Sagada Multi-purpose Cooperative

A Case Study Presented to the

Faculty of the College of Accountancy
University of the Cordilleras

In Partial Fulfilment
Of the Requirements for the Course
Accounting Synthesis

Dangkiw, Apryll Dawn A.

Tongdo, Janine Aubrey N.

April 16, 2018

 Sagada Multi-purpose Cooperative Case Study

ABSTRACT
Cooperatives are often formed to provide members a secure source of inputs and
markets for their products. In the Mountain Province, the spirit of cooperatives is a strong
cultural value which blossomed into big organizations as people realized that this
business is meant to serve the members rather than to make profits and to effect
savings for them through group action which otherwise would not be possible if they
act individually. Nonetheless, like any normal companies as their business and
operations grow, Sagada Multi-purpose Cooperative has, over the course of managing
its operations, encountered numerous generations of problems and challenges that
may have been unavoidable, which is transitional in nature attributable to
globalization, technology, increased selection and competition, marketing and
customer loyalty, and even finding the right employees. However, the organization is
also confronted with unexpected hurdles of robbery and employee negligence that
challenged the effectiveness and synergy of the management of SMPC. This case study
aims to identify how the organization was able to recognise and overcome the
common pitfalls associated with growth and the abnormal circumstances in order to
further grow and thrive, and how effective leadership was key in precipitating the
current success of the organization. Currently, Sagada Multi-purpose Cooperative is
listed as one of the Millionaire cooperatives by the Cooperative Development
Authority, Cordillera Extension Office. Millionaire cooperatives hold 96.99% or more or
less ranging from Php228, 000, 000 of the total equity in the province.

*** Disclaimer: In an effort to maintain the confidentiality and privilege of the persons
involved in this study so as not to, in any way, defame them but protect their rights, no
names will be mentioned or specifically referred to.***

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HISTORY
 Background
A cooperative is a group of people organized on a common need. The group decides
that the best or only way to meet the need is by organizing a business. They do this by
organizing themselves to pool their capital investments in order to own, control and
patronize the services of the cooperative. Cooperatives are not merely economic
institutions. They also have strong philosophical base and social purpose.

On that note, the Sagada Government Employees Credit Cooperative Union,

Incorporated (SGECCUI) was organized in 1965 through the prodding aspiration of Mr
Justin Dao-as, a volunteer cooperative organizer who was an instrument in the
formation of cooperatives in different mining districts especially in Benguet
Consolidated, Inc. (BCI). Due to his persistence, he was able to convince the District
Supervisor of Sagada, Mr Bartolome Dao-as Sr., to organize a cooperative for teachers
and give reading material for their consumption of the concerned teachers. With these
effects and efforts, the Pupils Cooperative was informally organized contributing
twenty-five centavos (0.25) from the pupils and one peso (1.00) from teachers.
Although it was not legally registered, the organization had shown great success. The
operation had provided a training avenue for teachers in the management of a
cooperative enterprise.

The significant development from these experiences had further inspired the volunteer
organizer that entailed him to have several visits here in Sagada for monitoring. In this
regard, the District Supervisor eventually realized the potential necessity and benefit of
cooperative could provide in the locality. He observed the rampant usury business in
the area wherein the victims were mostly teachers. This situation triggered his interest to
break or at least minimize the practice of the usury business in the locality and have
sympathy to victims not only the teachers. He challenged one of his co-teachers, Mr
Rex Reyes to spearhead the organization, which was actually operating as a credit
cooperative.

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The latter accepted the challenge and was given reading materials for a start. The
group proposed to strengthen and expand the operation to other areas not only the
Central School thus to cover the entire district of Sagada. The proposal was brought for
the information and took the attention of other teachers during the District Teacher’s
Conference whereby attendance came from the different schools of Sagada
Municipality. Notwithstanding some discussions, it was decided to give the proposition a
try. From here, the quorum agreed to have interim officers to be elected to start the ball
rolling. Most of the core leaders came from Sagada Central School.

Thus the Sagada Government Employees Credit Cooperative Union, Incorporated

(SGECCUI) was created. Like any other new organization, SGECCUI experienced
adversities, taking into consideration the standard living of the rural area, which is very
low. Most teachers were not even sold to the idea of credit cooperative movement.
Some of them took on the Wait-And-See attitude of have doubted the objective of the
cooperative business; thus, leading to the difficulty of collection especially in the
payment of share capital.

