1.     Role of Co-operatives  

Co-operatives today, play a prominent role in our economy.  From modest beginnings in the early part of this century they have grown into gigantic enterprises covering virtually all fields of activity in our everyday life, all over the country.  Even though, co-operation is a voluntary movement of the public at large, there has been considerable state participation in the development of Co-operative movement in the post-independence period.  Apart from forming part of national planning, the Co-operatives are today, taking an active and constructive role in the implementation of the new 20-Point Programme and in the upliftment of the weaker sections of the community and the Scheduled Castes and Scheduled Tribes.  They cover such diverse areas as agricultural credit, marketing, processing, storage of agriculture produce, consumer goods, etc., The types of Co-operatives set up are: Agricultural Credit Societies, Land Development Banks, Urban Banks, Marketing and Processing Societies, Sugar Factories,  Spinning Mills, Milk supply Societies, Farming and Irrigation Societies, Weavers Societies, Industrial Societies, Consumers’ Societies, Labour and Transport Societies, Electric Societies, Housing, Poultry and Printing etc, etc. 

2.  Historical Background  

 In its initial stages, Co-operation formed a Central subject. The first legislation on this subject was the Co-operative Credit Societies Act of 1904 based on the report submitted by Sir Fredrik Nicholson. This Act confined itself only to Primary Credit Societies. In order to bring the non-credit societies also within its ambit, the Co-operative Societies Act, 1912 was enacted. The Act of 1912 aimed at formation of Co-operative Societies for the promotion of thrift, self-help among agriculturist, artisans and persons of limited means. Consequent upon the recommendations of the Maclagon Committee on Co-operation in 1915, Co-operation became a transferred subject in 1919 and each state began to enact its own legislation for its co-operatives. In the post- independence period, in the light of the recommendations of the All India Rural Credit Survey Report in 1954, a special role was assigned by Government to the Co-operative movement in the process of national planning. In its enlarged role, the co-operative apart from its primary role of helping its members, also assumed a larger responsibility of developing national economy and promoting the objectives embodied in the Constitution. For this purpose the State accepted and the co-operators conceded the responsibility of imparting strength to Co-operatives wherever necessary by means of State Assistance and partnership In 1959 Karnataka passed a separate Act entitled “The Karnataka Co-operative Societies Act, 1959” (KCS Act, 1959). The basic principles, however, conformed to the two parent Central Co-operative Societies Acts. The first of which was modelled after the Friendly Societies Act 1793 of England. The 1959 Act has been amended from time to time with a view to accommodating the needs of changing times and the aspirations of the people. The State Act contains comprehensive provisions for audit of Co-operative Societies and makes it obligatory for the Director of Co-operative Audit to audit or cause to be audited the accounts of every society at least once in a year.  

3. Brief features of the Financial Provisions of the K.C.S. Act

A Co-operative Society which has for its objects the promotion of the economic interests or general welfare of its members, or of the public, in accordance with Co-operative Principles, or a Co-operative Society established with the object of facilitating the operations of such a society may be registered under KCS Act (Section 4). The aims of the society should not be inconsistent with the principles of social justice, and its bye-laws not contrary to the Provisions of the KCS Act and Rules. It should comply with the requirements of sound business and have reasonable  chance of success before it could be considered for registration (Section 7). Thus a Co-operative Society is a business organisation with a special mode of doing business, in a strictly business like manner tempered by a high moral purpose of encouraging in its members, habits of honesty, industry, thrift, prudence, punctuality and mutual help. The liability of a Co-operative Society may be limited or un limited subject to the provisions of Section 4 read with Section 5. The registration of a society shall render it a body corporate by the name under which it is registered having perpetual succession and a common seal and with power to hold property, enter into contracts, etc., (Sec.9). The Act provides for compulsory audit by the Director of Co-operative Audit or a person authorised by him (Sec. 63). Under sub-section (4 A) of Section 63 of the Act every Co-operative Society shall submit for each Co-operative year, to the Registrar and the Director of Co-operative Audit, statements showing the receipts and disbursements, Profit and Loss and the Balance Sheet for the year and such other statements and returns as the Registrar or the Director of Co-operative Audit may direct. According  to Rule 51 of  KCS Rules every Society has to keep Books of Accounts and Registers in connection with the business of the society in such form as the Director of Co-operative Audit may from time to time require.

