payments and fixed maturity dates that the Society has the positive intent and ability to hold to maturity are classif ied as held-tomaturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method tess any impairment, with revenue recognised on an effective yield basis.

(ii) Ava ilable for sale financial assets

These are those financial assets that are designated as avai lable fo r sale or are not classified as (a) loans and receivables, (b) held-to-ma turity investments or (c) f inancial assets at fair value through profit or loss. Gains and losses arising from changes in fa ir value are recognised directly in equity in the revaluation reserve. Where the investment is disposed off or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in profit or loss for the period.

Dividends 'on available for sale' equity instruments are recognised in profit or loss when the Society's right to receive the dividends is established.

(iii) Loans and receivables

Trade receivables, loans, and other receivables that have f ixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amort ised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

18



f) Financial assets (continued)

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Impairment of financial assets

Financia l assets, other than those at fair value through profit or loss CFVTPL), are assessed for indicators of impairment at each reporting date. Financia l assets are impaired where there · is objective evidence that, as a result of one or more events that occurred after the initia l recognition of the financial asset. the estimated future cash flows of the investment have been impacted.

For unlisted shares classified as available for sa le, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, including redeemable notes classified as available for sale, objective evidence of impairment could include:

• Significant financial difficulty of the issuer or counterparty; or • Default or delinquency in interest or principal payments; or • It is becoming probable that the borrower will enter bankruptcy or financial re

organisation.

For certain categories of financial assets , such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a co llective basis. Objective evidence of impairment for a portfolio of receivables could include the Society's past experience of collecting payments, an increase in the number of delayed payments in the portfolio, as well as observable changes in national economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost. the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of financial assets carried at amortised cost, where the carrying amount is reduced through the use of an allowance account. When an asset carried at amortised cost is considered impaired, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to allowance for bad and doubtful debts in the statement of comprehensive income.

19



f) Financial assets (continued)

With the exception of available for sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be rela ted objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the car rying amount of the investment at the date the impai rment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of available for sa le equity securities, impairment losses previously recognised through profit or loss are not reversed through profit or loss. Any increase in fa ir value subsequent to an impairment loss is recognised directly in equity.

Derecognition of financial assets

The Society derecognises a fi nancial asset only when the contractual rights to the cash flows from the asset expire or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

g) Financial liabilities

Financial l iabili ties are classified as either financial liabi lities 'at fai r value through profit or loss' or 'other financial liabi lities'. ·

(i) Financial liabilities at fair value through profit or loss (FVTPL))

Where the financial liability is either held for trading or i t is designated as at fair value through profit or loss (FVTPL.) Financial liabilities at fair value through profit or loss CFVTPL) are stated at fair value, with any resultant gain or loss recognised in profit or loss . The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

(ii) Other financial liabilities

Some financial liabilities, including borrowings, are initially measured at fair value. net of transaction costs.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

Classification as debt or equity

Debt and equity instruments are classified as either financia l liabilities or as equ ity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Society are recorded at the proceeds received, net of direct issue costs. The capita l comprise pr imar ily of minimum share capital prescribed under the by-laws of the Society.

20

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (cont inued) FOR THE YEAR ENDED 31 DECEMBER 2011


g) Financial liabilities (continued)

Financial guarantee contract liabilities

Financial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of:

• The amount of the obligation under the contract. as determined in accordance with lAS 37 Provisions, Contingent liabilities and Contingent Assets; and

• the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies.

Derecognition of financial liabilities

The Society derecognises financial liabilities when, and on ly when, the Society's obliga t ion s are discharged, cancel led or they expire.

h) Impairment of non-financia l assets

The carrying amounts of the Society's tangible and intangible assets are reviewed at each reporting date to determine whether there is any indication of impairment. If such condition exists the recoverable amount of the asset is estimated to determine the extent of impairment loss (if any). If the recoverable amount of an asset is estimated to be less than its carrying amount an impairment loss is recognized immediately, unless the relevant asset is carried at revalued amount in which case the impairment loss is treated as a decrease in revaluation reserve. The respective asset is reduced to its recoverable amount.

