Friday 21 January 2011

KERALA COOPERATIVE AUDIT MANUEL VOLUME I PART II CHAPTER III


A. AUDIT OF PRIMARY AGRICULTURAL/CREDIT/MULTIPURPOSE CO-OPERATIVE SOCIETIES

1. Membership and Share Capital :- The area of operation of the society should be ascertained from the byelaws, and it should be ascertained whether all the members are residents in the village or villages or is in occupation of land, in the area of operation of the society.
Share capital and entrance fees are paid along with the application by a person intending to become a member of the society or to increase his share capital. The society, on receipt of the amount, should keep it under suspense account. When he/she is admitted as a member, the suspense amount is transferred to share capital and entrance fee. The Auditor while vouching this item of receipt should verify whether the admission has been made in accordance with section 16 of the Act and Rules 16 & 17 of the Rules under the Act and the byelaws. He must also verify the application for membership and the resolution of the committee admitting him/her as a member. He should also ensure that the society has observed the restrictions, if any, stipulated in the Act, Rules and the Bye-laws with regard to the holding of shares etc. by a member.
A person should not be admitted as a member without his remitting the entrance fees along with the share capital as provided in the byelaws. The Auditor should also ensure whether the signature of the member has been obtained in the admission register. He should also see that the full address of the member together with the name and address of his nominee etc. are entered in the Register.
Section 19 of the Kerala Co-operative Societies Act reads :
“No member of a society shall exercise the rights of a member unless he has made such payments to the society in respect of membership or has acquired such interest in the society, as may be prescribed by the Rules or  byelaws”. Thus, admission of a member without actually receiving the share capital is not allowable.
2. Funds :- The primary object of these societies is to provide loans to its members for agricultural operation/production. Every borrowing member can take additional shares, until the total shares held by him reach the prescribed limit. In addition to this, with a view to augmenting funds of the society and to inculcate the habit of thrift in the minds of borrower, thrift deposit is also to be insisted on as per byelaws. Reasonable rate of interest deposit is also to be insisted on as per byelaws. Reasonable rate of interest will be allowed on thrift deposits. The Auditor has to examine this aspect in detail during audit.
3. Crop Loans :- Primary Agricultural Credit Societies mainly advance short term loans for seasonal agricultural operations, and medium term loans for land improvement, sinking of well, and for other approved productive purposes. The Auditor has to examine whether the society has observed the rules and procedures and adhered to the directions of the financing bank. He may also go through the Scale of finance fixed for each crop, arrangement for verification of utilisation of the loans issued as well as taking of effective action in the collection of overdues. He has to check the register and records maintained for the above.
4. Credit limit Statement :- The Credit limit application is prepared yearly by the Agricultural Credit Society well in advance within the time limit fixed by the Central Bank according to the seasonality for lending. Distinctions are made in the case of small, marginal and big farmers while preparing the statement. As a matter of fact, the Credit limit statement will be a consolidation of all the applications of the members of the society indicating the credit requirements for the agricultural operations. It is to be prepared after making a realistic assessment of the reasonable credit needs of the members with reference to the scale of finance etc. The committee of the society, before recommending/passing the credit limit, should identify the extent of cultivation, crop cultivated, credit requirement etc. of each member. The Auditor has to bear in mind these points while auditing the issue of agricultural S.T.Loans.
5. Loans to members :- Loans will be sanctioned to the individual members based on their requirements and limits fixed in the normal credit limit statement. Individual maximum borrowing power for different types of loans, proportion of share linking etc. are fixed in the bye-laws.
The Auditor has to satisfy whether in sanctioning loans to the members, the provisions in the bye-laws and directions of Registrar of Co-operative Societies and Central Bank have been observed strictly.
6. Disbursement of loans :- After sanction of credit limit the society can draw loans from Central Bank by presenting withdrawal applications. The Auditor should ensure that necessary resolution regarding grant of fresh loans to borrowing members who have repaid their dues, have been passed by the committee. The resolution should specify particulars such as names of members, loans sanctioned, names of sureties etc. The Auditor has also to ensure that all those who have been included in the withdrawal application have been sanctioned sufficient limits in the normal credit limit statement. Where the system of crop loan has been adopted, the loans are to be disbursed in cash and in kind. The kind portion, which is required for purchasing fertilizers, insecticides, etc., is disbursed through local marketing/service society of other agency which stocks them. The cost of same is paid direct to the Marketing Society or other agency. Though the cash portion and kind portions are disbursed separately, a loan bond for the full amount is to be obtained at the time of disbursement on first instalment and subsequent disbursement are made against separate acknowledgment. The Auditor should see that loans for different crops are disbursed at the appropriate time for carrying out the agricultural operations according to the seasonality in lending and scale of finance and fixing period of repayment/due date of recovery etc. according to the harvesting season.
7. Supervision of Utilisation of Loans :- The Auditor has to see whether loans have been disbursed properly, distribution statement obtained and undisbursed amounts refunded in time and whether proper documents and acknowledgments obtained and filed. The Auditor has also to ensure whether the necessary records and registers have been properly maintained by the society for the loans issued. He can also check whether there was any misutilisation of loans disbursed.
8. Security for Loans :- Under crop loan, the crop proposed to be grown on the lands is accepted as security. In order to ensure that the borrower does not create any charge on the land owned or held by  him, section 36 of the Kerala Co-operative Societies Act provides that a member who makes an application for loan, should make a declaration in respect of the land held by him as owner or tenant ‘subject to amendment in Registration Act). The Auditor has to ensure whether declaration has been obtained in the form prescribed in Rule 51 (Form 7) and whether the charges created have been registered in the village records. The society, has also to keep a register of such declarations in Form No. 8 as per Rule 51 (2).
9. Dual membership :- While checking the transactions relating to the admission of members the Auditor should ascertain whether the society has taken necessary precautions to guard against dual membership (Rule 27) and whether the Rules and Bye-laws have been strictly adhered to in the admission, allotment of shares and other allied matters.
10. Personal sureties :- Generally, loans upto a limited amount are issued on personal sureties. But, land can also be accepted as security in such cases. But, for loans exceeding this limit, security of anticipated crop, land etc, is insisted. In the bye-laws of certain societies, there is specific provision relating to the amount of loan one can avail on personal surety and the amount of loan for which he can stand surety. Every society should maintain liability register showing particulars of amounts borrowed and liability incurred as surety by each incumbent. The Auditor, should verify these points while checking this register and will ensure that the liability incurred has not exceeded the limit. 
11. Repayment of loans to Central Bank :- For remittances in cash, only persons competent for the same as per bye-laws or by resolution of the Board, should be entrusted. The society should obtain voucher from the person to whom the money is entrusted for remittance. The cash receipt of the Central/District Bank for the remittance should be checked by the Auditor, and he should ensure that the full remittance has been made on the same day. If there are convincing reasons, remittance on the very next working day can also be accepted. In the cases of amount sent by money order, the money order acknowledgment would be available for checking. These should be vouched by the Auditor both for amount remitted and the commission charged. Pucca receipt from the Central Bank should also be verified. In the case of remittance by draft or transfer credit there will be the chalans of the bank for the commission paid etc. In additional to these documents, the Central Bank’s pucca printed receipt giving credit of the amount to the proper head of accounts will be available for checking.
12. Recovery of loans from members :- When a remittance is made by a member towards his loan account, appropriation should be made to the proper heads in accordance with the bye-laws of the society. The Auditor should ensure that the allocations are correctly made. In vouching, the Auditor should ensure that admission number, name of member, loan number, amount of principal, amount of interest etc., are correctly and clearly written, It is desirable to obtain signature of the remitter in the counterfoil of the receipt/chalan.
13. Assessments of bad and doubtful debts :- Assessment of bad and doubtful debts is to be made by the Auditor after taking into consideration all the circumstances and examining each case in detail. The Auditor has to follow the guidelines, issued by Registrar/R.B.I. for assessing bad and doubtful debts. The classification of loans into bad and doubtful has to be  made with great care as all debts classified as bad will be required to be written off and adequate provision will have to be made for all doubtful debts. Provision for bad and doubtful debts should be adequate to cover all debts classified as bad, and at least fifty per cent of the debts classified as doubtful.
14. Writing off of bad debts :- Rule 62 (i) and (2) of the Kerala Co-operative Societies Rules prescribes the procedure for writing off of bad debts.
In Registrar’s Circular No. 93/75 [G (3) 11491/75] dated 11-11-1975, it has been classified that the Auditors appointed under section 63 of the Kerala Co-operative Societies Act, to audit the accounts, alone are competent to issue the certificate contemplated in Rule 62 (i).
15. Verification of member’s accounts and checking of pass books issued to members :- It should be ascertained whether pass books are issued especially to all the borrowing/depositing members and their transactions entered and certified in the pass books from time to time. In the course of audit, the members should be requested to contract the Auditor with their pass books in order to get their accounts verified. In bigger societies, where quarterly or half yearly statements of accounts are issued the members can check up such statements to ascertain the accuracy. Personal verification of member’s accounts and examination of their pass books should be conducted by the Auditor. The Auditor can attach along with the audit note, a list of members whose accounts have been verified by him during the course of audit.
16. Medium term Loans :- Medium term loans are issued for meeting outlay relating to the replacement and maintenance of wasting assets and for capital investment designed to increase the output from land. These loans are generally repayable within a period of three to five years. They are sanctioned for purposes such as dispensing of old wells, sinking of new wells, installation of pumping plants, purchase of agricultural machinery or a pair of bullocks, improvements to land, building, tenacing etc. etc.
Medium term loans are sanctioned after assessing the repaying capacity of the borrower, and considering the incremental income. In all cases, the land concerned and the assets created out of the proceeds of loans are required to be mortgaged to the society.
17. Conversion of Short term loans into Medium term loans :- The Agricultural credit stabilization Fund is constituted to facilitate the conversion of short term loan for agricultural purposes into medium term loan and to provide conversion facilities to the installments of medium term loans in circumstances in which total or partial crop failure resulting from natural calamities; renders the repayment of such loans impossible, without dislocation of the structure and without hardship to the individual agriculturists. The Auditor has to carefully go through the Rules for the establishment and use of Agricultural credit (stabilization) fund and see that, in allowing conversion, the procedure laid down in the Rules, has been followed strictly.
18. Audit classification :- In awarding audit classification the procedure prescribed in Chapter II of Part IV is to be followed.

B AUDIT OF CO-OPERATIVE BANKS AND SOCIETIES COMING UNDER BANKING REGULATIONS ACT (AS APPLICABLE
TO CO-OPERATIVE SOCIETIES)

1. General :- Besides being familiar with the provisions of the Kerala Co-operative Societies Act and Rules thereunder, the Auditors in charge of the Banks coming under the Banking Regulations Act, should have a through knowledge of the other relevant enactments, such as Banking Regulation Act, Negotiable Instruments Act, Transfer of property Act, and such other Acts which apply to the business of these banks. The Auditor has also to be thorough with the byelaws of these Banks and the various sub rules and regulations framed for the conduct of business. They are responsible for completion of statutory audit in time in order to enable the Bank to publish their accounts (Balance Sheet and Profit and Loss account along with Auditor’s report) within the time limit prescribed. With the introduction of continuous and concurrent audit, and internal audit the Departmental Auditor will have enough opportunity to devise scientific internal operating procedures. He will gather from the Bank the duties and responsibilities of the officers of the Bank, particularly in the internal audit wing. With the assistance and co-operation of the officers of the Bank, the audit work can be arranged so as to ensure the maximum out put of work. If possible, all routine and minor irregularities in the working should be got rectified then and there without entering into unnecessary correspondence with the Bank. The Auditor should work in liaison with the officers and office bearers of the Bank.
2. Maintenance of cash reserve and liquid assets (Fluid resources) :- Section 18 of the Banking Regulation Act stipulates that all Co-operative Banks except State Co-operative Bank should maintain cash reserve in the prescribed manner and submit returns to Reserve Bank of India in the prescribed form mentioned therein.
Again, Section 24 of Banking Regulation Act stipulates that all Co-operative Banks should maintain cash reserve and liquid assets in the prescribed manner and rate indicated therein. The Auditor has to ensure whether the bank has scrupulously satisfied followed the above statutory requirements on a day to day basis and has submitted all the returns required under the Banking Regulations Act in time. (See relevant sections of the Banking Regulation Act).
3. Returns to be submitted :- Every Co-operative Bank to which the Banking Regulation Act (as applicable to Co-operative Societies) is applicable shall send to the Reserve Bank of India, the following returns, in the form prescribed within the time fixed.
(i) A monthly return showing particulars of assets maintained in accordance with sections 18 and 24 off the Banking Regulation Act and its time and demand liabilities at the close of business on each Friday/during the month.
(ii) A monthly return of unsecured loans and advances granted by the Bank to companies which any of its directors if interested. (Section 20, Rule 5).
(iii) Annual return of accounts which have not been operated upon for ten years (Section 26, Rule 9).
(iv) Monthly  return showing assets and liabilities in India at the close of business on the last Friday of every month. (Section 27, Rule 9).
(v) A copy of the annual accounts and balance sheet of the Bank prepared in accordance with Section 29 of the Banking Regulation Act (Section 31).
(vi) Monthly return of the places of business (Section 23, Rule 8).
(vii) Any other return subsequently prescribed by Reserve Bank of India.
4. Balance sheet and Profit and Loss Account :- Under Section 29, every Co-operative Bank is required to prepare its balance sheet and profit and loss account in the form set out in the 3rd schedule to the Banking Regulation Act. The balance sheet and Profit and Loss Account together with the Auditor’s report should be published as prescribed in the Act. Form of report of the Auditor is as follows:-
Report of the Auditor
1, the undersigned, auditor of the................................................................... .....................................;................................... Bank Ltd., report on the Balance Sheet and accounts of the Bank as at 30th June.....................................
I have examined the foregoing Balance Sheet of the .....................................
............................. Bank Ltd., as at 30th June .......................... and the Profit and Loss Account for the period ended upon that date with the accounts relating thereto of Head Officer and with the returns submitted and certified by the Branch Manager, which returns have been incorporated in the foregoing Balance Sheet and Accounts.
1 report that:-
(i) 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 Bank, according to the best of my information and the explanation given to me and as shown by the books of the Bank :
(ii) Where I have called for any explanation or information, such explanation and information has been given to me and have been found satisfactory;
(iii) The transactions of the Bank, which have come to my notice, have been within the competence of the Bank;
(iv) the Returns received from the Branches of the Bank have been found to be adequate for the purpose of my audit;
(v) the profit and loss account shows a true balance of profit for the year covered by such account;
(vi) in my opinion, the Balance sheet and the Profit and Loss account are drawn up in conformity with the Law; and
(vii) in my opinion, Books of account have been kept by the Bank as required by law.
Place:                                                                                        (Sd.)
Date:                                                                                       Auditor
In Registrar’s circular No. ADL (3) 16633/68 dated 2.1.1969, necessary instructions on the preparation of profit and Loss Account and Balance Sheet of Co-operative Banks coming under the purview of the Banking Regulation Act, have been issued.
5. Internal Audit :- As per circular instructions, Registrar has directed that all Apex Institutions, District Co-operative Banks and District Wholesale Co-operative Consumer Stores have to form internal audit wings by their staff for the internal audit of their accounts. At least two persons are to be allotted to the internal audit wing to work under the control and supervision of Concurrent Auditor.
6. Books of accounts and records :- Banking business always require the maintenance of accurate and up-to-date accounts. Every banking transaction has to be entered in the ledger as soon as it takes place. More attention has to be given in maintaining up-to-date  personal ledgers, cash book, journals etc. Trial balances are prepared every month and, in bigger banks, weekly. Schedules of personal balances are prepared and reconciled with the general ledger balances at least once in a month or quarter.
Some of the salient features of accounting can be explained as follows:-
(i) Personal ledger postings are to be made direct from the vouchers instead of posting them from the cash books or the journal.
(ii) Postings in the personal ledgers are summarised on summary sheets the totals of which are agreed with the totals of the entries made in the subsidiary cash books and then posted to the general ledger.
(iii) Weekly trial balances are to be prepared from the general ledger.
(iv) Since transactions other than cash transactions are numerous, to ensure correct recording, separate transfer vouchers are to be prepared for credit and debit entries. Similarly individual transactions are entered in subsidiary books and their totals entered in the main cash book or the Day Book, for which purpose consolidated vouchers are to be prepared.
7. Internal Control :- The necessity for a system of internal control is greater in the case of a bank than in the case of any other type of institution. Where there is no arrangement for internal control or where the control is not adequate, the auditor has to conduct detailed checking in order to find out the existence of serious errors or frauds, if any. In the case of smaller banks where the number of employees is not adequate, the honorary directors may also get themselves associated with the staff to effectively carry on a system of internal control. The Managing Director, Chairman, Secretary, Manager and other directors of the Bank may have to participate in the routine checking and control of the transactions, in such cases. The work of Auditor will be easy where there is a perfect system of internal checking and control.
8. Control over cash :- Some of the salient features of a sound system of internal control over cash are summarised below:-
(i) The safe in which the cash  is kept should have an inner chest in which all cash in excess of normal requirement should be kept. The inner chest as well as the outer chamber should be in the joint custody of the Manager/Secretary and the Accountant/Cashier.
(ii) The closing balance of cash should be test checked by any responsible officer and counted fully, occasionally.
(iii) The cashier should not have access to the customer’s ledgers and pass book.
(iv) Counterfoils of pay-in-slips lodged by the depositors should be checked and signed by the Accountant in addition to the Cashier.
(v) Payment should be made only against properly authorised vouchers.
(vi) At the end of each day’s transaction, the entries in the rough cash book, or counter cash book, should be compared with the entries in the scroll books and carried over into the main cash book or Day Book.
(vii) Ledger Clerks should not have any access to the main cash book, or Day book and the consolidate voucher should be prepared by the Accountant.
The Auditor can check the system followed by the bank, point out defects and give suggestions, if any improvement is required to streamline the procedures.
9. Postings :- Before effecting payment of cheques, it should be ensured whether they have been checked in respect of date, amount, signatures, balance available in the account, endorsements etc,, and passed by an officer and duly entered in the customer’s account. All persons taking part in the checking, viz, the ledger clerk accountant, comparing the signature, and passing cheque for payment, should have initialled or signed the document. All postings should be checked independently by persons other than the ledger clerks, with the original voucher. Interest debited or credited to the customer’s account should be independently checked by at least two officers.
10. Collection and discounting of bills :- (i) All documents accompanying the bills such as Railway receipts, despatch notes, delivery orders etc., and received along with the bills should be entered in the Bill Register. When these bills are sent out for collect on it should be ensured that all accompanying documents are attached to the bills.
(ii) Where bills are purchased or discounted from approved parties, a responsible officer should ensure that all documents of title issued by transport companies have been properly assigned to the Bank.
(iii) Unless credit limits have been sanctioned, the account of the customer should be credited only after the bills have been collected or advice received from Branch/collecting bank.
(iv) Accounts of all customers to whom credit limit has been sanctioned, should be examined to ascertain the number and frequency of dishonoured bills. In the case of erring constituents notices should be issued, requesting to regularise the accounts without delay.
11. Loans and advances :- Loans and advances should be sanctioned only after proper enquiry about the credit worthiness of the borrower, purpose of loan, his repaying capacity etc. Necessary documents, such as applications, loan bonds or agreements, demand, promissory notes, letter of hypothecation or pledge etc. should be got executed by the parties, before the loan is disbursed or the cash credit account is allowed to be operated.
12. Prohibition of trading :- Section 8 of the Banking Regulation Act lays down certain prohibitions on trading etc. by a Co-operative Bank. However these provisions do not preclude a Co-operative Bank from  financing hire purchase schemes. But Co-operative Banks are not expected to undertake running of ration shop, acting as wholesale distributor etc. The auditor has to ensure that the bank has not indulged in any of the business prohibited as per Banking Regulation Act.
13. Opening of branches :- A Co-operative Bank can open branches any where in its area of operation, with the previous sanction of Registrar and Reserve Bank of India. The auditor should satisfy himself that the branches opened by banks are manned by qualified and competent personnel and satisfactory arrangements made for carrying on the work and for supervision. Every branch will maintain its own accounts and at the close of the accounting year, will see that the accounts of branches are incorporated with that of the Head Office and a consolidated balance sheet and Profit and Loss account prepared. The auditor should check and satisfy the accounts in branches and their consolidation and reconciliation with Head Office account. He has also to examine whether, at least after a period, the branches have become economically viable and justify their existence.
C. AUDIT OF CENTRAL CO-OPERATIVE BANKS

