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Friday 21 January 2011
KERALA COOPERATIVE AUDIT MANUEL VOLUME I PART IV CHAPTER I
1. Preparation of audit note and certificate :- As soon as the auditor finalises the auditor for a year, he has to drawn up the audit memorandum and the certificate, in the forms prescribed by the Registrar. The auditor memorandum is in the form of questions eliciting details and the auditor has to answer those questions with reference to the books of accounts and records of the society, working sheets and final statements prepared in connection with the audit. Before filling up the audit memorandum, the auditor should ensure that the informations furnished in the memorandum are correct, brief and specific to the point i.e. the information or details furnished should not be vague. When the audit memorandum is filled up with all details, it should be submitted to the competent authority, along with the draft audit certificate, summary of defects, auditor’s report and special report, if any.
2. Certification of the Balance Sheet and Profit and Loss Account :- Sub rule (2) of Rule 64, requires the auditor to submit the auditor memorandum in the form prescribed by the Registrar on the accounts examined by him and on the Balance Sheet and final accounts on the date/for the period upto which the accounts have been audited and shall state whether, in his opinion and to the best of his information and according to the explanations given to him, the said accounts give all the information required by the Act and give a true and fair view:-
(i) in the case of the balance sheet the society’s affairs as at the end of the year or any other subsequent date to which the accounts are made up and examined by him and
(ii) in the case of the profit and loss account, of the profit or loss for the year, or the period covered by the audit as the case may be.
(i) The rule further requires the auditor to state whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit.
(ii) Whether in his opinion, proper books of accounts, as required by the Act, the rules and the byelaws of the society have been kept and regularly maintained by the Society so far as it appears from the examination of these books and
(iii) Whether the balance sheet and the final accounts, examined by him are in agreement with the books of accounts and records of the Society.
The auditor has also to furnish a certificate in the form of a ‘Report’ which is attached to the audit note. The form of Report of the Auditor, is as follows:-
REPORT OF THE AUDITOR
I, the undersigned Auditor of the ................................. ............... ......................Co-operative Society/Bank Ltd., No............ report on the Balance Sheet and Accounts of the Society/Bank as at 30th June, I have examined the foregoing Balance Sheet of the ................................................ .............................. Co-operative Society/Bank Ltd., No......... as at 30th June ................. and the Profit and Loss Account of the Society/Bank for the year ended upon that date with the accounts relating thereto of the Head Office and with the returns submitted and certified by the Branch Managers, which returns have been incorporated in the foregoing Balance Sheet and Accounts :
1 report that:-
(1) I have examined the overdue debts, have verified the cash balance and securities and have valued the assets and liabilities of the society/Bank as required in section 63 of the Kerala Co-operative Societies Act, 1969.
(2) In my opinion the balance sheet is a full and fair one, containing all the necessary particulars and is properly drawn up so as to exhibit a true and correct view of the affairs of the Society/Bank according to the best of my information and explanations given to me and shown by the books of the Society/Bank.
(3) When I have called for any explanation or information, such explanation and information have been given to me and have been found satisfactory.
(4) The transactions of the Society/bank which has come to my notice have been with in the competence of the Society/Bank.
(5) The returns received from the branches of the Society/Bank have been found adequate for the purpose of audit.
(6) The profit and loss account shows a true balance of profit for the year
covered by such account.
(7) In my opinion the Balance Sheet and the Profit and Loss Account are drawn up in conformity with the law, and
(8) In my opinion books of accounts have been kept by the Society/Bank as required by Law.
Place : Name :
Date :Designation :
3. Schedules required in the audit memorandum :- Rule 64 (5) of the Kerala Co-operative Societies Rules, requires the auditor to submit along with the audit memorandum, schedules with full particulars of:-
(i) All the transactions which appear to be contrary to the provisions of the Act, the Rules or the bylaws of the Societies.
(ii) all the sums which ought to have been, but have not been brought into account, by the Society;
(iii) any material impropriety or irregularity in the expenditure or in the realisation of moneys due to the society.
(iv) any money or property belonging to the society which appears to the auditor to be bad or doubtful debt.
(v) an audit classification statement prepared in accordance with the instructions issued by the Registrar from time to time and
(vi) any other matter specified by the Registrar in this behalf.