4. Salient features concerning accounts

1.     Restrictions on Loans

Under Section 60 of the K.C.S.Act a Co-operative Society shall not make a loan to any person other than a member.  With general or special sanction of the Registrar, however, a co-operative society can make loans to another co-operative society.  A co-operative society may also make a loan to a depositor on the security of his deposit.   

2.     Restriction on Borrowings  

According to Section 59 of the K.C.S.Act a co-operative society may accept loans and deposits subject to the restrictions and limits prescribed, or specified in the bye-laws and further within the limit, fixed in Rule 25 of the K.C.S.Rules.  With sanction of state Government, Co-operative societies may also borrow from credit agencies subject to the limits and conditions prescribed.   

3.     Investment of Funds  

According to Section 58 of the K.C.S.Act a Co-operative society may invest  or deposit its funds (a) in a Government Savings Bank,(b) in any of the securities specified in Section 20 of the Indian Trust Act, 1882  (c) in the shares or securities of any other co-operative society or (d) with any Co-operative Bank or Scheduled Bank approved by the Registrar.  With this special sanction of the Registrar, a co-operative society may invest its Reserve Fund in its own business or in the construction or purchase of buildings or lands required for carrying on the objects of the society. (Rule 23)

4.     Provident Fund

According to Section 62 of the K.C.S.Act a society may establish a Provident Fund for the benefit of its employees.  such provident fund cannot be used in its business or for creating any assets for the society.  The provident fund is also not liable for any attachment or be subject to any other process of any courts or other authority.   

5.  Definition of Audit

Audit or auditing is a critical and intelligent examination of the books of accounts and verification of correctness of accounts with relevant vouchers and documents in order to ensure that the entries in the books have been made correctly so as to constitute a true record of the transactions and that the Profit and Loss account and the Balance Sheet have been properly drawn up so as to exhibit  a true and fair view of the state of affairs of the institution at the end of the year and the profit or loss for the financial year ended on that date.  Such examination should not be confined to a mere arithmetical check of the books of accounts.  It should go beyond the books of accounts to ensure that the transactions recorded therein are genuine,  properly authorised and correctly entered.   

6. Need for Co-operative Audit  

Co-operative Audit serves the following purposes:-  

(1)   The members of the Society are to be satisfied that the affairs of the society are managed properly and on sound business principles.  This is rendered possible by the Co-operative Auditor undertaking a detailed check of the voluminous transactions taking place during the entire year and making a report of his findings as a result of this check, to the members. 

(2)   A large number of societies borrow funds from outside.  The creditors would be keen to satisfy themselves of the financial soundness and credit worthiness of the society.  For this purpose they would depend upon the Co-operative Auditor’s report. 

(3)   A large number of persons are employed by Co-operatives for managing their affairs.  In order to ensure that there is proper check on efficiency and integrity of employees, the managements would require a systematic and thorough check of their accounts.  This purpose is served by Co-operative Audit. 

(4)   Non-members of the Co-operatives who deposit their funds with the Co-operative would like to satisfy themselves that their funds are safe with the society.  This is rendered possible by the Auditor’s report on the working of the society.  

7.  Salient features of Co-operative Audit  

The audit of a Co-operative Society is different from that of a joint stock company because the objects of a Co-operative Society are quite different from those of a Joint Stock Company.  While the main object of a Joint Stock Company is to earn profits, the object of a Co-operative Society is to render service to its members.  Service rather than profit is the motto of a Co-operative Society. 

        Opinions have been expressed from time to time on the nature, extent and scope of Co-operative Audit.   

        According to the Maclagan Committee, Co-operative Audit extends somewhat beyond the bare requirements of the Act and should embrace an enquiry into all the circumstances which determine the general position of the society.  It is the duty of the Co-operative Auditor to notice any instance in which the Act, rules or byelaws have been infringed, to verify the cash balance and certify the correctness of the accounts, to ascertain that loans are made fairly for proper periods and objects and on adequate security to examine repayments in order to check book adjustments and improper extensions and generally to see that the society is working on sound lines and that the committee, the officers and the ordinary members understand their duties and responsibilities.   

