What is a Cooperative Society Audit?

Cooperative Housing societies need a financial checkup every year. Thanks to the Indian Constitution, this annual audit maintains transparency and makes sure everyone follows the rules. The elected Managing Committee steps up to appoint a Statutory Auditor, paving the way for cooperative governance and financial integrity.

Governing with Diligence: The Crucial Role of Audits

• Call for Custodianship: Audit of cooperative society is a foundational step towards financial transparency and accountability. The Secretary responsibly compiles receipts, bills, and expense accounts throughout the year. 

• Impact on Society: Any malfeasance, whether intentional or inadvertent, can potentially impact the financial framework of the entire society. This can affect the collective financial well-being of society members.

• Government Compliance: Failure to conduct an Accounts Audit triggers further government action. Upholding the cooperative’s standing in the eyes of the government can help prevent unnecessary complications.

• Guiding Principles: The government provides guiding directives for residents in cooperative living. Following them diligently is a roadmap for creating and sustaining harmonious community living.

• Pillar of Accountability: Accounts Audits with due diligence ensure the financial welfare of society. It is a procedural requirement that leads to financial health and responsible community governance.

What are the different types of Society Audits? 

Concurrent Audit

• Continuous Vigilance: Adopted in significant institutions with extensive daily transactions, concurrent society audit report ensures a continuous examination of accounts throughout the year.

• Ideal Settings: Typically chosen by large entities such as state-level and Apex Bodies, District Co-operatives Central Banks, Central Stores etc due to their extensive and complex financial operations.

• Departmental Oversight: Conduction of concurrent audits falls under the purview of Departmental Auditors, aligning with the need for vigilant scrutiny in high-volume environments.

• Cost Dynamics: The cost of a concurrent audit is absorbed by the societies themselves, emphasizing their commitment to ensuring financial transparency and accuracy.

• Philosophy of Proactivity: The philosophy behind concurrent audit lies in its proactive approach. By conducting audits concurrently with day-to-day transactions, it allows societies to identify and rectify issues well in advance of the final audit report.

Concurrent audit is the foundation of robust financial governance, empowering organizations to identify and address issues in a timely and efficient manner.

Interim Audit

• Pre-Finale Checkpoint: Interim audits precede the final audit, serving as a crucial checkpoint in the financial oversight process. Interim audits highlight irregularities that allow staff to promptly address and rectify issues before the final audit.

• Swift Finalization: The primary function of an interim audit is to expedite the final audit process. By conducting this preliminary review, organizations pave the way for a more efficient and prompt final audit.

• Philosophy of Accountability: By conducting these preliminary checks, organisations instil a sense of accountability in their processes, encouraging proactive error rectification rather than reactive measures.

In essence, interim audits act as a strategic catalyst and are rooted in accountability, efficiency, and continual progress.

Test Audit

• Validation Check: Test audits serve as a strategic validation check for the correctness of the final audit conducted by an auditor, ensuring a robust and error-free financial examination.

• Sampling Efficiency: Not all societies undergo test audits. Instead, a specific percentage is selected, focusing on those with significant transactions. This targeted sampling approach, involving auditing one month’s transactions yields effective results.

• Proficiency Assessment: The primary objective of a test audit is to evaluate the efficiency of audit staff, pinpoint mistakes, and ensure an audit’s correctness and quality assurance. 

• Supervisory Scrutiny: Test audits are conducted by superior officers, conducted in the presence of the original auditor. This collaborative approach aims to enhance transparency and skill development within the audit team.

Test audits help ensure accountability and quality assurance in the auditing process. They enhance the efficiency and correctness of financial audits, ensuring the integrity of the entire auditing system.

Final audit

• Financial Sentinel: Final audits, a statutory annual affair, are carried out post the financial or trading period closure. It ensures a comprehensive check when accounts are finalized.

• Examination Precision: The final audit report involves examining all books, verifying cash, bank balances, securities, scrutinizing assets, liabilities and overdue debts. It also includes confirmations from creditors and debtors. Additionally, a defects sheet accompanies the audit report, revealing contraventions, misappropriations, and unauthorized payments.

• Economic Upliftment: Final audits shine a light on how the cooperative has helped its members financially. It shows how successful the cooperative has been in achieving its goal of upliftment.

• Holistic Goal Assessment: Beyond the finances, final audits delve into the cooperative’s broader goals. It’s a holistic evaluation of the extent to which the society has accomplished its intended objectives.

