Cooperative Society Audit

There is no central cooperative law for all societies — States have their own Cooperative Societies Acts. Multi-state cooperatives are governed by the Multi-State Co-operative Societies Act 2002 (MSCS Act). The Cooperative Societies Registrar in each state appoints or approves auditors under the state act. The Constitution (97th Amendment) 2011 added Article 43B and Part IX-B to mandate audit by Cooperative Auditors under state control.

Unlike company audits (only CA firms), cooperative society auditors can be: (a) CA firms empanelled with the state cooperative audit department; (b) government cooperative auditors (state employees); or (c) in some states, specially qualified cooperative auditors (non-CAs who have passed cooperative audit exams). For urban cooperative banks (UCBs) under dual control, the RBI mandates CA firm auditors for bank audits; the Registrar handles society-level audit.

Most state Cooperative Societies Acts (Maharashtra CHS Act, Karnataka CHS Act) require: annual audit by the Cooperative Auditor; submission of audited accounts to the Registrar within 6 months of the year-end; and display of audited accounts at the society's registered office. Maharashtra: MCS Act 1960 Section 81 — audit mandatory; Section 84 — Registrar can order a special audit if accounts appear defective. Annual general meeting (AGM) must approve accounts within 3 months of year-end.

The ICAI has issued guidance notes and model reports for cooperative society audits. A comprehensive cooperative audit report covers: (1) share capital and membership register; (2) loan and deposit accounts; (3) fixed assets and depreciation; (4) profit and loss and reserve funds (Statutory Reserve Fund — minimum 25% of net profit under Section 63 MSCS Act); (5) compliance with bye-laws; (6) related-party transactions; (7) compliance with state cooperative act provisions.

State cooperative acts prescribe penalties for the committee members (Board) for non-compliance with audit requirements — typically fines and removal from office. Under the MSCS Act 2002, failure to submit annual accounts for audit within the prescribed period results in the Registrar conducting a special audit at the society's expense. For credit cooperatives (UCBs/cooperative banks), RBI penalties under the Banking Regulation Act apply separately for financial irregularities.