Audit of Cooperative Housing Societies
What is a Cooperative Society Audit?
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. As per section 81 of MCS Act every society has to do an Accounts Audit within a period of 4 months from the closure of the financial year i.e on or before 31st July of every year.
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
Appointment of the Auditor
Every society has to appoint the Auditor from Government Panel of Auditors 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.
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. Once appointment is accepted by Auditor he has to issue letter of Acceptance to Society and same is uploaded along with appointment letter of society on online portal of Co operative Societies to generate Audit order for that particular society.
Rights of an Auditor
As per Section 17 of the Cooperative Societies Act,
“The Registrar, the Collector or any person authorized 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.
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. However, the chosen Auditor is not allowed to be retained for more than three consecutive years. The selection of the Auditor is to be done by the Managing Committee at a General Body Meeting conducted on or before 30th September every year. 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 the following,
Documents pertains to previous year Audit Records
1. F.Y. 2022-23 Complete Audit Report
2. Audit Rectification Report
Accounts Book & Records
1. Cash Payment Voucher File duly signed by 2 Office bearer.
2. Bank Payment Voucher File duly signed by 2 Office bearer.
3. Bank Book
4. Cash Book
5. Bill Register
6. March Month Bills Records
7. All Expenses & Income Ledgers
8. Fixed Asset Registers
9. Bank Interest Certificate
10. Income & Expenditure & Balance sheet as on 31.03.2024 – 4 Sets
11. Bank Fixed Deposits Receipts
12. Bank Reconciliation Statement as on March 2024
13. Bank Passbook or Bank Statement – Apr 23 to March 2024
14. If Major Repair Work done then Quotation, Tender, Bills file.
Administrative Records
1. Share Register
2. I & J Register
3. Nomination Forms & Nomination Register
4. Investment Register
5. Bank Lien Register
6. Tenant Register (If maintained by Society)
7. Minutes Book of AGM & Managing Committee
8. Insurance Policy
9. Conveyance Deed Copy (if Conveyance already done)
10. All Flat Transfer Details in Financial Year 2023-24
11. Structural Audit Report.
and any other documents needed by the internal as well as Statutory Auditor.
Duties of an Auditor
He should have in-depth understanding and knowledge of society bye-laws and the Cooperative Society Act 1960. He should:
* Check membership registers to ascertain the number of shares held by each member.
* 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:
* Income and Expenditure statements
* Balance sheets
* 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.
Housing Society Audit Points and Checklist for Auditors
In order to check the functioning of housing society, management committee must answer the following questions satisfactory and the Auditor must scrutinize the following points and report the same in his audit Report.
1. Check if Society have all documents required for registration of society in registration file kept in Society?
2. Has the society executed Conveyance Deed as per Bye Laws No 154 to own land & building on which it is situated?
3. Has the society done Structural Audit of the building as per Bye Laws No 76(a)?
4. Did the society conducted Election Process as per Provision of Bye Laws No 115 and latest Election Rules Published by Department?
5. Did the Society kept the records of society which need to be maintained in Society Office as per Bye laws No 141 & 142?
6. Did the society undertaken Meeting of MC every month as per Bye Laws No 127 (a) and written detailed minutes in the Minutes Books of the society? Has the Important monthly decision taken like approval of Membership to new Members, Approval & Scrutiny of Nomination forms received from Members, Appointment of Security, Sweeper, Accountant etc with the permission of GB, Approval of Monthly Expenses incurred & Income Received etc?
7. Did the society has taken any action on the committee members who were absent for 3 consecutive MC meetings without taking leave of absence as per Bye Laws no 119(a)?
8. Did the society call Annual General Meeting of the society as per Bye Laws no 94 & 95 with 14 days clear Notice? Did they circulate Income & Expenditure Accounts, Balance sheet, Audit Report and last year Audit Rectification Report along with Notice of AGM to all Members? Checked in the minute’s books whether it has been discussed and passed? (Discuss the same with few society Members to know the correct fact)
9. Did the Society Circulate Draft Minutes of AGM and Special General Body meeting to all Members of the society by email or Hardcopy within 3 months of meeting taken place as per Bye Laws No 108? Has the Final Draft Minutes has been amended as per objections and suggestion received from members present in the meeting and has it kept in next AGM/SGM for approval?