The dissension gave the challenge to the core leader, the District Supervisor, to exert
greater effort in convincing his co-teachers to the cooperative principle and idea. The
great support of Mr Ignacio Dao-as who was then the principal of Ambasing
Elementary School, helped in the dissemination of the idea of cooperativism to their co-
teachers. These entailed the success of the cooperative as it is now. A teacher, Mrs
Dominga Rasalan volunteered to take the initiative and became instrumental in the
collection of share capital, of which was agreed to be the mandatory source of capital
build-up of members to accommodate the loan applicants.

Accordingly, with the good outcome of the organization as shown in the reports of the
interim officers, Mr Justin Dao-as came several times to Sagada to update and further
monitor the development of the SGECCUI’s operation. He came one time to Sagada
with a certain Mrs Hildegarda Domantay, an employee of the BCI Cooperative and an
accountant by profession to assist in the continuous education of members and to the

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registration processes of the organization. Mr Rex Reyes Sr. then took the time of going
to Baguio to further consultation with the BCI Cooperative Management and with the
Cooperative Administration Office (CAO) for inquiry and information about the
cooperative’s registration. On October 4, 1966, SGECCUI submitted all the requirements
for registration. Finally, on October 12, 1966, Sagada Government Employees Credit
Cooperative Union, Incorporated (SGECCUI) was officially granted and was duly
registered to operate as a Credit Cooperative under Republic Act Number 32023.

The Cooperative Administrative Office extended technical assistance to SGECCUI as

part of their mobilization program through Atty. Donato Suyat, assisted by Mrs
Hildegarda Domantay and Mr Justin Dao-as. With this help from the group, members
and officers of the credit cooperative were able to strengthen their knowledge on
cooperativism.

Pursuant to Presidential Decree 175 all registered cooperatives under the previous law
that is the Cooperative Administrative Office (CAO) were required to re-register with the
Bureau of Cooperative Development (BCOD), which took over the CAO. The
Cooperative by-laws and Articles of Cooperation were presented to the BCOD on
October 1, 1973 to comply with the Presidential Decree 175. On April 11, 1977, the
BCOD approved the re-registration of SGECCUI. In 1991, the government issued a new
legal provision amending the registration of cooperatives under Article 128 of Republic
Act 6938 and Section 17 of Republic Act 6939, stating that all cooperatives registered
under Presidential Decree 175 and Executive Order 898, are to register with the
Cooperative Development Authority and that cooperatives shall submit copies of their
Article of Cooperation and by-laws, Certificate of Registration and latest duly audited
financial statements. The SGECCUI complied with all requirements and was confirmed
by the Cooperative Development Authority on March 20, 1991.

As a little background, after the New Constitution was approved in 1987, a group of
leaders and key government officials involved in cooperative promotions and
development drafted the bills governing cooperatives. Senator Agapito Aquino and

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Aquilino Pimentel Jr. later sponsored Republic Act 6938 known as Cooperative Code of
the Philippines and Republic Act 6939 establishing the Cooperative Development
Authority (CDA). These were signed into law on March 10, 1990 by President Corazon
Aquino. Constitutionally mandated and as a matter of national policy of the
succeeding administration, cooperatives are considered instruments of social justice.
CDA has a mandate to promote the viability and growth of cooperatives as instruments
of equity, social justice, and economic development. In addition, it has developmental
regulatory and quasi-judicial functions.

On March 17, 1998, during the general assembly of the cooperative, the assembly
approved the change of name, the Sagada Government Employees Credit
Cooperative Union, Incorporated (SGECCUI) to become Sagada Multi-purpose
Cooperative (SMPC). A resolution governing the approval of the change was
presented to the Cooperative Development Authority which approved the Certificate
of Registration of the Amendment by substitution to the Article of the Cooperation and
By-laws.

During its early operation, the cooperative had an initial paid-up share capital of
P490.00 with only twenty five (25) members. Most members experienced the difficulty to
raise and set-up its capitalization for the loans of its members. The officers rendered
voluntary services for the benefit of the cooperative for ten (10) years. Office supplies,
equipment and other necessities were solicited, to the extent that members relinquish
their patronage refund to cover-up other necessities, which they were not able to
solicit.

Eventually, membership grew and was extended to veterans, pensioners, and non-
government employees, municipal and national employees of the government. The
cooperative had several times amended its Article of Cooperation and By-laws to
widen its membership and add more services that will be extended to its members.

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It took years for the cooperative to recover its initial capital and gain in profits. The initial
members that followed the principle and ideas of cooperativism experienced long
years of confidence and sacrifice in order to attain its ideal objectives and goals for the
cooperative.

