Chapter – 3
Special Features of Co-operatives from Audit point of view
Co-operative Societies are democratic organizations. Affairs of a Co-operative Society are administered by persons elected or appointed in a manner agreed to by the members and accountable to them. Members of Co-operative Societies shall enjoy equal rights of voting (one member one vote) and participation in decision making. This is a major difference, if we compare the voting right in proportion to the financial shareholding of each member as in companies. Every member regardless of number of shares he owns, has only one vote. That is why section-3 of Bihar Co-operative Societies Act, 1935 read as “The provisions of the Indian companies Act, 1913 (7 of 1913) shall not apply to registered societies.
Like companies maximization of profits and distribution of high dividends is not the aim but earning reasonable profits and sharing the social Benefits to the members and others in some form or other, such as reduced price rate etc. However, we can not say that Co-operative is a charity. It is and institution for carrying out the business, and strictly in a business-like manner as prudent businessman can do, but the economic results, arising out of the operations of the business of a Co-operative society belong to the members of the Co-operative Society and shall be distributed in such a manner as would avoid one member gaining at the expense of others, which shall be achieved –
(i)By provision for development of the business of the Co-operative Society.
(ii)By provision of Common services, or
(iii)By distribution among the members in proportion to their transactions with the Co-operative Society in addition to the distribution of dividend to the share-holders.
It is, therefore, essential for an auditor to must have the knowledge of above Co-operative principles which a Co-operative Society is governed. An Auditor, auditing the Co-operative Society in Bihar must have a sound knowledge of the Bihar Co-operative Societies Rules, 1935, Bihar Co-operative Societies Rule, 1959 (As amended from time to time) and the byelaws of the particular society under audit by which the society is being governed.
The role of a Co-operative Auditor is basically different to that of a Company Auditor. The Corporate type of organizations are run by Commercially educated professionals viz. Chartered Accountants, Cost Accountants, Company Secretaries and Management Accountants. So the books of accounts and other related documents are well and neatly maintained. Contrary to that Co-operative Management is run by the elected persons, and so it is not necessary that they are professionally qualified. Generally they are not well versed in Accounts matter and they depend upon the Accounts writers, not adequately qualified. Sometimes a person, who is authorised to maintain the Accounts of a small or village Co-operative Society, does not posses accounting qualification. In a circumstance like above. An auditor of a Co-operative Society will have to provide guide lines for Accounting, and at times he will have to help in finalization of Accounts or even in writing the books of Accounts. So, it can be concluded that An Auditor of a Co-operative sector will have to play a positive and constructive role. The audit of a Co-operative sector is rather challenging than that of a Corporate sector, where the role of auditor is restricted to presentation of financial statements.
Another basic difference between a Co-operative Auditor and that of a Company Auditor is the method of appointment of an auditor. While in the corporate type of organisation an auditor is appointed by the sharesolders in the Annual General Meeting and he presents his Audit Report to the shareholders, whereas an auditor of a Co-operative society, being appointed by the managing committee of the society concerned from a panel of Auditors empanelled by the Registrar, Co-operative Societies, conduct audit on behalf of Registrar, Co-operative Societies and submits his report to him or his representative authorities an directed by him and the society.
The remuneration of a company Auditor under normal circumstances is determined by the Annual General Body, whereas the Audit Fees of a Co-operative Auditor are paid by the society on the basis of statutory scales of fees prescribed by the Registrar, Co-operative Societies according to the category of the society concerned. Out of the fee so paid by the society the auditor can retain only 85% with him and it is his legal obligation to deposit rest 15% as Govtt. share through a treasury challan to the treasury within one month of the receint of such audit fee.
In a Corporate type of institution the auditor shall be a chartered Accountants whereas auditor of a Co-operative Society need not necessarily to be a chartered Accountant.
Declaration of dividend is another focus point. As the main objective of a company is to maximize profits, So, there is no limitation for declaring the dividends. On the contrary, a Co-operative Society may declare a dividend upto extent, as prescribed in the byelaws of the society concerned. While preparing the P/L A/c of a Co-operative Society special attention is need to transfer of funds to reserve fund, Bad Debt fund, Entertainment fund, Bonus to Employees, Dividend etc.
In this way, it is obvious that depending upon the principles of Co-operation, promotion of thrift, self-help and mutual aid among agriculturists and persons with common needs Co-operative types of organizations are suitable specially for the people who have not sufficient capital, for fall satisfaction of their needs on joint stock basis. Advancement of the economic interests of its members is the prime object of the Co-operative Institution. Further economics can be affected by pulling joint efforts together, avoidance of middle agencies and thereby reducing the costs are its objects. Within the economic policy framework of Govtt., Co-operative types of organizations have to play an important role. At present Co-operative Societies are playing an important role in providing credit to the needy people (Rural and Urban) These societies are also working as a tool to solving the dwelling problems of middle income group through Housing Co-operative Societies.
