Monitoring, Supervision and the Use of Accounting Ratios: A Study Within the Irish Credit Union Movement

Abstract

Credit unions are member-owned, voluntary, self-help, democratic, not-for profit institutions that provide financial services to their members. They have both economic and social goals. Over this last two decades they have achieved remarkable growth levels and currently there are over 600 such organisations in Ireland, with approximately half of the population of Ireland belonging to a credit union. However, identified weaknesses in both accountability and management control have the potential to reduce confidence in the sector and undermine its growth. To counter this, a number of changes in the monitoring and supervision of the sector in Ireland, including all increasing use of accounting ratio information, have been implemented since 2003. This paper explores these changes and, through a series of interviews with key stakeholders (regulators, trade associations and credit union representatives), examines the impact of one accounting ratio scheme (the PEARLS system) both on monitoring and supervision and on decision making in the credit union sector. Overall, the research points to a sector where the expectations by regulators relating to accounting ratios have been unfulfilled and the use of such ratios by individual credit unions has been limited. In addition, it points to a sector where the roles of the “key actors” concerned with monitoring and supervision are somewhat in dispute. The research also suggests that if better decision making within credit unions is to be achieved through the provision of accounting ratio information, then education and support of individual credit unions is required.