• Governance Tool: Final audits act as a governance tool, ensuring adherence to laws, rules, and bylaws. The defects sheet serves as a blueprint for corrective actions and improvements.

• Accountability Symbol: The auditor’s certification is a symbol of accountability. The prescribed certificate signifies the state of accounts and affairs, instilling confidence in stakeholders and regulators.

Final audits are an evaluation of accountability, transparency, and overall impact. It brings out a narrative of the cooperative’s commitment to societal betterment.

Check Here: Scoci accounting system

Check Here: Society Accounting System

Dynamics of Cooperative Society Audits

Main Features

• Guiding Principles: Cooperative society audits are based on the steadfast adherence to cooperative principles, ensuring that the society operates in alignment with its foundational values.

• Statutory Compliance: There is rigorous observance of the provisions laid out in the Act, Rules, and by-laws. This emphasizes legal conformity in cooperative operations.

• Financial Position: Thorough examination and valuation of assets and liabilities, coupled with verification of cash balances and securities, is a crucial aspect. This ensures that the financial position is accurately reflected in the balance sheet.

• Member Verification: Auditors carry out the verification of balances for both depositors and creditors. Personal verification of members and scrutiny of their passbooks ensures the integrity of the cooperative’s financial relationships.

• Draft Report Discussion: Engaging in discussions with the Managing Committee regarding the draft audit report ensures a collaborative approach. This fosters a cooperative governance model.

• Society Classification: Auditors classify the society based on their observations and findings. This overview aids in understanding the cooperative’s operational standing.

• Prescribed Particulars Examination: A detailed examination of the working and other particulars as mandated by regulations provides a holistic view of the society’s operational dynamics.

Special Features

• Debt Examination: The audit includes a thorough examination of overdue debts, with a focus on the categorization and classification of bad debts. This aids in the financial health and risk management of the society.

• Interest Exclusion: Overdue interest is systematically excluded from profit calculations, reflecting a commitment to transparent financial reporting and ethical practices.

• Valuation Integrity and Flexibility: While ensuring the integrity of asset and liability valuations, auditors also have the flexibility to apply valuation models adhering to general accounting rules. This ensures a balance between regulatory compliance and practical financial management.

The main features form the bedrock of audit practices, while the special features provide a deeper dive into risk management, financial transparency, and operational dynamics.

Society Audit Roadmap: Procedural Guide

1. Auditor Appointment and Selection

Strategic Auditor Choice: Initiate the audit process by appointing a Statutory Auditor from the list of auditors approved by the State Government or an experienced Chartered Accountant, who has a Certificate in Cooperative Audit from a recognized authority.

• Democratic Selection: The Managing Committee, elected at a General Body Meeting, selects the Auditor. This democratic process fosters transparency and community involvement.

• Internal Auditor Consideration: The Society has the autonomy to appoint an Internal Auditor if deemed necessary. This internal appointee can complement external audits with internal audit report of cooperative housing society. This provides well-rounded financial scrutiny.

Renewal Limitation: Acknowledge the role of fresh perspectives by restricting the retention of the chosen Auditor to two consecutive years. This ensures a dynamic and diverse audit environment.

2. Financial Compensation and Fees

Fair Compensation Standards: Compensate the Auditor according to the statutory scale of compensation set by the Registrar. This ensures that all auditors, regardless of the type of society they are auditing, receive fair and equitable compensation

Transparent Fee Structure: The fees, though borne by the society, are a justified investment in ensuring accurate financial assessments and compliance. Illuminate the reasoning behind society-funded compensation for all.

3. Documentation and Cooperation

Comprehensive Documents: The documents, ranging from ledgers to financial statements, serve as the foundation for a thorough audit. The Secretary furnishes all essential documents for a smooth audit process.

Cooperative Synergy: Ensure effective cooperation between the society and the Auditor. The seamless exchange of information fosters a collaborative audit environment, ensuring improved financial accuracy.

The cooperative society audit process is a blend of strategic choices, democratic principles, and cooperative collaboration. It’s a dynamic process that ensures the financial integrity of the cooperative society.

Society Audit: Essential Checkpoints 

1. Account Examination: The auditor scrutinizes the society’s accounts, seeking irregularities and misstatements that could impact the financial integrity of the housing society.

2. Anomaly and Fraud Vigilance: The auditor identifies and reports any anomalies, misappropriation of funds, embezzlement, or fraudulent activities detected within the account statements. This prevents any potential financial misconduct.

