The audit-assurance function of the profession is facing a storm because of the Satyam episode. In this article I propose to bring out a few glaring issues dealing with the audit of co-operative societies and the patent unfairness in law, especially in view of a number of complaints filed by the ‘co-operative department’ with the Institute.
2 The reality :
Everybody is aware that in co-operative societies, there is virtually nothing mutual, but what exists is non-cooperation amongst the members and the managing committee. Politics, infighting, ego problems, indifference, indecision, friction and lack of harmony exist in almost every society — small or
big. Therefore, the auditor needs to be extra cautious.
In a housing co-operative society, there is no regular office, no proper record keeping and no competent accountant. Statutory requirements of keeping the registers and documents are very stringent. Fees prescribed for audit are Rs.3 per month per member. Thus, for a 12-member society, the annual audit fee for the onerous work and responsibility is Rs.432.
Even in a society with commercial activity — like consumer society or credit society, the management is often unprofessional, there is lack of competent staff and proper infrastructure.
I am informed that in co-op. credit societies at villages, which are expected to be functioning like a bank, the situation is precarious. There exists a shabby office, poor working environment, no infrastructure, employees who have not even completed school education, probably only one or two graduates — but not necessarily commerce graduates and above all the control is in the hands of local politicians with vested interests. There also exist time and other pressures on auditors.
The auditor dare not give a qualified report though he makes adverse comments. However, managements, quite often, are used to such comments as it does not have any penal impact on them. What finally matters to them is the audit classification. They request that if the class is downgraded — from B to C; or C to D; the society will be virtually closed down; hence downgrading is avoided. The auditor often thinks — or is made to think — that if he does
downgrading, innocent depositors will suffer ! Although certain norms are prescribed, he at times avoids downgrading though he makes comments.
It also at times happens that due to adverse remarks in the report, audit fees are not paid. On top of it, the co-operative department files a disciplinary case on the following grounds :
- (a) Auditor may have mentioned 18 discrepancies, irregularities or shortcomings. The deptt. points out that he has not commented on 2 or 3 other discrepancies. Now, the report is so qualified that the number of shortcomings is of mere statistical importance.
(b) Difference of opining on grading — Auditors have retained B or C class; or have downgraded from B to C, while they should have classified the society as D. Frankly speaking, auditor should not be called upon to sit in judgment as regards classification. This should be the function of the department based on overall evaluation of the auditor’s report including the comments made as part of the report.
- (c) The worst of all, — when there are frauds or serious irregularities, the auditor himself is required to file a police complaint. Hence, they allege that failure to lodge a police case is also a professional misconduct! It is understandable that the auditors are required to submit a special report to the Registrar; which the auditor does submit. But expecting him to approach police is unfair.
3. Reasons for unreasonable approach :
In earlier years, audit of co-operative societies was done by departmental staff only. There was no concept of appointing a CA. The law was framed keeping in view that audit function is performed by
