Model Bye-Laws- Audit of Accounts of Residential Society

As we all are aware that Co-operative Housing Societies are Non-profit making organizations. The main aim of Housing Societies is to provide service to the members of the Society. Although societies do not earn a profit, it is necessary to know whether a Society’s current income is more or less than their current expenses. Proper accounts need to be maintained and presented before the members for their approval in the Annual General Body Meeting. Therefore, the accounts need to be properly audited before 31 st July of every year as per the provisions of the Act.

It is the responsibility of the Committee or Hon. Secretary of the Co-operative Housing Society to get the accounts audited. Audit of accounts must be done at least once in a year by the Auditor who should be a Chartered Accountant holding a certificate of practice issued by the Institute of Charter Accountants of India or holding a Government Diploma in cooperative Accounts or Diploma in Co-operation & Accountancy (GDCA). The Auditor should be appointed from the panel of auditors maintained by the Registrar.

Steps by Steps Approach for an Audit of the Society Accounts

For finalization of accounts, and audit of the Balance Sheet, the Hon. Secretary is supposed to keep documents ready. Let us take look at the list of these documents.

List of documents required for the finalization of the Balance Sheet:

1. Cash Vouchers
2. Cheque payment vouchers with supporting bills filed date-wise
3. Cheque counterfoils specifying the purpose of payment
4. Pass Book or Bank Statement of all banks up to date
5. Updated Petty Cash Register
6. Bills raised to the members and details of payment received against the bill.
7. Fixed Deposit Receipts of all (i.e. matured FD’s, renewed FD’s, new FD’s and Premature FD’s)
8. Copy of Audited Balance Sheet with Income & Expenditure Account of the previous year.
9. Interest Accrued Certificate & certified copy of Bank Balance as on 31 March from all the banks.
10. List of Expenses prior to March-end, which are unpaid i.e. provision of expenses such as salary to staff, security charges, electricity bill. etc.
11. List of Prepaid Expenses such as Insurance Premium, Lift Maintenance Contract, and so on.

NOTE: For the convenience of the accountant, send all the documents together.

What to be followed

1. Cash Vouchers and Cheque vouchers should be filed separately date-wise.
2. Attach bills to the vouchers.
3. Vouchers should be duly signed by a minimum of two Managing Committee members.
4. Updated Passbook / Bank Statement should be readable.

Procedure after receiving a copy of the Balance Sheet from the Accountant

1. On receipt of the Provisional Balance Sheet from the accountant, place it before the Managing Committee for its approval.
2. If required, make changes in the Balance Sheet / Income & Expenditure Statement.
3. Inform the changes to the accountant and modify the Balance Sheet/ Income & Expenditure Statement.
4. On approval of the Managing Committee members, submit an approved copy of the Balance Sheet and books of accounts to the auditor.
5. Society should also produce Minutes Book/ Register of Managing the Committee Meeting Annual / Special General Body Meeting. Statutory Registers during audit procedure.
6. Rectify any accounting entries suggested by the auditor and get thę Balance Sheet rectified from the accountant.
7. After final approval from the auditor, place the final Balance Sheet copy before the Managing Committee for signature.
8. Prepare the Audit Rectification Report on the audit remarks given by the auditor, place the same before the Managing Committee, and submit it to the Deputy Registrar within three months of receipt of the Audit report.

To avoid negative remarks on the audit report, take the following precautions

• All the cash and cheque vouchers should be approved by at least two Managing Committee members. Attach the invoice to the vouchers. Affix revenue stamps on cash payment vouchers above Rs. 5000/.
• Submit the Minutes book of the Managing Committee meeting with the accounting documents, take regular monthly meetings of the Managing Committee members, and record all the transactions in detail.
• Submit complete Statutory Registers as prescribed by bye-laws like I Register, J Register, Share Register, etc.
• To confirm outstanding dues from members before the 31st of March, it should be verified and rectify.
• Deduct TDS before making payments to parties as applicable and file quarterly returns.
• Get land and building of the Society conveyed in the name of the Society.
• Ensure the building/buildings of the Society against the risk of fire and earthquake.
• The Society shall conduct the Structural Audit of the building of the Society as follows:
  (1) For the building aged 15 to 30 years – Once in 5 years
  (2) For the building aged above 30 years – Once in 3 years
  Structural Audit shall be carried out by the Govt. Approved Architect.
• Prepare an Audit Rectification Report on the objections raised by the Auditor. Further, the Society has to submit the Audit Rectification Report at the Registrar’s office within three months from the date of audit.
• Pay subscription fees to the Housing Federation every year.