Where an impairment loss subsequently reverses, the car rying amount of the asset is increased to the revised estimate of its recoverable amount. but only to the extent that the carrying amount does not exceed the carrying amount that would have been determined had no impairment loss had been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount. in which case the reversal of the impairment loss is treated as an increase in revaluation reserve.

i) Retirement benefit obligations

The Societ y opera tes a defined contribution plan for all employees. A defined contribution plan is a post-employment benefi ts plan under which an enti ty pays fixed contributions into a separate entity (fund). The assets of the plan are held in a separately administered fund that is funded by contribution from the Society and employees.

The Society has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the cu rrent and prior period.

The Society also contributes to a mandatory statu tory defined contr ibution pension scheme, the National Social Securi ty Fund (NSSF) for its employees as legislated from time to time.

The Society's contributions to the defined contribution schemes are charged to the profi t and loss account in the year to which they relate.

21



j) Tax

Current tax is provided on the basis of the results for the year, as shown in the financial statements, adjusted in accordance with tax legislation. No provision for defer red tax has been made as there are no temporary differences arising between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes.

k) Statutory reserve

Transfers are made to the statutory reserve fund at a rate of 20% of net operat ing surplus aft er tax in compliance with the provision of the Kenya Sacco Soc ieties Act.

I) Cash and cash equivalents

For the purpose of the statement of cash flows , cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liqu id investments that are read ily convertible to a known amount of cash and are subject to an insignificant risk of changes in va lue.

4. CAPITAL MANAGEMENT

The Society is not subject to any external imposed capital requirements. However , the Kenyan Sacco Societies Act stipulates that a Sacco shall not acquire external_ borrowings in excess of 25% of its total assets unless the limit has been waived by the Authori ty. The Society did not have any borrowings.

5. FINANCIAL RISK MANAGEMENT

The Society has exposure to the following risks from its use of financial instruments:

i) Credit risk ii) Liquidity r isk iii) Market risks iv) Operational risks

This note presents information about the Society's exposure to each of the above risks, the society's objectives, policies and processes for measuring and managing risk. and the society's management of capital.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Society's risk management framework .

The Society's risk management policies are established to identify and ana lyse the risks faced by the Society, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regu larly to reflect changes in market conditions, products and services offered. The Society, through its training and management standards and procedures, aims to develop a disciplined and constructive control envi ronment , in which all employees understand their roles and obligations.

22


5. FINANCIAL RISK MANAGEMENT (continued)

The Board is responsible for monitoring compliance with the Society's risk poli cies and procedures, and for reviewin g their adequacy. The Board is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk controls and procedures, the results of which are reported to the Board Audit committee.

(i) Credit risk

Credit risk is the risk of financial loss to the Society if a customer/ member) or counterparty to a financial instrument fails to meet its cont ractual obligations and arises principally from the Society's loans and advances to customers and other Societies and investment securit ies. For risk management reporting purposes, the Society considers and consolidates all elements o f cred it risk exposure. The Sacco's credit department assesses the credit quality of each customer, taking into account its f inancial position, past experience and other factors . The utilization of credi t limits is regular ly monitored. The society holds collateral in the f orm of deposits, charged properties and guarantees in respect of loans to members.

The amount that best represents the society's maximum exposure to the credit risk as at 3 1 December 2011 is made up as follows:

Cash .and cash equivalents Trade and other receivables Amounts due from related parties Loans to members Investments

(i i) Liqu idity risk

2011 KShs

723,954,301 34,8 19,184

3,362,198 4,832,582,691

11,036,250

5.605.754.624

2010 KShs

608,262,909 18,459,643

3,995,860,008 21,016,250

4.643.598.810

Liquidity risk is the risk that the Society wi ll encounter difficulty in meeting obligations from its financial liabilities.

Management of l iquidity risk The Society's approach to managing liquidity is to ensure, as far as possible, that it wi ll always have sufficien t liquidity to meet its liabilities when due, under both normal and stressed conditions, wi thout incurring unacceptable losses or risking damage to the Society's reputation.

