What is a Cooperative Society Audit?

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The Co-operative Housing society is no doubt an autonomous and self-reliant endeavour. However, once every year, it is subject to the scrutiny of an outside agency to have its financial statements audited. For this purpose, it hires the services of financial experts per government laws. Annual account audit of every co-operative housing society is mandated by the Constitution of India. The model bye-laws state that it is the  to do an Accounts Audit within a period of responsibility of managing committee six months from the closure of the financial year and before the Notice of Annual General Body Meeting

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The Main Features of a Co-operative Society Audit

According to the government,

• Adherence to Co-operative Principles 

• Observance of provisions of Act, Rules and bye-laws

• Valuation of assets and Liabilities and Verification of Cash Balance and Securities. 

• Verification of balances of Depositors and Creditors. 

• Examination of overdue debts and classification of bad debts. 

• Personal verification of members and examination of their pass books. 

• Discussion of draft audit report with Managing Committee. 

• Audit classification of society; 

• Examination of the working and other prescribed particulars of the society.

 

Special Features of Cooperative Society Audits

 

Overdue Debts

The examination of overdue debts has to be carried out and categorised going back from six months to five years as well as those overdue above five years, classify them in categories and include them in it in his final report.

Auditors should assess the bad debt situation of the society and check the relevant provisions to see if they’re applicable in their situation. 

Overdue Interest

Any overdue interest should be excluded while calculating the profits of the society.

Asset & Liability Valuation

While the main intention of the Auditor is to confirm that assets and liabilities are appearing in the balance sheet exhibiting their proper and correct value. However, valuation models can be applied as per the general accounting rules and no special mention in the law that states otherwise. 

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What are the Qualifications of an Auditor? 

The Auditor can be a government-certified Chartered Accountant (within the meaning of the Chartered Accountant Act-1949).

Apart from that, 

• A professional who has earned a government Diploma in Co-operative Accounts or in Cooperation and Accountancy

• Any auditor who has previously served as an auditor in the government’s Cooperative Departments.

 

Appointment of the Auditor

The Registrar of Cooperative Societies appoints the Auditor who conducts the audit and submits a report to the Registrar and the society. 

Society has to bear the expenses of the Audit and pay as per the mandated rates determined by the government. (Appointment procedure described in detail above). 

The housing society upon selection of the Auditor from the government panel should send an official request in writing to him, requesting his eligibility, availability, and Panel No. The Auditor in question is expected to accept or deny officially along with his Panel No. 

 

Rights of an Auditor

As per Section 17 of the Cooperative Societies Act, 

“The Registrar, the Collector or any person authorised by general or special order in writing in this behalf by the Registrar shall at all times have access to all the books, accounts, papers and securities of a society, and every officer of the society shall furnish such information in regard to the transactions and working of the society as the person making such inspection may require.”

On a more general note, a housing society should make sure the Auditor is provided with clean, comfortable and quiet surroundings to operate from within the premises and should be given the necessary help while performing physical audits of assets. 

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Duties of an Auditor

He should have in-depth understanding and knowledge of society bye-laws and the Cooperative Society Act 1912. He should:

• Check membership registers to ascertain the number of shares held by each member.

• Know the power of society’s officers with respect to who’s in charge of advancing, borrowing loans and investment (one or more appointees). 

• With respect to loans, the auditor should check loan agreements (whether the society is the borrower or the lender), interest due with the loan repayment cycle, actual interest received and repaid amount received and tally it up. 

• Check if loans given to members are according to the legal compliance and rules passed within the society in writing and that loans given to non- members are done after receiving permission from the Registrar. 

• Any Cooperative Bank loans received are within the limit

• Be well versed in physical inspection of society’s assets with different inspection techniques required as per society.

• He should also check the following:

• Profit and Loss statements

• Balance sheets

• Income and expense statements, income tax return filing, with applicable GST and other cuts applicable as per the Income Tax Act and Cooperative Societies Act audit cash book, bank book, receipts and payments of financial transactions throughout the year.

In legal terms, according to the government directives, 

An auditor has to inquire ,

(a) Whether The loans and advances made by the co-operative society are properly secured and are not prejudicial to the interest of the co-operative society or its members.

(b) Whether The transactions of the co-operative society are not prejudicial to the interest of the co-operative society.

(c) Whether personal expenses have been charged to revenue account.

(d) Whether the position as stated in the account books and the balance sheet of the co-operative society is correct, regular and not misleading. And

(e) Whether any special issue referred for enquiry by Reserve bank or National Bank duly enquired into and reported to the concerned. 

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Procedure to conduct an account audit in society?

The first step is to appoint a Statutory Auditor from the panel of Auditors approved by the State Government or an experienced Chartered Accountant who holds a Certificate in Cooperative Audit issued by a recognized authority. However, the chosen Auditor is not allowed to be retained for more than two consecutive years. The selection of the Auditor is to be done by the Managing Committee at a General Body Meeting. At the same time, a society may select an Internal Auditor from within the society/committee (if they find it necessary).

The Auditor has to be financially compensated by the society, thus his fees have to be paid by the statutory scale of compensation decided by the Registrar with respect to the type of society.

The Secretary of the society is required to furnish all the necessary documents included but not limited to, ledgers, cashbooks, register of members, a record of shares/debentures, minutes book of the society’s meetings, receipts and payments of income and expenditure, financial statements, profit-loss balance sheets, and any other documents needed by the internal as well as Statutory Auditor.

 

DISCLAIMER- These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the author and are not individual legal advice.

It is understood that each case is fact specific and that the appropriate solution in any case will vary. Finally, the owner will not be accountable for any loses injuries or damages from the exposures or usage of this information

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