Amendment of section 63

It is proposed to amend Section 63 making it obligatory on the part of every society to get its accounts audited every year and elaborate the scope of audit. (1) Every Cooperative society shall get its accounts audited at least once in a year before the first of September following the close of the cooperative year by an auditor or an auditing firm appointed by the general body of the cooperative society from a panel of auditors or auditing firms approved by the Director of cooperative audit; Provided that the Director of co-operative audit shall be the authority competent to prepare and maintain a list of auditors and auditing firms who satisfy the prescribed qualification and experience for undertaking the audit of accounts of co-operative societies in the state. Provided further that, the National Bank shall prepare a list of auditors and auditing firms who satisfy, the prescribed qualification and experience for undertaking the audit of accounts of State Co-operative Bank and District Central Co-operative Banks. (2) The general body of every cooperative society shall at its general meeting appoint an auditor or an auditing firm to audit the accounts of the society for the cooperative year in which the general meeting is held. Provided that, if the Director of Co-operative audit is satisfied that the society has failed to appoint an auditor or an auditing firm to audit its accounts for a Co-operative year their general body and to intimate the same, the Director of Co-operative Audit,after giving an opportunity in writing to such society and after confirming that the society has not appointed an auditor or auditing firm, may appoint an auditor or an auditing firm to audit the accounts of that society from the approved panel of auditors or auditing firms and such appointed auditor or auditing firm shall be deemed as the auditor or the auditing firm for the purpose of conducting audit of that society for that particular co-operative year under consideration." Provided, further that in case of Government auditors mentioned in the panel of auditors or auditing firms maintained by the director of Co-operative audit, they shall be mentioned by designation only and that in case of a Co-operative Society selecting a Government auditor from the empanelled list, the Co-operative Society shall intimate to the concerned deputy director of the Co-operative audit of the concerned district to cause the audit from a departmental auditor mentioning the auditors designation only. (3) The manner of preparation of the list of auditors and auditing firms by the Director of co-operative audit and the procedure for giving the panel to each co-operative society shall be such as may be prescribed. (4) The audit under sub-section (1) of this section or under section 98U or section 98V shall include an examination of overdue debts, if any, the physical verification and valuation of the assets and liabilities, verification of the cash balance and securities, certification of the profits or losses, compliance with the transparency law and other laws applicable to the cooperative societies including the instructions and directives of NABARD or Reserve Bank of India and an examination of the working and the other prescribed particulars of the society. (5) The auditor or auditing firm shall at all times have access to all the books, accounts, documents, papers, securities, cash and other properties belonging to the society or in the custody of any member of the board or the office-bearer or the chief executive or any other employee of the society and may summon any person in possession or responsible for the custody of any such books, accounts, documents, papers, securities, cash or other properties to produce the same at the registered office of the society or any branch thereof or at any public office at the headquarters of the society. (6) Every person who is, or has at any time been, an officer or employee of the society and every member and past member of the society shall furnish such information in regard to the transactions and working of the society as the Auditor or Auditing firms approved by the Director of Cooperative Audit may require. (7) The board of every cooperative 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 as may be prescribed as at the end of a cooperative year are prepared and presented for audit before the auditor or auditing firm within thirty days of the closure of that cooperative year. (8) The Auditor or Auditing firm shall conduct and complete the audit of accounts as provided for in this Act, or the rules and send copies of the audit report and communicate the results of audit to the cooperative society, the Registrar, the Director of co-operative audit and to the financing bank or credit agency, and if the society is affiliated to any other cooperative society, to such cooperative society, as early as possible but within the first day of September every year. Provided, further that in case of Government auditors mentioned in the panel of auditors or auditing firms maintained by the director of Co-operative audit, they shall be mentioned by designation only and that in case of a Co-operative Society selecting a Government auditor from the empanelled list, the Co-operative Society shall intimate to the concerned deputy director of the Co-operative audit of the concerned district to cause the audit from a departmental auditor mentioning the auditors designation only. (3) The manner of preparation of the list of auditors and auditing firms by the Director of co-operative audit and the procedure for giving the panel to each co-operative society shall be such as may be prescribed. (4) The audit under sub-section (1) of this section or under section 98U or section 98V shall include an examination of overdue debts, if any, the physical verification and valuation of the assets and liabilities, verification of the cash balance and securities, certification of the profits or losses, compliance with the transparency law and other laws applicable to the cooperative societies including the instructions and directives of NABARD or Reserve Bank of India and an examination of the working and the other prescribed particulars of the society. (5) The auditor or auditing firm shall at all times have access to