As of August 31, 2004, the cooperative’s membership grew intensively compared to its
initial organization. By this time, as per financial analysis of its operation, the cooperative
has high-level liquidity and productivity that throughout its business operation, it was
able to garner some notable awards presented by regional and district officers. Some
of these awards are Outstanding award under small category cooperative given by
the Ministry of Local Government and Community Development in Region 1 (1978),
attained the Millioners Cooperative Status in 1985, achieved the Plaque of recognition
for Achieving Highest Internal Share Capital in 1994, and garnered the Plaque of
Recognition for Regional Most Outstanding Multi-purpose Cooperatives under the Non-
Agriculture type of Cooperative in 2000 given by the Cordillera Extension Office.

 Services
At the beginning of the cooperatives operations, the organization offered credit
services that ranges from regular loans, salary loans, emergency loans, and special loan
privileges. These types of loan services are given depending on the share capital of the
member or employee, its purpose, and if they passed the certain criteria and credit
standing of a certain credit service.

As the organization grew in membership, their operations expanded to Cable Television

(CATV) Network Services, and the Mortuary Aid Program. The Cable Television (CATV)
Network Services is offered to with the objective of bringing added communication
and entertainment media through the use of cable channels as compared to
broadcast televisions. Examples of cable/satellite channels/cable network available in
the area are HBO, Cartoon Network, Fox Movies, CNN and many more. As for the
Mortuary Aid program, it is given to all members who meet the age requirement and
the minimum fixed deposit. It serves as an assistance to the bereaved family of a

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regular member and as an expression of brotherly concern extended to the

beneficiaries upon the death of a member aimed to lighten the financial burden of the
bereaved family.

From the operations of the organization, they earn profits from the interests, service fees,
filing fees, loan insurance, loan charges, surcharges, fines, rebates, subscriptions
charges, and others. At year end, interest on share capital, based from the income of
the organization is given out to every member as a way of patronage refund.

CHALLENGES
 Robbery Case
Despite the smooth sailing of operations of the organization, the Sagada Multi-purpose
Cooperative was confronted with internal problems that made the board of directors
and members question the management. By early 2005, employees were
dumbfounded when they entered the office through the front door but with a
damaged safe where the monthly collections was supposed to be stored amounting to
more than Php750, 0000. The management immediately called for an investigation on
the matter.

During its initial investigation, it was found out that only the vault was forced open and
though the main door was open when employees first entered the premise, it was not
destroyed or damaged in any way, which indicates an inside job. Moreover, it is highly
likely that an employee was the perpetrator since they knew exactly the date when the
organization would make the most collections for the day. As investigators inquired
each employee, the primary suspect indicated by most testimonies was the loans
officer at that time who they said was the last person to handle the cash collected for
the day. Moreover, the witnesses depose that the son of the loan’s officer was seen
waiting around the office area the night before, indicating the presence of the
criminals during the time frame of the crime. As for the motive for the crime, a family
member of the loans officer was reported to be working abroad; hence, they are
contending that it is where the money was used.

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As months passed, the case remained unsolved due to the weaknesses in policing and
on criminal investigations as a result of limited resources, general lack of appropriate
skills and training, and a dearth of managerial and investigative expertise of the rural
police department. This may be attributable to the fact that the town barely
encounters such big time robbery cases for experiential learning and reference. In
addition, there were lack of substantial evidences to indict anybody that the case
dragged on. Nonetheless, though the case was unsolved, the management dropped
the investigation by late 2005 when a sudden breakthrough was uncovered.

Another suspect was named when a jacket was found on the scene. No one came
forward as to who it belonged to during the initial investigation, which led to the
conclusion that it may have belonged to the suspect; however, another employee
admitted the next day that it belonged to him. Coincidentally, such employee was one
of the people, along with another staff, who gave testimonies accusing the loans
officer. His slip up gave the idea that he has knowledge of the crime; however,
because of lack of substantial evidences, he was still not convicted.

Hence, throughout the investigation, the battle was between the two suspects who
allegedly stole the money. As the two were pressured to undergo serious extrajudicial
investigation, as a response, the other suspect decided to leave the country and
migrate abroad without the knowledge of the organization, or anyone, together with
his family. Consequently, the case was considered administratively closed due to lack
of evidences and the fact that one of the prime suspects fled the country, which to the
management allegedly proves his guilt.

 Employee Negligence
At the beginning of 2013, the tourism industry of the municipality of Sagada drastically
improved paving for an increase in the demand on other types of services and flexible
membership procedures for cooperatives. In response, other competitors and
cooperatives was established such as Treasure Link and Sagada Primary Cooperative,

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which provided various other services and reduced the strict membership procedures
compared from SMPC. As a result, most members of the cooperative also made other
accounts on such organizations which led to the decrease on the number of
transactions and collections SMPC had for a day. This is because members would prefer
to avail of the credit services of these other cooperatives instead of SMPC. Moreover,
there were months where there were no pre-membership seminars held over a couple
of months meaning no new members preferred to join the organization, which indicates
a shift in customer preference. As an effect, the profitability of the organization was
affected as it had a maximum fifteen percent decline over the course of three years.