1. General :- Audit of District/Central Co-operative Banks is much more onerous than audit of credit institutions. In order to audit the accounts of Central/District Co-operative Banks successfully and efficiently the auditor should be well versed with the normal banking transactions also. Consequent on the recommendation of Government of India and Reserve Bank of India, a system of continuous or concurrent audit has been introduced in all the District/Central Co-operative Banks. With the introduced in all the District/Central Co-operative Banks. With the introduction of the system of continuous and concurrent audit, the transactions of a day are normally audited on the subsequent day. Balance sheet and Profit & Loss account  of the District/Central Co-operative Bank at the close of each year ending with 30th June, together with the auditor’s report shall be filed on or before 31st December of the year as required under section 31 of Banking Regulation Act.
With the sanction of Reserve Bank of India this period can be extended upto 31st March. The balance sheet should also be published in a newspaper which is in circulation at the place where the Co-operative Bank has its principal office.
Before commencing actual work of audit, the auditor should study the system of internal check in force. If the system is functioning satisfactorily, the auditor can carry on the mechanical audit quickly. The internal check system regarding the cash transactions of the District/Central Co-operative Bank is as follows:-The cashier receives cash on remittances by customers through chalans. On receipt of cash he enters the same in the cashier’s chitta and acknowledges receipt by putting his initials in the chalans and send it to the concerned ledger clerk. The ledger clerk enters the chalan in the concerned ledger and passes it on to the Manager/Officer authorised who passes the chalans and enters the transaction in his scroll. Similarly when payments and withdrawals are made, the vouchers and cheques concerned are sent to the Manager/Officer authorised by the ledger section after proper entries. The Manager/Officer authorised passes them in turn for payment no the cashier, after entering the same in the scroll. As soon as payment is made by the cashier he also enters the payment in his scroll.
At the close of the day’s transactions the cashier’s chitta and the Manager/Officer authorised scroll are tallied and the cash balance is counted and tallied. Attestation is made after verification.
2. Checking of Banking operations :- In view of the position occupied by the District/Central Co-operative Banks, in the provision of banking facilities, in rural areas and holding them responsible for financing different types of Co-operative Institutions affiliated to them, the auditor has also to look into certain very important points while auditing the accounts of central banks.
3. Maintenance of fluid resources :- It should be ensured that the bank does not indulge in overtrading and maintains adequate fluid resources as cash reserves as required under section 18 and 24 of the Banking Regulations Act (as applicable to Co-operative Societies). It should also be seen that the bank strictly adheres to the instructions issued by the Reserve Bank of India, from time to time, on the maintenance of fluid resources and cash reserves.
4. Lending operations :- District/Central Co-operative Banks have been organised with the main object of providing finance to the affiliated societies for conducting their normal operations. Agricultural credit societies form majority of the affiliated societies and therefore providing finance for agricultural operations is the main object of District/Central Co-operative Banks. The District/Central Co-operative Banks provide short and medium term loans. Seasonal agricultural finance or crop finance or crop finance is normally required to be repaid within a period of one year. Medium term loans are advanced for such purposes as land improvement, construction and repairs of wells, irrigation pumpsets and agricultural machinery and also for purchase of bullocks and milch cattle etc.
Finance to other types of affiliated societies is generally provided in the form of cash credit/overdraft. Cash credit sanctioned to affiliated societies is either “clean”, ‘hypothecation’ for ‘pledge’. Where both clean and pledge credit limits have been simultaneously sanctioned, it should be seen that clean credit is used only for the specific purpose for which it is sanctioned and not for providing necessary margin to pledge credit. Hypothecation credit is sanctioned only to good working societies. When the owned funds and deposits are not sufficient to meet the requirements of borrowing societies additional funds are obtained from the State Co-operative Bank by drawing from the credit limits sanctioned.
Special credit limits are also sanctioned to processing and Industrial Societies, including weavers Societies against Government Guarantee under the various schemes sanctioned by the State and Central Governments. Special hypothecation credits are also sanctioned to Consumers Societies under the Guarantee scheme sanctioned by the Government of India.
5. Short-term Finance to Agricultural Credit Societies :- Under the production oriented system of credit, a short-term production loan is intended to meet the expenditure in connection with raising of crops. The loans issued for the above purpose should be recovered out of the sale proceeds of crop soon after the harvest.
6. Normal credit limit statements :- The normal credit limit statement contains a number of columns for recording details of lands held by each number under irrigation, cops proposed to be grown etc. Although different crops are grown in the same season, only one normal credit limit statement is to be prepared for the whole year and for all crops grown by the member. In other words, separate statements for different crops or different seasons are not required to be prepared. There are however, certain aspects which warrant revision of the credit limit statements preferably on annual basis. The responsiveness  of cultivators to the use of modern inputs and techniques of cultivation is growing fast and consequently the scales of finance fixed for one year may require modification in the subsequent year.
7. Scale of crop finance :- Scales of finance are fixed separately for cultivators, who follow the traditional methods of cultivation and those who adopt the improved methods and are fixed in terms of two components viz. component ‘a’ to be disbursed in cash and component ‘b’ to be disbursed in kind. Crop finance includes lahour charges, which in the case of small cultivators who have no need for hired lahour, would serve to finance their outlays on family consumption during the production period and also additional cash expenditure necessitated by the adoption of improved practices. At the traditional level of cultivation, the outlay on these items of expenditure should not exceed one third of the gross value of produce. For the cash crops like cotton, oilseeds, sugarcane, banana, high yielding variety crops, potato etc. the scales of finance will have to be fixed individually, as there are large variations in the outlay involved for each of such crops.
8. Disbursement of loans :- The approval to the credit limit statement by the District/Central Co-operative Banks signifies the upper limit upto which an individual may borrow funds from the society where he is a member, and in turn, the society may borrow from the bank during the ensuing year. The actual drawals by the individuals on the limits should be subject to the satisfaction of certain conditions with the society and the latter with the District/Central Co-operative Bank. The individual may be allowed to borrow upto the limit sanctioned to him provided he-
(i) is not in default;
(ii) holds shares in the society not less than the proportion prescribed;
(iii) has furnished adequate security and
(iv) has executed the necessary documents etc.
The society may be allowed to operate on the sanctioned credit limit subject to the following;-
(i) It has repaid to the district/central bank to the extent of at least the minimum proportion of the demand fixed.
(ii) It holds shares of the district bank in the prescribed proportion to its borrowings therefrom.
(iii) The society should have paid to the bank all recoveries made from members and has not made disbursement from out of the cash on hand.
(iv) Every time, when remittances are sent to the bank, the society is required to submit a statement, furnishing full details of the recoveries from members. A time lag of at least 10 days is required to be observed between the date of repayment of the previous loan and disbursement of the new loan.
(v) When a drawl is made by the society from the credit limit sanctioned to it, a promissory note is required to be executed by the society.
9. Irregularities in sanctioning loans :- The following are some of the irregularities generally noted in sanctioning of loans to affiliated societies:-
(a) Disbursement of loans before the expiry of the prescribed time lag.
(b) Disbursement of loans to persons other than those who have repaid their dues.
(c) Loans are sanctioned at scales higher than those prescribed.
(d) Failure to deduct share amounts from loans sanctioned.
(e) Shares held by societies not in proportion to amounts lent.
(f)  Loans sanctioned in excess of limits prescribed in the normal credit limit statement.
(g) Loans sanctioned in excess of individual limits without proper sanction.
(h) Difference in acreage or crops shown in assets register and normal credit limit statement.
(i) Loans disbursed out of heavy cash balances kept on hand.
(j) Loans disbursed out of recoveries instead of paying the same into District Bank.
(k) Loans disbursed without obtaining disbursement statement of the previous loan.
10. Floating Account :- Seasonal agricultural finance or crop finance is provided to primary agricultural credit societies, by way of ‘maximum credit’ sanctioned on the basis of total requirements of borrowing members as mentioned in the normal credit limit statement approved by the Bank. Drawals from the maximum credit are permitted against demand statements or on loan application submitted by the societies. The amounts permitted to be drawn against this statement are credited to a “Floating account” against which societies are asked to draw cheques in favour of the members to whom fresh loans have been sanctioned. This account is to be operated only for purpose of disbursement of loans sanctioned to the members. It is quite different from a current account. This arrangement ensures that proceeds of loans sanctioned by the bank are not misutilised. The procedure followed by the bank should be carefully studied and it should be seen that the society is not required to pay interest on amounts which it has not been able to utilise. Only such portion of the maximum credit need be transferred to the floating account which is immediately required by societies for granting loans to its members.
11. Medium term loans :- On the basis of requirements of members for various purposes, a limit for the drawal of Medium term loan is sanctioned to the society. Drawals from this limit is permitted only when the society presents application for grant of loans to its members. The following are the purposes for which medium term loans are sanctioned.
(i) Purchase of a pair of bullocks or buffaloes.
(ii) Sinking new wells and for repairing old ones.
(iii) Purchase of oil engines, electric motors and pumpsets.
(iv) Purchase of agricultural machinery.
(v) Purchase of tractors and trailers.
(vi) Purchase of milch cattle.
Medium term loans are sanctioned for the above purposes, considering the repaying capacity of the borrowing members and after providing proper security. If the securities furnished is adequate, two sureties as approved by the committee are insisted. In order to watch proper utilisation of the loan sanctioned, utilisation certificates have to be obtained from the societies. Loans for the purchase of oil engines, pumpsets, etc. should not be disbursed in cash, but the societies should be asked to effect payment to the suppliers  direct. Where loans are sanctioned for the purchase of bullocks, milch animals etc, the auditor should ascertain the arrangements made for their purchase.
12. Advances to other types of societies :- Advances to other types of societies viz. urban banks, marketing and processing societies etc. generally take the form of cash credit. Cash credits are operated like current accounts by means of cheques. Necessary subsidiary Rules are to be framed governing the conditions of operation of the cash credits. These rules should have approved of the registering authority. The Auditor should carefully examine breaches in the observance of the Rules during the course of checking the transactions. He should also examine the agreements or cash credit bonds executed by the borrowers, to see that the agreements or bonds contain provision for the submission of periodical statements of financial position and stocks pledged or hypothecated, insurance of goods in the joint names of the Bank and the borrower, rate of interest etc. The auditor should also ensure that the Bank has ascertained the financial position, general working etc. of the society before cash credit is sanctioned. The auditor should check all the documents connected with the cash credit viz. the cash credit application, reports of the inspecting officers, letters communicating sanction of the bank and the terms and conditions of operation of the account etc. In the case of hypothecation credit, it should be seen that monthly return of stock on hand and also the trial balance at the close of each month should have been submitted by the borrowing societies.
13. Confirmation of balances :- The practice of getting confirmation of all types of ledger balances is being followed by some of the banks. But may of the banks do not follow the procedure of sending confirmation letters in respect of the Savings Bank Accounts. The Auditor should, therefore, get confirmation statements in respect of all types of accounts and the balance confirmed with the closing balances of such accounts in the books of the society.
In the case of Government loans, share capital, subsidies etc. the Auditor should obtain confirmation certificates from the respective heads of departments. Circular instructions issued in this respect is appended separately. Appendix II (2)
14. Audit of branches :- In all policy matters, branches are required to follow the instructions issued by the Head Office from time to time. The auditor has to examine the extent of authority delegated to the Branch Managers, particularly in matters relating to sanction of credits, operation of credit limits etc. During the course of audit, if he comes across instances of misuse of powers or exercise of powers not delegated or exercised powers in excess of authority they should be specially pointed out. The Auditor should ensure whether the Branch is prompt in submitting returns to the Head Office. The periodical return submitted by the Branch should be based on the branch accounts.
Where advisory committee are appointed to review the Progress, the auditor should peruse the proceedings of meetings of such committees, in order to ascertain the action taken on such resolutions.
15. (a) Inspection of affiliated societies :- Depending on the size and importance of the societies affiliated to each branch, one or more inspectors should be appointed to inspect the accounts of the Branch. The inspectors so appointed conduct the inspection of branches, periodically in accordance with the model inspection form prescribed for the purpose. The Auditor has to examine a few inspection notes submitted by the inspectors of Branches, in order to ascertain whether arrangements made for the inspection of Branches are adequate and that the inspectors attend to their duties properly. The annual inspection programme, tour programme, monthly diaries, review of work of the inspectors, follow up action etc. should be seen. He should also ensure whether proper action has been taken by the Branches on such inspection reports.
(b) Subsidy to uneconomic Branches :- In order to encourage Central Banks to open Branches in rural areas and to ensure satisfactory working of the crop loan system, the banks are given subsidy. As per schemes sanctioned by the State Co-operative Bank, all newly opened branches of Central Banks are entitled to subsidy during the first three years of their opening subject  to certain conditions. This subsidy is intended to enable the Central Banks to meet establishment charges during the initial period when the working of the branch may not be economical. (The scheme is discontinued now).
Sometimes, pay, allowances and travelling expenses of the inspecting and other staff incurred before opening of the benches are debited to the account of the branch which should not be allowed. In addition to the above a portion of the expenditure incurred over the establishment of the Inspecting staff and expenses over vehicles etc. are also allocated to some branches. In should be seen that such expenditure is reasonable, genuine and properly accounted in the accounts of the branches. It should also be seen that such expenditure has no connection with the working of the Head Office.
16. Assessment of bad and doubtful debts :- At the 26th meeting of the Standing Advisory Committee on Agricultural credit held in 1964, the R.B.I. (Agricultural Credit Department) has considered the various suggestions of the Registrars of Co-operative Societies of different States in regard to the criteria to be adopted in assessing bad and doubtful debts. Based on the recommendations of the committee, the Reserve Bank of India has evolved guidelines for assessment of bad and doubtful debts of Central Co-operative Banks. The guidelines have been communicated in Registrar’s letter No. ADL (1)-61068/75 dated 25-3-1976 (circular No.19/76) and circular No. 31/78 dated 11-8-1978 issued in ADL (2) 57239/76/R.Dis.
The guidelines should be very carefully studied by the Auditor, before any assessment of bad and doubtful debts is made. Every year the Central Co-operative Banks have to estimate the bad and doubtful debts, in accordance with the directions issued by the Registrar of Co-operative Societies. The statements and other particulars compiled by the Central Co-operative Bank for assessing the bad and doubtful debts can be made use of by the Auditor.
As regards bad and doubtful debts in respect of loans and advances, the examination by the Auditor has to concentrate on loans overdue for they years and more, all unrenewed cash  credit and overdraft accounts and dues from societies under liquidation. If there are special reasons such as defalcations, frauds, benami loans etc. loans overdue for less than three years are also to be considered. The mere reason that the loans due to the bank have not been covered by corresponding dues against individual members, should not be the sole consideration in treating the shortfall as bad and doubtful debts. It may be that the funds might have been diverted for trading activities, for which no special funds have been provided by the Bank. The longer the period for which  the loan has been overdue, the greater is the chance of its becoming or proving doubtful or bad. An assessment of the realisability of the dues to the bank would have to commence by assessing the realisability of the dues to societies indebted and in default to the Bank.
As regards loans and advances due from Co-operative Societies engaged in trading activities such as marketing societies and consumer’s stores and those engaged in production such as processing societies (rice mills, oil mills etc.),  ‘weavers’ and other industrial societies an assessment of the realisability of overdue advance due from them may be made with reference to the performance in repaying the past and present advances, periodical stock and financial statements submitted by them and their inspection and audit reports.
Another important item which has a bearing on the estimate of realisability of the dues to the bank from non-credit societies, will be their fixed assets such as land and buildings, machinery etc. In such a case, it has to be ascertained whether the machinery purchased was new or old, whether there is demand for such machinery and the approximate price it would fetch if sold etc.
In the case of non-agricultural credit societies, such as urban banks and salary earners societies, it will have to be seen whether the dues of the Central/District Bank have been covered by corresponding dues against members. The overdue position has to be examined carefully with special reference to the security available. The financial position should also be ascertained from the latest available audit certificate.
As regards societies under liquidation, the dues will have to be ascertained, with reference to the liquidator’s report and the audit reports.
The investments in land and building, furniture and fixtures, vehicles, etc. should be examined to see whether adequate annual depreciation has been allowed to these items. The extent to which depreciation had not been allowed should be treated as bad.
In respect of land and buildings, acquired from borrowers in satisfaction of the bank’s claims, if the title to the property is not clear or the property is not free from encumbrances, or the property is not in actual possession of the bank, the investment may be treated as doubtful of realisation. Otherwise, the value of such properties may be taken at their market value or book value, whichever is lower.
As regards other assets, such as “sundry debtors”, ‘Suspensed miscellaneous items, adjusting heads etc. the long outstanding amounts under these heads should be scrutinised with all the relevant particulars. If particulars on any item are not available, or if no documents have been obtained for any amount due from an outside party, or if no steps have been taken for recovery, or the bank itself is diffident about the recovery of the dues, then to that extent the amount shown under the head may be treated as bad. ‘Branch adjustment’ shown on the asset side of the balance sheet of a bank could be taken at the book value as the amount normally relates to assets in transit. However it should be examined from the reconciliation statement that it does not contain items of a doubtful nature or outstanding for a long period.
17. Rules of Agricultural Credit - (Stabilisation) Fund :- The Rules of Agricultural credit (stabilisation) Fund as approved in G.O.MS./269/67/AD dated 22-7-1967 and amended subsequently are appended. (Appendix II 37).
18. Loans and advances to employees for house construction, purchase of vehicles, etc :- The Auditor should examine whether there is provision in the bye-laws to grant loans to the employees for construction/purchase of houses or motor cycles/scooters etc. If so, he has to see whether the society/Bank has framed necessary subsidiary bylaws regulating payment, recovery and other conditions of such loans and has obtained approval of the Registrar. The Auditor has to examine whether loans sanctioned are in accordance with the terms and conditions laid down in the subsidiary Rules framed and got approved for the purpose. He should examine the following points also among other things.
(i) Eligibility of loan (minimum period of service, linking of loan with the salary etc., maximum amount of loans etc.,)
(ii) Fulfilling conditions and sanctioned by competent authority.
(iii) In the case of construction of houses, whether the society has examined the title deeds, encumbrance certificate, legal opinion and plan and estimate etc, approved by the Engineer.
(iv) Proper and timely execution of mortgage deed and other documents as required under the Rules.
(v) Production of completion certificate signed by a competent Engineer.
(vi) Taking of insurance policy for an amount of not less than the loan amount/outstandings, to cover the risk by fire or any other casuality for the hypotheca.
(vi) In the case of loan for purchase of motor cycle/Scooter, production of cash bill/payee’s receipt, registration certificate etc.,
19. Calculation of allocable surplus for payment of bonus :- Section 2 (4) of the Bonus Act 1965 and Rule 4 (a) of the Rules thereunder deal with allocable surplus. The method of calculation of allocable surplus is explained in Form A of the Bonus Act. The Auditor may closely adopt the procedure envisaged in the Bonus Act, for the calculation of allocable surplus for payment of bonus.
In the case of institution for which the provisions of Bonus Act are not applicable and where payment of bonus has been done out of profits only, the Auditor may scrutinise the distribution of profit of the year and satisfy that the distribution is made in accordance with the provisions of the Act and the byelaws [Section 56 (2) (b) of the Kerala Co-operative Societies Act 1969].
D. AUDIT OF CO-OPERATIVE DAIRY SOCIETIES
In addition to the general procedure followed in auditing societies, the Auditor has to check the following aspects, while auditing Dairy Societies.
1. Checking of Production Register :- The milk brought by the producers, in the forenoon and afternoon, has to be entered in the production register itemwise; (Buffalo milk and Cow milk) in the name of the producer. The Auditor should ensure that the total quantity of milk procured in a day tallies with the quantity shown in the stock register. This will enable the auditor to detect abnormal spillage or spoilage etc., if any. The auditor has also to test-check the pass books given by the society to the producers with the corresponding entries in the production register. While allowing concession on the spoilage or spillage, the auditor has to satisfy himself by verifying the minutes book, the permissible spillage or spoilage as allowed by the Board. The auditor has also to study the arrangements made by the society to test the quality of milk procured by it.
2. Checking of stock register of milk :- In the case of societies which are engaged in the manufacture of bye-products also, the auditor has to verify the resolutions taken by the Board to ascertain the conversion ratio etc., of each bye-product. The bye-products register should also be checked with the general stock register to satisfy the accuracy.
3. Sale of milk :- Where local sale of milk is being made to different agencies/persons, other than the Kerala Live Stock Development and Milk Marketing Board, the Board resolution has to be examined to ascertain the selling price and other conditions fixed for each type of milk, viz, Buffalo or Cow milk. Where sales have been made deviating from the rates fixed by the Board, the reasons for such deviation should be enquired into. In the case of supplies to the Chilling plants or Central dairy, or milk supply Unions, Kerala Live Stock Development and Milk Marketing Board etc., the Auditor should check at random the slips (milk receipt slips) issued by those institutions to find out whether there are heavy discrepancies between quantity shown as issued in the stock register of the society and those accepted by the agency to which milk has been supplied. In case, instance are noticed, on the heavy cut made by the agencies an account of low quality milk supplied by the society, the auditor has to examine whether the society has taken timely action for remedying such deficiencies.
The Auditor has to obtain confirmation statements from persons/agencies on the outstanding balances under credit sales.
4. Checking of milk value payment register :- The milk value payment register has to be checked to ascertain correctness of the payment of the value of milk to the producers and their acknowledgments. This register has to be checked with the personal ledgers also to ensure whether excess payment has been made to the producers.
5. Coupons :- The auditor should check the coupon accounts minutely. On no account the coupon liability should exceed the milk supplied against such coupons. In other words, the coupon accounts is shown as a liability only after adjustment of the milk supplied against such coupons.
The following are some of the important points that are to be borne in mind while checking coupon accounts.
(i) Arrangements made for printing including machine numbering etc., of coupons and their custody.
(ii) Arrangements for the issue/sale of coupons.
(iii) periodical verification of the stock of coupons by President or other office bearers or by senior officers.
(iv) Accounting system of coupons i.e. whether adjusting entries are passed daily/monthly/quarterly/half-yearly/yearly redeeming the coupons.
(v) Whether redemption of individual coupons are done.
(vi) Test checking of unsold coupons retained in stock.
(vii) Issue as per stock register and those by the sales register.
(viii) Arrangements made for cancellation of coupons to which milk has been issued.
(ix) Finally tally the coupon account with the unredeemed coupon and find out whether there is any discrepancy.

