Audit, Inquiry and Inspection

Why the State Supervises Societies

Because a co-operative society handles the small savings of ordinary people and enjoys the protection and often the support of the State, the Act gives the Registrar wide powers to audit, inquire into, inspect and supervise societies. These powers protect the members against mismanagement and fraud and keep the co-operative movement healthy.

Audit

Audit is compulsory for every co-operative society. Under Section 81, the accounts of every society must be audited at least once in every co-operative year by the Registrar, or by an auditor authorised by him, or by a certified/approved auditor from the panel maintained for the purpose. The auditor examines the accounts, verifies the cash and securities, checks that the money has been used for proper purposes, and reports on the true state of affairs.

The audit is not just an arithmetical check — it also assigns an audit classification (grade) to the society (such as 'A', 'B', 'C' or 'D') showing how sound its working is, and it points out defects, irregularities and losses. The audit report is placed before the general body, and the committee must rectify the defects pointed out and report the rectification to the Registrar. Following the 97th Amendment, the accounts must be audited within a fixed period (within six months of the close of the year) and the audit must be done by an auditor from the State's approved panel.

Inquiry

Under Section 83, the Registrar may, on his own motion, or on the application of a specified proportion of the members or of a creditor, or on the request of a financing bank or the federal society, hold an inquiry into the constitution, working and financial condition of a society. He may depute an officer for the purpose. If the inquiry reveals wrongdoing, the Registrar can take further action — including proceedings to fix liability on the persons responsible.

Inspection

Under Section 84, the Registrar may inspect the books, documents, cash and property of a society — for example, on the application of a creditor, to see whether the society is able to pay its debts. Officers deputed for audit, inquiry or inspection have the power to call for the books and records, and every officer and member of the society is bound to produce them and give the necessary information.

Fixing Liability — Surcharge

Where an audit, inquiry, inspection or winding up shows that a person (a past or present officer or committee member) has misapplied or retained money, or caused loss to the society by breach of trust or negligence, the Registrar (or a person authorised by him) may hold an inquiry and, under the Act's surcharge provisions (Section 88), pass an order requiring that person to repay or restore the money or to pay compensation for the loss. This is a powerful protection because the money can then be recovered from the delinquent officer.

Supersession of the Committee …