       According to the Mirdha Committee, Co-operative Audit should include scrutiny of the extent  of benefit accruing to the weaker sections of the society’s members. 

        Thus a Co-operative Auditor should not confine his enquiry to the books of accounts but should go beyond the books and make enquiries into the working and general functioning of the society.  His enquiry according  to the Maclagan Committee should embrace all circumstances which determine the general position of the society and should aim at seeing that the society is working on sound lines.  The audit of Co-operative Society has to be conducted specially in the background of Co-operative Principles and guidance is to be given by the Co-operative Auditor for improvement of the Co-operative Institution in the light of this background.   

        The Co-operative Audit is thus not merely a financial audit.  It involves Administrative Audit also. 

8. Statutory provisions relating to Co-operative Audit 

     Audit of Co-operatives is conducted as per provisions of Section 63(1) of the Karnataka Co-operative Societies Act, 1959.  According to this section:  

    “  The Director of Co-operative Audit shall audit or cause to be audited by a person authorised by him by general or special order in writing in this behalf, the accounts of every Co-operative Society at least once in each year.”  

       Section 63(4) provides that every person who is or who 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 Director of Co-operative Audit or the person authorised by him may require.   

        Under sub-section (3) of Section 63 the Director of Co-operative Audit or the person authorised by him shall at all times have access to all the books, accounts, documents, papers, securities, cash and  other properties belonging to or in the custody of the society and may summon any person in possession or responsible for the custody of any such books, accounts, documents, paper, securities, cash or other properties, to produce the same at any public office, at the headquarters of the society or any branch thereof.   

        According to section 63(2) of the KCS Act 1959 read with Rule 22 and Rule 29(1) of the KCS Rules, 1960 the audit of the accounts of every Co-operative Society should include the following:-  

(a)  Examination of overdue debts, if any, verification of the cash balance and securities, a valuation of the assets and liabilities and an examination of the working and the other prescribed particulars of the society. 

(b) Verification of the balances at the credit of the depositors and creditors, and of the amounts due by the society’s debtors, of such proportion thereof as may be fixed by the Director of Co-operative Audit. 

(c)  An examination of the transactions of the members of its committee.

(d) An examination of the statement of accounts of the society to be prepared by the committee in such form as may be determined by the Director of Co-operative Audit.  

(e)  Certification of the profits actually realised or loss actually incurred in accordance with the procedure prescribed under Rule 22 of KCS Rules, 1960 and

(f)   Any other matter that may be directed by the Director of Co-operative Audit.   

        Under rule 29(2) of the KCS Rules the statement of accounts as audited, under Rule 29(1) of the KCS Rules, together with modifications , if any, made therein by the Director of Co-operative Audit, shall be final and binding on the society.   

       Section 63(5) of the KCS Act requires communication of the result of audit to the society, the Registrar and to the financing Bank or Credit Agency and if the society is affiliated to any other society, to such society.  

        Under Rule 30 of the KCS Rules every Co-operative Society shall pay to the State Government a fee for the audit of its accounts for each Co-operative year in accordance with the scale fixed by the Director with the previous approval of the State Government in respect of the class of societies to which it belongs.     

9. Main features of Co-operative Audit  

   The main features of Co-operative Audit relate to the following:-  

1)     Adherence to Co-operative Principles

2)     Observance of provisions of Act, Rules and bye-laws.

3)     Valuation of assets and Liabilities and Verification of Cash Balance and Securities.

4)     Verification of balances of Depositors and Creditors.

5)     Examination of overdue debts and classification of bad debts.

6)     Personal verification of members and examination of their pass books.

7)     Discussion of draft audit report with Managing Committee.

8)     Audit classification of society; and

9)     Examination of the working and other prescribed particulars of the society.  

Apart from the general processes of auditing like posting, vouching, verification of assets and liabilities etc., the special features of Co-operative Audit are briefly mentioned below. 