E. AUDIT OF FISHERIES CO-OPERATIVE SOCIETIES

1. Supply of Boats and Fishing equipments on concessional rates :-
(a) Sanction order :- Different types of fishing equipments are supplied to Fishermen Co-operative Societies by Government on concessional or subsidised rates. They include Mechanised boats, country boats, Nylon nets, Nylon yarn, etc., In the case of processing Societies equipments necessary for processing activities are also supplied. In all these cases the auditor has to verify the order sanctioning boats or fishing equipments, as the case may be, and also verify the bond executed by the society to ascertain the terms and conditions of sanction. The date of loan and/or acquisition of the particular asset should be noted and ensured whether it has been properly accounted. In case the machinery or equipments were purchased from outside parties, with Government sanction, the invoice or bill should also be scrutinised.
In the case of mechanised boats the make of engine, its number, length of boat, capacity etc, and in the case of nets, type of net, accessories issued along with it etc., should be verified, In the case of country boats, the Auditor shall see  that the specification in the invoice or bill do correspond with the entries in the books of accounts in all respects.
(b) Loan repayment Register :- The Auditor should verify the register of repayment of loan and see that principal and interest are repaid promptly as required in the sanction order. In case they are not repaid in time, adequate provision should be made for the same. While preparing the profit and less account and Balance sheet the auditor should provide for the subsidy, if any, received and the subsidy shall be shown on the liability side. Subsidy should not be allowed to be distributed.
2. Stock Register :- All purchases should be included in the stock register. The auditor should ensure that the entries in the Boat Account Register correspond with the details in the purchase invoice or bill.
3. Maintenance and repairs to Fishing crafts, net and equipments :- The Auditor has to ascertain the arrangements made for repairs to the fishing crafts and other equipments. In the case of fishing crafts supplied on concessional rates, the order of sanction will also indicate the procedure to be followed in repairing them. The general procedure is that, all major repairs exceeding Rs. 500 are to be got executed through Government boat building yards. In case, major repairs were executed through local work shops, it should be verified whether proper sanction has been obtained from competent authority. The Auditor should ensure that the society maintain a spare parts register and all purchases of spare parts are accounted for properly and their proper utilisation watched by some responsible official of the society. At the same time the method in which the condemned parts are disposed of should also be watched during audit and deficiencies, if any, pointed out.
4. Running expenses :- (a) The running expenses may generally be related to the following.
(i) cost of diesel
(ii) cost of engine oil
(iii) cost of cotton waste
(iv) hauling and launching charges
(v) Miscellaneous expenses including cost of coir ropes wire ropes etc.,
In all the above cases, the auditor should ensure that the vouchers are genuine and related to the particular boat. He should also verify that these expenses, particularly coats of diesel and oil are brought to account in the Long book of the boats also. The Log book should also be verified to ensure, that the running expenses reasonably relate to fishing operations. Each purchase bill must bear the countersignature of the crew of Leader of the boats. In societies owning more than one boat, it may sometimes be found that the society purchases the Diesel, oil etc., in bulk and supplied to individual boats. In such cases the society should maintain a stock register of diesel etc., and issues made only on indents placed by the crews, duly approved by the Secretary/President. The supplies made should also be supported by the acknowledgments of the crew/Leader of the Boat. If oil is purchased on credit the credit balances, if any, should be got confirmed by the party.
(b) Hauling and Launching charges :- The main item of expenditure connected with hauling and launching, are charges paid to contractors and cost of timber for supports while hauled ashore. It should be ensured that proper quotations or tenders were called for such  charges including purchase of timber etc., Purchase of timber should be supported by proper and genuine vouchers and the timber etc. so purchased, be brought to stock, as it could be used for a number of years.
(c) Log Book :- The auditor should verify whether fuel etc. consumed is commensurate with the number of hours worked. Reasons fir abnormal consumption, if any, should be investigated into and commented upon, if any malpractices are suspected. At the close of Fishing operations at the end of the season, the balance of stock of diesel in the tank of the boat should be verified by competent persons and accounted for.
(d) Repairs to country boats :- Running expenses in the case of country boats may be negligible. All purchases in their cases along should be supported by proper and genuine vouchers duly countersigned by the crew leader/Boat master.
5. Checking of Boat Register :- It should be ensured whether the society maintains the Board register, in the form, if any, prescribed. It should contain the name/number of boat, the names of members engaged, leader of the crew engine number, make of engine, date of fishing, place of start, time of arrival, type of net used for fishing etc., oil consumed, quantity and value of fish netted etc. It should be ascertained whether all catches are brought ashore and handed over to the society. He shall also see that the number of persons engaged for each trip is the optimum.
6. Checking of Register of catches and allocation of catches :- The quantity of fish netted as per the ‘Boat Register’ shall agree with the total quantity and value of fish netted as per the Register of catches when boat, net, etc.,  are supplied on concessional or subsidised rates, the agreement will confirm the apportionment of catches.
Usually the division in respect of mechanised boats is as follows:-
(i)   55% as wages to members engaged
(ii)  30% as fund for repayment of loan.
(iii) 10% as compulsory (thrift) deposit of members; and
(iv) 5% as society’s share to meet the contingent expenses. On the other hand, the division or apportionment of catches in respect of mechanised boat is as follows:-
(i)   40% as wages to members engaged in the catch.
(ii)  30% as fund for repayment of loan.
(iii) 20% towards expenses for oil
(iv) 5% thrift for members who engaged in fishing
(v)  5% as society’s share to meet the contingent expenses.
Where there is no definite instructions with regard to the apportionment of catches, it will have to be guided by the provisions of byelaws. Therefore, the auditor should examine apportionment with reference to the resolutions adopted by the committee in this regard.
7. Sale of catches :- Sale of catches should necessarily be made to Fisheries Corporation or to the Regional societies, if any, functioning. In their absence, sale to private parties are permitted in such cases, the auditor should verify the receipts given by the parties indicating the varieties of fish purchased by them. The varieties as indicated in the above receipts should also be compared with the corresponding entries in the Boat register and register of catches. In the case of auction, the auctioners report should also be gone through by the Auditor.

