Appointment of an Auditor and functioning of a society

Appointment of Auditor

Section 75(2A) lays down that every society shall,

(a) Appoint an auditor or auditing firm from a panel approved by the State Government in this

behalf in its annual general body meeting having such minimum qualifications and experience

as laid down in Section 81 of the Act, for the current financial year and

(b) Shall also file in the form of return to the Registrar, the name of the auditor appointed and his

written consent for auditing the accounts of the society within a period of thirty days from the

date of Annual General Body Meeting.

(c) It is further provided that the same auditor shall not be appointed for more than three

consecutive years by the Annual General Body Meeting of the same society.

(d) It is further provided that no auditor shall accept audit of more than twenty societies for audit in

a financial year excluding societies having paid up share capital of less than rupees one lakh.

5. Provision regarding the Audit

Section 81 lays down the provisions relating to Audit.

(1) The society shall cause to be audited its accounts at least once in each financial year and also

cause it to be completed within a period of six months from the close of financial year to which

such accounts relate and shall lay such audit report before annual general body meeting.

(2) It is further provided that if the Registrar is satisfied that the society has failed to intimate and

file the return as provided he may cause its accounts to be audited, by an auditor from the panel

of the auditors approved by the State Government.

(3) The board of every co-operative society shall ensure that the annual financial statements like the receipts and payments or income and expenditure, profit and loss and the balance sheet along

with such schedules and other statements are submitted to the auditor within the period as may

be prescribed.

(4) The auditor’s report shall have:

(i) All particulars of the defects or the irregularities observed in audit and in case of financial

irregularities and misappropriation or embezzlement of funds or fraud, the auditor/

auditing firm shall investigate and report the modus operandi, the entrustment, amount

involvement, and fix the responsibility for such misappropriation or embezzlement of

funds or fraud, on the members of the board or the employees of the society or any other

person as the case may be with all necessary evidence.

(ii) Accounting irregularities and their implications on the financial statements to be indicated

in detail in the report with the corresponding effects on the profit and loss;

(iii) The functioning of the general body, board and sub-committees of the co-operative

societies to be checked and if any irregularities or violation observed, reported duly fixing

the responsibilities for such irregularities or violations.

(5) The remuneration of the auditor or auditing firm of a co-operative society shall be borne by the

society and shall be at such rate as may be prescribed. The Rules states that the audit fees shall

be as may be notified by the state government from time to time.

(6) The Registrar shall maintain the list of co-operative societies district-wise, the list of working

societies, the lists of societies whose accounts are audited, the list of societies whose accounts

are not audited within the prescribed time and reasons therefor. He shall co-ordinate with the

co- operative societies and the auditors and auditing firms and ensure the completion of audit of

accounts of all the co-operative societies in time every year.

I'm not on panel as of date so can I accept the audit of co op Societies including

Cooperative Housing Societies ?

And: Sec.81(1) of MCS Act,1960 specifically mandates that the Statutory Auditor or auditing firm

should be from a panel prepared by the Registrar and approved by the State Dept.or authority

authorised by the State Govt. so a CA should not accept the Statutory audit if not in panel.

There was a column in our MEF form asking for acceptance of co-op. audits. Does that

makes me automatically empanelled with Dept of Co-Op too?

Ans: No. Since section 81 of MCS Act and Rules 69 of MCS act, 1961 wants the registrar to prepare a panel of all types of Auditors, MEF details do not get you automatically empanelled by the Govt /

registrar. ICAI wants the registrar to accept MEF FORM details but so far registrar has not accepted

ICAI suggestions in this regard.

FAQs on Appointment of Auditor of a Cooperative Society

1. Which sections and rules govern the appointment of statutory auditor of a Co op. Society?

Ans: Sec.75 (2A), Sec.81 and Rule 69 of Maharashtra Co op. Societies Act, 1960 and MCS Rules, 1961

governs the appointment of Statutory Auditor.

2. Who can be appointed as Statutory Auditor of the co op. society?

Ans: Only A Panel Auditor or Auditing firm can be appointed as Statutory Auditor of the co op

society.

3. Who should appoint the Statutory Auditor?

Ans: As per Sec.75 (2A), the Statutory Auditor should be appointed in Annual General Meeting, i.e.

by General Body only.

4. Can Managing Committee or Board appoint the Statutory Auditor?

Ans: No, only General Body can appoint.

5. For how many years Statutory Auditor can be appointed?

Ans: The Statutory Auditor needs to be appointed for the " current financial year" only in terms of

Sec.75(2A) of the amended Act .

6. For how many years the same statutory auditor can be appointed by the co op society?

Ans: The co op society can appoint the same auditor for maximum three consecutive years.

7. Whether the continuing auditor is required to be reappointed every year?

Ans: Yes, Sec.75 (2A) clearly mentions that auditor will be appointed for current financial year and

hence the same auditor can be appointed for consecutive 3 years subject to his re appointment every year in the AGM.