all the books, accounts, documents, papers, securities, cash and other properties belonging to the society or in the custody of any member of the board or the office-bearer or the chief executive or any other employee of the society and may summon any person in possession or responsible for the custody of any such books, accounts, documents, papers, securities, cash or other properties to produce the same at the registered office of the society or any branch thereof or at any public office at the headquarters of the society. (6) Every person who is, or has at any time been, an officer or employee of the society and every member and past member of the society shall furnish such information in regard to the transactions and working of the society as the Auditor or Auditing firms approved by the Director of Cooperative Audit may require. (7) The board of every cooperative 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 as may be prescribed as at the end of a cooperative year are prepared and presented for audit before the auditor or auditing firm within thirty days of the closure of that cooperative year. (8) The Auditor or Auditing firm shall conduct and complete the audit of accounts as provided for in this Act, or the rules and send copies of the audit report and communicate the results of audit to the cooperative society, the Registrar, the Director of co-operative audit and to the financing bank or credit agency, and if the society is affiliated to any other cooperative society, to such cooperative society, as early as possible but within the first day of September every year. (9) The auditor or auditing firm shall have right to receive all notices and every communication relating to the general meeting of a cooperative society and, at the cost of the cooperative society, shall be entitled to attend such meeting and to be heard at the general body meeting, in respect of all or any part of the business with which he is concerned as auditor or auditing firm. (10) If the result of the audit held under sub-section(1) discloses any defects in the working of the society, the board shall take steps to rectify the defects and remedy the irregularities pointed out in the audit report and place the audit report along with the action taken report before the general meeting to be held before the twenty-fifth day of the September every year and explain therein the said defects or the irregularities. The board shall continue to take steps for rectification of all the defects and remedying of all the irregularities in the audit report and appraise the general meetings every year till all the defects are rectified and the irregularities are remedied. The board shall send report of action taken to the Registrar and Director of Co-operative Audit within thirty days from the date of the general meeting. (11) The Director of Co-operative Audit shall submit the audit reports of an Apex cooperative society to the State Government annually for being laid before the legislature in the manner prescribed. (12) If it appears to the general body of a co-operative society that there is a prima-facie case of fraud or misappropriation or embezzlement of funds not detected or properly examined by the auditor during the regular audit or misclassification of accounts, the general body may resolve to provide for a re-audit of any account of the society with a view to truly reflect the financial position of the society and the provisions of the Act, and the rules applicable to the audit shall apply to such re-audit; (13) If it appears to the State Government on an application by a cooperative society or otherwise that it is necessary or expedient to re-audit the accounts of a society, the State Government may, by an order provide for such re-audit and the provisions of the Act, and the rules applicable to the audit shall also apply to such re-audit. Provided that such re-audit shall be ordered only when there is a prima-facie case of fraud or mis-appropriation or embezzlement of funds not detected or properly examined by the auditor or auditing firms during regular audit or misclassification of accounts or for any other valid reasons with a view to truly reflect the financial position of the society. (13A)- Notwithstanding anything contained in the preceding sub-sections, the Director of Co-operative Audit subject to the approval of State Government shall have power to re-examine or reverify particular account or accounts of the audited accounts of any Co-operative Society pertaining to preceding three years and instruct the concerned auditor to rectify the lapses observed during such re-examination or reverification in the next audit report to be issued. (14) Without prejudice to the provisions of sub- sections (5) and (6), the auditor shall inquire; (a) Whether loans and advances made by the co-operative society on the basis of security have been properly secured and whether terms on which they have been made are not prejudicial to the interests of the co-operative society or its members; (b) Whether transactions of the co-operative society which are represented merely by book entries are not prejudicial to the interests of the co-operative society; (c) Whether personal expenses have been charged to revenue account; (d) Where it is stated in the books and papers of the co-operative society that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading; and (e) Whether any special issue or subject matter referred to for enquiry by the Reserve Bank or National Bank has been duly enquired into and report thereof is submitted to the Reserve Bank or National Bank as the case may be. (15) The auditor shall make a report to the cooperative society on the accounts examined by him and on every balance sheet and profit and loss account and on every other document required to be part of or annexed to the balance sheet or profit and loss account. The report shall state whether, in his opinion and to the best of his information and according to the explanations given to him, the said accounts give the information required by this Act, in the manner so required and give a true and fair view,- (a) in the case of the balance sheet, of the state of the cooperative society’s affairs as at the end of the year; and (b) in the case of the profit and loss account, of the