F. AUDIT OF CO-OPERATIVE STORES

1. Double compartmental System :- This system relates to the maintenance of stock by a Co-operative Stores/Society and contemplates that stock in trade of the Stores is divided into “main stock” and “retail stock”. The main stock will be under the custody of the Secretary or some other senior persons specially authorised for the purpose. The custodians of main stock will be unconnected with the sale work. Based on the indents made by the salesman, issues will be made from the main stock. The Auditor has to check a percentage of sales bills so as to ensure that goods are sold only at the retail price fixed from time to time by competent authority. He has also to ensure that the sale price is not boosted so as to reduce the value of stock and the salesman’s liability. He may also ensure that credit, if any, given, for wastage etc., is reasonable.
The retail sales sections will be in charge of one or more salesmen from whom sufficient security is obtained. The issues made from the main stock to the sales sections will be valued at the retail selling price and the salesmen made responsible for value of articles supplied as per their indents. The salesmen has to hand over the daily sales turnover, arrived as per the daily sales book, to the Secretary, immediately after the close of business each day. The amount thus received by the Secretary will be entered in the Cash/Day Book under sales and the liability of the salesman reduced to that extent. Where there are more than one salesman, it is better to fix up joint responsibility on all of them. The stock in the retail section is verified at the end of every month, or at least once in 3 months and the reasons for abnormal deficiency, if any, detected and followed up.
Advantages of double compartmental system :- (i) Depreciation due to wastage and dryage is reduced to the minimum since the main stock is kept in tact.
(ii) Clerical work is considerably reduced, as the cumbersome work of daily classification of sales is dispensed with.
(iii) Defalcation of goods, if any, can be easily detected by reconciling the actual stock with the salesman on a particular day.
(iv) It creates a sense of greater responsibility on the part of the salesman, as he is held responsible for the value of stock handed over to him at selling price.
(v) Stock taking at regular intervals is made very easy, for the major portion of the stock is kept in bulk in the main godown.
(vi) Shortages due to careless handling or over measurement can be easily ascertained by calculating the difference between the salesman’s liability and the value of unsold stock with him on a particular date.
2. Vouching of purchases :- The auditor has to ascertain the system of purchase followed by the Stores. As soon as a particular stock is exhausted, the godown-keeper has to prepare a list of articles to be purchased and send it to the responsible officer of the Society. He should study the list and place the same before the Purchase Committee to decide about the quantity, and the source from where the articles are to be purchased. When the purchase committee gives its approval arrangements are made to place orders with the suppliers. Approved purchase orders from the printed ‘Order Book’ should be issued for all purchases made or supplies ordered. If oral orders are issued or orders are booked over phone, they  should be confirmed by issuing a regular order from the printed ‘Order Book’.
When the goods are received the Godown-keeper should verify the quantity received with reference to the invoices and the particulars should be noted in the ‘Goods Inward’s Register’. The ledger section on receipt of the note of the godown-keeper with the invoices, will verify the calculations, etc., and pass it on to the Secretary for orders of payment. After ensuring accuracy of calculations and receipt of goods in the godown, the Secretary will pass the invoice for payment.
The auditor should satisfy himself about the system of internal check in existence. He should also see that payment is made to the suppliers only after proper checking and scrutiny. In the case of credit purchases, the auditor should be careful to see that the credit bills are transacted properly and correctly. The possibilities of presenting Credit Bills as cash bills should be avoided.
3. Vouching of Sales :- For every sale, a sales chit or cash memo should be issued by the salesman. At the close of the day the salesman should record all sales in his Daily sale Register and the total of the sales register is taken to the Day Book representing the total sales of the day. The Auditor should check the entries in the Daily Sales Register with the cash memos and then the total sales in the day book. The posting from the Daily sales Register to the Day Book has to be checked fully. In the absence of any internal audit, the auditor should check the sales chits completely. While checking the sales chits he should satisfy himself that sales have been effected as per the retail price fixed by the Stores. The retail prices are usually fixed by the purchase committee with reference to the market trend and also the cost of articles, etc. Any change in the retail price has to be effected by the purchase committee, if functioning.
Every Stores should exercise strict control over the issue of blank cash memo books. Proper accounts are to be maintained in respect of the cash memos printed. A ‘Register of cash memo books received should also be maintained.
4. Vouching of incidental charges :- Expenditure incurred, viz. Railway freight, cartage, T.A etc. in connection with the purchases have to be examined carefully. The auditor has to satisfy himself about the genuineness and reasonableness of the expenditure. Where several kinds of articles are received in one consignment, the expenditure incidental has to be apportioned approximately between the various items for purposes of fixing the selling price.
5. Vouching Stock Register, Price Fixation Register :- (a) Stock Register :- The Stock Register has to be checked with the invoices and cash bills for receipt of goods. The auditor has to ensure that the dates of purchase, quantity purchased and the weight or measure of unit as is noted in the invoice are entered in the Stock Register. The salesman’s indent has to be verified to ascertain the correctness of issue of articles from the godown. The issues as per the Stock Register and the salesman’s indent should agree. In the case of issues in bulk the auditor should check the wholesale sales or cash bills with the stock register. The balance of each entry should be checked in order to ascertain the correctness of the stock register. At the end of the checking, the auditor should total the item-war quantity of receipts and issues for the year in the stock register and verify whether the opening stock plus purchases during the year, tallies with the closing stock plus issues and sales.
(b) Price Fixation Register :- As explained earlier the selling, price is fixed by the purchase committee. The committee will fix the price of each article taking into account the charges incidental to the purchase of such articles. Instead of maintaining a separate price fixation Register a combined purchase and price fixation register may be maintained. In certain Stores, the purchase Register itself is being maintained in two parts one part under the heading purchase price and the other sale price. Each invoice is entered in one line. On the left hand side is recorded the cost price and on the right hand side the sale price of the articles. This Register has to be checked with the invoices, and should be seen that selling prices are correctly calculated.
6. Vouching of Salesman’s Liability Register :- Salesman’s Liability Register has to be checked with salesman’s indent and also Daily Sales Chitta. The auditor should check the additions and subtractions and ensure the correctness of the balance arrived at. The result of monthly or quarterly Stock verification has to be recorded in this register and the amount of deficit or excess over the liability disclosed should be recorded in the register. The signature of the salesman for each entry in the Register and also for the closing balance of each month should be obtained. The auditor should also verify whether the stores has initiated appropriate action for the realisation of the deficit.
7. System of Trade Deposits :- Sales are mostly for cash. Credit sales should be allowed only on the basis of specific provisions in the bylaws of the society. To obviate the difficulty of the members paying cash now and then, they are allowed to maintain trade deposit with the society to purchase articles from the society against this deposit. The purchase as and when effected is debited against this Trade Deposit Account. The amount drawn out of this is recouped at the beginning of the next month. The auditor should vouch the register with reference to the cash receipts and also the concerned bills and see whether the balances are correctly struck. The pass books supplied to the members may be called for and checked at random.
8. Vouching the Register of bonus on purchases :- Section 56 (2) (b) of the K.C.S. Act 1969, provides that a society may, out of its net profit, after providing for statutory reserves, set apart a portion of the net profit for the payment of bonus to its members on the amount or volume of business done by them with the society; to the extent and in the manner specified in the bylaws of the society. The percentage of bonus payable will be decided by the General Body every year, subject to the limit prescribed in the bylaws. The purchases effected by each member are to be entered in a Register called the ‘Register of Bonus on purchases’. The bonus at the rates declared is worked out with reference to the total purchases made by each member. The auditor should see to the correctness of the figures arrived at, and ensure whether they are in accordance with the Rules and whether the distribution is made properly.
9. Register of empties :- Goods are received in various kinds of containers, such as gunny bags, boxes or tins, etc. The empties should be properly accounted for both by the godown-keeper and the retail section. Whenever goods are received the concerned empties folio should be posted as to the number of empties received. In cases where empties are to be returned to the suppliers, the empties account can be posted for returns on receipt of the credit note from the supplier. The empties which are not returnable can be disposed of on proper resolution of the Board of Directors. The auditor should verify the entries in the Register with reference to the inward invoices, credit notes, sales chits, etc. and see whether the sales have been effected on proper sanction. 
10. Vouching of Member’s Credit Purchase Register :- Invariably in all employees’ Co-operative stores credit sales are allowed to its members. The bylaws of such societies provide for the maximum amount, in relation to the Salary/Wages. In such cases, the auditor will verify whether the maximum limit fixed in the bylaws is being adhered to  strictly in allowing credit sales to its members. He should also examine whether the amount under credit sales is being recovered regularly and that proper action has been taken for the realisation of arrears, if any. As far as possible the auditor should get confirmation, as on the last day about the balance, from the members. A few pass books on the possession of the members may be called for at random, and the entries therein compared with the account of the member as per the ledger.
11. Returns of goods :- When goods received as per orders are to be returned to the suppliers due to some irregularity in the supply, viz, inferior in quality or damaged, or not according to sample, a debit note should be sent to the supplier and his account debited with the amount involved in the invoice.
12. Goods issued Register :- The godown-keeper should maintain separate ‘Goods Issued Register’ for each branch or section of the society. Goods issued to the branches or sections should be supported by “Goods Issued Notes” or “Delivery Chalan” issued by the Godown-keeper. The goods issued notes or delivery chalans contain the sale price of the articles, which will be entered in the Salesman’s liability Register. The auditor should verify whether both the goods Issued Register and the Salesman’s Liability Register are written upto-date.
13. Issue of Stock for retail sales :- Supply of stocks from the godown to the retail shops/branch Manager or Salesman in charge. The godown keeper should have also obtained the signature of the Breach Manager or Salesman, on the ‘Goods Issued Note’ or “Delivery Chalan’. A copy of  the above Note or Chalan should be se to the accounts department which maintains the Salesman’s Liability Register.
14. Prepacking of goods :- All commodities received in bulk are packed in convenient packers in different weights, and displayed on the counter or kept on the rack. In order to watch the proper utilisation of articles received in bulk and converted to packets, it is necessary that the Society maintains a ‘Conversion Register’. This Register with contain particulars such as number of bags or other bulk containers opened and converted into packages of convenient sizes, the number of different sizes of packets in to which the contents have been packed, etc. The auditor should check this Register exhaustively and shortages, if any, should be indicated.
15. Price Variation :- Sale price fixed at the time of receipt of goods has to be changed according to the market conditions, variations in the rates of tax or duty, etc. In order to note the variation in price a “Price Fluctuation Register” has to be maintained. Credit/debit slips vouchers should be prepared for every article whose selling price has been revised.
16. Return of goods to godown :- When goods supplied to the branches/retail shoes are returned by them, they should be entered in the Returns Inward Register by the godown-keeper, in accordance with the goods Return of Notes given by the constituent branches /retail shops. A copy of the goods returned notes should also be sent to the Accounts Department for effecting necessary adjustments. A notice about the adjustment should also be made in the goods issue and stock register and on the original Bill or Issue Note.
17. Business Management :- While auditing the accounts of Consumer Stores, the auditors should consider the following points viz-
(a) Employment of funds :- The investment of funds in circulating and non-circulating assets should be studied. If the investment is disproportionately large in non-circulating assets such as lands and buildings, furniture, fixtures. etc, the auditor should make suitable comments on it.
(b) Management :- Adoption of scientific methods of control over purchases and sales, inventory control including adequacy of arrangements made for periodical stock taking, etc. should be examined.
(c) Budgetary control :- Quarterly, half-yearly and yearly targets should be fixed for purchases and sales. The expenditure should be regulated within the budget.
(d) Supervision over branches :- The arrangements made for supervision of branches and sales depots, maintenance of proper accounts, reconciliation of head office accounts, etc. should be seen. If found necessary suggestions for improvement should be given.
(e) Management accounts :- Periodical reports should be obtained from the branches/sales depots/department, on purchases, sales and stock, and should be considered by the Committee. The working results should also be reviewed periodically in order to arrest unhealthy developments, if any, in time.
(f) Government assistance :- Proper utilisation of financial assistance from Government and prompt repayment of such assistance and other borrowings should be commented upon.
(g) Accounts :- It should be seen that the price fluctuation register and the salesman’s Liability Register are always maintained up to-date.
G. AUDIT OF MARKETING SOCIETIES

1. Activities undertaken :- Co-operative Marketing Societies confine their business in arranging the marketing of produce of their members, advancing loans on the pledge of produce, distribution of fertilizers and agricultural implements, etc In addition to the above, many of the marketing societies, undertake a number of other activities also. The auditor should, therefore, carefully study the byelaws of the society to examine whether the society is engaged in any other activity as was not contemplated in the bylaws. If any activities, which are not permitted in the bylaws are undertaken, the auditor has to appraise the Board of Directors of their liability for the irregular or unauthorised transaction so undertaken. Separate, accounts are to be maintained for the various activities undertaken by the Society.
2. Marketing of Agricultural produce :- The Society should have obtained necessary licence to function as General Commission Agent. An arrival Register is to be maintained to record the receipt of agricultural produce. Receipts of agricultural produce received for sale should be checked from the receipts issued and the entries made in the Arrival Register and the weighment slips. Sales should be checked from the Auction Register and  also the sale agreements and weighment slips. A daily sale Register is to be maintained from which postings in to the personal accounts of the customers and the merchants who base bought the produce can be checked. Cash payments of sale proceeds to the customers should be checked from the ‘Account Sales” and the payment slips.
Entries in the register of sale agreements should be checked from sale agreements. Entries from the register of sale agreements should be carried over into the Daily Sale Register. Postings from this register should be seen into personal accounts of customers. Cash payments may be checked with payment slips.
3. Out-right purchases :- There should be provision in the bylaws, enabling the society to make out-right purchases. It should be seen that the amount invested in out-right purchases does not exceed the limit’ if any, fixed in bylaws. Every effort should be made to ensure that all purchases and sales made on behalf of the society in its name are genuine. Arrangements made for the proper storage of the goods pending resale should be ascertained. All goods belonging to the society should have proper and sufficient insurance cover.
4. Pooling and grading :- All produce received for being pooled should be entered in the ‘Pool Register’. Entries in this register have to be checked with the “Goods Received Reports” the weighment slips and the counterfoils of receipts issued to the member. The auditor should ascertain the arrangements made for grading the produce according to trade qualities. When sufficient quantities are collected, the date for holding the auction should be fixed and the produce sold in auction after giving due publicity. The auditor should carefully examine the auctioner’s report and concerned papers.
The expenses incurred and the commission earned by the society are deducted from the sale proceeds and the average price or pooled price is calculated. Members are paid at pooled rates. The auditor should examine whether advances, if any, made are deducted at the time of final settlement of accounts. If produce received for sale is processed before it is sold, it will enable the members to realize better prices for the produce. Where processing activities are undertaken by Marketing Societies, it should be seen that processing activities are treated as separate units and separate accounts are maintained.
5. Payment of advances pending sales :- There may be instances when advances are to be paid to the producer members pending sale of their produce. The auditor should verify the bylaws of the Society and see whether advances are paid in excess of the limit prescribed in the bylaws. It should be seen that advances are recovered at the time of finally settling the accounts. Regular vouchers should be obtained for payment of expenses such as transport charges, market cess etc. The auditor should verify the application for advances and agreements executed by the borrowers.
6. Linking of credit with marketing :- It is expected that every borrower from an agricultural credit society sells his produce through the Co-operative Marketing Society to which the Credit Society is affiliated and agrees to allow the marketing society to deduct the credit society’s dues from the sale proceeds. The marketing society at the time of payment of sale proceeds, deducts the dues to the society.
7. Hiring of Tractors, ploughs and other Agricultural machinery :- Some of the marketing societies are hiring out tractors, ploughs and other agricultural machinery to its members. Such societies have to maintain a Machinery Hire Charge Register, showing the name of person hiring, date on which hired dated of return, rate of hire charges, hire charges due, hire charges recovered, balance, if any, etc. It should be seen that the bills for hire charges are prepared promptly and recoveries made without delay.
The auditor during audit should check the receipt of hire charges from the Machinery Hire Register. Machinery Register should be checked to ensure that hire charges are collected for all the days the particular machinery was hired out.
8. Verification of stock :- All stocks in possession and those pledged with the society should be verified physically, at the close of every Co-operative year. Shortages and driages are to be properly enquired into.
9. Advances against produce or goods :- Subject to the provision in the bye-laws, a society may make advances against the produce or goods pledged or hypothecated to the society. In such cases the Auditor should examine whether, the advances made for different produces are within the margin fixed by the Board of Directors or Central Bank. It should also be ensured that the advances made on the security of produce are closed within the period fixed in the bye-laws. The produces stored with the society should be insured at a reasonable market rate, against fire and burglary at the cost of the members. Auditor should also verify whether the produce or goods so deposited are stored in such a way as to prevent deterioration. He should also see whether periodical checking of stock in done by the management and result recorded and follow up action taken. He should also ensure whether the society is vigilant on the fluctuation, if any, in the market rates of the commodities so as to take quick action in case the market price goes far below the advanced rate.
10. Unauthorised advances :- Payment of unauthorised advances is highly irregular and tantamounts to temporary mis-application of money. The auditor should note down such cases of mis-application of money and suggest appropriate action.

