Records, Registers, and documents to be maintained by Co-Operative Society:

Transcription

1 Records, Registers and Documents to be maintained by the Co-operative Societies and Banks and Duties and Responsibilities of the Directors and Officers Evolution and challenges By CA Mohan Sanzgiri Records, Registers, and documents to be maintained by Co-Operative Society: Section 79 of the Maharashtra Co-operative Societies Act empowers the Registrar to direct any society or class of societies to keep proper accounts with respect to all sums of money received and expended by the society and the manner in which the receipts and expenditure of the society are to be maintained. The following accounting records are required to be maintained by the Co-Operative Housing Societies as per Rule 65 of the Maharashtra Co-operative Societies Rules 1961 and bye laws No. 142 as applicable to Co-Operative Housing Societies. Records: Certificate of Registration under the Statute Bye Laws Model or Specific Certificate of Registration under Income Tax, Charity Commissioner, from Home Ministry (in case of Donations from Abroad), Agricultural & Rural Development, Reserve Bank of India (in case of Coop Banks), & any other mandated statutes for this purpose. Financials, and Returns with Acknowledgement of Lodgements, Minute Books of All meetings Managing Committee, Sub-Committees, and General Body. Registers: Register of Members, promoters, managing committees, Register of Shares Issued, transfers, with Linkage to any Lending and Charge thereon (Especially in Urban Co-operative Banks); Audit rectification register in form O as prescribed under Rule 73 of the Maharashtra Cooperative Society s Rules 1961, Register of Power of Attorney issued, Revoked, and operating Authorities, Investment register, Nomination register, Loan register (if loan is raised), Mortgage register (if property is mortgaged), Property register.

2 Documents: Financials & Operations: System Generated Data and Records, and Back up of Systems Output for Cash book, General ledger, Personal ledger, Sinking fund register, Investment register, Register of deposits made with the local authority, the electric supply committee and any other Authority, Register of Fixed Assets - furniture, fixtures and office equipment, Register of library books, Register of allotment of flats, Safe Deposit Vaults (with Locker Key Register), Structural audit register (as and when required), The society should maintain separate files for the following items: Application of membership. Application for associate membership. Application for nominal membership. Letters of resignation of membership, including association and nominal membership. Applications for transfer of shares and/or interest in the capital/property of the society. Cases of expulsion of members. Nominations made by members, including revocations thereof. Separate file for correspondence entered into with each member. Correspondence with the registering authority. Correspondence on property taxes including non-agricultural taxes. Correspondence on water charges. Correspondence on electric supply. Correspondence on conveyance of the property. Agreements, contract deeds with papers connected thereto. Approved plans of construction and correspondence thereon. Application for exchange of flats. Correspondence on allotment of flats. Application for allotment of parking spaces and stilts. Vouchers, along with bills relating thereto arranged in order of entries in the cash book and the journal. Counterfoils of challans for credit of amounts into the bank, arranged in order of dates of credits. Counterfoils of cheques issued. Counterfoils of share certificates. Application for duplicate share certificates. Application for registration of the society, the copy of the Bye-laws and amendments thereto. Counterfoils of receipts or carbon copies of receipts issued by the society. Counterfoils of bills or carbon copies of bills for the society s charges. Correspondence relating to loan received and property of the society mortgaged. Notices and agenda of the meetings of the general body of the society.