3. Transaction Scrutiny: The audit report of cooperative society extends to transactions such as loans, investments, borrowings, and lending of funds. The auditor examines interest payments and receipts in light of the related agreements.

4. Physical Asset Inspection: Physical inspection of assets is conducted by the auditor of cooperative society. This ensures a holistic understanding of the society’s financial standing.

5. Regulatory Conformity: Regulatory compliance is a foundational pillar of the audit process. The auditor ensures that all financial dealings align with the provisions of the Co-operative Society Act. 

6. Analysis and Prescription: In the face of identified irregularities, the auditor investigates the root causes, and prescribes corrective measures. This proactiveness paves the way for their resolution.

7. Impact Assessment: The audit doesn’t just identify anomalies; it assesses their impact on the overall financial statement. This helps provide a comprehensive understanding of the repercussions.

8. Transparent Reporting and Submission: The audit findings are transparently presented to society, creating an atmosphere of openness. Subsequently, the report is submitted to the Registrar, who, in turn, forwards it to the State Government annually.

Section 17: Audit Regulations in Co-operative Societies

Section 17 Provisions

1. Annual Audit Mandate: An annual audit of the accounts of every registered society is mandated by The Co-operative Society Act, 1912. The Registrar can authorize a designated person for the task through written orders.

2. Holistic Audit Scope: The audit, as outlined in subsection (1), encompasses a comprehensive assessment of overdue debts, if any, and a thorough valuation of the society’s assets and liabilities.
   
3. Access and Information Flow: The Registrar, the Collector, or any authorized person holds the right to unrestricted access to the society’s books, accounts, papers, and securities. Society officers are obligated to provide any necessary information related to transactions and operations during such inspections.

Section 17 of the Co-operative Society Act upholds the spirit of cooperative principles and helps foster a culture of financial health and governance excellence.

Bookkeeping and Financial Record Keeping

State-Government Mandate: Section 43 (h) places the responsibility on the State Government to establish rules dictating the accounts and books societies must maintain. This includes provisions for audit, outlining charges (if any) for such audits, and ensuring the periodic publication of a balance sheet showcasing society assets and liabilities.

The auditing process includes inspecting a range of critical documents. Here are some essentials:

• Bank Account Overview: A transparent financial landscape begins with a detailed examination of the list of bank accounts. 

• Ledger Precision: Ledgers form the backbone of financial records. Their meticulous scrutiny ensures accurate bookkeeping precision and accountability.

• Balance Validation: Trial balance evaluations validate the equilibrium of financial transactions. This accounting balance is crucial for accurate financial reporting and compliance.

• Asset and Stock Registry: A detailed stock and asset register helps evaluate the tangible wealth of the society. Regular inspections contribute wealth preservation and sustainability.

• Tracking Securities: Regular scrutiny of shares, debentures, and loans ensures transparency. This aligns with the cooperative philosophy of open financial operations.

• Meeting Minutes: Inspection of Minutes of meetings ensures that decisions align with cooperative principles. This practice reflects the collective will of the cooperative.

• Property Portfolio: The property register is a visual representation of the society’s assets. Regular checks of the register reinforce transparent property management.

• Audit Trail: Audit objections and records serve as an audit trail, showcasing the society’s commitment to learning and improving from past audits. This iterative approach aligns with the philosophy of continuous improvement.

• Payroll Practices: Payroll reports indicate how people are valued. Transparent payroll practices reflect the cooperative idea of community welfare.

• Vendor Payments: Scrutinizing vendor payments ensures ethical financial practices and integrity in vendor relationships.

• Legal Documents: Regular checks on legal documents ensure better compliance and transparent, hassle-free operations.

The detailed scrutiny of financial records is a dedicated push towards fostering financial well-being and sustainability. Each entry in these records resonates with the foundational cooperative values of honesty, economic resilience and informed decision-making.

Post-Audit Procedure: Accountability and Rectification

1. Audit Reports Handover: The internal and external auditors deliver their verdicts. After receiving these Audit Reports, the Secretary’s responsibility is to craft a comprehensive draft audit rectification report.

2. Rectification Report: The rectification Report is a careful examination and response to the audit report. it encapsulates comments, objections, suggestions, corrections, and clarifications on the Accounts Audit report. 

3. Committee Approval: In the next general body meeting, the Secretary unveils the rectification report draft for approval. The Managing Committee deliberates over it emphasizing collective decision-making.