H. AUDIT OF CO-OPERATIVE FRAMING SOCIETIES

1. Pooling of land :- In a Joint Farming Society owner occupants of agricultural lands agree to pool their land for purposes of common cultivation. Agreements are executed by the members, agreeing to pool their lands in the form prescribed in the bye-laws. Every farming society should maintain a “Register of Lands Pooled”. This is the basic Register and will contain full particulars of the lands pooled, dates of pooling, period of pooling, the dates of execution of agreements, registration of mortgage deeds, the value on the date of pooling, number and date of general body resolution fixing the valuation and the capital expenditure incurred by the society for its improvements and the members signature. At the top of each folio, the name and admission number of the member, the total extent of lands pooled by him, and the name of the revenue village in which they are situated should be entered. The entries in the lands pooled Register should be checked with the agreements executed by the members.
2. Register of improvements to lands pooled :- The Register contain particulars, such as, description of land taken up for improvement, nature of improvement, the estimated cost of work, dates of commencement and date of completion of work, and the actual cost of improvement. Before undertaking any development work, plans and estimates are required to be prepared and approved. The cost of improvement has to be apportioned on between the different plots which have been benefited by the improvement. The cost of the improvement apportioned to a particular plot has to be debited against the member and it has to be recovered from him.
3. Programme of cultivation :- A cropping programme will have to be prepared and adopted by the general body. The general body has also to decide the method of organisation of teams or groups according to plots, crops or operations, appointment of group leaders, fixation of scales of wages for different operations and for different categories of workers and allied matters. A production committee is also to be appointed to supervise the farm operations, during cultivation.
4. Payment of wages :- Wages are usually paid on daily basis, although for certain operations, such as sowing, harvesting, etc. piece wages may be paid The society has to maintain muster rolls according to plots, or crops and pay wages on the basis of attendance or quantum of output of work. Daily cultivation sheets showing plot numbers and crops sown, labour engaged, and other equipments used are filled in daily and entries made in the consolidated cultivation register. It is from this register that the cost of cultivation is to be ascertained. The auditor has to check the payment of wages from Muster, acquittance rolls, Daily labour sheets, etc. The job-wise register of engines and tractors should be checked with daily cultivation sheets.
5. Purchase of fertilizers, seeds chemicals, etc :- A purchase register showing seeds, manure, chemicals, pesticides and other materials purchased for farm work should be maintained. An issue register showing issues of different kinds of materials and operations and to which their cost is to be debited should be maintained. The purchase register can be checked with invoices and stock register. The closing stock has also to be verified.
6. Classification Account :- The register is to be maintained with separate folios for each crop, the cultivation of which is undertaken by the society at a time or during one season. The cultivation account has to be closed for each crop as soon as the harvesting is completed. An abstract will be prepared indicating the total value of the harvested produce, the total cost of cultivation and the gross income from the crop.
7. Harvesting of crops :- A. General :- When the crops are ripe, the harvesting should be done in the presence of committee members. A note regarding measurement or weighment of crops harvested may be taken in the proceedings of the managing committee. After measurement  or weighment, the crops harvested should be taken to stock. Notice regarding harvesting, weighing or measuring should be given to the members.
B. Marketing of produce :- Such portion of the produce, after meeting the requirements of the members should be sold, preferably, through a Co-operative agency.
C. Valuation of standing crops :- The entire expenses incurred over the new crops upto the date of the balance sheet should be shown as the value of the standing crops.
D. Valuation of agricultural produce :- Produce harvested should be valued at selling price (ie. at prevailing market price) after making necessary adjustments towards expenses to be incurred for marketing the produce.
E. Valuation of live-stock :- Every animal should be valued according to its age and usefulness. While valuing the live-stock, the prevailing market rate should also be considered.
8. Register of apportionment of wages paid :- The total wages paid for a week as disclosed by the muster roll is apportioned among the following items:-
(i) Capital expenditure (Reclamation, etc.)
(ii) Cultivation account.
(iii) Maintenance of bulls.
(iv) Working of pump-sets and.
(v) Other sundry items of miscellaneous work.
The expenditure as apportioned above is taken to the appropriate account maintained for each item.
9. Register of land dividend and Bonus paid :- It contains the admission numbers and names of the members, the extent of lands pooled by them, their value, rate of land dividend declared, amount payable as land dividend, total wages earned by the members, the rate of bonus on wages declared and the amount payable as bonus, the total of land dividend and bonus according to the members, the date of payment with cash book folio and the signature of the payee. The general body resolutions declaring the payment of land dividend and bonus should be verified.
10. Daily record sheet :- The object of this register is to give at a glance information about the farm in all its aspects viz, participation by members in the farm operations, adequacy of labour force, condition of the standing crops etc.

I. AUDIT OF WEAVERS’ CO-OPERATIVE SOCIETIES

Weavers’ Co-operative Societies generally undertake all or any of the following activities.
1. Supply activities :- Purchase and sale of yarn, dyes and chemicals, shuttles and other spare parts, etc.
2. Production activities :- Production of cloth and running of handlooms and power looms and providing employment to its members.
3. Processing activities :- Dying of yarn, bleaching and dying of finished cloth.
4. Marketing activities :- Purchase and sale of handloom cloth and running of sales depots.
5. Credit activities :- Provide loans to its members for the purchase of power looms, tools and equipment such as shuttles, bobbins, etc.
The auditor should study the objects clauses of the bylaws and satisfy himself that the activities undertaken by the society are within the purview of its bylaws.
1. Supply activities :- Sources of supplies should be ascertained and in should be seen that as far as possible all purchases of raw materials and other requisites are made from the Kerala State Handloom Weavers’ Co-operative Society. Only when supplies are not available with the Apex Society, purchases should be made from outside.
For the purchase and supply of raw materials to its members the society should get indents from them and purchases should be effected considering their requirements for a month. Invoices and bills received from the suppliers should be checked in order to check whether the discount and rebate received are accounted or not. Case when purchases are made on credit, the auditor should check the accounts of creditors. Credit balances outstanding at the close of the year should be got confirmed. All stocks in the possession of the society should be insured and proper control exercised over the receipts and issues of stocks from the godown. Stocks should be verified as at the close of the accounting year.
Two watch the proper distribution of raw materials the society should maintain register showing the selling price. Where sales have been made on credit, the auditor should see the provisions of bylaws permitting credit sales. The bills or credit memos should, be checked and total credit sales agreed with the total amount outstanding against debtors. Cash sales should be checked with the cash memos issued. Entries in the stock register should also be checked.
2. Production activities :- The committee should prepare an annual production scheme and it should be got approved by the General Body. The production scheme envisages two types of production methods. They are.-
(a) yarn of the required counts as also staple yarn and other requisites are issued to members and they weave the cloth in their houses and bring the finished cloth to the society; and.
(b) The society runs the factory and works its own handloom and power looms. In this case, master weavers are appointed to supervise the work.
Detailed manufacturing instructions should be issued irrespective of whether goods are to be manufactured against orders received or for stock. The auditor should also check the “costing Register” maintained.
A register of tools and equipments should be maintained. Societies which have installed power-looms should maintain “Machinery Register” also.
If wages are paid on piece rate basis, arrangements made for measuring cloth and inspecting its quality or grade and method adopted for the fixation of purchase from the producer members should be examined carefully. Where the producer-members are paid only wages, it should be seen that a system of payment on piece rate basis is adopted. In such cases, it should be seen whether the rates of wages are fixed according to counts of yearn, design, and width of border, weaving pattern design, etc.
3. Processing activities :- Where yarn or finished goods are dyed before issue or sale, accounts of colours and chemicals used and of other expenses, should be checked by the auditor. It should bee seen that cost of dying is properly added to the selling price of yarn or finished goods. Where the society has no dying house, the work of dying is to be got undertaken through co-operative institution, if available.
4. Marketing activities :- Sale of finished goods should be made through the Kerala Handloom Weaver’s Apex Co-operative Society only. Direct sales, can be made to other Primary or wholesale Co-operative institutions and to Government/quasi Government departments. The invoices of such sales should be checked with the stock register.
Separate accounts are to be maintained in respect of the wholesale sales and retail sales. Total quantity of different varieties of cloth produced and purchased from members should be checked with the quantities shown as sold, where goods have been sent on consignment basis, account sales received from them should be checked. Certificates should be obtained from consignees regarding quantity and stock of different varieties held by them. The stocks with consignees should be included in the closing stock at cost price.
With regard to retail sales, cash memos should be checked with the daily sale register and the sale register with the day book. It should be seen that rebates allowed to customers are calculated correctly.
5. Credit activities :- Subject to the provisions in the bylaws some societies advance loans to its members for the purchase  of power looms, took, and equipments such as shuttles, bobbins, etc. The auditor should examine the loan application with the issue of loans.
6. Costing Register :- The auditor has to verify the costing register and see that the cost of finished products is fixed taking in to account the cost of raw materials (yearns dyes etc.) labour etc. and adding a percentage of profit margin with the actual cost.
J. AUDIT OF CO-OPERATIVE SPINNING MILLS

To audit the accounts of Co-operative Spinning Mills, the auditor has to completely acquaint himself with the various stages of processing.
The following registers are maintained as regards cotton purchases, is use and stock.
1. Cotton lot book :- Purchase of cotton in lots is entered in the register. So also the issue of cotton for mixing is also entered in the same register.
2. Mixing book :- This is intended to denote the variety, the lot number from which the issue is made and quantity received with weight. The percentage of each variety used for one mixture is also arrived and noted in this register.
3. Cotton stock Register :- The stock register of cotton gives the balance of stock on hand every day, variety-way.
4. Blow loom lap register :- This register is maintained to show the number of laps produced per day.
5. Preparatory Section :- (a) Drawing Hanks Production Register :- This register is maintained to exhibit the total number of hanks produced per day in both the shifts.
(b) Hanks Production Register :- This is a register supplementary to the Drawing Hanks Production Register and gives details of the cotton hanks processing.
(c) Drawing Wrapping Register :- (d) Sample Wrapping Register :- These registers are maintained to enter the strength of slivers whenever tested and show whether the standard is maintained throughout.
6. Spinning Section :- (a) Yarn Production Doff Weighment Register :- This gives information regarding the production of yarn per shift per frame per day and gives gross weight and net weight.
(b) Unreeled yarn stock Register :- This register is posted from yarn production register with the quantity produced per day and the quantity issued for reeling per day and also the balance of unreeled yarn at the close of each day.
(c) Hanks Production Register :- The figures as shown in the indicator of the machine is recorded in this register.
(d) Pneumofil Waste Chitta :- Gives details of the waste of cotton in the frames worker-war daily. The acknowledgment of the worker is obtained in the Register as having accepted the quantity as correct.
(e) Pneumofil Wage Percentage Register :- This register furnishes details of total percentage of waste cotton per shift per frame. A commission is given to each worker it the waste is less than a fixed per cent.
(f) Spinning Production Commission Register :- A commission is usually given to the worker every week, as an incentive for the production of yarn over and above the standard weight fixed. The Register is maintained to arrive at the above commission.
7. Reeling Section :-
(a) Doff Receipt Register.
(b) Main Doff Register :- These Registers give the total production per shift per day and also the total monthly production by each worker.
(c) Monthly Wages Register :- This Register is posted from the doff Register and gives details of total doffs produced by each worker and also the wages due to him.
(d) Reeled Yarn Stock Register :- This gives details of daily receipt and issue to bundling section and also discloses the closing, stock every day.
8. Bundling Section (a) Bundling Production Register :- The receipt of yarn from the Reeled Yarn Stock Register is posted in this Register and also the number of bundles produced per day.
(b) Bundle Yarn Stock Register :- The total receipt of bundles in entered from the Bundle Production Register and after entering the issue of bundles daily to Bale Section, the balance as on the close of the day is arrived at both in number and in weight.
(c) Bale Stock Register :- It gives details of the opening balance of each day, receipts and issues for sale per day together with the closing balance of stock on hand in bales.
The auditor should carefully go through the bylaws of the society. He should enquire the practice and system of effecting purchases of raw materials like cotton. In respect of the purchase of stores the requirements should be passed by the factory Manager and then orders placed for purchases. In such cases the auditor should verify whether the purchases are approved by competent authority and are in accordance with the subsidiary regulations framed for that purpose. The auditor should verify whether arrangements are made to tall the balance of stocks, Stores register with the priced stock ledger maintained.