3 Periodical statements of accounts prepared by the society. Committee s annual reports on the working of the society. Audit memos received from the statutory auditors, with rectification reports thereon; Audit reports received from internal auditors, with rectification reports thereof; Notices and agenda of the meetings of the committee. Papers pertaining to the election of the committee. Complaint from members and correspondence thereof. Special Books and Registers to be maintained by certain types of societies. -As regard by other account books, different types of accounts as warranted by the nature of their transactions are required to be maintained by different types of societies. Thus, agricultural credit, multi-purpose and service societies will have to maintain a loan register, a register of declarations obtained from their members in accordance with the provisions of section 48 and Rule 47 (Form M, prescribed in the Rules). They are also required to maintain an Assets Register showing particulars of the lands held by their members. Societies, which accept fixed deposits, are required to maintain a Fall Due Register of fixed deposits. Banks and other credit institutions are required to maintain a Demand, Collection and Balance register. Societies, which have undertaken trading or manufacturing activities, such as consumer s societies, marketing and processing societies and industries societies are required to maintain Purchase and Sales Journals and Stock Ledgers. When the numbers of securities held by a society are many and varied, an Investment Register separate cost accounts, which will have to be reconciled with financial accounts. If the society has undertaken distribution of controlled commodities, a number of additional books and registers, forms of which have been prescribed by the Civil Supplies or other Controlling Government Departments like excise, are required to be maintained. Duty of Auditor to see that necessary account books are maintained. -It will thus be seen that besides the statutory books prescribed under the above Rule, different type of societies will have to maintain different books of accounts. Some books are common to all types of societies, which have undertaken the particular types of activities. Rule 69 (3) requires the auditor to report whether in his opinion, proper books of accounts, which give all the information required under the Act, have been maintained by the society. It will, therefore, be the duty of the auditor to see that all societies in his charge maintain proper accounts and if any of the special account book or register is not maintained, he should guide the society in writing up the book or register. It is needless to add that if proper records and registers are maintained then audit can be completed methodically and in minimum time. Responsibility for Maintaining and Preserving the Records: It is the responsibility of the committee to decide the person who should maintain the above records. In the absence of any specific decision of the committee, it will be the responsibility of the secretary of the Society to keep up to date and maintain the account books, registers and other records including the files mentioned above. It is to be noted that many records need to be maintained on permanent basis like Statutory Records, Audit Records along with Final Accounts mentioned above. Certain records like the bill book, receipt book, vouchers are to be maintained for at least 10 years. Before destroying the old records, necessary resolutions have to be passed in the committee meeting. The detail guidance is provided by the commissioner of co-operation in this respect and the circulars are available at the commissioner office.

4 Duties & Responsibilities of Directors of a Co- Operative Bank The primary (urban) co-operative banks have been functioning under the supervision and control of Reserve Bank of India for banking related functions in terms of the powers vested in it, under Banking Regulation Act, 1949 (As applicable to co-operative societies) and the Reserve Bank of India Act, ROLE OF DIRECTORS DO S AND DON TS The Board of Directors of the primary (urban) co-operative bank should ensure that proper loan policies are adopted and followed. It should be ensured that all circulars and other material relating to policies issued by RBI/Government are seen by every member of the Board and also placed before the Board for suitable action. A list of DO S and DON TS for guidance of the directors of primary (urban) co-op. banks is given below. The list is illustrative and not exhaustive and is not to be regarded as a substitute to the specified duties, responsibilities or rights of the Board of Directors as enunciated in the co-operative law and/or by-laws of the respective banks: DO S A. Discipline & Involvement: The directors should: (i) attend the board meeting regularly and effectively. They should work in a spirit of cooperation. (ii) study the board papers thoroughly and use the good offices of the chief executive officer for eliciting any information at the Board Meeting. (iii) ask the chairman to furnish the board papers and follow up reports on a definite time schedule. (iv) be familiar with the broad objectives of the bank and the policy laid down by the Government and the Reserve Bank. (v) involve themselves thoroughly in the matter of formulation of general policy and also ensure that performance of the bank is monitored adequately at board level. B. Constructive & Development Role: The directors should; (i) welcome all constructive ideas for the better management of the bank and for making valuable contribution. (ii) try to give as much of their wisdom, guidance and knowledge as possible to the management.

5 (iii) try to analyse the trends of economy, assist in the discharge of management s responsibility to public and formulation of measures to improve customer service and be generally of constructive assistance to the bank management. (iv) work as a team and not sponsor or be prejudiced against individual proposals. Management, on its part, is supposed to furnish full facts and papers in advance. C. Business Specific Contribution The directors should accord attention on the following aspects of the bank s working: i. compliance with monetary and credit policies of RBI/Government; ii. observance of cash reserve and statutory liquidity ratio; iii. efficient management of funds and improving profitability; iv. compliance with guidelines on income recognition, asset classification, provisioning towards non-performing assets; v. deployment of funds to priority sector/weaker sections; vi. overdue amounts recovery ensure that recoveries are made promptly and outstandings are reduced to the minimum; vii. review of action taken on RBI inspection /statutory and internal audit reports; viii. vigilance, frauds and misappropriation; ix. strengthening of internal control system and housekeeping viz. proper maintenance of books of accounts and periodical reconciliation; x. reviews on several items as prescribed by RBI/Government; xi. customer service; xii. development of a good management information system; xiii. computerization; xiv. Policy on risk management. DON TS (a) Non-Interference: The directors should not: i. interfere in the day-to-day functioning of the bank; ii. involve themselves in the routine or every day business and in the management functions; iii. send instructions/directions to any individual officer/employee of the bank in any manner. (b) No Sponsorship: The directors should not; i. sponsor any loan proposal, buildings and sites for bank s premises, enlistment or empanelment of contractors, architects, doctors, lawyers, etc. ii. approach or influence for sanction of any kind of facility. iii. participate in the Board discussions, if a proposal in which they are directly or indirectly interested, comes up for discussions. They should disclose their interest, well in advance, to the Chief Executive Officer and the Board. iv. sponsor any candidate for recruitment or promotion or interfere in the process of selection/appointment or in transfers of staff.