By 2015, though the overall effect was considered immaterial, as a management

strategy, the organization opened a satellite branch in Baguio City to welcome
members from a new market, so as not to cater only the residents around the area of
operation of the main branch. As a result, they were not only able to attract additional
members but also improved customer service especially to members living in the vicinity
of Baguio City. Moreover, added services which includes Money Transfer (Money
Padala) and Unified Product Services (UPS), which further accommodates
convenience for the members.

However, by late 2016, the employee stationed in the satellite branch was under
suspicion of shifting payments of members from Baguio as payment to his outstanding
balance or the outstanding balances of his families. The act went unnoticed over the
course of three months due to some poor internal controls.

First, the accounting system utilized by the organization was still done manually. Hence,
daily reports and summary of collections are sent and mailed every end of the week
from Baguio to Sagada due to the restrictions on the distance between the main
branch and satellite branch. Hence, daily collections and adjustments of outstanding
balances of members were only done weekly. Second, the management relied solely
on the reports and deemed them reliable and credible since the employee gained
their trust and confidence over his duties and responsibilities for the organization over

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the course of his employment. Third, there were lack of oversight and monitoring on the
operations of the satellite branch as he was the only employee stationed in the office.

When the irregularities came under the scrutiny of the management after complaints
were received from members questioning their outstanding balances, payments
ranging over Php100, 000 was found to be shifted over multiple counts. In response, the
management immediately questioned the employee about the anomalies, but he
denied all allegations.

ACTIONS OR DECISIONS MADE BY THE MANAGEMENT

 Robbery Case
The management immediately closed the case after it was known that the other
suspect besides the loans officer fled the country and migrated abroad along with his
family. Moreover, the loans officer undergone scrutiny by the board of directors, along
with the other staff who pushed for his conviction. During the examination, it was later
discovered that though the robbery was premeditated, the reason the two employees
collaborated and accused the loans officer was because of a deep-rooted hostility
and resentment they harboured towards the loans officer.

As final judgement of the Board of Directors, they decided to make the other employee
resign and leave the company rather than fire him, and the loans officer was made to
stay, free of any suspicion and guilt after the other suspect fled. However, they were not
able to recover the money stolen and considered it a loss, and nobody was convicted
or held accountable for the crime.

In response, the Board of Directors made amendments on the benefits of employees

and provided additional assistance besides the general compensation and benefits
required by law. These includes retirement benefit plan, death benefits, and disability
benefits, and approved the institution of a 14th month pay besides the required 13th
month pay.

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 Employee Fraud
After numerous Board meetings and management inquiries on the alleged fraud
perpetrated by the employee based in the satellite branch, they considered a final
judgement of employee negligence after a proper due process on the case. During
the investigation, first, the management convinced the Board of Directors to give due
consideration and discretion considering the fact that the amount was immaterial on its
overall effect on the financial statement of the organization because the money was
not stolen or embezzled, but was only shifted to another name besides the original
payer’s account. Second, the number of counts such anomalies happened were
considered immaterial as it may have happened only a couple of times. Third, when
questioned, the employee gave an apologetic response that he was computer and
technology illiterate, especially since there was a change of job positions after the
satellite branch was opened. Hence, in his defence, he was still adjusting on how to use
their computer system.

Consequently, the Board of Directors gave a leeway considering it was his first offense,
with a response that all shifted accounts be corrected to the appropriate paid
accounts and that another employee be assigned in the satellite branch. The Board of
Directors also berated the management so as not to let similar cases happen in the
future.

In response, the management obtained the services of Mass Specc, a cooperative in

Mindanao providing support services like audit, technical advice, and extension
services, software solutions and ATM services, and others. Particularly, SMPC acquired
the information and Communication Technology services of Mass Specc in an attempt
to automate their operations. By 2017, though the organization was able to start using
the automated systems, it is still under the testing and monitoring phase as there are
numerous complications and concerns that must be addressed. Hence, it is still in the
near future the organization can fully utilize and understand the system.

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As for the board members, they approved the institution of a Performance Appraisal
System with the objective of fostering continuous improvement of employee
performance and efficiency and enhance organizational effectiveness and
productivity. Moreover, the Performance Appraisal System serves as a performance
rating and basis for incentives and rewards, promotion, training and development,
personnel actions and administrative sanctions. One benefit in particular is the
productivity bonuses awarded based on the performance of the employee.