(1) Examination of overdue debts  

       Overdue debts affect the working of a credit society seriously.  They affect the Working  Capital position of the society.  As such it is necessary to make a detailed analysis of the overdue debts with a view to ascertaining the chances of their recovery and classifying them as good or bad.  It is also necessary to compare the percentage of overdue debts to working capital and loans and advances with that of last year and ascertain whether the trend is decreasing or increasing, whether adequate action is being taken for recovery, and whether necessary provision is being made for doubtful debts.  Detailed instructions have been issued in this regard in the Audit Instructions.   

(2) Adherence to Co-operative Principles     

       It has to be ascertained in general whether and if so, to what extent the objects for which the society was set up have been fulfilled.  The assessment need not be only in terms of profit made.  It could also be in terms of benefits given to members.  The benefits could be in terms of sales effected at lower prices to members, economy achieved in operations, avoidance of wastage of funds, avoidance of middlemen in purchases etc., etc.,  

(3) Observance of the provision of the Act and Rules  

       Infringement of the provisions of the KCS Act and Rules and the bye-laws of the society, if any, should be pointed out in audit.  Financial implications of the infringement should also be assessed and indicated.  As per Section 57(2A) of the KCS Act and Rule 22(2) of the KCS Rules, the maximum  dividend a society can  pay to a share holder is 25 percent.   

(4) Personal verification of members and examination of their pass Books   

    This is necessary in Co-operative Societies  in order to ensure that books of accounts are free from manipulation, since in many Rural and Agricultural Societies a considerable number of members could be illiterate  and as such personal verification provides a safeguard against any manipulation.  Personal verification will however be on the basis of a test check.  Detailed instructions have been issued in this regard in the Audit Instructions.   

(5) Audit classification of Society  

    Audit classification made by the Auditor indicates the overall performance of the society.  Detailed instructions have been issued in this regard in the Audit Instructions.   

(6) Discussion of the Draft Audit Report with Managing Committee  

       The draft audit report should be discussed by the Auditor with the management before finalising the Audit Report.  Detailed instructions have been issued in this regard in the Audit Instructions.   

10. Objects of Co-operative Audit  

1.     Verification of the accuracy of the books of accounts and ascertaining correctness of accounts. 

2.     Detection of clerical errors and errors of principles and prevention of such errors.

3.     Detection and prevention of frauds.

4.     Examination of the affairs of the society in order to ascertain whether they have been carried on in accordance with the provisions of the Co-operative Law and the Principles of Co-operation and on sound business principles. 

5.     (a) Assessment of the extent to which the conditions of the members, particularly their economic conditions, have improved by the operations of the society. 

(b) Certification of actual profit realised or loss incurred.

11. Main Aspects of Co-operative Audit

     Thereare two main aspects:firstly, Co-operative Audit is an audit conducted under the statute and therefore, it is statutory in character and, secondly, it is undertaken by Government itself and it is therefore, state controlled audit.   

     State, today, is a major partner in a majority of Co-operative undertakings and the state has acknowledged the agency of Co-operatives as an instrument  of economic growth.  The State as such, takes active part in the administration and management of Co-operatives.  It is therefore vitally interested in getting the accounts of Co-operative Society audited regularly.  The success of Co-operative movement depends on proper  management of Societies.   There are chances of the funds  of the societies being mismanaged  if the relevant transactions are not properly  and promptly  checked and prompt follow-up action taken on the findings of Audit.  Control exercised  through audit thus  serves a very valuable purpose and enables  effective weeding out of the unscrupulous and  undesirable elements from the Co-operative movement.  

      The audit of Co-operative Societies which is compulsory under the Act has been entrusted to the Director of Co-operative Audit whose duty it is to ensure that the accounts of the societies are audited every year. This statutory  requirement  ensures proper management of Co-operatives which are public organizations. 

12. Duties and Powers of Co-operative Auditor

Duties

     The main duties and responsibilities are the following:

(1)  It is the duty of the auditor to verify  the cash balance and securities, examine the overdue debts, if any, value assets and liabilities  of the society, verify balances at the credit of the depositors and creditors and the amount due by the society’s debtors (Section 63(2) of the KCS Act read with rule 29(1) of the KCS Rules).