6 v. do anything which will interfere with and/or be subversive of maintenance of discipline, good conduct and integrity of the staff. vi. involve themselves in any matter relating to personnel administration whether it is appointment, transfer, posting or a promotion or a redressal of individual grievances of any employee. vii. encourage the individual officer/employee or unions approaching them in any matter. (c) Confidentiality i. The directors should not reveal any information relating to any constituent of the bank to anyone as; he is under oath of secrecy and fidelity. ii. The directors are expected to ensure confidentiality of the bank s agenda papers/notes. The board papers may ordinarily be returned to the bank after the meeting. iii. The directors should not directly call for papers/files/notes recorded by various departments for scrutiny etc. in respect of agenda items to be discussed in the meetings. All information/clarification that they may require for taking a decision should be made available by the executive. iv. A director may indicate his directorship of the bank on his visiting card or letter head, but the logos of distinctive design of the bank should not be displayed on the visiting card/letter head. v. The directors should ensure that the bank s funds are utilized in a proper and judicious manner for the benefit of general members. AUDIT COMMITTEE OF BOARD (ACB) In order to ensure and enhance the effectiveness of internal audit/inspection as a management tool, an Apex Audit Committee should be set up at the board level for overseeing and providing directions to the internal audit/inspection machinery and other executives of the banks. The committee may consist of the chairman and three/four directors, one or more of such directors being chartered accountant or having experience in management, finance, accountancy and audit systems, etc. ACB should review the implementation of the guidelines issued by RBI and submit a note thereon, to the board, at quarterly intervals. The major duties/responsibilities of the ACB are given below: (i) it should provide direction and oversee the operations of the total audit function in the bank. The total audit function will imply the organization, operationalisation and quality control of internal audit and inspection within the bank and follow up on the statutory audit of the bank and inspection of the Reserve Bank; (ii) it should review the internal inspection/audit function in the bank the system, its quality and effectiveness in terms of follow up. It should review the follow up action on the internal inspection reports. It should also specially focus on the follow up on: a. inter branch adjustment accounts; b. unreconciled long outstanding entries in inter-branch accounts and inter-bank accounts; c. arrears in balancing of books at various branches;

7 d. frauds; and e. all other major areas of housekeeping; (iii) compliance with the statutory audit /concurrent audit /RBI inspection reports; (iv) omission on the part of internal inspecting officials to detect serious irregularities should be viewed seriously; and (v) periodical review of the accounting policies/systems in the bank with a view to ensuring greater transparency in the bank s accounts and adequacy of accounting controls. CALENDAR OF REVIEWS MATTERS TO BE PLACED BEFORE THE BOARD OF DIRECTORS It may be emphasized that directors should devote their attention on the periodical reviews on important policy aspects of bank s working. PROHIBITION ON LOANS AND ADVANCES Primary (urban) cooperative banks are prohibited to make, provide or renew either secured or unsecured loans and advances or extend any other financial accommodation to their directors, or their relatives and the firms/concerns/companies in which they are interested with effect from 1 October The existing advances may be allowed to continue up to the date when they are due. The following categories of director related loans are exempted from the purview of the above instructions. i. Regular employee-related loans to staff directors on the Board of UCBs; ii. Normal loans as applicable to members to the directors on the Boards of salary earners co-operative banks and iii. Normal employee-related loans to Managing Directors of Multi-State co-operative banks. iv. Loans to Directors and their relatives against Fixed Deposits and Life Insurance Policies standing in their own name. The words any other financial accommodation shall include funded and non-funded credit limits and underwritings and similar commitments, as under: (a) The funded limits shall include loans and advances by way of bills purchase/discounting, pre-shipment and post-shipment credit facilities and deferred payment guarantee limits extended for any purpose including purchase of capital equipment and acceptance limits in connection therewith sanctioned to borrowers and guarantees by issue of which a bank undertakes financial obligation to enable its constituents to acquire capital assets. (b) The non-funded limits shall include letters of credit, guarantees other than those referred to in paragraph (a) above, and underwritings and similar commitments.