4. Summary of audit defects (discussion with the committee of management before finalisation) :- Along with the audit note/memorandum, the auditor should also furnished the ‘summary of defects’ noticed during audit. It should contain the General observations of the auditor regarding the affairs of the society, the accounts of which he has audited, the irregularities, if any, noticed with specific examples and the suggestions for improving the state of affairs of the Society. the summary of defects should be clearly worded to that there would not be any doubt as to the precise meaning of any point dealt with therein. In short, vague generalisations should be avoided and the observations should be specific, clear and detailed. Every paragraph should begin with a suggestive headline, viz, failure in the collection of overdues, inadequacy of supervision/control, etc.
The summary of defects is prepared and submitted in two parts, Part A and B-Part A containing such of the serious defects requiring immediate attention and warranting quick action by the competent authority, Part B should contain comparatively less serious defects of a routine nature. The summary of defects should be appended to the audit note in triplicate. In case of misappropriation of funds, destruction of records, disappearance of a responsible officer of the society or instances of a serious nature, the auditor has to report the matter immediately to the competent authorities by way of special reports orconfidential reports.
The auditors are not expected to record their observations/remarks/opinion/inferences etc, about the office bearers/working of the society in the Day/Cash Book or other books of the Society except in the Inspection Register or Defect Rectification Register where the defects are noted. The observations to be recorded in the summary of defects submitted along with the Audit Note/memorandum.
For quick rectification of defects and to avoid summary of defects becoming needlessly voluminous, the auditors should record the defects in a Defect Rectification Register which should contain two parts, one part for recording the defects noticed by the auditor and the other part for recording the rectification of those defects and for the replies of the Society. Defects of routine nature could be go rectified then and there. Such of the defects which may remain unrectified till finalisation of audit should be included in the summary of defects.
Before finalisation of audit, the auditor may arrange to meet the committee of management of the Society/Bank and discuss with them the defects noticed and offer his suggestions to improve the affairs and to take remedial actions. Such a discussion will definitely bring fruitful results and pave the way to improve the affairs and initiating action for rectification of defects on an early date. The committee can also get their doubts, if any, cleared and obtain the necessary clarifications required. Future complaints can also be avoided on the part of the Society on the summary of defects.
5. Audit will be deemed to be completed only when Audit Note together with certificate and enclosures are submitted :- As soon as the checking of accounts is over the auditor has to drawn up the necessary statements required. The audit note and the certificate have to be prepared and finalised at the Headquarters of the Society. On completion of audit of a society the auditor has to certify the closing balance of cash as on the last day of the year under audit, in the Day/Cash Book of the society. He will also certify the checking of accounts as “checked for final audit” (with year) and affix his signature underneath. The fact that the auditor has certified the closing balance of cash in the Books of the society will not alone be a proof for completion of audit of that year. The audit will be deemed to be completed only when the auditor submits the audit note along with the certificates and other enclosures to the competent authority.
Registrar in Circular No. 21/75 [ADL (2)-10271/75] dated 21-3-1975 has prescribed the period within which the audit note and the certificates have to be submitted to the appropriate authority. (Circular annexed)
[Appendix II (4)]
(6) Checking of audit Notes :- Guidelines :- Ensure that the opening figures with share statement/certified abstract of the auditor. It should also be verified whether the paid up capital has exceeded the authorised capital. Also verify whether confirmation certificate for Government share capital contribution has been obtained and furnished along with the audit note.
(2) Deposits :- Check the figures under this head with the statement/or certified extract. Confirmation of balances have to be verified wherever necessary.
(a) Central Banks :- Confirmation certificate issued by the bank duly reconciled wherever necessary.
(b) Government :- Certification by the auditor, as to the verification of loan ledger/register maintained in the District/Circle Office or confirmation certificate issued by the Deputy Registrars concerned.
(c) Others :- Confirmation certificate of the respective financing agency, with reconciliation whenever necessary.
(4) Interest paid and due:
(a) On Deposits :- In respect of interest accrued and pending payment, the statement or certified abstract of the auditor.
(b) On Borrowings :- Confirmation certificates of financing institutions.
(5) Loans :- Statements or certified abstracts of loans should be checked with the outstandings furnished under loans. It may be ensured whether, a certificate from the custodian of bonds has been obtained as to their safe custody.
(6) Interest received and receivable :- The statement/certified abstract of interest received and receivable, has to be seen.
(7) Miscellaneous income :- In respect of miscellaneous income pending realisation, the confirmation or auditors statement indicating details of items has to be checked, along with the realisability certificate of the board of Management.
(8) Establishment and contingencies :- For pending payment, the statement or certificate of the auditor about the correctness of figures, may be verified.