(2)  The Auditor should satisfy himself that the Co-operative Society has kept all account books and registers in connection with the business of the society as required by the Director of Co-operative Audit, properly and up-to-date (rule 51 of the KCS Rules).

(3)  The accounts have been prepared by the Co-operative Society for each separate year in such form as specified by the Director of Co-operative Audit (Rule 53(1) of the KCS Rules).  

(4)  Verify whether the provisions of all the bye-laws have been strictly observed and the bye-laws are in accordance  with the provisions of the Act and Rules framed there under.   

(5)  Among other things he should verify for example:

(i)  In respect of Credit Societies and Banks, whether loans have been sanctioned for proper objects and periods and on adequate security as per conditions  applicable to  grant of such loans to proper persons.  He has also to examine the      repayments in order to ascertain  book adjustments, improper renewals etc.,  and examine  whether prompt action has been taken for recovery of dues and  over dues.   

(ii)  In respect of marketing societies whether  the society has undertaken pooling and grading before  sale of produce of members etc., and -  

(iii) In respect of other societies whether the business of the society has been conducted according to the Co-operative principles and sound business  practices.  

(6)  Verify genuineness and adequacy of securities, mortgage and other bonds,      adequacy of provision made for depreciation of assets and other items of      expenses including interest payable on borrowings and deposits.  

(7)  (a) Conduct personal verification of members accounts and examination of their pass books with a view to preventing manipulation of accounts by dishonest employees and office bearers. 

(b)  Verify whether investments of funds made are in accordance with provisions Of section 58 of K.C.S. Act read with Rule 23 of K.C.S. Rules and borrowings made are as laid down in Section 59 of the Act read with Rule 25 of the Rules, and loans made are in accordance with Section 60 of the Act.  

   Verify whether net profit arrived at is in accordance with the provisions of  Rule 22 of K.C.S.,  Rules and appropriations made out of net profits are in Accordance with Section 57 of the K.C.S. Act.                  

(8)  Analyse the reasons for losses incurred by the society and assess after careful  examination, deficiency or loss, if any, arising out of negligence or misconduct on the part of any employee or member of the committee,  or of the society and after giving due opportunity to the  persons whose actions are likely to be adversely commented upon in the Audit Report to explain why responsibility  should not be fixed on them for the said deficiency or loss.  

(9)  Certify the balance sheet subject to qualifications if any indicating the state of-

Accounts  and Affairs of the society and award audit classification to the societies on the basis of instructions issued by the Director of Co-operative Audit from time to time.   

(10) Government have been relying on the Co-operative  Sector to a great extent in the implementation of their schemes for the upliftment of the weaker sections of society.  The schemes include provision of cheap houses, providing  credit to farmers, encouragement to small scale and cottage industry, reduction in and easy availability of essential consumer goods etc., etc., Audit has a positive role to play in the implementation of these schemes,  by ensuring that the interests of the weaker  sections of the society are taken care of by the management.  During audit it should be seen, for example, that loans are given in right amounts, at right time  and for right purposes, increased profits reach the masses in the form of reduced prices etc., etc.,  

The above constitute some of the important duties of the Auditor and are, as such not exhaustive.  In general the Auditor’s examination of accounts and affairs of the society  sould be such as to enable him to certify that the balance sheet of the society  exhibits a true and fair view of the affairs of the society at the end of the year and the profit or loss for the financial year ended on that date.  The auditor should always  be kind and courteous in his relations with both officials and non-officials.   His reports should be couched in polite, courteous and clear language.  He should act without fear or favour.

13. powers 

Sub sections (3) and (4) of Section 63 of the K.C.S. Act contain provisions relating to the powers of auditors.   

     Under Section 63(3) of the K.C.S.Act, the Director of Co-operaative Audit or the person authorised by him  shall at all times have access to all the books, accounts, documents, papers, securities,  cash and other properties belonging to, or in the custody of the society and may summon any person in possession or responsible  for the custody of any such books, accounts, documents, paper, securites, cash or other properties, to produce the same at any public office at the headquarters of the society or any branch thereof.   

