Among discussions made on agricultural co-ops reform, many opinions based on lack of understanding or misunderstandings are recently seen regarding the role of auditing by central and prefectural unions. In order to secure soundness of primary JAs’ management, it is indispensable to conduct financial and operational audits as a package under the Agricultural Co-operative Society Law. It is totally off the mark for the government’s Regulatory Reform Council to say no legal grounds are necessary to authorize the unions’ auditing. We believe an auditing system focusing on the special features of co-operatives is the very thing that contributes to an increase in farmers’ income.
In reforming agricultural co-ops, the government has called for the need to let primary JAs operate freely as autonomous management entities. The self-reform plan released by the Central Union of Agricultural Co-operatives (JA-Zenchu) on Nov. 6 stated that the auditing system should be authorized under the law and that consulting and auditing should be one of the major functions of central and prefectural unions.
Such claims are unanimously supported by primary JAs and their members, and that is how it should be. However, the council urged the government again to abolish legal authorization of the unions. Such a forcible move which ignores the consensus of the farmers should not be allowed by any means.
In addition to financial audits, the unions conduct operational audits on primary JAs to examine whether their daily operations are properly performed. The results of the audits are shared with JA banks and the unions’ departments in charge of management supervision with the aim of improving JAs’ operations. The audits are conducted three times a year – midterm, yearend and when evaluating their self-assessment of assets – and in the midterm audits, JAs are examined to make sure they are not violating the law or their articles and rules.
Professor Shinji Hatta of Aoyama Gakuin University’s Graduate School of Professional Accountancy, an expert on auditing and professional ethics, highly evaluates the unions’ auditing system, saying that it goes beyond audits by certified public accountants. “The system has played an important role in verifying (JAs’) business operations from the viewpoint of members and supervising them to improve their management including financial soundness,” Hatta says. Not one JA has gone bankrupt in recent years thanks to the unions’ supervision including audits.
Agricultural co-op auditors are certified by the government under the Agricultural Co-operative Society Law and are experts on accounting and auditing of agricultural co-operatives, well versed in studies of co-operatives, the law and auditing. Legal authorization should be maintained also from the viewpoint of fostering experts. The system is indispensable for co-operatives, as it takes into consideration complex, diverse and comprehensive business operations of JAs.
Other countries, such as Germany and France, also have auditing systems unique to co-operatives. We have concerns over the fact that the unions’ auditing system is disrespected in the discussions for agricultural co-ops reform and is not evaluated nor verified.
Primary JAs have expressed strong hope that the unions’ auditing system is maintained. Yoshikazu Aoyama, head of JA Shizuokashi, an agricultural co-op in Shizuoka Prefecture, says the system works to show JAs’ members the soundness of their management. A certificate to prove auditing results are appropriate is submitted to the meeting of representatives and then reported to members. The system allows all people involved to see their JA is operated in line with the principles of co-operatives.
The most important role of central and prefectural unions is to prevent misconducts and bankrupts of primary JAs and to strengthen their governance. Abolishing the unions’ auditing will do nothing but weaken JAs’ management, as well as impairing competitiveness of Japanese agriculture.
(Nov. 14, 2014)