4. Three-Month Countdown: The audit rectification must conclude within three months from the date the Accounts Audit was handed over. 

5. Regulatory Submission: The same audit rectification report is presented to both the Registrar and the society members during the Annual General Body Meeting.

6. Committee Accountability: The audit rectification report is a commitment to constitutional integrity. Failure to submit it is a constitutional offence and may incur penalties.  

7. Registrar Oversight: The Registrar maintains a district-wise record of societies. This comprehensive oversight ensures that every society fulfils its audit obligations.

With these comprehensive steps, the cooperative society navigates through a structured audit process, upholding the cooperative values of collective responsibility.

Auditor Qualifications: Trustworthy Financial Reliability

Chartered Accountant Credentials:

A government-certified Chartered Accountant, as per the Chartered Accountant Act-1949 can be the auditor. His expertise would be aligned with the required accounting standards.

Other Qualifications: 

Auditor qualification isn’t a one-size-fits-all. It acknowledges varied expertise and different journeys to the same goal. Here are a few other ways you can qualify.

• Diploma Holders in Relevant Field: A professional with a government Diploma in Co-operative Accounts or Cooperation and Accountancy is capable of the auditing proficiency required for the role.

• Government’s Cooperative Experience: Experience is a valued currency. An auditor who has previously served in the government’s Cooperative Departments brings a hands-on practical understanding of the intricacies involved. 

Auditor qualifications are a way of ensuring that financial oversight is entrusted to individuals having a spectrum of credibility and expertise. 

Appointment of The Auditor

Registrar’s Mandate: The Registrar appoints the Auditor to carry out the financial scrutiny. He is tasked with crafting the cooperative society’s fiscal harmony.

Society’s Fiscal Responsibility: The society shoulders the financial responsibility of the audit. It’s a financial investment in ensuring the cooperative’s fiscal health.

Requesting the Auditor: Audit excellence starts with the selection of an Auditor from the government panel. The society extends an official written invitation to the chosen Auditor, seeking affirmation of eligibility, availability, and the all-important Panel No.

The Auditor’s Confirmation: The Auditor responds officially in acceptance or denial along with Panel No.

Rights of an auditor

Statutory Authority: Section 17’s Mandate: Section 17 of the Cooperative Societies Act mandates that The Registrar, the Collector, or any authorized individual, as per written orders by the Registrar, has unhindered access to a society’s financial records. 

Conducive Environment: Beyond legal frameworks, A housing society should provide the auditor with ample support and assistance. Society should offer him clean, comfortable, and serene surroundings, fostering focused financial scrutiny.

Duties of an auditor

Legal Command: An excellent auditor is a legal expert as well. They thoroughly examine society bylaws and the Cooperative Society Act 1912, gaining a deep understanding of the legal framework they work within.

Membership Registers: The auditor keeps a check on membership registers, harmonizing the number of shares held by each member in the cooperative society.

Loan Insights: The auditor scrutinizes loan agreements, tracks interest cycles, and ensures compliance with legal norms. Whether the society is lending or borrowing, the auditor ensures that it’s in tune with regulatory notes. He ensures that loans to members align with society rules and loans to non-members follow Registrar-approval.

Banking Limits: The auditor ensures that cooperative bank loans stay within the prescribed limits, contributing to the overall financial prudence of the society.

Physical Inspection: The auditor employs various techniques to inspect society’s assets. This detailed scrutiny ensures a comprehensive evaluation of society’s overall financial stability.

Financial Score: The auditor scans financial sheets, balance statements, income and expense reports, and the rhythm of cash and bank transactions. This ensures a harmonious financial composition throughout the year.

Inquiring Dynamics: The auditor probes into the security of loans, transactional ethics, personal expenses alignment, and the overall accuracy and regularity of the financial narrative. If there are any specific matters that the Reserve Bank or National Bank has asked to investigate, the auditor thoroughly examines and reports on those issues to the relevant authorities.

An auditor must ensure that the cooperative society resonates with the principles of transparency, fairness, and fiscal well-being. By fulfilling his responsibilities, he creates a financial composition that reflects the cooperative spirit.

How Can NoBrokerHood Help

The annual audit of Cooperative Housing societies upholds financial transparency and collective financial integrity. NoBrokerHood contributes to the efficiency and effectiveness of the audit process by streamlining communication, document exchange, and collaboration between society stakeholders. Reach out now to discover how NoBrokerHood helps societies meet their audit obligations while thriving in a digitally connected community.

Frequently Asked Questions