K. AUDIT OF OTHER SPECIAL TYPES SOCIETIES

1 (1) Motor Transport Societies :- In auditing the accounts of Motor Transport Societies, the Auditor has to devote more attention to the following points, viz.
(a) On the accounting of daily collections of the vehicles,
(b) On the cost of repairs and renewals; and
(c) On the proper maintenance of spare parts and tools.
In order to examine the daily collections, the Auditor has to examine the following records also:-
(i) Trip Card
(ii) Chalan of remittance
(iii) Vehicle (Bus) collection Register.
The trip card contains the vehicle (Bus) number, date., etc. and also provides columns for recording the number of tickets sold denomination war. It is by means of this card that the Conductor works out the total number of tickets sold. The collection of a day is remitted to the Society by means of a chalan.
Vehicle (Bus) Collection Register is opened with the chalan of remittance, and is intended to record the daily collections of all the vehicles (Buses) and batta, etc. paid to the operating staff. It is from this register, that total collection of the day  is posted to the Day Book. The Vehicle (Bus) Collection Register contains columns for vehicle (Bus) number, Date, Shift number, chalan number, amount name of the Conductor and Driver, batta, etc, paid to them, etc.
In the case of lorry services, the rate is fixed per Kilometer. To hire a lorry, the parties have to book the lorry by paying an advance, After the transporting is completed the lorry driver can receive the balance of hire charges, and issue a temporary receipt for the balance amount. The collections during return trip can be made by the driver, by issuing temporary receipt. The collections by the lorry driver have to be verified with reference to the duplicate of the temporary receipt book, trip sheet, etc. The Society has to issue regular or permanent receipt thereafter. The Auditor has to check the daily collections of buses and lorries very carefully.
In the case of societies which run-workshops, indents for the supply of spare parts for the repairs of the vehicles should be signed by the Foreman. The replaced or condemned parts should be accounted for separately. The Auditor has to vouch the issue of spare parts with reference to the concerned ledgers, viz. the Stock Ledger, etc.
The Stock Register has to be checked with the indents and the log books of the concerned vehicles. The stocks have to be verified on the close of the accounting year.
With regard to consumption of petrol or oil, it varies from vehicle to vehicle and depends on the age of the vehicle. The Auditor has to compare the consumption of fuel, with reference to that of the previous year. The society should send the vehicles for mileage test to the competent authority in time. If the study of log book reveals any sudden increase in the consumption of fuel for a particular period the matter should be examined in detail and ascertained as to whether there is any convincing reason for the same.
2. Labour Contract Societies :- Labour Contract Societies take contract of work and execute the same directly employing members on piece work basis/on daily wages or by giving sub contract to groups of members. The Society may be executing a number of works at a time. In order to enable the auditors and other authorities to study the economics of each work the societies have to maintain separate accounts in respect of cash work. In the register maintained for the purpose, separate pages will be allotted to record the transactions in respect of each work. It will contain details such as the nature of work, estimate, nature of execution, amount spent, margin of profit etc. The auditor has to check this register critically and note delays in the execution of work and ascertain as to whether there is any violation of conditions on which the work is undertaken. The auditor should study whether the society employs its members in the execution of work and examine whether the members are really benefited.
Under the Special Employment Programme, a number of labour contract societies have been organised. Financial assistance by way of share capital contribution and managerial subsidy are provided to these societies by Government and the Kerala Employment Promotion Corporation. As per the existing pattern of assistance, share capital contribution of Rs. 5,000 and managerial subsidy  of Rs. 6,270 are available to these societies. The Societies which have availed these assistance should maintain separate register to record these assistances. The auditor should check this register, with reference to the orders sanctioning the assistance, utilisation etc.
3. Employees’ Co-operative Credit Societies :- Employees Credit Societies advance loans for non-agricultural purposes. The auditor has to examine the bylaws of the society to ascertain the purposes for which loans can be sanctioned, the individual maximum borrowing power, maximum loan permissible, etc. etc.
(1) Sanction of loans :- Loan applications received should be entered in the Register kept for the purpose. The auditor has to examine the loan applications with the relevant records maintained by the Society and the details such as the amount of shares held by the member, balance of existing loans, if any, liability of surety, etc. The member’s credit worthiness and the Liability Register should also be examined while scrutinising the application for loans. It should be seen whether individual and total limits fixed for different types of loans as per bylaws have been exceeded. Loan applications and loan bonds should be checked carefully and it should be ensured that no unauthorised corrections are made therein.
(2) Disbursement of loans :- As far as possible, disbursement of loans should be made by means of cheques. If, in any case, loans are disbursed in cash, the auditor has to see whether the borrower has been properly identified and the payment made in the presence of one Committee member/two reliable witnesses.
(3) Recovery of dues by the Society :- Section 37 of the K.C.S. Act, empowers the pay disbursing officer to recover any dues payable to the society, provided the member concerned has executed an agreement in the form prescribed under the Act, authorising the pay disbursing officer to recover the dues of the society. Monthly recovery sheets sent to the employer showing dues to the society under different heads to be recovered from the salary/wages of the member should be checked and the total amount of recoveries posted in the individual accounts should be reconciled with the total recovery remitted to the society by the employer. It should be ensured that a regular receipt from the printed Receipt Book has been issued to the employer for the amounts received from him. Signature of the person  paying the amount on behalf of the employer should be obtained preferably on the back of the carbon copy of the receipt issued. Even in cases where remittances are sent direct to Bank for credit to the account of the society, official receipt should be issued by the Society.
(4) Preparations of overdue debts :- After preparing a detailed list of overdue debts, the auditor has to check the Arbitration Register in order to ascertain the progress in the recovery of overdues. Classification of overdue debts into good, doubtful and bad should be properly made, and adequate provision made in the audit certificate for bad and doubtful debts. Overdues should also be classified year-wise and according to the security available, nature of realisability, etc. etc.
4. Co-operative Sugar Factories/Mills :- Before commencement of audit, the auditor has to familiarise with the various books of accounts and records that are maintained by Co-operative Sugar Factories/Mills, the nature of their transactions, method of accounting etc. The undermentioned books of accounts are some of the most important records that are to be specially checked by the auditor.
1. MAIN SECTION (ACCOUNTS)
1. Day Book :- This is to be maintained according to the double entry system of book keeping with columns to record all the daily transactions of cash and total of adjustment (transfer) as per receipts and vouchers and credit entries of daily totals of subsidiary registers.
2. Journals :- There journals are maintained viz., purchase journal, sales journal and journal proper.
(i) Purchase Journal :
All purchases of store materials other than sugarcane, are entered in this journal. The Auditor has to check the paid bills and their adjustments with this journal and ensure that all the bills have been correctly entered therein.
(ii) Sales Journal :
The invoices of materials sold viz, sugar, molasses etc., are entered in this journal. The Auditor has to check the invoices with this register.
(iii) Journal proper :
All adjustments of accounts other than those entered in the purchase and sales journals are entered in this register. The journal proper is mainly intended for passing transfer entries, closing entries of accounts, rectification entries etc. The Auditor has to check the journal slips (formal vouchers) with the journal entries and has also to cross check the entries with ledgers.
3. Ledger :- Three important ledgers are maintained viz, (i) General Ledger; (ii) Personal Ledger; and (iii) Expense Ledger.
4. Care payment Register :- This is intended to record details of cane supplied by ryots/members, its value and final payments to them after due deductions of advances, loans etc., if any.
5. N.R.D. Register :- This shows details of collection of non-refundable deposits from ryots and interest due thereon at the close of every year.
6. Molasses and Press mud Stock Register :- This shows details of the production, issue and balance of each item.
II. CANE SECTION
The following are the important registers kept in Cane Section :
1. Planting register.
2. Agreement register.
3. Month -war register of cane supply.
4. Cutting order register.
5. Cane purchase register.
III. STORES AND MANUFACTURING SECTION
(a) Stores :
(i) Cardex :- This shows the opening stock, purchases, issues and closing balance of each individual item of store stock.
(ii) Bin Card :- Particulars of stock with balance as on date.
(b) Manufacturing :
(i) Daily manufacturing report :- Daily arrival of cane, cane crushed, yard balance, production of sugar, sugar in process, molasses and other bye-products and on process, fuel, firewood, and other chemicals used, percentage of recovery etc., are entered in this register.
(ii) Sugar stock register :
IV. DISTILLERY
Co-operative Sugar Mills/Factories which have distillery units, will have to maintain the following registers:-
1. D3 - Molasses stock register.
2. D3 (b) - Production, attienuation efficiency register.
3. D5 - Stock register of each finished good.
4. D4 - Production registers of day receivers.
5. Raw material stock register.
6. Vending fee register.
The Auditor has also to check the mustor roll of the labourers, and their acquittance, Expenses Ledger, Cost of Production Register, Cane Production Register, purchases of ryots who are supplying cane etc. He may also call for confirmation certificates from the members/ryots who are supplying cane to verify the balance, if any, due to them. The Auditor has also to ensure that efficient systems for internal checking and for internal audit of accounts are in vogue in the society. He may also qualify his report with suggestions, if any, for reduction in the cost of production of the end products.
5. Primary Land Mortgage Banks :- Besides checking general aspects concerning the working of the Bank, the Auditor has to check the following aspects also.
(1) Loan Application Register :- The Auditor should ensure that the Bank keeps a record of all loans application received and that such loan applications are disposed of as expeditiously as possible. Instances of long delay without valid reasons should be enquired into and cases, if any, pointed out to the Managing Committee for action. Through scrutiny is also necessary as to the proper accounting of administrative charges, legal fees, fee for encumbrance certificate etc., realised from the loanees.
(2) Scrutiny of loan applications :- All papers connected with sanction of loan, are to be thoroughly examined. The following aspects deserve special attention
(i) Whether legal opinion has been obtained as regards clear, title, previous encumbrance of the property etc., and the borrower’s right to create a charge on the property, its marketability etc.,
(ii) Whether certificate of the Village Officer has been obtained as to the possession and enjoyment of the property by the borrower.
(iii) Whether a realistic assessment of the income and repaying capacity of the borrower has been made.
(iv) Whether the Bank has obtained valuation and final report of the valuation Inspector and that the Bank has advanced loans only in proportion to the value of the land and within the limit prescribed in the bye-laws of the Bank.
(v) Whether final sanction of the loan has been given by the Managing Committee/Executive Committee for purposes specified in the bye-laws of the Bank.
(vi) Whether the Bank has obtained mortgage deed and other connected documents duly examine by the borrower as per rules.
(3) Borrowings from Central Land Mortgage Banks :- The Auditor has to examine the day book, borrowing ledger, loan sanction orders etc., and see that all loans issued by Central Bank have been properly accounted in the books and that amounts drawn has been utilised for disbursement of loans according to the loan sanction order. The timely repayment of installments to the Central Bank should also be looked into. Instances of diversion of funds and delay in refunding the undisbursed loan portion to the Central Bank, should be pointed out. He should also verify whether the loans closed at the primary bank level have been closed at the Central Bank also.
(4) Verification of utilisation of loans :- In cases where loans are required to be disbursed in installments, it has to be verified whether proper utilisation certificates are obtained before the disbursement of 2nd or subsequent installments. The Bank should have arranged spot inspection through their officers to ensure utilisation of the loan for the purpose for which it was sanctioned. The auditor should test check a few spot inspection/verification reports of the Bank supervisors in order to verify whether verification/inspection has been made by actually visiting the spot or by physically verifying the pumpset/Engine etc., and that the verification report is complete in all respects. It should also be ensured that the Board has taken appropriate action to realise the loan in lump, where cases of misutilisation has been reported. In respect of all loans the Bank should have obtained final utilisation certificate and filed it after due verification by competent officers.
(5) Recovery of installments and classification of overdues :- The position of recoveries, both under principal and interest, as compared to demand, should be reviewed by the Auditor. Under delay on the part of the Bank to recover the installments from the borrowers through persuasion or otherwise should be pointed out. A classified statement of overdues should be prepared and checked with the balances appearing in the loan ledgers. All overdues should be classified into good, doubtful, and bad by the Auditor.
(6) Reconciliation of Central Bank’s account :- The Auditor should obtain a statement of accounts from the Central Bank and check the same with the accounts of the primary bank and get the accounts reconciled. Cases of difference should be investigated into.
(7) D.V. Files :- The Auditor should also verify whether the primary Banks have forwarded to the Central Bank all D.V. files punctually.
6. Primary Housing Co-operative Societies :- (i) Central :- Housing societies grant Medium term and long term loans to its members for construction of new houses or for repairs to existing houses. The construction is directly undertaken on proprietary basis or loans advanced on agency basis for the construction.
(ii) Source of finance :- The primary Housing Societies obtain finance from the Apex Housing Society/Government who raises funds by way of loans from L.I.C. by floating debentures on Government guarantee and by raising share capital from member societies and Government, Since the interest rate on the finance given by L.I.C. varies from time to time, such variation has to be reflected in the rates charged by the Primary societies also. The Primary societies are permitted to retain a margin of interest of not more than 1% on funds received out of L.I.C. funds. The Auditor has to ensure that the margin of interest charged on loans does not exceed the limit permitted as per Rules. Since the society can charge interest as per bye-laws on loan raised from sources other than L.I.C. the Auditor has to see that the society realises interest subject to the maximum prescribed in the bye-laws.
(iii) Sanction of loans :- Where loans are sanctioned for acquisition of house or house site together, or for the construction of house on land or plot owned by the borrower, the society should also examine the documents of the property such as title deed, tax receipts, encumbrance certificate, possession and enjoyment certificate etc. The legal opinion should also be verified by the Auditor.
(iv) Verification of mortgage deed and tax receipts :- The mortgage deeds executed by the members and the connected records in the loan file should be verified with the loan ledger, minutes book etc., It should be ensured that the borrower remits the tax on the building and land punctually and receipts produced in the society for verification and filing.
(v) Disbursement of loans :- It should be ensured that the loans received from the Government/Apex Housing Society are disbursed to the concerned members on whose behalf the loans are sanctioned. Deviation, if any, should be examined and satisfactory explanation obtained.
(vi) Release of loans installments :- Loans are released by Government/Apex society in instalment according to the stages of construction. There fore, the auditor should examine the relative records and ensure that the Board of Directors have adopted necessary resolutions in time for release of installments from the Apex Society after satisfying about the progress of construction.  It should also be ascertained whether loans are repaid by the members as agreed to in the registered mortgage deed. Instances of inaction or absence of effective action against defaulters should be suitably pointed out.
(vii) Repayment of installments to the Apex Society :- The primary societies have to repay the loans to the Apex society/Government in annual or half yearly installments, within a period of 5 to 20 years. The Auditor should verify whether the society has remitted the installments to the Apex Society/Government or before the due dates. The primary society has to pass on to the Apex Society/Government the entire recoveries in respect of loan assisted from the Apex Society/Government.
(viii) Loans for repairs etc :- In some societies loans are issued out of the society’s own funds for purposes mentioned in their byelaws, like construction  of or extension or repairs to etc. of the houses. In such cases, it has to be ascertained whether the loans are disbursed for purposes mentioned in the bylaws. The auditor should also ensure that loans assisted from the funds of L.I.C. are utilised only for construction of new dwelling houses.
(ix) Collection of group Insurance premium :- The L.I.C. collects from the Apex Society, 1% of the loan sanctioned to it, by way of premium for the Group Insurance Scheme, for the benefit of the borrowers. Under this scheme, the lives of the borrowers will be covered from the first of the month following the release of the loan. The Apex society collects this premium from the Primary society along with interest on loans The Auditor should check whether the society collects the premium @ 1% from its members along with the collection of interest.
(x) Valuation of building :- In the case of house construction societies as soon as the construction of houses is completed, they should be got valued through a competent Engineer and the Valuation certificate filed in the society. The Auditor should verify whether the society has obtained and filed valuation certificates for the expended amount.
(xi) Insurance :- Every house, constructed out of loans availed from the society, should be got insured against fire/earthquake etc., and the policy assigned in favour of the society. It should also be ensured whether the insurance polices are renewed periodically and for amounts upto the loans outstanding.
7. Co-operative Hospital and Dispensaries :- Special points to be looked into by the Auditor :- (1) Vouching of Receipts :- Collections of Co-operative Hospitals/Dispensaries mainly consist of Registration fees, cost of medicines, service charges, Ex-rays and E.C.G. charges, charges for Laboratory investigations, room rent from inpatients etc. These collections are classified and entered in a register. The consolidated totals of the same are taken to the Day Book daily. The collections on account of each item is to be checked with the help of the concerned registers, inpatients and out patients tickets, case sheets, receipts etc. The Auditor should ensure that the society has realised the charges in accordance with the sub-rules approved or rates fixed by the Board from time to time. The receipts should also be checked with the collection Register and sell that all collections are accounted for in the books of the society promptly.
(2) While verifying the Collection Register, the Auditor must be vigilant to ascertain as to whether all the issues of medicines and consumable Laboratory articles are made under proper orders of the Medical Officers and whether cost of the same has been realised from those who are liable to pay.