    Under Section 63(4) of the K.C.S.Act, 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 Director of Co-operative Audit or the person authorised by him may require.  Failure of an officer/employee/member of a Co-operative Society in possession of any information, books  or records to furnish  such information or produce such books or records or to give assistance to the person authorised to audit the accounts of the society under section 63 of the Act is an offence and is punishable under Section 109 of the Act.  

     Under Section 66 of the K.C.S. Act, if any officer or person conducting audit under Section 63 of the K.C.S.Act , has reason to believe that any books or other property of the society have been tampered with or are likely to be tampered with, if left with the society with a view to eliminate or efface or change or manipulate any evidence which  may be deemed necessary by such officer or person in connection with the proof of any defect or irregularities noticed by him during the course  of audit, he shall have the power to seize and impound such books or property in such manner and for such period as may be prescribed.  The manner for seizure and the period for which they could be impounded are laid down in Rule 53 A of the K.C.S. Rules.  

14.Different Types of Audit:  

There are four types of audit.  They are:  

(1)   Concurrent Audit

(2)   Interim Audit

(3)   Test Audit  

(4)   Final Audit

(1)  Concurrent Audit:

Under concurrent audit, audit is concurrent with the period of maintenance of accounts and the auditor engaged on audit continuously throughout the year.  This type of audit is generally adopted in big institutions, State Level and Apex Bodies, District Co-operatives Central Banks, Central Stores, Sugar Mills, Spinning Mills etc., having large volume of business and huge daily transactions.  Concurrent audit is conducted by Departmental Auditors and the cost thereof is borne by the societies concerned.  Auditors conducting concurrent audit have to furnish Concurrent Audit Report to the Societies concerned periodically in the manner prescribed by the Director of Co-operative Audit so as to facilitate the management to rectify the defects well before the issue of final audit report.

(2)  Interim Audit:

Interim Audit is conducted before Final Audit.  It facilitates early completion of Final Audit.  It also helps the staff to rectify the irregularities mentioned in the interim audit report.  It ensure prompt action on the part of the management for rectification of  errors pointed out in the interim audit report.  Interim Audit Report has to be submitted for the period concerned with the summary of defects, if any.

(3) Test Audit

Test Audit is conducted with a view to testing the correctness of Final Audit done by an Auditor. It is practically a re-audit of the accounts of the society. All the societies are not test audited during the year. Only a certain percentage is taken up for test audit. The objective of Test Audit is to check the efficiency of audit staff, to find out the mistakes committed by them and to ensure correct and efficient audit. Wherever possible, test audit is conducted by the superior officers in the presence of the Auditor who conducted the final Audit.

Test Audit is conducted in order to ascertain whether the auditor has done the audit correctly or not.  While selecting societies for test audit care should be taken to select only those with considerable transactions.  In the case of societies with heavy transactions it is sufficient if one month’s transactions are test-audited.  The effectiveness of Test Audit depends, to a good extent, on careful selection of societies

If test audit of a society discloses serious defects, the work of the concerned auditor should be examined in-depth by test auditing more societies audited by such auditors. The audit certificates of the societies selected for test audit should not be issued before they are test audited.

4) Final audit:

Final Audit is the statutory annual audit.  It is taken up after the end of the financial or trading period, after the accounts are closed and a profit and loss account and balance sheet are prepared.  It includes a complete examination of all books of accounts, verification of cash and bank balances and securities, verification of assets and liabilities and examination of overdue debts.  Final Audit brings to light the extent to which the society has been able to improve the economic conditions of its members.  Apart from assessing the financial position of the society, final audit should aim at finding out the extent to which the society has been able to achieve its specified goals.  

The final audit report should indicate, inter alia, the details of assets and liabilities, over dues, bad and doubtful debts, confirmations received from creditors and debtors and details of suspense account.  A defects sheet enumerating the various defects relating to contravention of the Act, Rules and Bye-laws, misappropriation of cash, un-authorised payments etc., should accompany the final audit report.  The auditor should also furnish a certificate in the prescribed form indicating the state of accounts and affairs of the society.

2.5  Supervision of Audit  

A system of supervision of audit is in vogue in the Department.  This is not in the nature of test audit in as much as it not a re-audit.  Special feature of supervision of Audit is that the work done by the Auditors and the Audit Report prepared by him are being scrutinised before the Audit Report is issued.  Main features thereof are indicated below.