(9) Staff security and Provident Fund :- Confirmation certificate from the institution where such funds were invested, should be verified.
(10) Distribution of Profit :- See whether statutory reserves have been created as required under section 56 of the Kerala Co-operative Societies Act, 1969 and as per bylaws.
(11) Reserves and Provisions :- See the correctness of the certain and removal of reserves and provisions made during the year, either by charging the Profit and Loss account or by giving additional credit in the balance sheet direct. It should also be ensured whether full reserves have been provided for interest accrued and overdue. Similarly full reserves for bad and doubtful debts have also to be created, including for unrenewed cash credit. In respect of co-operative institutions coming under the banking Regulation Acts, assessment of bad and doubtful debts has to be made in accordance with the norms prescribed by the Reserve Bank of India. In respect of reserve created out of profits which are not contemplated in the Act or bylaws, the necessary authorisation of the board of Directors may be verified.
(a) Reserve fund :- Verify the confirmation of financing bank where it is invested.
(b) Shares with other institutions :- Confirmation/certificate of the auditor about the verification of original scripts.
(c) Government bonds/Debentures etc :- Confirmation/certificate of the auditor on the verification of original scripts In respect of bonds pledged with other banks/financing agencies, their confirmation as to the possession.
(d) Movable and Immovable properties.
(a) Movables :-Verify the asset certificate of the custodian of such assets and the verification report of the stock verifying officer.
(b) Immovables :- The possession and enjoyment certificate issued by competent authorities or the certificate of the auditor as to the verification of title deeds and other related documents.
(13) Depreciation :- See whether depreciation or depreciation fund is created based on the instructions of the Registrar of Co-operative Societies.
(14) Bank accounts :- Confirmation certificates of the concerned banks along with reconciliation statement wherever necessary.
(15) Maintenance of fluid resources :- See whether fluid resources were maintained in accordance with the provisions of statute. Verify whether certificate of the auditor is attached.
(16) Advances due to society :
(a) Advances :- Statement duly certified by the management and verified by auditor.
(b) Sundry debtors :- Statement duly certified by he management and verified by auditor along with confirmation certificate of the debtors.
(17) Advances due by :- The statement of Sundry creditors duly certified by the management and verified by the auditor.
(18) Reserve for bad and doubtful debts :- Examine the statement of bad and doubtful debts along with reasons stated by the auditor for treating the loans as bad an doubtful.
In respect of banks coming under the purview of banking Regulation Act for assessing bad and doubtful debts, the auditor has to follow strictly the norms prescribed by the Reserve Bank of India.
(19) Chitties/Kuries :- Examine whether the auditor has furnished the profit and loss account and balance sheet separately in respect of different chitties terminated/conducted by the society.
Confirmation of chitty deposits from treasury/banks may also be verified.
(20) Trading account :
(a) Closing stock - Valuation :
(i) See whether the stock statement are duly signed by the stock verification officer, custodian of stock, committee members and the chief executive of the society.
(ii) Ensure that value of stock is worked at cost price or market price, which ever is less. In respect of stocks held by Hantex/Handloom Weavers Co-operative Societies, see whether valuation has been done in accordance with norms laid down by the Reserve Bank of India.
(iii) See whether the stock contain damaged and dead stock. If so see whether necessary reserves have been created to cover such damaged/dead stock.
(iv) See whether there is any excess or deficit stock in the closing stock. In the case of excess stock, see that necessary reserve/provision is created so that such excess isnot charged to the profit and loss account and profit distributed among the members.
(v) critically examine the working results of trading activities and see whether if has resulted in trade profit. If so the profit earned, has any bearing on the average profit margin charged by the society on such goods. In case of trade loss the reasons for such loss have to be investigated and remedial measures suggested.
(21) General :
(a) Calculation of working capital/sales :- It should be ensured whether the calculation of working capital /sales/loan transactions etc. have been done correctly for the purpose of assessing the audit fees.
(b) Audit fee assessment :- Ensure whether audit fee has been calculated in accordance with the provisions of the Act and Rules-Also see that no audit fee is charged from societies to which, concessions are allowed as per statute.
(c) Audit Classification :- Examine whether marks have been allotted on the actual-performance of the society. In the case of banks coming under the control of the Reserve Bank of India, audit classification has to be done strictly following the norms prescribed by the Reserve Bank of India.
No audit classification has to be made in the first two years of starting of societies.
