The Supervision, Auditing & Control of Co-ops in Italy (1996)

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    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
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                         December, 1996
          (Source: Review of International Co-operation
                    Vol.89, No.4/1996, pp.13-15)

          Co-operative Governance & Management Control Systems

          The Supervision, Auditing & Control of Co-ops in Italy
                         by Ivano Barberini*
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The control system of the co-operative movement in Italy is based
upon the control imposed by the law and self-regulation set out
by ANCC/Lega.

The control envisaged by the Italian legislation derives directly
from our Constitution  which reflects both recognition of the
co-operative’s social function and the State's engagement to
promote co-operative development. Article 45 of the Constitution
states "The Italian Republic acknowledges the social function
of Co-operation with non-profit and mutual character. The law
promotes and enhances its growth with the most suitable means,
as well as it assures, by the relevant controls, its character
and goals".

Almost 90% of the co-operative surplus is allocated to
indivisible tax-free reserves allocated to  attaining the
above-mentioned goal.

The supervision and auditing on the Italian Co-operatives is
entrusted to the Ministry of Labour and Social Security, which,
in its turn, delegates this activity to the co-operative apex
organisations.

The supervision and controlling bodies established for this
purpose are the Ministry of Labour and Social Security, the
Central Commission for Co-operatives, the District Supervision
Commissions and the National Apex Co-operative Organisations.
This control activity is implemented through two types of
auditing:

Ordinary auditing is  carried out by the Ministry of Labour,
usually for the co-operatives which do not adhere to any apex
organisations, and the national apex organisation which the
co-operative is affiliated to. It verifies compliance both with
rules and procedures established by law and by the co-operative
standing orders, and oversees the administration and
book-keeping, technical set-up and activities of the co-operative
as well as well as the assets and liabilities of the Society.

Special auditing is carried out whenever the Ministry of Labour
has evidence of irregular or incorrect functioning of the
co-operatives.

A further control is established by the Law No. 59/1992, obliges
the larger co-operatives to submit a certified financial
statement:

In 1995                            No.
----------                         ----
Certified Co-operatives            358
Non-Cop Societies certified        248
Brokerage houses                   283

These data show the extent and rigour of the control activity on
the Italian co-operatives.

The special disciplinary measures which the Ministry of Labour
can take  after the ordinary and special auditing include issuing
warnings to the co-operative to regularise its situation, the
removal of managing directors and the dissolution or liquidation
of the co-operative.

ANCC & Lega Control Systems
---------------------------
I have already pointed out the provisions and procedures
established by the Italian legislation on this matter, but,
besides this, the Movement has developed a set of projects aiming
at promoting member participation, transparency, respect of
institutional goals and responsibility towards stake holders.

Member Participation
--------------------
There is a relevant engagement devoted to enhance and promote the
members' involvement and participation through ordinary meetings
which verify estimates and consolidate balance sheets, strategic
plans development programmes; evaluate membership activities and
campaigns such as environmental protection, assess restructuring
processes.

There are 1,000 meetings convened annually, with over 100,000
participating members and approximately 15,000 members taking the
floor.

Over 10,000  members are active at the regional level, in the
Board of Directors and "Membership Service Departments" located
in the outlets (meeting and listening points).

Apart from control procedures and the identification of policy
guidelines, their main focus is on activities involving school
children, young people and the elderly.

Member participation is significant but not satisfactory and the
movement is continually looking for new ways of increasing member
presence in order to increase the participation in democratic
control activities as well as in working out policy guidelines 
for the co-operatives.

New technologies, such as the Internet, will allow an increased
level of interaction with the members.

The participation and control procedures established by the
Movement aim to increase confidence between members and their 
co-operatives and strengthen Co-operative Identity.

A social audit is made of all the main information and control 
( i.e. the Co-op financial statement including the initiatives
and resources allocated to social and public utility projects),
which  distinguishes the different levels of control: the
auditing, the corporate governance bodies, balance-sheet
certification.

The whole movement is auditing in this way, and not only the
individual co-operatives, ensuring adequate parameters for
measuring results as well as accurate participation figures.
This enables the Movement to increase the involvement of the
target groups, to listen to what members have to say and to
represent the movement efficiently at national and international
level, effectively communicate the distinctive features of
co-operatives through accurate and transparent information.

A further step towards effective control is taken by  the
definition of standards and through the evaluation of social
objectives, through the identification of index numbers, through
methods to evaluation social performance and the application of
economic theories to the co-operative framework (today it is
irrelevant).

This acts as a stimulus for discussion and the development of a
conceptual reference model and gives occasion for the
establishment of relationships and the exchange of opinions with
national and international universities.

Conclusion
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The controls established by the Italian legislation and the apex
organisations contribute to the achievement of institutional
goals and to management transparency before members and third
parties.

The following scheme shows the main components of the control
function.

Principles, sources and features of self-regulation
---------------------------------------------------
The guidelines should not be intended as a bond establishing a
rule of technical and procedural nature, rather as a reference
basis for co-operatives both at the strategic management level
and  the legal - institutional one; a reference based on the
awareness of the social and economic function of co-operation.
They draw inspiration from transparency principle as a value
intrinsic to Co-ops social behaviours.

They are founded on the coherence principle as a link among
mission, programme and results.

They are inspired through a sharing of common principles and
their practical application in daily activities. And finally,
they emerge from the resolve to set up a reference basis upon
which should be focused the managing and control procedures in
order to make them coherent and functional to the co-operative
mission.

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* Mr. Barberini is the President of the National League of
Co-operatives and Mutual Societies in Italy.