Reef for Microfinance Services

- The company was established in 2007. It is a non-profit company, registered with the Ministry of National Economy, with a capital of 1,700,000 dollars. It is one of the investments of "جمعية الاغاثة الزراعية" (Agricultural Relief Society), which owns 91.47% of it, and it provides lending services to small projects. The Audit Bureau conducted an oversight examination of the operations of Reef for Microfinance Services for the financial year ended 2017, considering it one of the non-governmental institutions and organizations subject to its audit, and the Audit Bureau reached the following main observations:

- The Board of Directors did not adopt a comprehensive procedures manual or internal regulations that organize and define the conditions and requirements of the process of writing off non-performing loans and the mechanism followed...

- It is not apparent that the Board of Directors directed the company's activities during 2017 toward implementing the company's social objectives stated in the bylaws, such as conducting scientific research activities and organizing seminars and conferences.

- As for the company's organizational structure, it appeared that there is no accountant and cash custodian in each branch of the company, despite the existence of financial and accounting operations and cash collections that require documentation and recording by an accountant.

- There is no segregation of duties in the company's branches, where the lending officer issues loans on his portfolio, collects their installments in cash from borrowers... records them on the lists and deposits them in the company's accounts.

- Through examining the trial balance, it was found that the balance of the expense for loans doubtful of collection for the year 2017 does not match between the balance sheet and the trial balance... where the difference reached 71,302 dollars.!

- The expense for loans doubtful of collection does not match at the trial balance level, as the expense balance amounted to 167,528 dollars, while the additions balance to the allowance account for loans doubtful of collection amounted to 149,229 dollars.

- Through reconciling the bank balances shown in the bank confirmations with the bank balances according to the trial balance, it was found that the balances of some accounts of checks in collection do not match.

- The company did not record the value of guarantee checks, nor recognize them accounting-wise as assets in its financial statements... nor are there supporting registers to record these checks and control their movement.

· Cash funds (custody funds)

- Periodic and surprise inventory minutes, or annual inventory minutes according to procedure, were not prepared to close all cash funds present in all the company's branches.

- The cash balance shown in the financial statements does not match the cash balance in the trial balance as of 31-12-2017, and the difference amounted to 169,845 dollars.

- The company did not allocate bank accounts for each branch to collect and deposit the branch's cash installments, as it became evident that cash collections of different branches were mixed in one bank account, which prevented the availability of data and records that could be relied upon to perform the necessary reconciliations between each branch's collection register and the bank deposit register.

- As for the credit facilities granted (loans): it was observed during the audit that the necessary approvals on financing applications were incomplete, where, through examining a sample of borrowers' files, there were no signatures from them or their guarantors on the financing applications..!

- The company did not stamp the guarantee checks and repayment checks obtained from borrowers and their guarantors with a stamp payable to the first beneficiary and with the stamp bearing the name of Reef company, which exposes the checks to misuse.

- Some granted loan files are incomplete contrary to the approved instructions for managing loan files, where the loss of a number of principal documents for some files was observed.!

- With regard to installments collected through the courts, the company does not obtain a statement of payments from the Courts Trust Accounts from the High Judicial Council at the end of the year, in order to perform the necessary reconciliations on them and verify the completeness of all payments received by the lawyer on behalf of the company and their periodic remittance.

- There are no confirmations regarding the validity of payments remitted by the lawyer through external agreements that do not enter the Courts Trust Accounts, nor are there any control procedures taken by the company that substantiate the value of these amounts.

- The Board of Directors of Reef did not adopt clear written criteria and policies for selecting loans to be written off among the non-performing loans.

- Through examining a sample of files of these loans, it was found that the company wrote off a number of loans without exhausting all legal collection procedures on them, and some of them had not been litigated in the courts, contrary to the Palestine Monetary Authority's instructions concerning loan write-off policies.

- The collateral provided on the loans that were written off is insufficient.. weak guarantees were accepted, non-liquid and difficult to pursue legally, such as repayment and guarantee checks drawn on Israeli banks..!

- Loans were granted to persons with weak credit classifications, and guarantees of persons whose classifications are also weak were accepted.!

- Despite the low collateral available on some loans granted to holders of the [identity] "المقصية" (al-Maqsiya) identity, it was found that the company allowed swap of guarantees for a number of loans which were later written off..!

· The company expressed its readiness to work on correcting these according to the observations stated in the report in coordination with the Palestine Monetary Authority, as the Audit Bureau's report noted, and the report was directed to the Palestine Monetary Authority, which confirmed that it will implement the Audit Bureau's recommendations in the future, as it is the supervisory body over the work of lending companies, in addition to corresponding with the company's Board of Directors....

- Date: 20-9-2021