Exposure to liquidity risk The key measure used by the Society for managing liquidity risk is the ratio of net liquid assets to deposits from customers.

Details of the reported Society's ratios of net liquid assets to withdrawable deposits from customers at the reporting date were as follows:

2011 2010

At 31 December 15.32% 15.30%

23

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 201 1


(ii) Liquidity risk (continued)

The following tables detail the Society's remaining contractual maturity for its financial assets:

Less than one 1-3 months 3 months· to 1 1-5 years month year

KShs KShs KShs KShs 31 December 2011

Trade and other receivables 27,612,860 195,714 7,010,610 Amounts due from rela ted parties 3,362, 198 Loans to members 96,651,654 1.1 11.494,019 3,382 ,807,883 Financial assets 10,000,000

Total 2(,612,8_60 96,8.1_7:, 36~ l .1 .4lJJ3.66 .. ~f?:Z .:? .• ~2.2J.SoJ:.mn

31 December 2010

Trade and other rece ivables 11 ,582,190 531,391 6,346,062 Amounts due from related parties Loans to members 79,917,200 998,965,002 2 ,797,102,006 Financial assets ----·-·-· ---- ·- _ _1_0_,_00.0 ,..QOQ __ 1Q..9_QQ,QOQ

Total 11,582, 190 §30 , 44~59J 1,0J 5_,3).1,064 2.807, t02,0P,6

24

Over 5 years Total

KShs KShs

34,819,184 3 ,362,198

241,629,135 4 ,832,582,69 1 1,036,250 11,036,250

.?1?..6~ ~~B-~ 1,_88).,13,Q.Q,J,f3

18 .459,643

119,875,800 3,995 ,860,008 - _J ,,016,;;..2Q _ll..0 16,250

12Q,J?.22.050 gL_Q3.~ , 33.5,~.0 1

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (cont inued) FOR THE YEAR ENDED 31 DECEM BER 2011


(ii) Liquidity risk (continued)

The following tab les detail the Society's remaining cont ract ual maturit y for its financial liabilit ies:

Less than one 1-3 months 3 months to 1 1-5 years month year

KShs KShs KShs KShs 31December 2011

Members' deposits 133,871,554 223,119,257 Members' savings accounts 20,975,978 31.463,967 207,137,787 2,621,997 Trade payables and accrued interes t 29,Qi).,_917 2 5 J_;)JJ .. 513 ].8,222,511

Total 50,J)_1,995. 59.97~.480 }59J~}1 , 8_~_2_ 2_2_2 •. 741._?..54

31December 2010

Members' deposi ts 374 ,885,231 262,419,661 Members' savings accounts 23,015,915 69,047,744 135,793,897 2,301,591 Trade payables and accrued in terest 2.ll.1..436 4,971.511 2.485,755

Total 32_,J).0,35J ~1 .. Ql_~ • .?~~ ~J3 .... J§.'h~J;33 264, 7.?. L2.5.~

25

Over 5 years Total

KShs KShs

4,105,394,333 4.462,385,144 262,199,729

72,89Q,041

~tl05 , :,19~, 3<~3 ~LJ.9714I4,_91~

3,11 1,547,41 1 3,748,852,303 230,159,147

_12,571,702

J,J.11,_51Lill ~.295,_~83..122



(iii) Market risk

Market risk is the risk that changes in market prices, such as interest rate, equity prices, and foreign exchange rates will affect the Society's income or va lue of its holdings of f inancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optim ising the return on risk.

Management of market risk The Society holds held to maturity and ava ilable for sale portfol ios. Overall authority for market risk is vested in the Board.

Exposure to interest rate risk- non trading portfolios The principal risk to which held to maturity portfolios are exposed is t he risk of loss from fluctuations in the future cash f lows or fa ir values of f inancial instruments because of a change in market interest rates. Interest rate r isk is managed principal ly through monitoring interest rate gaps and by having pre-approved limits for repricing bands.

