Building good management practices in Ethiopian agricultural cooperatives through regular financial audits

• Members use of audit reports can foster improved cooperative governance.
• But limited audit capacity in Ethiopia; poor ability to use results.
• Enhance ability of owner-members to make effective use of audit reports.
• For more regular audits of cooperatives, enhanced benefit:cost ratios required.

The government of Ethiopia views agricultural cooperatives as important for increasing agricultural productivity and driving farm income growth. However, management deficits, including the lack of regular financial audits, poses a threat to the sustainability and commercial success of these local voluntary associations and the positive impact that they might have on the welfare of their members. This paper considers how the provision of financial audit services for agricultural cooperatives can be strengthened. We assess the current status of agricultural cooperatives in the country and the demand and supply of financial audit services for them. We then review the approaches taken in 11 other countries for providing financial audit services to agricultural cooperatives in order to identify approaches Ethiopian agricultural cooperatives might consider. Insights are gained on the need for capacity building within cooperatives on financial oversight, building internal incentives for cooperatives to have conducted regular financial audits on their accounts, addressing the deficit of auditors within Ethiopia, and creating reporting mechanisms so that any emerging financial problems within a cooperative are made known and addressed in a timely manner.