10. Did the Society make an arrangement for parking as per Bye Laws No 78 to 84? Did Society made any discrimination between Members & Tenant for parking charges levied to them?
11. Did the society Charge the Service Charges & Maintenance, Transfer Premium, Non-Occupancy Charges as per provision of Bye Laws, Circulars & GR? Has Society charged any illegal, excess charges which are not according to the Bye Laws, MCS Rules & Act? ( Service Charges & Maintenance to be charged as per Bye Laws No 65 to 71, Transfer Premium Maximum 25,000/- No donation allowed, Non occupancy should be 10% of Service charges)
12. Did the Society issued Shares Certificate to all members of the society within 6 months from the allotment of the shares – Bye Laws No 9(a)?
13. Did the society maintain following registers in society office as per Bye Laws No 141? I & J Register, Share Certificate Register, Nomination Register, Investment Register, Lien Register, Audit Rectification Register, Property Register, Tenant Register etc. Has the above mentioned all registers updated by secretary as on date as per Bye Laws No 143?
14. Did the society adopted Model Bye laws of the society?
15. Did the society attach bills & supporting documents along with expenditure vouchers? Have signature and stamp of at least 2 office bearers been taken for approval on expenditure voucher? Check carefully if there is any overwriting / tampering on the voucher if any.
16. Did the society file income tax return for previous financial year?
17. Does Financial Statements, all books of accounts, Minutes Books (MC & AGM), and other papers of the society readily available to all society members for inspection in society office free of cost and to obtain copy of the same from the society office on payment of fees as per Bye Laws / rules?
18. Are the GR, Circulars, directives of cooperative department and Remarks of Auditor in Audit Report has been complied with? Please check & verify the acknowledgement of Audit Rectification Report has been submitted to Registrar office as per Auditors Comments in Audit Report
19. Has the society insured the building of the society as per provision of Bye law No 160(a)?
20. Has the society-initiated recovery process under section 154 (B) 29 against the defaulter members of the society?
21. Check whether during Audit period society has violated provision of maximum cash in hand of Rs 5000/- in any day? /-. If Found report the same in Audit Report.
22. Check Cash payment made in excess of maximum limit of Rs 1500/-. If Found report the same in Audit Report.
23. Has the society invested Sinking Fund and Repair Fund FD in the Bank? Also check whether their renewal has been done on time?
24. Has the society conducted fire audit as per Bye Laws No 76 (c)?
25. Did the society take membership of District Housing Federation of Society?
26. Has the Society accepted the option of action according to the guidance of Housing Federation regarding complaints of the society?
27. Did the committee members, Society members or employees attend the training camp organized by the Co-operative Training Center, Co-Operative Board Housing Federation, and Cooperative Department?
28. Has 5 members Grievance Redressal Committee been constituted in the society as per circular issued by Cooperative Department? (3 society members, statutory Auditor & representative of Housing Federation)
29. Has the society submitted the mandatory returns under section 79(1A) of the cooperative act within 6 months from the end of the financial year in the office of the Registrar.
30. Check TDS has been deducted on Contractors bills like Sweeper, Security etc, TDS on Professional Fees like Accountant, Advocate, Consultant, Tax Practitioner etc, TDS on Rent from Mobile Tower/ Advertisement etc
31. Check whether Tender Process has been followed for Major Repair work done by society if any. Minimum 3 Quotation selected for inspection and vendors past performance, same is recorded in the minutes book in detailed. Appointment of PMC if any, Agreement with Contractor,
KYC, Financials of Contractor etc. Check Contributions from members for Major Repairs Work is charged as per area basis and not equally as per Bye Laws No 13(b). FD if any utilized for the same check resolution is passed in the AGM to this effect.
32. In order to create harmonious cooperation among the members of the organization, has the Managing Committee organized any of the activities like festivals, sports, cultural programs, trips, tree plantations, environmental programs, etc. by voluntary contribution?
33. Does the environment and relationships within the organization cordial, happy and mutually cooperative? To be decided by Auditor after overall discussion with committee members and members of society.