(d) while checking audit notes of societies in respect of first year’s working, a copy of the bylaws of the society has to be obtained and necessary verification made in the audit note about the name, area of operation, authorised capital etc.
(e) Also verify the audit note of the previous year the see whether any defects have been noted in the check memo for rectification in next year audit and whether such defects have been fully got rectified in the current note.
(f) Miscellaneous :
(i) See whether provision has been made for the payment of affiliation fees, in respect of societies which have not been affiliated till the period under audit.
(ii) See that the auditor has filled is all the relevant columns in the audit note properly and signed.
(iii) See that the authentication of the office bearers have been obtained where ever required.
(iv) See that the totalling is correct.
(v) See that all the required enclosure, statements etc., have been attached.
7. Publication of audit certificate :- As per rule 64 (6), the Registrar shall issue to the concerned society an audit certificate and a copy of the audit memorandum duly signed, within six months of the date of audit. Sub Clause (7), lays down that the society should publish the audit certificate, the statement showing the receipts and disbursements for the year the profit and loss account/income and expenditure and the balance sheet, in the manner specified by the Registrar. The above documents are also to be kept open for inspection by any member of the society, during office hours.
8. Efficiency of Auditor :- The Auditor should be well versed in the fundamental principles and theory of all branches of accounting. This knowledge will help him to differentiate a transaction as correct or wrong and to grasp quickly the technical details of the business. In order to elicit full details of the transaction he may seek advice on technical points, if any, required. The audit will be more efficient if he has training in business organisations, administration, management of finance and continuous principles experience. He should have also an understanding of the general principles of economics. The efficiency of the auditor will also reflect greatly in the efficient and accurate preparation of the audit report.
9. Preparation of diary of work of Auditors :- The diary of work of the Auditor should indicate in detail the specific work done by him during a particular period. Therefore, the diary has to be prepared with due care. It should not be vague or ambiguous. It should exhibit full details of the work done by him on each day specifying clearly the receipts, vouchers, registers etc., checked and the quantum of work turned out. The auditor should not adopt the practice of recording vaguely the work done, say for example “checked or vouchers”, “checked the day book with ledgers” etc., Instead, he should record details of work turned out, say number of receipts or vouchers checked by him during a particular day, indicating clearly the serial numbers of the receipts or vouchers or the period covered as the case may be. The diary should also reveal details of different transactions examined by the Auditor and the names of ledgers checked in that connection.
The diary should be prepared in the form prescribed for the purpose and should be signed by him in token of the correctness of information furnished therein.
10. Stoppage of audit :-
(i) Records with Police or Court :- In the case of records with court or under police custody, the mater has to be intimated to the Deputy Registrar (Audit) concerned who will approach the court or Police authorities concerned, seeking permission to audit the accounts keeping the records under their control. If the records could not be so obtained for audit, the audit can be taken up only after disposal of the case.
(ii) Records not produced and partly missing :- In the case of societies which fail to produce the records for audit and where the records are partly missing the concerned head of Department/Officer may institute an enquiry under section 65 and wind up the affairs of the societies which are beyond revival.
(iii) Records not written up :- In these cases, the committee may be superseded by invoking section 32 of the Kerala Co-operative Societies Act, and an Administrator or Administrators appointed to manage its affairs. They will arrange to write up the accounts and produce them for audit.
No. ADL2-16551/74Dated 21st November 1974
CIRCULAR No. 56/74
Sub:- Audit of accounts of Co-operative Institutions audit held up for want of records - Clearance of arrears - Instructions issued.
I. It is observed that the number of audits held up for want of production of records is increasing year after year. Government, as well as Public Accounts Committee have pointed out on several occasion that the tendency of the societies to keep away their accounts, records etc., from being subject to audit should be totally discouraged. Except in genuine cases, the tendency may be due to the fear of detecting mal-practices, negligence, manipulation etc., committee in keeping the accounts and hence the responsibility of the department to get the records promptly in such cases become all the more important. Instructions have already been issued from time to time and again that prompt action should be initiated pursued by the departmental officers in all such cases invoking the relevant provisions of the Kerala Co-operative Societies Act and Rules. The departmental officers are armed with sufficient powers under the act and rules to proceed against the persons responsible for the non-production of records and get the records. These provisions can be made applicable suitably in each case as required by the situation prevailing in the case concerned. A good outlines of the action to be pursued in such cases is given below:-
11. The main reason attributed for the pendency of audit in respect of the societies where records are not produced for audit are the following:-
1. Records in court or under police custody.
2. Records destroyed.
3. Records not written up.
4. Non-co-operation of the management in the production of records.
5. Defunct nature of the Institutions.
6. Records with the Ex-committee.
7. Non-availability of the custodian of records.
8. Records lost or missing.
9. Whereabouts of the society and records not known.
10. Societies unstarted.
III. Action to be pursued by the Deputy Registrar (Audit):
(1) The Deputy Registrars (Audit) will open a separate file for each society where audit is pending for want of records and action should be pursued in the file till records are made available; or orders are issued for the winding up of the affairs of the society by the authority concerned.