(3) Purchase of Medicines, Laboratory Equipments etc :- Indents for medicines and laboratory equipments are to be duly approved by the Medical Officer (in charge of purchase of medicines) or Board of Directors In the case of items of heavy cost the indents are to be signed by the Secretary after approval as above. All purchases should be effected from approved sellers or Manufactures and after observing the store purchase rules to the extent possible. The auditor should also ensure that the Medical Officer has satisfied and certified about the quantity, quality etc., of the Medicines purchased. The purchases should be the minimum required for a reasonable period. Special care should be taken that the medicine used within its actual life time and that no medicine is used after expiry date. The auditor should also check utilisation of the equipment grant, subsidy towards cost of staff, share capital contribution and other assistances, if any, received by the society.
(4) Re-imbursement of date expired medicines :- The auditor has to watch whether the society has taken timely action to get re-imbursement of date expired medicines in the stock. As the same time care should be taken to see that the value of such stock are not included in the total value of stock, while arriving at the closing stock.
8. Harijan Co-operative Societies :- Apart from the common features in the audit of Co-operative Societies, the auditor has to concentrate on the following main items also.
(1) Collection of shares :- Majority of members of Harijan Societies are economically weak. To facilitate easy payment of share capital byelaws of such societies provide for payment of share amount in installments. The Auditor should examine whether, collection of shares in installments has been effected in accordance with the provisions of bye-laws, and whether share accounts in which there is heavy default have been transferred to the Reserve Fund/Building fund, as provided for in the byelaws.
(2) Admission of members :- In order to carry out the functions of the society efficiently, the bye-laws of Harijan Societies provide for admission of a certain percentage of non-harijans as members. In such cases, the auditor has to ensure that the society has maintained the proportion prescribed in the byelaws.
(3) Working capital grant :- Proper utilisation of working capital grant, if any, sanctioned to the society has to be verified by the Auditor. For this he has to peruse sanction order and other relevant records and see that the grant has been utilised only for the purposes specified for in the sanction order. In the case of unutilised portion of grant, the question as to whether the society has refunded the amount to Government without delay has also to be ensured. The auditor is also to check the implementation of the scheme for which grant has been sanctioned.
(4) Issue of loans to members :- Since majority of the members of Harijan Societies are illiterate, acknowledgments for having received the loan amounts will be in the form of thumb impression only. These thumb impression might not have been attested by any competent person. Therefore, the auditor has to get confirmation of loans outstanding from members in order to satisfy as to the genuineness of the disbursement of the loans and receipts, if any.
(5) Raw materials Register :- In the case of Societies engaged in production activities, the auditor will check the stock Register of raw materials and their proper utilisation and the percentage of out-turns. In cases where the Societies have received any raw materials from Government at  concession rates, their proper utilisations also has to be ensured during audit.
(6) Production Register :- The production Register should be examined to ascertain whether the cost of finished products had been worked out correctly and their selling price fixed at reasonable rate is relation to the current market price of such items of similar quality.
(7) Tangia Cultivation :- In the case of societies which are allotted land from Government for Tangia cultivation, the Auditor should ensure that the lands have been allotted only to the members and that the rates fixed for allocations are reasonable etc.
9. Autorickshaw Co-operative Societies :- In addition to the general matters, the auditor has to check/examine the following aspects also while auditing these societies.
(1) Admission of members :- These Societies are organised mainly to provide employment to educated unemployed persons who possess valid driving licence. The auditor has to verify whether those admitted as members, possessed the required qualifications.
(2) Allotment of Autorickshaws :- The societies normally get allotment of autorickshaw chasis through State quota, on the reconmmendation of Government/ Registrar. The auditor has to verify whether the society maintains proper records with regard to the purchase of autorickshaws, also indicating the chasis number, date of purchase price etc. He has also to examine the procedure followed by the society in the body building of rickshaws; whether the work has been done after observing the required formalities.
(3) Allotment of vehicles :- The vehicles should have been allotted to the members on proper resolution of the Managing Committee and according to priorities. The vehicles should have also been registered with the Transport authorities and necessary taxes remitted to ply the vehicle on the road. Insurance policies covering the risk in respect of each vehicle are also to be verified.
It should be verified whether the total loan debited in the name of an allottee, on account of value of the vehicles, cover all expenses incurred by the society to put the vehicle on road. The Auditor should also verify acknowledgments in token of receipt of the vehicle and also Hire Purchase/Hypothecation deed executed in favour of the Society hypothecating the vehicle.
(4) Remittance of collection :- It should be ensured whether members were prompt in remitting the daily collections towards the loan account as stipulated in the agreement. Instances of failure should be enquired into in detail with special reference to the action taken for recovery.
(5) Running of workshop :- Where the society is running a workshop mainly for the benefit of its members, it should be ascertained whether the members are availing of the services of the workshop. The economics of the workshop should also be examined during audit.
10. Poultry forming Societies :- In addition to the general aspects, the Auditor has to check the following points also.
(i) Loans to members :- Loans are disbursed to the members for various purposes, such as construction of poultry sheds, purchase of birds, feed etc. The auditor will ensure that those loans are disbursed to the members on the very same terms and conditions imposed by the financing agencies such as State Bank of India, State Government etc. He should also see that repayments of such loans are made promptly. In the case of loans issued by SFDA, subsidy will be disbursed on full utilisation of the loan amount. In such cases it has to be ensured that subsidy is released after due verification of the utilisation of the loan portion.
(ii) Egg Collection Register :- The eggs collected by the society from the members are sold to the nearest IPD Units. The daily collection of eggs are first entered in this register and subsequently transferred to the personal accounts of the members. The Auditor has to check the entries in both these registers as well as individual postings in the personal accounts.
The weekly sale of eggs as revealed in the consolidated stock Register should be compared with the totals of the Daily Egg Collection Register. Abnormal difference if any, between procurement and sale of eggs should be enquired into. He should also satisfy the percentage of damages allowed is the minimum and within the reasonable limit and supported by proper and valid authorisation.
(iii) Confirmation from IPD Units :- In the case of societies which adopt credit sale of eggs to the IPD Units, the auditor has to obtain necessary confirmation for the outstandings from with those units.
(iv) Supply of fred by societies :- In the case of societies, which get the feed on the recommendation of SFDA, the Auditor will ascertain as to whether the societies effect the sales at the rates fixed by the Agency. In such cases, he with ensure that the society has collected and accounted the commission due in the auditor year. 
11. Circle Co-operative Unions :- During the course of audit of Circle Co-operative Unions, the following points in addition to those generally examined are to be looked into by the Auditor.
(1) Register of Societies :- The Auditor should ensure whether the Circle Unions maintains a Register of Societies in the Circle with the following particulars.
(i) Register No., name and date of registration of the society,
(ii) Paid up Share capital.
(iii) Date on which affiliated to Circle Union.
(iv) Details about the collection of affiliation/renewal/fees.
The Auditor should check these particulars with reference to the records available in the Union.
(2) Affiliation fees Remittance to the State Union :- The Auditor has to examine whether affiliation fees are duly collected from all the Societies affiliated and 50% of such fees remitted to the State Co-operative Union.
(3) Utilisation of grants :- The Auditor should examine whether grants if any received by the Circle union from State Government or from any other agency has been duly accounted for in the books of the Union and utilised for the purpose for which it was sanctioned.
(4) Propaganda and Education :- The Auditor should ascertain as to how for the Union has succeeded in propagating Co-operative Education by conducting study classes for the employees and/or directors of Co-operative Societies.
(5) Budget :- It should be examined whether annual General body meetings are held in time and budget passes and programmes of activities for each are approved in such meetings. It should also be ensured that a copy of the budget estimate and programme of activities have been sent to the State Co-operative Union and Registrar, as required under Rule 147 at the Rules.
(6) Meetings :- Whether meetings of Managing Committees are held monthly and decisions taken on papers received for opinion of the Union such as amendment to byelaws, supersession of committees of affiliated societies winding up of societies etc. Delay in the disposal of papers referred to the Union and meetings which could not be held for want of quorum should be noted and commented upon.
(7) Maintenance of registers :- The auditor should ascertain whether the Union has maintained the following registers with upto date information.
(i) Register of Directors of affiliated societies.
(ii) Register of employees of affiliated societies.
(iii) Service register of employees.
In the case of Circle Unions which have engaged paid staff;
(iv) Affiliation for Register
(8) Byelaws of affiliated Societies :- Whether copies of the byelaws of each affiliated society in the Circle has been obtained and kept.
12. Co-operative Canteen/Restaurants :-  Special features to be examined by the auditor.
(1) Production Register/Conversion Register :- Raw materials required for the production of various items of eatables will be supplied from the main stock to the Chief cook daily/weekly which will be entered in the production register/conversion register. It should be ensured that issue of articles from the main stock, are properly accounted for in the books of accounts maintained by the Chief cook.
The relevant resolutions of the managing Committee/business Committee, fixing, production rations for production of each unit of eatables, with a specified quantity of raw materials, should be verified, and it should be ensured whether such minimum ratios have been achieved in producing furnished products by the Chief cook. Say for example:-
(a) Number of meals that can be produced by cooking one kilogram of rice.
(b) For preparing 100 cups of tea how much quantities of milk, sugar and Tea/Coffee are required or with one litre of milk, number of cups of Tea/Coffee that could be produced etc. (different ratios are seen fixed by societies in this regard).
The production register has to be checked with the sales register to see whether the entire production has been sold in the canteen and, if not, the arrangements made to destroy perishable items.
(2) Liability register :- The liability register maintained at the kitchen, showing the liability of cook in respect of articles supplied from the main stock, should be checked with production register to see that the cost of articles supplied to the kitchen compare with the cost of articles produced. If there is wide variations, the causes for such abnormal variation should be investigated.
(3) Coupon Redemption Register :- Where sales have been effected on the basis of coupons sold in advance to the  members, the auditor should check this register with the coupon issue register to ascertain that the total value of coupons sold in advance, has been correctly recorded in this register in order to assess the actual liability of the society in meeting the demands of  the members. Similarly the daily/weekly sales effected on the basis of coupon, should be entered in this register, reducing the total liability of the members. While preparing the final accounts, the outstandings as revealed by this Register, should be treated as a liability of the Society. The arrangements made by the society, in destroying the coupons returned on account of Sales effected, should be examined. It should be examined whether the society conducts periodical reconciliation of unused coupons kept with the members.
(4) Credit Sale of Coupons :- In Societies, where the system of credit sale of coupon is followed, the auditor should check the personal accounts of the members who avail such facilities. The outstanding balance under this head should be treated as a item of asset while preparing the final accounts.
In certain societies a different procedure is followed for issuing coupons on credit. At the time of issue of coupons on credit, a loan, equal to the value of coupons issued on credit will be shown as issued in his name. In such cases, the auditor should check the loan ledger, with the recovery schedules etc.
13. Literary writers Co-operative Societies
Specials aspects to be looked into by the Auditor :- 1. Membership :- Membership in Literary writers Co-operative Societies, is usually restricted to persons engaged in literary works. If the byelaws provide for the admission of persons other than those engaged in literary works, to a limited percentage, the Auditor has to be ensured whether the society has strictly complied with the provisions.
2. Printing Section :- If the society is running a printing press, all printing works should be got executed through it, to the extent possible. Wherever deviations have been noted by the Auditor in entrusting the work of printing with other printing press, it has to be examined whether, the society has followed the normal procedures, viz., inviting of quotations etc. before entrusting the work with outside parties. The printing order from given from the Publication Department, for printing books etc., should be checked with the Register kept in the press to ascertain whether manuscripts of books given for printing are kept unattended in the press for long.
The Auditor has to ascertain whether the society has observed the necessary formalities for purchase of paper, ink and other materials. He has also to examine the stock register of printing materials. While examining the stock register, the Auditor will make an assessment of the consumption of printing  materials required for printing a specified number of books, with those issued for the purpose and decide whether they are reasonable. He will also enquire about the percentage of wastage, if any, allowed by the society and compare it with the actual wastage. The annual working results of the printing unit has to be assessed and short comings, if any, indicated with suggestion for its proper working.
Publication Section :- All publications should have the prior approval of the committee of the society. As the books are to be printed and published according to priority, the Auditor has to examine the deviation, if any, from the approved policy and decide whether such deviations are justifiable.
In case the society takes up printing, publishing and sale of books at its cost on behalf of authors, care should be taken to see that the society does not take up printing and publishing of books which are difficult for sale, because the investment of the society will be locked up in such cases.
(a) Copy right investment Register :- The Auditor has to ascertain whether the committee has laid down specific norms for fixing the value of copy right and whether these norms have been strictly followed.
The copy right investment register has to be examined to ascertain whether all the titles purchased have been published or whether they are ready for publication. In the case of titles purchased and remaining unpublished for long, the reasons for such pendency should be ascertained. The copy right agreement may be checked with copy right investment register, the day book with the voucher for payment of amount and with the copy right investment register.
(b) Royalty :- In the case of books published on royalty basis, the royalty agreement has to be examined to ascertain whether the agreement has been executed as soon as the selection of the title is made. It should also be ascertained whether the society has printed and sold only the number of copies as agreed. Printing of books beyond the valid period of agreement should also be located in Audit. If it is for pre-publication sale, the agreement must have been executed before starting the work of pre-publication.
Since the offer of pre-publication concession extents to a specified period only, it may be ensured that such concession were allowed only to those who remitted money within the time limit specified for the purpose.
Since the royalty payable is calculated on the basis of books sold, the Auditor will verify the stock register and see that no excess payment is allowed on this account. Statements showing the sale of books, amount of royalty payable etc. are to be prepared both for publication and distribution books and got checked. The Auditor will also examine the subsidiary rules, if any, framed by the society for the purchase of royalty and ensure that there had not been any violations. The concerned board resolution should also be verified.
Distribution Section :- Distribution books are published by the society are the expense of the authors concerned. The terms of agreement of distribution books have to be verified order to ascertain the mode of payment of sale proceeds commission, etc. It may be ensured whether payment has been made to the party, before the actual sale of the books, which is against rules. It may be verified whether payment on account of sales of distribution books, has been made entirely on the basis of the half yearly verification of stock at the various depots/Agency/Branches. Proper realisation of commission on sales, is another important aspect which has to be looked into by the Auditor. It should also be assessed whether the commission realised on sales is sufficient to meet the expenses in connection with the sale of such books. As the distribution books are not treated as purchases, the possession of stock with the society is indicated by showing the value of the books in both sides of the balance sheet.
Agency system :- Accounts relating to the agencies are to be checked. The agreement executed by the Agencies should be verified to assess the security deposit to be furnished by the Agency, the maximum value of books that could be entrusted to the Agency for sale etc., and regarding the fulfillment of those conditions. The liability register, in respect of each agency should be checked to ascertain whether the agencies remit the sale proceeds regularly as per terms of agreement and the periodical reconciliation of balances outstanding with them.
Closing stock :- Method of arriving the cost price.-Calculation of cost price of closing stock is a very important aspect. An unrealistic assessment of cost price of closing stock will affect greatly the profit and loss position of the society.
(a) Publication books :- The opening stock of books at Face Value and cost price/value will be taken from the previous years Audit certificate. The face value of publication books published during the Audit year will be added to the opening stock of books at face value and the total arrived at. Similarly, along with the opening stock of books at cost price/value, the cost price/value books (which include, material cost, printing expenses etc.,) published during the year will be added and the total cost price/value arrived at. In order to calculate the percentage of cost to face value of books, the total of cost value/price arrived at as above will be divided by the total of face value. The annual verification of stock will reveal the face value of closing stock. Multiplying the face value of closing stock by the percentage of cost price, will reveal the closing stock at cost price for the preparation of final accounts.
(b) Outright purchases :- In the case of outright purchase of books, cost price will be the actual purchase price. The cost can be arrived at by deducting the commission earned in effecting the purchase. The method of calculation of percentage of cost and assessment of the value of closing stock at cost price, will be the same as in the case of publication books.