8.  Can society appoint the auditor for its pending audits?

Ans : No, the provision of pending audits by the same auditor is now deleted in the amended Act

and for pending audits society will have to write to the Registrar who will be appointing the auditor

for pending audits.

9. If no AGM is conducted and no auditor is appointed then what should be done?

Ans : If AGM is not conducted by 30th Sept then it’s an offence u/s 146 and committee can also be

dismissed but from audit point of view, the society should write to the Registrar and then the

Registrar can appoint the auditor from the panel .

10. Whether auditor needs to give his written consent for having accepted the audit?

Ans: Yes, the written consent needs to be given by the auditor.

11. What is the significance of the written consent of the auditor?

Ans: The societies are required to submit the return u/s 75(2A) & Sec.79(1B) of appointment of

auditors and these returns need that the details of the auditor and his written consent be uploaded on the Dept. of Co op. site.

12. Whose responsibility is to upload the auditor’s details and uploading the written consent?

Ans : It is the responsibility of the society to upload these details from society's login.

13. Any penalty is there for non uploading the audit details?

Ans : Yes, non uploading the audit details is an offence u/s 146 and a penalty of Rs.5000/- is

leviable. Besides the committee can also be disqualified u/s 78. Also it will be assumed that no auditor is appointed and the right to appoint the auditor gets transferred to the Registrar and the Registrar will appoint the auditors for such societies.

14. Within how many days the auditor's appointment return is to be uploaded by the society?

Ans : The society needs to upload the Return of auditor's details and written consent u/s 79(1B)

within 30 days from the date of AGM i.e. latest by 31st October.

15. What if I was on the panel when I was appointed by AGM but subsequently my name was not there in the Audit Panel and I signed the reports?

Ans : The auditor should be a panel auditor while accepting the audit and also on the date of signing the audit report. If he auditor was not there in the panel subsequently, he needs to inform the society accordingly, who in turn can write to the Registrar and get the auditor appointed from the panel.

If  you have conducted the audit then such audit will be an invalid.

Quick Guide to Cooperative Housing Societies Act and Bye law provisions:

Ans : Major changes in 2009 Housing society Bye laws and Model Bye laws 2014

• Condition for membership- Applicant to take 10 shares of Rs.50 each as against 5 shares. Bye

law No.22 on rights of membership talks about the right to receive the notice of demand from

society if there is increase in min. contribution of member in share capital.

• Classification of Active and Non-Active members.

• Associate member definition- ownership in the property individually or jointly with others is

must and whose name does not stand first in the share certificate.

• Co-op. Education and training to members, committee members, officers and employees.

• Education and Training fund of Rs.10 per member per month to be collected as against Rs.3

per member per annum.

• Sinking fund can be utilised by the society and no permission of the Registrar is needed-

General body permission however, is must.

• NOC of society for transfer of flat or property is not required. However, Rule 24 and Bye law

No.38 on transfer of shares and interest wants the transferring member to give 15 days notice

to the society of his intetion to do so alongwith the consent of the transferee member.

• Elections of management committee must be notified six months in advance and to be held

under the supervision of the newly constituted State Co-operative Election Authority (SCEA).-

Sec.73CB

• Casual vacancy in management committee to be informed to Election Authority and co-option

is not allowed.

• Disqualification of committee and its members- Sec.77-A & 78

• Strength of Management committee and Reservation of seats for Women and for members of

SC,ST & OBC category with Expert and Functional Directors appointment possible subject to

conditions.-Sec.73AAA & bye law No.113

• Last date for conducting AGM is 30th Sept. as against 14th Aug.

• Appointment of Auditors ,their Remuneration, Rights and Responsibilities removal etc.-

Auditor should be a panel auditor and Maximum appointment for consecutive three years and

maximum 20 audits excluding for societies with paid capital of less than Rs.1 lac.-Additional

responsibility to file FIR if mispappropriationetc etc is noticed –Special & Specific Reports to

be filed with Registerar- Sec.81/R-69/Bye la 150-152

• Cash expenses limit Rs.1500/- as against Rs.4500/-in Bye laws.-Bye law No.144 /R-107D

• Cash in Hand at the close of the day limit increased from Rs.300 to Rs.5000/-Bye law 143/R-

107C

• For encroachment of common areas by members to be charged at 5 times the monthly

maintenance charges for the period of such encroachment.-Bye law No.168

• Applicability and adoption of Accounting standards prescribed by state government and by

ICAI-Sec.81 & notification dtd.29th Oct.2014-SA700

• Filing of Annual Mandatory Returns with the Registrar.-Sec.79(1A) & 79(1B)

• Penalties prescribed for various offenses and consolidated penalty for all defaults to be

Rs.5000/-maximum in any financial year.-Bye law No.164(a)

• Concept of Emergency Planning Scheme and Fire Safety Audit introduced.-Bye law

No.75*The Maharashtra Fire Prevention and Life Safety Measures Rules, 2009, made it

mandatory for building owners and residents to conduct half – yearly fire safety audits and

submit the report to the fire department. As per the directive of Directorate of Maharashtra

Fire Services, the safety audit has to be conducted by the ‘Licensed Agency” approved by them.