Now-a-days empanelling Chartered Accountants as auditors for the credit & Housing Co-operatives the Bihar Govtt. has provided the Chartered Accountants of Bihar an additional role to play in the development of Co-operative movement in Bihar on scientific lines. Earlier Audit of these societies were undertaken by monthly paid wage earner auditors, who were comparatively less professional. They also were not well equiped with modern amenities like computers, calculators & other sophisticated means for speedy audit. They, due to above deficiencies could not provide timely Audit keep reports and also failed to the managements of the Co-operative Societies under strict financial discipline. Now involvement of Chartered Accounts may provide a new prosperity to the credit & nousing (Page No.10) Co-operative Societies. As earlier discussed the managements of Co-operative Societies are professionally weak and not upto the mark in Accounting due to lack of skilled Accounting Personnel. So, there is wider scope for chartered Accounts to provide some other professional services apart from Audit. These services are (1) Guidance in Accounts writing (2) Installation of sophisticated accounting system (3) Management Accounting services (4) Provide computerized Accounting services etc.
Chapter – 4
Provisions of Bihar Co-operative Societies Act & Rules regarding audit
At present in the Co-operative scenario two Acts have simultaneously been promulgated in the state of Bihar –
- The Bihar Co-operative Societies Act, 1935 (Act VI of 1935)
AND
Its Rules viz. The Bihar Co-operative Societies Rules, 1959
- The Bihar Self Supporting Co-operative Societies Act, 1996
(Bihar Act 2 of 1997)
The empanelment of Chartered Accountants/Retired Departmental Auditors vide Annexure – 1,2,3 & 4 of order No. 4384 Dt. 16.7.2001 are for the statutory Audit of Housing Construction Co-operative Societies & Employees credit Co-operative Societies and that of for the internal audit of Appex Institutions/Central Co-operative Banks/Urban Co-operatives Banks registered under Bihar Co-operative Societies Act, 1935, Hence a sound knewledge about the provisions made in the Act & Rules concerned are essential for CAS/RAS.
4.1. Important provisions of Bihar Co-operative Societies Act, 1935
Section – 3 of Bihar Co-operative Societies Act, 1935 reads the provision for Audit for the Co-operative Societies registered under this Act. It reads as follow:-
33. Audit – (1) The Registrar shall audit or caused to be audited by some person (herein after referred to as the auditor) authorised by him by general or special order in writing in this(Page No.2) behalf the accounts of every registered society once at least in every year.
(2) Every officer or member of the society shall furnish such information in regard to the transactions and working of the society as the Registrar or the auditor may require.
(3) The audit under sub-section (1) shall be conducted according to the rules, and shall include an examination of over due debts, if any, the verification of the cash balance and securities evaluation of the assets and liabilities of the society.
(4) The auditor shall submit a report on such examination, verification and evaluation and shall include in his report a statement of :-
(a)every transaction which appears to the auditor to be contrary to law or to the rules or bye-laws of the society;
(b)the amount of any deficiency or loss which appears to have been incurred by the culpable negligence or misconduct of any person.
(c)The amount of any sum which ought to have been but has not been brought into account by any person; and
(d)Any money or property belonging to the society which has been misappropriated or fraudently retained by any person taking part in the organization or management of the society or by any past or present officer of the society or by any other person.
(5) The Registrar may determine the sum to be paid by any society towards the cast of auditing its accounts under this section and such sum shall be paid by the society in such manner as the Registrar may direct.
38.Power to call for documents and to issue summons- The Registrar or any person authorised to audit the accounts of a society under section 33 or to make an inspection or to hold an inquiry under sections 34,35,36,or37.
(a) shall at all reasonable time have free access to the books accounts documents securities cash and other properties belonging to or in the custody of the society and may summon any person in possession of or responsible for the custody of any such books accounts documents securities cash or other properties to produce the same at the office of the society or at any branch thereof or except in the case of a financing bank at any place at its headquarters.
(b) may summon any person who has reason to believe has knowledge of any of the affairs of the society to appear before him at the office of the society or at any branch thereof or except in the case of a financing bank at any lace at its headquarters and may examine such person on oath 2[and].
(c) may seize in presence of two persons the books account document securities cash and other properties belonging to or in the custody of the articles above referred to and the officer so doing shall grant proper receipt therefore and when he is an officer other than the Registrar immediately report the seizure to his immediate superior officer and the Registrar.
Provided that the power under this clause shall be exercised only by such persons as are authorised by rule made in this behalf.