Guidelines to get ‘A’ grade on Audit Report

1. Members’ dues list should be nil/ minimum.
2. Sinking Fund and Repair Fund should be invested before 31st March. Earmark them separately.
3. Collection from members for common utilities should not be less than the expenses.
4. Cash and cheque vouchers should be authorized by two signatories.
5. Outstanding dues as of 31st March should be confirmed from members.
6. Statutory registers should be duly updated.
7. Submit the ‘O’ form within three months from the Audit date.
8. The bills for Electricity Charges, Property Taxes, and Water Charges should be transferred in the name of the Society.
9. The property of the Society should be insured.
10. The nomination form should be obtained from the members and recorded.
11. Payment vouchers of Rs.5000/- and above should be affixed with revenue stamps.
12. The Managing Committee should meet once every month and approve the expenses of the previous month.
13. A structural audit should be conducted if the building of the society is more than 15 years old.
14. File TDS and Income Tax Returns.
15. Maintain Minutes Book

Statutory requirements

• Books of accounts should be audited on or before 31st July of every year. Annual General Body Meeting should be called on or 30th September
• In the AGM, the Managing Committee members have to place the audited Balance Sheet as on 31st March and the annual budget current year before the General Body.
• Appoint a Statutory Auditor for the current financial year. The remuneration of the auditor has to be fixed in the AGM.

Who is responsible for the audit of accounts?

As per bye-law no. 152: The Secretary of the Society shall produce or cause to be produced all the books, registers, records before Internal Auditor and the Statutory Auditor, in the office of the Society or where the records are normally kept and furnish such information as may be required by him for the conduct of the audit of the accounts of the Society.

Statutory requirements to be fulfilled by every Society

• Invest the amount collected towards the Sinking Fund before 31st March.
  (Note – Interest earned from Nationalised banks is taxable so ask for a TDS certificate if invested in a Nationalised Bank)
• To complete Statutory Registers as prescribed by bye-laws.
• Ensure Minutes Book / Register of AGM and Managing Committee Meetings are updated regularly.
• To verify the actual cash in hand as on 31st March along with the cash balance as appearing in the Cash Book.
• Make sure that Entrance Fees and Transfer Fees are collected the time of transfer of flats.

Internal Audit

In large societies where the number of members is more than it is advisable to appoint an Internal Auditor with the approval of the AGM. This kind of audit is in addition to the Statutory Audit. Internal audits are helpful to know the accuracy and transparency in the books of accounts and transactions. An Internal Auditor can be appointed his/her remuneration can be fixed in the AGM.

Audit not done for several years

Societies who have not conducted audits of accounts for several should get it done by providing the following documents for those respective years. For example, if the audit of accounts is not done from 2015 onwards then keep the following documents ready from 1st April 2015 –

• Cash Vouchers
• Bank Vouchers
• Updated Bank Statement
• Petty Cash Register
• Copy of bills raised and details of payments received against those bills
• FD Xerox
• Interest Accrual Certificate and Bank Balance Certificate

Sometimes due to change in committee/s or improper handing over / taking over by earlier Managing Committee/s, the new Managing Committee/s does/ do not hold all documents to prepare the Balance Sheet. In such cases, the current Managing Committee can study the passbook to find the reasons for which cheques were issued and from which members cheques were received. The Accountant can also help the Committee to prepare the Balance Sheet only when full cooperation from the Managing Committee members is guaranteed, for instance, many uncertain / suspense entries can only be resolved with the help of Managing Committee members. The audit of accounts should not be stopped or delayed at any cost. Get it done and make it a regular feature from the succeeding financial years.

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