7. POCKET GUIDE FOR SMOOTH SOCIETY MANAGEMENT:

The statutory compliances is something which the organization, irrespective of its form and size will

have to follow to ensure the good governance and the Co-operative Housing societies are not an

exception to that.

In this article, an attempt has been made to equip the society managers and the committee members

with the checklist of activities that they will have to follow to ensure the smooth functioning of the

society affairs.

The activities are classified as One time compliances, On-going compliances and the Annual

Compliances.

One time Compliances:

• Adoption of model Bye laws at the earliest

• Registering the society on Mahasahakar Site

• Obtaining PAN & TAN No.from Income Tax Dept.

On-going Compliances:

• Timely payment of the Water Charges, Electricity Charges and Property Taxes.

• Timely payment of MHADA Lease Rentals

• Depositing the maintenance cheques as and when received.

• Preparing the Debit vouchers duly signed for the expenses incurred alongwith the supportings

for easy audit with less queries.

• Maintaining the vouchers, contracts and members’ personal files properly.

• Renewing the Fixed Deposits on time so that there is not loss of interest income..

• Renewing all the contracts on time like Lift maintenance contracts, Intercom and CCTV

contracts etc.

• Obtaining and timely renewal of the Insurance of the building.

• Disposing off the applications received for memenrship, transfers and nominations etc.

• Updation of Statutory Registers like I form, J form, Share Register, Nomination Register and

Investment Register.

• Issuing share certificates to the eligible flat members once the transfer documents are

approved or taken on record in the management committee meeting.

• Payment of TDS into the bank within 7th of the next month

• Timely filing of the Quarterly ETDS returns by 15th of the end of the quarter.

• Paying the Advance tax instalments for the Bank FDR interest and any other taxable income

with the help of the tax consultant.

• Taking care of the written complaints received from the members- Reply within 15 days

• Conducting management committee meetings once in a month by giving 3 days clear notice.

• Discussing the Receipt and Payment Account on monthly basis and approving the same.

• Updating the committee minutes book by duly signing and sealing the same.

• Taking timely action for the recovery of the outstanding dues by issuing notices and for

persistent default taking necessary legal action like filing recovery suit u/s 101.

• Getting Structural Audit Done for the society is applicable.

• Initiating Conveyance/ Deemed Conveyance work if not done earlier.

Annual Compliances:

• Classifying the members’ portfolio in Active and Non-Active member as of 31st March

• Collecting Bank balance confirmations and Interest certificates from all the banks as of 31st

March for the audit.

• Keeping Zerox copies of all the FDs as per Investment Register ready for audit.

• Intimating the classification to the Non-Active member by 30th of April.

• Finalising the Accounts within 45 days i.e by 15th of May.

• Handing over the finalized accounts for audit by 1st June

• Getting the accounts audited by 31st July.

• Reviewing the draft audit report and complying with the observations or queries raised by the

auditor.

• Discussing and approving the final audit report before it is signed.

• Giving 15 days clear notice for conducting AGM.

• Calling for the objections from members if any on the closing balances of their personal

ledgers as appearing in the books of the society.

• Preparing Agenda for the proposed AGM and ATR i.e. Action Taken Report for the previous

year AGM.

• Circulating the Agenda and the audited accounts to the members alongwith the notice of the

AGM.

• Conducting AGM latest by 30th Sept. with no extention possible now.

• Preparing the Annual Report on the activities of the society to be read out in the Annual

General Meeting.

• Preparing Annual Budget for the forthcoming year.

• Updating the members on the important communications received from various authorities

like Registrar, BMC, Govt Collector etc.

• Appointing the Panel Auditor for the current year with previous discussion with the auditor.

• Ensuring that the same auditor will not be appointed for more than 3 consecutive years.

• Getting written consent of the Auditor after accepting the audit.

• Finalising the draft minutes of the AGM within 3 months from the date of the meeting and

circulate the draft amongst the members of the society within 15 days of the meeting of the

committee in which draft minutes were finalised.

• Uploading the mandatory returns as required u/s 79(1A) & 79(1B) with the Dept of Cooperation

on their website (www.mahasahakar.maharashtra.gov.in).These returns needs to be

uploaded by sending the scanned copy of annual report, audited accounts and audit report,

plan for disposal of surplus, amendments to bye laws if any , due date of next elections etc.

The society also needs to upload the appointment letter and written consent of the auditor by

30th Sept.

• Filing Income Tax Returns of the Society by 30th Sept of every year.

• The audit rectification report in form “O” needs to be submitted to the office of the Registrar

within 3 months from the date of the submission of the audit report.

• Intimating the Election due dates 6 months in advance to the office of the Registrar and

preparing the Voters list .