40 Surcharge-(1) Where as the result of an audit under section 33 or an inquiry under section 35 or an inspection under section 34 section 36 or section 37 or the winding up of a society it appears to the registrar that any person who has taken part in the organisation or management of the society or any past or present officer of the society has.
(a) made any payment which is contrary to law or to the rules or byelaws of the society or against the directions or instructions of the financing bank for which the society is acting as agent under sub-section (3) of section 16].or
(b) By reason of his culpable negligence or misconduct involved the society or the financing bank for which it is acting as agent under sub-section (3) of section 16 ]in any loss or deficiency or.
(c) Failed to bring into account any sum which ought to have been brought into account or.
(d) Misappropriated or fraudulently retained any property of the society or of the financing bank which it is acting as agent under sub-section (3) of section 16
The Registrar may inquire into the conduct of such person or officer and after giving such person or officer an opportunity of being heard make an order requiring him to contribute such sum to the assets of the society or of the financing bank as the case may be by way of compensation in respect of such payment or loss of sum. Or to restore such property as the Registrar thinks fit together with such sum as the Registrar may fix to meet the cost of the proceedings under this section.
Provided that before any order requiring such person or officer to contribute is passed in respect of a payment referred to in clause (a) reasonable time shall be given to such person or officer to recover the mount of such payment from the payee and credit it to the funds of the society or as the case may be of the financing bank.]
Provided further that any order under this sub-section shall be passed for any commission or omission specified in (a), (b), (c) and (d) within six years from the date of occurrence or within three years from the date of submission of surcharge proposal whichever is earlier.
(2) This section shall apply notwithstanding that such person or officer may have incurred criminal liability under this Act or under any other law.
(3) An appeal shall lie from an order of the Registrar under sub-section (1) to the State Government on application made by the person or officer against whom such order was passed within three months from the date of the communication to him of such order .The order of the State Government on appeal and subject to the result of such appeal .if any the order of the Registrar shall be final.
4.2. Important provisions of The Bihar Co-operative Societies Rules, 1959 regarding Audit
57. Audit- The audit of a registered society shall be conducted and the audit report drawn up in such manner ad submitted to the Registrar and such other authority s may from time to time be prescribed by the Registrar.
(2) The Registrar may revise any statement made in the audit report if in his opinion it does not represent the actual position of the working of the society and may order necessary modification to be made therein.
58.Statement of accounts and balance sheets-(1)(a) The managing committee of a registered society shall prepare such statement of accounts ( including balance sheet proft andloss account and statement of receipts and expenditures) as may from time to time be respcribed by the Registra nd submit the sam of Registar within three months of the close of the cooperative year and also produce if before the auditor.
(b)On the failur of the managing committee to prepare the account as prescribed the Registrar may get accunts prepare and assess the cost thereof on the society and the same shall be relisable from the society as audit fee.
(c) A registered society shall exhibit at its office its last annual balance sheet as audited and certified by the auditor as also audit report. The Registrar may direct the publication in the official gazette of the audited balance sheet of a registered society.
59. Audit of wound up societies-A registered society ordered to be wound up under section 42 shall be audited on the issue of the order for winding up and again before the cancellation of the registration of the society.
60.Payment of the fee-
(1)The Registrar may from time to time determine the rate ofaudit fee payable by registered society or a class of such societies.
(2) The Registrar may remit in part the audit fee payable by a registered society or class of such societies.
Though, the present empanellement of chartered Accounts/Retired Departmental Auditors vide RCS letter no. 4384 Dt. 16.07.2001 is a first step of Co-operative Department to ensure statutory Audit of Housing & Credit Co-operatives as well as the Internal Audit of Appex Institutions/Central Co-operative Banks/Urban Co-operative Societies Act, 1935, However it has been learnt from the reliable sources that the Co-operative Department is also contemplating to issue a new panel of CAS/RAS or to authorize the same panel issued earlier vide RCS letter No. – 4384 dt. 16.07.2001 to conduct the Audit of Co-operative Societies registered under Bihar Self-Supporting Co-operative Societies Act, 1996 No doubt, the new Act originally posses the concept of audit by a panell of chartered Accountants or auditor from the office of RCS. The new panell, so issued, for the audit of self-supporting Co-operatives will be different in the sense that under the new Act CAS/RAS will be authorised to audit of all kind of Co-operatives while now they are authorised to conduct audit of only two types of Co-operatives viz. (a) Housing construction Co-operative societies and (b) Employees credit Co-operative Societies. As panell for New Act is likelyto be issued sooner or latter or the same panel may be asked to undertake the audits of self-supporting Co-operatives also. It is, therefore, essential to discuss the concerned provisions related to Audit is new Act. The following are the provisions related to Audit under Bihar Self-Supporting Co-operative Societies Act, 1996. It reads as follow :-