(iv) Operationa l risk

Operational risk is the risk of direct or indirect loss arising f rom a wide variet y of causes associated wi th the Society's processes, personnel, techno logy and infrastructure, and from external fac tors other than credit, market and liquidity risks such as those arising f rom I ega I and regulatory requirements and general ly accepted standards .of corporate behaviour . Operational risks arise from all of the Society's operations. ·

The Society's objective is to manage operational risk so as to balance the avoidance of financial losses and damage t o the Society's reputat ion with overall cost effectiveness and t o avoid control procedures that restrict initiative and crea tivi ty.

The pri mary responsibi li ty for the development and implementation of controls to address operat ional risk is assigned to senior management. This responsibili ty is supported by the development of overall Society standards for the management of operational r isk in the following areas:

a) requirements for appropriat e segregation of du ties, including the independent authorisation of transact ions

b) requirements for the reconciliat ion and monitoring of transactions c) compliance with regula tory and other legal requirements d) documentation of controls and procedures e) requirements for the yearly assessment of operationa l risks faced, and the adequacy of

controls and procedures to address the risks identified f) requirements for the reporting of operational losses and proposed remed ial action g) development of contingency plans h) tra ining and professional development i) ethical and business standards j) risk mitigation, including insurance where this is effective

Compl iance with Co-operatives Societies' standards is supported by a programme of regular reviews undertaken by the Internal Audit department. The results of In ternal Audit reviews are discussed with the Board and senior management of the Society.

26


6. CASH AND CASH EQUIVALENTS

Cash and bank balances

Cash in hand Cash at bank

Deposits with banks

Housing Finance Company of Kenya KUSCCO Central Finance Kenya Commercial Bank Limited

Tota l cash and cash equivalents

2011 KShs

17,552,857 252,866,835

270,419,692

101,805,959

351,728,650

.453. .. 53_4,609

723,251.3_Ql

2010 KShs

16,782,344 120.825,874

137.608.218

204,957,305 263,968,736

1,728,650

41.0.,654.691

Q..Q8,262.2Q2

For the purposes of the statement of cash flows, cash and cash equivalents comprise cash in hand, deposi ts held at call with banks and investments in money market instruments, net of bank overdrafts.

2011 2010 7. TRADE AND OTHER RECEIVABLES KShs KShs

Interest income receivable 7,984,276 Members contributions receivable 19,628,584 11,582,190 Staff advances 195,713 531,391 Prepayments 7 ,010,611 4,391,521 Other receivables 1.954,541

~819,184 l..8,452.M;l

The carrying va lue of trade and other receivables approximates their fair value.

8 . AMOUNTS DUE FROM RELATED PARTIES

The amount is due from Wanamataifa Investment Company Limited, a whol ly owned subsidiary and the property investment arm of the Sacco registered in 2011. It mainly relates to an advance given to finance its operations.

9. TAXATION

(a) Statement of financial position

At 1 January Charge for the year Under provision in the prior year Paid during the year

At 31 December

27

2011 KShs

1,989,494 (3,018,220)

1,092.642

63,91_6

2010 KShs

2,876,149 (3,301,052)

(700,994) 3,115,391

1.989.424

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIET Y LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2011

9. TAXATION (continued)

(b) Statement of comprehensive income

Investment income:

Inter est on fixed deposits Interest on treasury bills and bonds Interest from deposits with banks Dividend income Less: Exempt interest from KUSCCO

Chargeable income

Taxable income (50% of chargeable income)

Tax thereon at 30%

2011 KShs

24,061 ,282 4,220.400

118,825 73,264

(8.352.306)

20,121.465

10,060,733

3.Q18.2.2.Q

2010 KShs

23,683,187 2,025,000

267, 563

(3 ,968,736)

22,007,014

11,003,507

.).3Ql,Q52

The charge to income is computed at 30% of 50% of investment income except for income from KUSCCO investments of KShs. 8,352,306 which is exempt from tax. Interest on members' loans and ot her income from members is tax exempt.