The Assistant Director should get the arithmetical accuracy of the final accounts checked with the help of an Auditor or First Division Assistant from his office who will accompany him on tour..  If no such member of his staff is able to accompany him he should post-audit the arithmetical accuracy of the final accounts soon after he returns to his Head quarters.  By that time the audit report and accounts might have been issued.  Even then the post audit of arithmetical accuracy should be completed and if any arithmetical corrections are necessary the Institutions and all concerned should be informed immediately.  He should also see the following:  

(1)Assistant Director should review the action taken by the Institution to rectify the mistakes and omissions pointed out in previous audit reports and make a comment if the action taken has not been satisfactory.  

(2) He should see whether the Auditor has verified investments and securities and sought confirmation letters form various Debtor and Banker of the society / Institutions and conducted personal verification of loans.  

(3)  He should see whether the Auditor has checked up the adequacy of depreciation provided and valued the closing stock correctly.  

(4)   In respect of Banking Institutions the Fluid resources should be examined by the Assistant Director of Co-operative Audit with reference to the provisions of the KCS Rules as well as rate fixed under the B.R. Act.  

(5)   Provisions made for bad debts should be examined:  

(6)  After conducting the above spot checks the Assistant Director should go through the draft audit report and make necessary corrections and approve the same.  He should also show it to the Management and get the draft signed by the Secretary or the Managing Director in token or his having seen it all draft stage.  In case the Managing Director or Secretary wishes to and his own version regarding any particular transaction that may be incorporated in the audit report together with the Auditor's comment thereon.  

(7)   In respect of audits which can not be supervised locally by the Assistant Director, a general scrutiny will be exercised by him when audit reports and account are received from the Auditors concerned.  As far as possible 50 percent of the audit completed in a month should be scrutinised by the Assistant Director.  

(8) On receipt of the audit reports relating to audits which are not supervised on the spot the Assistant Director will exercise the following checks in addition to the checks stipulated in Head quarters office Circular No. ADT/2/78-79, dated: 18^th May 1978.  

(i) Whether the Auditor has furnished as many details as necessary regarding shortages or misappropriations if any, and explained them clearly.  

(ii) Whether the language of the report is impersonal and objective.  

(iii) Whether the Auditor has given opportunity to the persons concerned to furnish their versions regarding transactions which are adversely commented upon in the audit report and their comments regarding assessments made against them.  

(iv) Whether necessary schedules and statements have been attached to the final accounts.  

(v) Whether there is any apparent omission on the part of the Auditor to look into any aspects of the working of society, as can be gathered by a perusal of the final accounts and his report.  

(vi) The arithmetical accuracy of the final accounts should be got checked in the Assistant Director's Office.  

(9)  The sub divisional Assistant Director of Co-operative Audit, and the Deputy Director of Co-operative Audit are required to supervise certain audits conducted by the Auditors. For the purpose they have to select for every month, a prescribed number of societies whose audit is in the final stage of completion. The societies selected should generally be important institutions. They should visit the institution towards the close of the audit. i.e., a few days prior to the completion of audit. During the course of their supervision they should look into the following points before approving the draft audit report prepared by the Auditor.  

(1)  Whether the Auditor has seen that the society has fulfilled the objectives for which it was set up.

(2)  If there are shortages or misappropriations whether the Auditor has furnished as many details as necessary and whether he has avoided vague statements and explained the shortages and misappropriation clearly. (Note: the Assistant/Deputy Director should also look into the relevant documents wherever he suspects shortages or misappropriations)

(3)  Whether the Auditor has used impersonal and objective language in his report without mentioning individuals by name except while reporting shortages or misappropriations or dues outstanding against individuals.

(4)  Whether it is evident that the Auditor has seen all the vouchers and challans, all books of accounts and all the statements or the final accounts and whether there is any apparent omission on the part of the Auditor to look into any aspect of the working of the society as can be gathered by a perusal of the final accounts and his report.

(5)  Whether the Auditor has given opportunity the persons concerned to furnish their versions regarding transactions which are adversely commented upon in the audit report and obtained their comments regarding assessments made against then.