(c) Charging of depreciation on books :- Depreciation has to be charged on books according to the age of books. The rate at which such depreciation has to be charged will be fixed by the Register from time to time. They rate now fixed is as follows:-
(i) No depreciation has to be charged on books which are upto 5 years old.
(ii) Depreciation @ 5% to be charged on books which are 5 to 10 years old.
(iii) Depreciation @ 10% to be charged on all books which are more than 10 years old.
Book shelf, Book installments, Novel Club etc. :- These are scheme designed to boost up sales. It may be verified that such schemes have been started on proper resolution of the Managing Committee of the society. The sub-rules formulated for each scheme should be examined. The Auditor  has to ascertain whether they are complied with fully.
Branches :- Usually the control of sales units/branches will be exercised by the sales wing of the Head office of the society. The books/publications for sale will be distributed among the branches from the main godown. In order to ensure proper accounting of books transferred from the main godown to branches, the transfer bills of books issued by the godown keeper, have to be checked with the liability register/stock register maintained at branches.
With regard to the checking of sale proceeds of branches, the Auditor will check the daily extracts of sales with the ledger, and the ledger with the Day book.
Reconciliation of Branch accounts :- It should be ensured that the society conducts periodical reconciliation of branch accounts.
The working results of each unit will be assessed realistically and deficiencies if any pointed out indicating suggestion for improvement.
Monthly reconciliation of Head Office account with the accounts of Publication, Distribution and the sales wings of the society should be ensured. Similarly reconciliation of agent’s accounts with Head office accounts is also necessary.
The auditor has to check whether all the stock in sale depots, godowns, press. Head office etc., are adequately insured and policies kept alive.
14. Toddy Tappers’/Producers’ Co-operative Societies - Special Features
1. Accounting of business transactions in a toddy tappers’/Producers’ Co-operative Society can be broadly classified into three major heads.
1. Tapping of Toddy.
2. Pooling and distribution.
3. Sale through shops.
1. Tapping of toddy :- (a) Coconut trees are taken on hire basis by the society and allotted to tappers. The rate of hire charges (Chethupattam) will be decided by the managing committee of the society from time to time. For tapping the trees, the owners are paid “Chethupattam” direct by tappers which will be ultimately met by the society. The auditor has therefore, to see whether “Chethupattam” is paid only on properly prepared bill and passed by competent authority.
(b) Chethu Cooly includes wages payable to tappers, charges incurred for transporting toddy from the field to the storing place and the dearness allowance. It has to be ascertained whether ‘Chethucooly’ is paid at the rates prescribed by the managing committee and are supported by bills duly passed by competent authority. Since ‘Chethucooly bills’ serve the purpose of acquittance also, the auditor will verify these bills to ensure that proper acknowledgments have been obtained for payments made.
The auditor has also to verify the wage rolls on account of payments made towards “Orukkufees”, Upakarana fees, Ayudha Allowance and dearness allowance.
(2) Pooling and distribution :- (a) Pooling :- Toddy tapped are carried to the various stores/shops by the tappers. Toddy will be measured and taken to stock by the store Managers/shop Managers and necessary entries made in the “Kallu Alavu Pass Book” of the tappers. Wage bills are prepared by the Managers from the books maintained at the stores. While checking the wage bills “Kallu Alavu” pass books of the tappers may be called for at random and correctness of the toddy measured and accounted in the stores/shops got verified.
The shop/store managers would be sending ‘a store memo’ to the Head Office indicating the stock of toddy in the store/shop every day. Based on the ‘store memos’ received from different stores/shops, a consolidated stock Register will be maintained at the Head Office. It has to be cross checked during audit whether the actual quantity measured and stored as per store memo tally with the actual quantity measured as shown in the weekly ‘Chethucooly bills’ prepared and sent to the Head Office by the Managers. The store memos should also be checked with the stock register.
(b) Distribution :- The toddy pooled in the stores are distributed to the toddy shops for sale. It has to be checked whether proper invoices and delivery notes are prepared and signed by the store Managers and acknowledged by the shop managers. Issues from the stores have to be verified by checking the “Issue Register”/Daily stock statement, maintained at the store, with the Invoice prepared by its Manager. The reports of messengers who distribute the toddy to the shops may also be checked with  the ‘Daily stock statement’ sent by the store Manager, to see whether the supply as indicated by both reports tally.
(3) Sale through shops :- (a) Toddy received from the store and toddy, if any, measured at the Toddy shops by the tappers where there are no stores, are sold at rates fixed by the Managing Committee. The shop Managers will be sending ‘a daily shop statement’ to the Head Office, indicating the stock of toddy, sales, and other petty expenses incurred in connection, with the sale and the net sale proceeds handed over to the messengers. The messengers account has to be checked with the ‘Daily shop statement’ at random to see whether the toddy supplied at shop has been accounted for properly. While checking the vouchers of petty expenses at shops, the auditor should ensure that incurring of such expenses is with in their competence and supported by proper vouchers. In checking these vouchers, the auditor may use his discretion to check them entirely or at random or depend on the effective internal checking, if any, is force.
In order to ensure that all the sale proceeds entrusted to the messengers are remitted in the Head Office, the Messengers account may be checked with the daily shop statement regularly. The liability if any, of each shop manager is to be worked out and reconciled daily.
(b) Destruction of Toddy :- Unsaleable toddy has to be destroyed or transported to various distilleries as per permit. In case of destruction, it has to be ascertained that destruction has been made under the supervision of competent authorities, as authorised by the Managing Committee. Reports on the destruction of toddy may also be verified.
(c) Accounting of sale proceeds :- Toddy sales receipts remitted in office by the messengers as per chalan are first accounted in the cashiers’ ‘cash book’. A daily abstract will be prepared and the shop sales receipts and expenses are entered in the main day book from the subsidiary cash book. It has to be ensured whether daily receipts and expenses as exhibited in the subsidiary cash book are properly carried over to the main day book and whether all the daily receipts and payments are entered in the subsidiary cash book.
II (a) Contribution under Kerala Toddy Workers Welfare Fund :- It has to be ascertained whether welfare fund contributions at rates prescribed under the Act have been remitted monthly to the concerned authority on or before the due dates.
(b) Remittance of kist, tree tax etc :- The terms on which the toddy shops have been entrusted to the society, may be ascertained by verifying the relevant orders in this regard. Timely remittance of kist, tree tax etc. has to be verified in Audit.
(c) Abkari Act and Rules :- It may be ascertained whether the society has complied with the statutory requirements, if any prescribed in the Abkari Act and Rules, in conducting the Toddy shops and other transactions related to it.
Daily receipt and sales of stock are to be reconciled in respect of each shop and store, and each store and Head Office.
The auditor will review the working result of each shop during the audit period and appraise the Managing Committee of its performance with suggestions if any, for improvement.
15. Primary Coir Co-operative Societies special features :- (i) Purchase register (Husk) :- Procurement/purchase rates of husk is fixed by Government from time to time. Purchase is therefore to be effected from approved dealers, at controlled rate. In order to ensure that purchases are effected only at controlled rate, the purchase bills are to be checked with purchase register. This will also enable to auditor to satisfy about the quantity procured, charges incurred for unloading etc. The day book is also to be checked with purchase register.
(2) Stock register of retted husks :- The quantity issued as per purchase register, for retting is to be checked with “stock register for retted husk”. If should also to be ensured that when husks are entrusted to the Moopers/group leader, for retting, his acknowledgments is obtained. The auditor may also examine the connected records to see that charges incurred for retting is reasonable and within the limits fixed by the Managing Committee.
As the retting of husk is done by Mooppan/Group leader etc., on furnishing sufficient security, the auditor has to verify the concerned registered documents, to satisfy about the adequacy of security furnished. He should also verify the inspection reports of the sub committee as to the existence of husk in the retting yard and see that such reports are placed before the managing committee for consideration.
(3) Distribution Register of retted husk :- The husks after retting will be distributed among the members/group leaders. For this the society issues permits. Such permits may be checked with the distribution register to satisfy about the quantity issued. It may also be ensured that the number of husks retted in a Mooda and those taken out as a time tally each other. While distributing the retted husks to the members/leaders, their acknowledgments should be obtained.
The quantity issued as per distribution register is to be checked with ‘finished goods receipt register’ to ascertain whether, the required quantity of finished goods have been returned, as against the quantity of retted husk supplied. As the finished goods have to be returned within a specified period after issue of retted husk, the auditor may ascertain whether, a second consignment has been issued, before returning the finished goods of earlier supply.
(4) Finished Goods Register :- The quantity of fibre contents vary during certain season. Therefore, some societies, divide the year into different terms, and fix the quantity of finished goods to be returned in each season. The Auditor may check whether, the members have returned the prescribed quantity of finished goods as fixed by the committee. In case, any concession/reduction has been allowed, on account of reduction in the fibre contents, the auditor has to ascertain that the society has made a realistic study of the fibre contents in the husk, before such reduction/concession has been allowed.
The auditor may also ensure that the total quantity of finished goods returned maintain the prescribed proportion to the quantity of retted husk distributed.
(5) Acquittance/wages register :- By checking this register, the auditor can assess whether coolie/wages have been paid only at the rates prescribed by the  managing committee. It may also be ascertained that the total quantity of finished goods received in a day are properly accounted for in the stock register of yarn on the same day. This can be ensured by checking the finished goods receipt register with Coir/yarn stock register.
(6) Labour Welfare Fund :- It should be ascertained whether the society  has accounted properly the welfare fund contributions of the workers.
(7) Sales :- As the sales are effected to Central Coir Marketing Societies, on consignment basis, the concerned consignment account has to be checked by the auditor.
(8) Sales tax Returns :- The timely submission of sales tax and other statutory returns should be ensured by the auditor.
(9) Insurance :- It should also be ensured by verifying the insurance policies etc., that the stocks in possession of the society are adequately insured and policies kept alive.
16. Central Coir Marketing Co-operative Society :- Special aspects to be looked into by the Auditor:-
(1) Purchase of coir :- The main function of the Central Coir Marketing society is to procure coir produced by the Primary Coir Co-operatives and to market them at favourable conditions. Ordinarily, procurement is to be done from the primary Co-operatives only. Whenever, purchases are seen effected from outside parties, it may be ascertained whether such purchases are supported by sanction of competent authorities. Since the procurement rates of coir is fixed by Government, the auditor has to check whether the purchase price has not exceeded the limit. There may be instances where the society sells coir at a lower price than the procurement price. In such cases, the auditor may investigate into the reasons and assess the loss so incurred. If any loss has been caused on account of sales of inferior quality, that auditor may verify the report of the quality testing officer and fix responsibility for the loss.
(2) Utilisation of building materials :- The stock register of building materials may be checked in order to ensure proper utilisation of building materials.
(3) Export sales :- The order forms for export sales are entered in a register for execution. It should be ensured whether the society takes close follow up action with the bankers, for the realisation of value of coir sold. Since a majority of sales are being arranged on negotiation, the auditor may peruse the connected files and the market bulletins to satisfy that the society has entered into the contract at the best advantage of the member societies.
(4) Export licence :- The licences for export sales are being issued by Coir Board. The Auditor may make enquiries about the periodical renewal of the licences, for export sales.
(5) Branch accounts reconciliation :- Separate day books will be maintained in respect of the branches. The auditor may verify whether the society incorporates the branch accounts periodically in the main day book and reconciliation done at frequent intervals. The auditor may also assess the working result of each branch, and suggest remedial measures to improve the working of branches running in loss.
(6) Insurance :- The Auditor has to ensure that the stocks both at Head office and Branches are adequately insured and policies kept alive.
17. Coir Mats and Mattings Co-operative Societies
Special features (1) Purchases :- The requirements of mats and mattings society, are met by the central coir marketing society. There may be instances where the mats and matting society effects direct purchases from primary coir co-operatives and also from individuals. If such  instances are noticed, the auditor may enquire whether the purchase price of those articles have exceeded the rates prevailing in the central society and whether the articles so purchased were available at the central society during that period. In case, such varieties were available with the central society, the necessity for making such outside purchases should be enquired into.
When goods are purchased and brought to the society, a gate in-pass will be prepared as to the number of bundles. The goods so bought will be weighed and the weight noted in the weighment register. With that weight noted in the weighment register, the society prepares the purchase bill. The Auditor may check this bill with the “gate in pass” and weighment register to ensure that the weight and number of bundles purchased tally. Checking of these transactions entirely or at random, will be decided by the auditor, considering the volume of transactions and the internal check in force. The stock so purchased will be then entered in the stock register noting “In pass” number and bill number.
(2) Production and payment of wages :- In order to produce different varieties of coir mats and mattings, the coir and dying materials will be supplied from the main godown. The Auditor may check the issues from the main godown with the production register and see that the quantity relate each other.
Wages are being paid periodically on piece rate basis. The totals of the wages register so paid are entered in the day book/journal. The production of mats and mattings as revealed by the wages register will be entered in production register and from there to the stock register. The Auditor may check the production register and ensure that the prices of finished products, are fixed taking into consideration the material cost, manufacturing cost etc.
(3) Sales Procedure :- The minimum sale price of export quality goods are fixed by Coir Board. It may be checked whether the selling price of each quality is fixed realistically taking into account of the actual cost of production.
The good sold will be sent out of the factory/society premises after noting the weight and other details in the despatch register. Goods will be sent out only by mean of an out pass. The Auditor may check the stock register, despatch register and out pass to verify that the quantity sold as per sale invoice and as revealed by the out pass tally. Generally the sale invoice will be prepared only after getting R.R./Shipping receipt. Till that is obtained, the stock sent out of godown, will be treated as stock with agents. In such cases, the auditor has to get confirmation from the agents.
(4) Consignment sales :- Where the society adopts consignment sales, the consignment account should be checked and tallied.
(5) Branches :- It should be ensured that the society reconciles the Branch accounts periodically. The Auditor may assess the working results of each depot and give suggestions for improving those depots which are working at loss.
(6) Submission of statutory returns :- Prompt submission of statutory and other returns and remittance of sales tax, including those for interstate sales should be ascertained during audit.
(7) Insurance :- Raw materials and finished products in possession of the societies should be insured adequately and policies kept alive.
18. Industrial Co-operative societies :- General features :- Industrial Co-operative societies are mostly production and sale societies. In order to carry out these objectives, they have to purchase raw materials and other appliances and sell them at reasonable price. In the case of production units the society has to employ workman, both members and non-members, at piece rate basis. The finished goods so produced have to be sold at an favourable terms.
The auditor has to concentrate mainly in scrutinising the following aspects:-
(i) Use of raw materials.
(ii) Receipt of finished goods.
(iii) Payment of wages.
(iv) Costing
(v) Price fixation.
They are briefly explained below:-
(i) Use of raw materials :- The society should have a specification chart, indicating distinctly the raw materials required for producing a particular item. The quantity of materials issued to a member, to produce a particular item should be compared with the specification chart to ascertain whether they have a reasonable co-relation. If there is abnormal variation, such instances should be enquired into in detail. The Auditor has also to ensure that the society has an efficient system of inventory control and the stocks have been adequately insured and policies kept alive.
(ii) Receipt of finished goods :- The raw material issue register should be checked with the finished goods receipt register to ensure that all the goods produced are properly accounted.
(iii) Payment of wages :- In order to keep up the high quality of the finished products, technical advice should be available to assess the workmanship of the finished goods and to decide on the rate of wages payable in respect of different varieties. While checking the wages register/sheets the auditor has to ensure that wages have been paid only in accordance with the rates fixed by technical experts. This can be ensured by checking the wages register/sheets with the approved schedule of wages.
(iv) Costing :- The elements which constitute total cost of any products are (a) Direct expenditure (b) Indirect expenditure. Direct expenditure includes, material cost, labour and direct expenses. Indirect expenditure are those incurred for the undertaking as a whole for production and distribution of the products. This is cludes, factory expenses, officer or administrative expenses-Selling and distribution expenses etc.
Every production unit should have an estimate of the probable cost of a unit of a particular commodity proposed to be produced by it. The statement which shows the estimated cost is termed as cost record/cost sheet. The total of factory cost and office overhead will be the cost of production or actual cost. The auditor may compare the actual cost of a particular unit with the estimated cost and see how do they compare with each other. If the actual cost exceeds the estimated cost heavily the auditor has to investigate into the causes for such increase, and appraise the Board of Directors of the same. He may also examine whether the increase in the cost of production has been noticed in direct expenditure or indirect expenditure or has occurred as a result of non-production of the items to its optimum level.
(v) Price fixation :- The selling price of a product/unit is fixed by adding a percentage of profit on the actual cost of the product. The Auditor may examine whether the selling price has been fixed reasonably taking into account all the related factors and subject to the decisions of the managing/sub committee.

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