10. LOANS TO MEMBERS

Normal loan accounts Super loan accounts Instant loan accounts Emergency loan accounts Education loan accounts Premier loan FOSA salary advances Secured asset loan facil i ty Commercial loan Commercial bank refinancing Retiree loan Festive Settling down FOSA refinance Insurance loans Dividend advances

Less: Allowance for bad and doubtful debts

28

2011 KShs

1,706,265,237 28,857,548

165,225,470 1,528,822

17,067,994 2,611,158,793

22,775,238 254,496,910

2,882,984 5,406,712 9,784,346

12,016,141 2.429,046 4,059,178

6,944 38.935,864

4,882,897,227

(50,314,536)

~..8.32..~..82...6~

2010 KShs

1,874,613,151 59,210,603

143,376,499 3,676,722

13,441,694 1,630,176,139

22,397 .439 212,002,985

2,882,984 9 ,960,443 6,004,065

23,429,010 6,984,310 9,096,678

28,953 18,383.276

4,035,664,951

(39,804,943)

3.,225,86Q,QQB.


10. LOANS TO MEMBERS (continued)

Comprising: Due within one year Due after one year

2011 KShs

1,208,145,673 3,624,437,018

4.832.582,691

20 10 KShs

1,078,882,202 2,916,977,806

3.995.860.008

The carrying amounts of loans to members that are due within one year approx imate to their fa ir value.

Insider borrowing:

Total loans issued to insiders

%of insider loans to tota l loan portfolio SASRA maximum requirement

2011 KShs

21,_801.831

2% 5%

2010 KShs

66,183.087

1% 5%

The insider loans are issued to the directors, supervisory committee members and the society employees.

Movement in allowance for bad and doubtful debts:

At 1 January Impairment losses recognised - general

Specific write offs

At 31 December

Ageing of past due loans

0 days (Performing - 0% Provision) 1-30 days (Watch- 5%) 31- 180 days (Subs tandard-25%) 181- 360 days (Doubtful- 50%) >360 days (Loss Account-100%)

Total

29

2011 KShs

39,804,943 10.509 .593

50,314,536

9,994,612 19.728,277

8,690,617 9,018.016

41A_1_1. . 522

2010 KShs ·

2,976.411 38.136.639

41,113,050 (1,308.107)

39.804.943

7,066,221 14,015,889 8,964,897 9,757,936

32.804,943


11. INVEST MENTS

(a) Investment in available for sale financial assets

Quoted shares:

162 shares in Co-operative Bank of Kenya Limited

Unquoted shares:

KUSCCO shares C1 share) Co-operative Insurance Company shares Wanamataifa Investment Company Limited shares

(b) Held-to-maturity investments

CBK Treasury Bonds (13 .25% p.a.)

Total investments

2011 KShs

16.200

10,050 1,000,000

10.000

1_,_020.050

lQ,OOO.OOO

2010 KShs

16.200

50 1,000,000

1.000,050

2..0...._000 . 000

21.016,250

The unquoted shares are equity investments classified as available for sale. They are carried at cost due to lack of comparable quoted investment which could have been used ·as a basis for the determination of fair value. In the opinion of the directors, the above investments would , if sold, realize not less than the amounts at which they are stated.

12. OPERATING LEASE

COST As at 1 January and 31 December

AMORTISATION

At 1 January Charge for the year

At 31 December

NET CARRYING AMOUNT

2011 KShs

13,925,702

9,561,180 4,364.522

13,925,702

2010 KShs

13,925,702

7,825,370 1 ,735,810

9,561,180

4,364,~...522

The society constructed an office building in the year 2004 at a cost of KShs 12,360,624. on land that belongs to the United Nations on the understanding that the cost will comprise an operating lease prepayment to be amort ized over a lease period of 8 .5 years. In the year 2008, the building was valued at KShs 13,925,702 resulting in an increase in value by KShs 1,565,078. The building has been fu l ly amortised in the current year as a result of a revision in the lease period f r om 8.5 years to 7 years.

30


2011 13. INTANGIBLE ASSET KShs

COST

As at 1 January 7,793.433 Additions 146,926 Transfer to compu ter equipment

As at 31 December 7 ,940,359

AMORTISATION

As at 1 January 5,257,083 Charge for the year 2,528,556

As at 31 December 7 ,785,639

NET CARRYING AMOUNT 154.720

This is computer software which is amortised at a rate of 33% on a reducing ba lance basis.