8 A person shall be deemed to be a relative of another, if and only if:- a) they are members of a Hindu Undivided Family; or b) they are husband and wife; or c) the one is related to the other in the manner indicated below: List of relatives 1. Father 2. Mother including step-mother, 3. Son including step-son, 4. Son s wife, 5. Daughter including step-daughter, 6. Daughter s husband, 7. Brother (including step-brother) 8. Brother s wife 9. Sister (including step-sister) 10. Sister s husband xxxxx It may be noted that the Co- operative Housing Societies Bye Law No.139 describes the powers, duties and functions of the Committee. Bye Law No. 140 describes the Powers of the Chairman of the Society and Bye Law No. 141 describes the functions of Secretary in detail. THANK YOU

9 Records and Registers Maintained by Co- Operative Banks: With the evolution of computerized banking from manual banking, the Audit approach has changed lately. The New Concepts such as Security Controls, emphasis on Input & Interface Controls, Operational Controls and Core Banking Solutions have gained importance in the Audit planning. Some of the important Records & Registers maintained by the Co- Operative Bank are as follows - a. Advances related registers ( in relevant column) : Sr. No. Items to be checked Manual Computer-Omni System (i) Inward Proposal Register including details of processing fees collected/share linkage/valuation. (ii) Limit / D. P, Register (iii) Stock Statement Received Register. (iv) Various Inspections done recorded in the Register (v) Security register(for paper securities) (vi) Documents register (vii) Title Deeds register b. Other Registers : Sr. No. Items to be checked Manual Computer-Omni System (i) Register of Service/ Maintenance contracts (ii) Register of Death Claims (iii) Missing Persons Claim Record Register (iv) Stop payment Register (v) Duplicate FDR / Pay slips / DD / Passbook register (vi) Sensitive Stock Register (vii) Inward / Outward Cheque returned register (viii) Cheque passed against clearing register

10 (ix) Cheque held for payment register (x) Cheque Book stock/delivery register (xi) Pay slip / DD issued register (xii) Fixed Asset register (xiii) Attendance Register (xiv) IBC / OBC register (xv) Locker Register (Locker Rent Received, Locker Rent Due Date, Locker Issued / Surrendered Register, Locker Visit Register) (xvi) ATM Complaint Register (xvii) Register for Bank Guarantee / LC / Demat (xviii Loose cheque leaves ) register (xix) Key register, Vault Register (xx) Solvency Certificate Issued Register (xxi) Complaint register (xxii) Register of EDP Complaints (xxiii) Register for soiled notes (xxiv) Log Book for Auditors Attendance c. Forex / BG Registers Sr. Points to be checked Manual Computer Omni No. System (i) Foreign LC Due Date register (ii) Forex A2 Currency Transaction register (iii) Other currency cheque collection register (iv) Bank Guarantee issuance register (v) Bank FDR for margin money register There is No Major difference in the documentation required to be maintained under Manual & Computerised mode of banking operations.

11 Challenges - Looking Forward: 1. Records of Permanent/Long Term Nature need to be maintained in Electronic Form Like Scanned Copies and also at a separate location in Fire Proof Safe Deposit Locker etc, with a Regular Back up. The Best example is Core Banking Data still Data/Record of Safe Deposit Lockers needs to be upgraded. 2. CIBIL data and feedback to CIBIL,-of borrowers and guarantors. 3. Data of Common Borrowers, and Guarantors, Data of Common Guarantors on Multiple Loans, (indirect High risk of NPAs). 4. Legal updates like recent judgement of the Supreme Court of not allowing sale of immovable Properties under Power of Attorney Maharashtra Govt additional requirements in form of Affidavits etc 5. Classification of the Lending against Mortgage of immovable Property and Power of Attorney any audit qualification in light of the Supreme Court Judgement.