(2) In the case of records in Court or under police custody, the Deputy Registrars (Audit) will approach the Court or police authorities concerned for permission to audit the accounts keeping the records under their control. If the records could not be made available for audit, the matter should be placed under constant correspondence watching the disposal of the case.
(3) In other cases the auditor concerned will make earnest attempts to contact the office bearers concerned and get the records. If the could not get the records, he will, in writing report the fact to the Assistant Registrar (Audit) concerned with details of the attempts made and the address of the Office bearers gathered by him.
(4) Immediately on receipt of the report of the Auditor, the Assistant Registrar (Audit) will issue registered summons under Section 63 of the Kerala Co-operative Societies Act to the office bearer concerned for the production of records for audit.
(5) If the society or the person (s) responsible does not produce the records within the time limit specified in the summons issued or the summons returned undelivered, the Assistant Registrar (Audit) concerned will report fact to the Deputy Registrar (Audit) with full particulars with a copy of the Auditor’s report and the returned summons.
(6) The Deputy Registrar (Audit) will, immediately on receipt of the report of the Assistant Registrar (Audit) examine whether the actions taken by the Auditor and the Assistant Registrar (Audit) are satisfactory. If so, be will refer the matter to the Deputy Registrar, (General) concerned for further necessary action in respect of the societies coming under the control of this Department.
(7) In respect of societies coming under the control of other Department, the Deputy Registrar (Audit), will report the matter to this office in detail with a copy of the letters of the Auditor and Assistant Registrar (Audit) and the returned summons.
IV. Action to be pursued by the Deputy Registrar (General)
On receipt of the report of the Deputy Registrar (Audit), the Deputy Registrar (General) will pursue action as follows:-
(1) He will immediately open a separate file for each such society as reported by the Deputy Registrar (Audit)
(2) He will invoke the provisions under section 32 of the Act in the required cases and appoint a new committee or one or more Administrators to manage the affairs of the society.
(3) Provisions under section 34 of the Act should also be invoked to secure possession of records from Ex-committee, wherever necessary.
(4) The action under 2 and 3 above will be necessary where the societies are working/have been working till recently. In other cases, action under section 65 of the Act may be pursued and ultimately order the winding up of the affairs of these societies, if need be, under section 71 of the Act, if the revival of working of the societies is not possible.
(5) Evidently records are not available in all these societies and without records inquiry under section65 of the K.C.S.Act which is a pre-requisite as per Section 71 (1) for taking a decision whether are not orders be issued for a society to be wound up is not possible. So, in such cases (in which have ceased to workor which remains unstarted) action under section 65 can be dispensed with and the Deputy Registrar can proceed with action under Section 71 (2) (b) straight away.
(6) If the Deputy Registrar is satisfied that the final winding up of the affairs of the society is not possible on account of destruction of records, he can cancel the Registration of the society immediately under Section 74 of the K.C.S.Act. In such cases he should collect particulars of Government investments etc., in these societies and take action for write off the dues by the competent authority before ordering such cancellation.
(7) In all other cases, the liquidator appointed under section 72 of the Act will take prompt action and expedite final winding up of the affairs of the societies concerned culminating in the cancellation of Registration.
(i) The audits in respect of these societies will be could from the list of arrears in audit by the Deputy Registrars (Audit)/Assistant Registrars (Audit) as soon as he receives copy of order of the winding up of the affairs of the societies.
(ii) All the Deputy Registrars (Audit) shall hereafter send a separate monthly report narrating the details of action taken in respect of the societies where records are not available. The report should be in the following form and the same should reach this office on or before 15th of every month.
Name of the Society
Description of action taken
Result achieved and present position
(iii) The Deputy Registrar (General) will also continue to forward the monthly report in the above form as already directed in this office letter No.ADL2-26859/73 dated 22-9-1973.
(iv) A Register should be maintained in the being given above allowing sufficient space for each society to record the details of action taken every month.