14. EQUIPMENT$

Furniture and Office Computer 31 December 2011 fittings equipment equipment

KShs KShs KShs COST As at 1 January 2,351 ,923 2,580,927 11,345,836 Written-off (452,797) Additions 190,069 296,896 946,449

As at 31 December 2,541,992 2,877,823 11.839,488

DEPRECIATION As at lJanuary 1,432,249 1,363,074 9,158,360 Written-off (452,797) Charge for the year 184,086 204,954 771,910

As at 31 December 1,616,335 1,568,028 9,477,473

NET CARRYING AMOUNT 31 December 225,6 5:Z 1,302,725 _2_3.f>lJ 0 t5

31

2010 KShs

7,993,604

(200,171)

7,793.433

2,595,213 2 ,661,870

5,257,083

2.536,350

Total KShs

16,278,686 (452,797)

1,433,414

17,259,303

11,953,683 (452,797)

1,160,950

12,661,836

~.597,46_I

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (cont inued) FOR THE YEAR ENDED 3 1 DECEMBER 2011

14. EQUIPMENTS (continued) Furniture and Office

3 1 December 2010 fittings equ ipment KShs KShs

COST

As at 1 January 2.425,096 2,659,379

Transfers from intangible assets Add itions 409,006 Disposals (73 ,173) (487,458)

As at 31 December 2.351.923 2 ,580,927

DEPRECIATI ON

As at 1 January 1,209,309 1,197,188 Charge for the yea r 283,319 380,897 Eliminated on disposal (60,379) (215,011)

As at 3 1 December 1,432,249 1 ,363,074

NET CARRYING AMOUNT

3 1 December __2..19.674 1.2 17,853

15. BOND PREMIUM

COST

At 1 January and 3 1 December

AMORTISATION

As at 1 January Charge for the year

As at 31 December

NET CARRYING AMOUNT

Computer equipment Total

KShs KShs

11,889,342 16 ,973,8 17

200,171 200,171 930,108 1,339,1 14

(1,6 73, 785) (2 ,234.416)

11,345,836 16,278,686

9,398,958 11,805 ,455 1,424,840 2,089,0 56

(1 ,665,438) (1,940,828)

9,1 58,360 11.953,683

k-1..8.1.476 4.325.003

2011 2010 KShs KShs

1,970,400 1,970.400

1,908,720 1,670, 130 61,680 238,590

1,970,400 1 ,908,720

61.680

The Society had Treasury Bonds with CBK which were amortised evenly over their life span. They matur ed during the year.

2011 2010 16. SHARE CAPITAL KShs KShs

At 1 January 120,864,000 121,000,000 Transfer to retained earnings (174,000) Contribut ions during the year 18,909.843 38,000

At 31 December 139.773J3.43 120.864.000

32


16. SHARE CAPITAl (continued)

17.

18.

19.

In 200 9, a total of KShs. 121,000,000 was transferred from retained earnings and set aside for capita lisation . Out of this, a total of KShs. 120,826,000 was distributed to exist ing members in the fo rm of 1,208,260 shares of KShs. 100 each. The undistributed balance of KShs. 17 4,000 has been transferred back t o retained earnings.

2011 20 10 RESERVES KShs KShs

Statutory reserves 53,925,705 42,487,783 Retained earnings 61,902,621 39,612,337 Revaluation reserve 711,398

115,828.326 82.811.5l8

Transfers ar e made to the sta tutory reserve at a rate of 20% of net operating surplus af ter tax in compliance with the provisions of the Kenyan Sacco Societ ies Act.

The revaluation reserve arose on reva luation of buildings and has been fully cred ited to retained earnings in the current year.