profit or loss for the year. (16) The auditor’s report shall also,- (a) state whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit; (b) state whether in his opinion, proper books of accounts have been kept by the co-operative society so far as appears from his examination of those books and proper returns adequate for the purpose of his audit have been received from branches or offices of the co-operative society not visited by him; (c) state whether the report on the accounts of any branch office audited by a person other than the co-operative society’s auditor has been forwarded to him and how he has dealt with the same in preparing the auditor’s report; (d) state whether the co-operative society’s balance sheet and profit and loss account dealt with by the report are in agreement with the books of account and returns; (a) Whether loans and advances made by the co-operative society on the basis of security have been properly secured and whether terms on which they have been made are not prejudicial to the interests of the co-operative society or its members; (b) Whether transactions of the co-operative society which are represented merely by book entries are not prejudicial to the interests of the co-operative society; (c) Whether personal expenses have been charged to revenue account; (d) Where it is stated in the books and papers of the co-operative society that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading; and (e) Whether any special issue or subject matter referred to for enquiry by the Reserve Bank or National Bank has been duly enquired into and report thereof is submitted to the Reserve Bank or National Bank as the case may be. (15) The auditor shall make a report to the cooperative society on the accounts examined by him and on every balance sheet and profit and loss account and on every other document required to be part of or annexed to the balance sheet or profit and loss account. The report shall state whether, in his opinion and to the best of his information and according to the explanations given to him, the said accounts give the information required by this Act, in the manner so required and give a true and fair view,- (a) in the case of the balance sheet, of the state of the cooperative society’s affairs as at the end of the year; and (b) in the case of the profit and loss account, of the profit or loss for the year. (16) The auditor’s report shall also,- (a) state whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit; (b) state whether in his opinion, proper books of accounts have been kept by the co-operative society so far as appears from his examination of those books and proper returns adequate for the purpose of his audit have been received from branches or offices of the co-operative society not visited by him; (c) state whether the report on the accounts of any branch office audited by a person other than the co-operative society’s auditor has been forwarded to him and how he has dealt with the same in preparing the auditor’s report; (d) state whether the co-operative society’s balance sheet and profit and loss account dealt with by the report are in agreement with the books of account and returns; (17) The audit report shall have,– (a) 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 involved, 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. (b) 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. (c) the functioning of the general body, board and sub-committees of the Co-operative Society to be checked and any irregularities or violations observed reported duly fixing the responsibilities for such irregularities or violations. (d) all schedules and other statements as may be prescribed. (18) Where any of the matters referred to in clauses (a) and (b) of sub-section (14) or in clauses (a) and (b) of sub section (15) or clause (a) to (d) of sub-section (16) is answered in the negative or with a qualifying observation, the auditor’s report shall state the reason for the answer. (19) The remuneration of the auditor or auditing firm of a cooperative society shall be borne by the society and shall be at such rates as may be fixed by general body of the society based on the working capital and turnover of the society as per the guidelines issued by Director of Co-operative audit from time to time. (20) The Director of Cooperative Audit shall maintain a list of cooperative societies districtwise, the list of working societies, the list of societies whose accounts are audited, the list of societies whose accounts are not audited within the prescribed time and the reasons therefor. He shall co-ordinate with the cooperative societies and the auditors or auditing firms and ensure the completion of audit of accounts of all the cooperative societies in time every year. Explanation: For the purpose of this section,- (i) ‘Auditor’ means an auditor or an officer of the Department of Cooperative Audit who has passed, in addition to the graduation or post graduation degree, Higher Diploma in Cooperative Management / Diploma in Cooperative Audit / General Diploma in Cooperative management and who has completed the period of probation successfully and who has a working knowledge of the kannada language; or a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 who shall have a fair knowledge of the functioning of the cooperative societies and shall have an experience of at least three years in auditing of which the auditor would like to be included in the panel and chartered accountants shall have working knowledge of the Kannada language. “or a Cost Accountant within the meaning of Cost and Works Accountant Act, 1959, who shall have fair knowledge of the functioning of the Co-operative societies and an experience of atleast three years in auditing and working knowledge of Kannada language] (ii) ‘Auditing firm’ means a firm of more than one Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 or a firm of more than one Cost Accountant within the meaning of Cost and Works Accountant Act, 1959 who or which shall have a fair knowledge of the functioning of the cooperative societies and shall have an experience of at least three years in auditing of which the auditing firm would like to be included in the panel and chartered accountants shall have working knowledge of the Kannada language.