CONSEQUENCES
After the debacle of the robbery case of Sagada Multi-purpose Cooperative, the
organization considerably lost material amounts which affected their profitability during
2005. For the Board of Directors and members of the organization, the case opened
questions about the effectiveness and synergy of the management and relationships of
employees within the workplace. This is because the culprit would have been
discovered much earlier when the jacket was first questioned as to who it belonged to
if the loans officer was not instigated first as a prime suspect due to baseless testimonies
of the two other staffs.

After the incident, the Board of Directors pushed for a restructuring on their job
positions, and placed emphasis on the internal relationships of the management. The
manager was later changed, positions were rotated, and amendments on the internal
controls and personnel policies was established paving the way for open
communication and employee trainings and seminars in order to promote and improve
cooperation, relationships, and harmony among the employees, between and among
officers, and between officers, employees and the member clients.

A grievance committee was also initiated with the mind-set that employees have the
right to present their complaints or express any dissatisfaction with some aspects of his
working conditions, relationships or status which are outside one’s control. However,
settlement of complaints shall as much as possible be on the staff level in the spirit of
reconciliation.

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As for the recent case of alleged employee fraud which was dismissed as a
negligence, some member clients in the vicinity of Baguio City gave concerns and
questions about the correct outstanding balances or their accounts, and some
questioned the anomalies on their credit standing regarding overdue accounts and
services. On the bright side, the anomaly was discovered earlier and the management
was able to rectify it.

The employee was not dismissed or terminated as per administrative rule and was given
a less grave offense. However, he was penalized with a three months suspension. The
manager was also questioned and reprimanded about the lack of oversight and
monitoring of how the employee conducted the operations of the satellite branch.

In order not to alarm the members of the organization, the case was not publicized in
order to prevent any other social and economic implications especially since the
organization had a past offense of robbery which affected the whole system of
operations of Sagada Multi-purpose Cooperative.

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CONCLUSION
Growing businesses face a range of challenges. As a business grows, different problems
and opportunities demand different solutions - what worked a year ago might now be
not the best approach at present, especially since business conditions change
continually. In this regard, effective leadership skills and problem solving and risk
management is the key for the business to remain competitive and productive over the
years.

However, there are instances during the life of the business that some employees
commit a crime, or an alleged fraud in this case. Understanding and analysing the
rationale and reasoning behind an employee’s decision to commit workplace fraud or
an offense using the fraud triangle can better explain the events that happened.
However, there may be limitations on such approach considering one was a criminal
offense, and the other was deemed as employee negligence.

For the robbery case, though not intricately mentioned or provided, the pressure may
have originated from financial problems of the alleged suspect considering the
standard of living of the municipality at that time. Opportunity to commit the crime was
easily done since the perpetrator was an employee of the organization. As for
rationale, he may have thought that he can easily put the blame on the loans officer
considering the instigating evidences against that employee. Another rationalization
that can be derived from similar cases of theft is because they are underpaid; hence,
they deserve the stolen money, and that the organization can afford to continue
operating despite the financial loss.

As for the employee negligence case, considering it was dismissed as such and not an
employee fraud, it would be hard to utilize the fraud triangle in analysing what
happened. But it can serve as a lesson on how to further improve their internal controls
and procedures for the benefit of bettering the operations of the organization.

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On that note, Sagada Multi-purpose Cooperative is one example of a thriving

organization that despite the challenges and drawbacks it encountered throughout its
operations, it is still one of the leading cooperatives in Mountain Province.

RECOMMENDATIONS
The following are some personal recommendations for the organization:
1. Have an employee tip line. Set up a confidential way for employees to
communicate their co-workers’ suspicious behaviour and offer a reward for staff
members who provide information to prevent thefts. An email address for tips as
well as a locked-box for tips in the break room can be set up within the premises
of the organization. Accordingly, if people know that their fellow co-workers are
watching out for theft, they will think twice before stealing because there are
higher odds they will be caught.
2. Monitor trash removal. Employees who conceal something must have too much
softcopy documents being deleted or hardcopy documents being thrown in the
trash. The managers must at least employ a watchful eye in watching their
employees' recycle bins or delete files, or better yet, have their computers
connected to a network so that the managers could see what their employees
are up to in their computers. This is because other employees, not only those
from the satellite branch can commit the same act, whether it was proven to be
negligence on the part of the employee in this case. Fraudsters are always trying
to look for loopholes in the internal controls and system of their companies. They
can always use the same strategy but make it better in order to avoid getting
caught. Therefore, it is in the best interest of the management that they exercise
due diligence in monitoring and supervising their employees.

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