2011 2010 MEMBERS' DEPOSITS KShs KShs

Balance brought forward 3,748,852,303 3,010,551,366 Contribut ions for the year 713,532.841 738,300,937

&A62.3.8._5 .144 3 .7 48,852 ,_3Q.3

PROVISION FOR INTEREST ON MEMBERS' DEPOSITS

At 1 J anuary 457,617,189 408,407,284 Paid during the year (457,617,189) (404 ,339,223) Provision for the year 557,493,644 454,569,061 Unclaimed dividend (1,0 19,933)

At 31 December 551.423 , 6~4 4~L..611 . l82

The Board of Directors recommends interest on members' deposits o f 13.5% (2010 - 13.56%)

20. DIVIDENDS PAID AND PROPOSED 2011 KShs

2010 KShs

Final dividend for 2010: 20% per share (2009: Nil) 24,112.BQQ

Proposed for approval at the annua l genera l meeting (not recognised as a liability as at 31 December )

33

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO TH E FINANCIAL STATEMENTS (cont inued) FOR THE YEAR ENDED 31 DECEMBER 2011

20. DIVIDENDS PAID AND PROPOSED (continued)

Final dividend for 2011: 20% per share (2010: 20% per share)

2011 KShs

27.954.762

2010 KShs

24.172.800

The Board of Directors recommends payment of fi rst and final dividend of 20% per share (2010: 20%). This wi ll be presented for ratification by members at the AGM to be held on 30 March 2012.

2011 2010 21. TRADE AND OTHER PAY ABLES KShs KShs

Trade payables 1,437,016 550,986 Provision for staff bonus 1,250,000 1.250,000 Provision for f raud loss 43,540,725 Provision for honoraria 1,200,000 1.200,000 Other payables 25.462,300 13,570,716

72.890.041_ 1Q..521_._1.Q2

The carrying value of trade and other payables approximates their fair value.

22. MEMBERS' SAVINGS ACCOUNTS

FOSA savings accounts 259,200,729. 213,695,324 Fixed deposits 2,999,000 16.463,823

.2.6.2.199.729 23_Q._159.147

23. INTEREST ON MEMBERS' LOANS

Normal loan interest 191,280,129 218,520,873 Super loan interest 5,089,545 11,357,611 Premier loan interest 88,045,051 96,692,638 Instant loan interest 34,637,486 22,704,834 Emergency loan interest 351 ,143 276,566 Education loan interest 1,642,626 1,716,3 17 Settling down loan interest 819,449 667,954 Festive loan interest 3,186,753 2,893,012 Dividend advance interest 1,339,245 1,729,064 Loyal normal plus interest 39,237,705 22,704,903 Premier plus loan interest 236,337,473 95,076,600 Commercial bank refinancing 1,344,049 643, 175 Retiree loan interest 1,062,568 4,065 FOSA salary advance interest 8,791,783 6,051,343 Secured asset - FOSA 35,789,580 32,688,364 Insurance loan - FOSA 2,556 10,963 Security loan interest 53,966 FOSA refinance loan interest 1,773,546 2,494,407 Bridging finance income 21,154,650 18,512,898 Brid ging loyal normal plus 3,194,878 6,277,293 Bridging premier plus 41,504,901 25,628,265

71 6 .63~ 566.651.145

34

UNIT ED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO THE FINANCIAL STATEM ENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2011

2011 20 10 24, INTEREST ON MEMBERS' SAVINGS ACCOUNTS KShs KShs

Savings interest (FOSA) 6,230,831 4,729,182 Junior savings (FOSA) 9 ,084 7",9 5 0 Festive (FOSA) 354 2,345 Fixed deposits (FOSA) 296,367 87L,OOO

_6.536.636 5.610.477

25. OTHER INCOME

Share boosting commission 4,503,326 2,713 ,333 Withdrawal commission 2,214,300 2,252,500 Bankers cheque commission 88,600 137,650 HFCK commission 583,250 464,846 Dividend processing fee 403,800 373 ,800 Account closing charges 426,582 86,000 Penal ties/commission charges 1,785,370 1,343 ,801 Commission-JMS cash 75,900 102,200 A TM fees - FOSA 144,946 155,489 Bank loan buy back fees 540,945 M-pesa commissions 122,990 2 ,020 Shar e t ransfer commission 15,000 _Commission- FOSA loan 15,071 Interest on fixed deposits 24,061,282 23,657 ,202 Interest on t reasury bi ll and bonds 4,220,400 2,025,000 Interest from bank 118,825 267,563 Dividends received 73,264 71 , 110 Sale of T -shirts 12,200 Benevolent fund subscriptions 13,521,800 12,332,485 Statements and official letter charges 102,500 71,600 Safe custody 2,000 41,585 Interest on staff loans 929,463 25,985 Entrance fees 757,752 Miscellaneous income 5 .127,040 268 ,741

52,293.461 46,946 .055

26. STAFF EXPENSES

Sa laries and wages 30,242,700 22,956,204 Transport allowance 1,576,261 1,566,456 Staff pension 5,665,520 4,899,707 NSSF 70,400 57,600 Staff bonus 1,250,000 1,250,000 Staff training 1,054,194 797,910 Medical and insurance expenses 3,785,604 2,715,798 lncr ease/(decrease) in leave accrual 220,956 (138,351)

43.865..ill ~1Q5,324

35


27, ADMINISTRATIVE EXPENSES 201 1 KShs

2010 KShs

28.

29.

Hospitality and AGM meeting expenses Print ing and stationery Public relations, advertising and marketing Postage and telephone Consultancy services and lega l fees Auditors' remuneration Investigation fees Miscellaneous expenses UNON IT support ATM Maintenance fees Supervision and recoverable expenses Bond amortization expenses Amortisation of operating lease Repa irs and maintenance System maintenance Photocopier lease rentals Members education expenses Insurance - office and FOSA money Loan guard insurance Utilities Allowance for bad and doubtful debts Loss on disposal of .equipment Bank charges SASRA Levy SASRA licences and fees UNON Common services Contingencies Amortisation of computer software Depreciat ion on equ ipment

DIRECTORS' EXPENSES

Sitting allowances Education expenses Management honoraria Travel allowances

CONTINGENT LI ABILITY

1,482,365 901,519

1,338,842 1,192,362

879,914 750,000

3,167,552 9,718

2,492,097 174,960 104,000

61,681 4,364,522

162,376 379,829 864,1 24 635,094 940,278

12,945,472 414,330

10,509,593

1,031,311 4,084,380

53,000 2,885,760 1,174,323 2,528,556 1.160,950

,5_6 • .6.88. 908

2,530,582 2,868,858 1,200,000

999 727

1.5.2,2. 167

1,268,939 811 ,255 969,020 565,150

1,048,335 290,000

19,224

238,590 1.735,810

261,897 712,030 169,279

788,047 8,473,766

344,716 37,584,932

251,588 778,583

2,661,870 2 ,089,056

61.062.087

2,363,750 1,716,624 1,200,000 1.448,364

6.728.738

The society is a party to a legal suit currently in court. The court has instructed the Society to deposit a sum of KShs. 1,728,650 into a fixed deposit account with Kenya Commercial Bank awaiting determination of the case. The legal opinion by the Society's lawyers indicate that the Society has high chances of winning the case and therefore no monetary liability will arise from the case.

36

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED NOTES TO THE FIN ANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2011

30. ACCOUNTING RECORDS

There were major lapses in the Sacco's internal cont rol systems from prior yea rs that resu lted in fraud and directly impacted on the accounting records. Consequently, the Sacco has made a provis ion for fraud loss amounting to KShs. 43,540,725, being the estimated loss suffered as a result. The matter is the subject of an ongoing investigation and legal process to recover the assets lost.

The directors are in the process of instituting measures ostensibly to stave off any fu ture recurrence of internal control lapses. In the opinion of directors, these measures will form a stable basis for adequate internal controls, in the medium and long term.

31. COMPARATIVES

Where necessary comparative figures have been adjusted t o conform to changes in presentation in the current year.

32. INCORPORATION

The society is incorporated in Kenya and licensed under t he Kenyan Sacco Societies Act.

The society is registered in Kenya (Registration Number CS/2375), and its principal place of business and registered office is at the UN Complex, United Nations Avenue, Gigiri, Nairobi, Kenya.

33. CURRENCY

These financial statements are presented in Kenya Shillings (KShs).

37

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