INTERNAL AUDIT PROCEDURE FOR HOUSING CO OPERATIVE SOCIETY
In audit for housing society you can divide your work into following three categories:
1. Regional statutory compliance
2. Compliance of internal rules and regulation of society
3. Income tax act
Regional statutory compliance:
As per local state law, every housing society needs to be registered. They need to follow certain guidelines which differ from state to state. It will good idea to find out about such applicable law in your region.
Housing society may also be subject to other laws like provident fund, employee state insurance etc, check its applicability and if applicable check whether statutory dues has been paid timely or not.
These days fire safety norms are mandatory requirement. However this may not be under your scope of work but it will nice to check it prima facie and report the same if found irregular.
Payment of municipal taxes etc should also be checked.
Compliance of internal rules and regulation of society:
Every housing society can lay down its rules and regulation. This regulation may cover: maintenance fee schedule, water tank cleaning schedule, use of common area, celebration of festival, recreational program, process to settle a dispute. This may also lay down process to elect various office holders for the society. An auditor must be aware of all such rules and regulation. However, housing society do not fuction as a corporate and hence you can find rules and regulation may not be present or if present are altered frequently to suit need of its member. So along with memorandum of society also read minutes of meeting which is held among society members.
As an auditor you will be required to check whether all such rules regulation and norms has been properly followed. Check for irregularities and report it to the committee.
Your primary function would be to check accounting policies. You may find cash and accrual base of accounting overlapping each other. No housing society has full time accountant. So it may not be a surprise if you come across instances where receipts has been recorded twice or may not have been recorded altogether. Also keep a note that many housing society has surplus funds which are kept in fixed deposit, so ensure interest has been recorded timely.
Along with receipt, expenditure also plays an important role in audit procedure. It may be one of the critical point for members of housing society as they are more interest to find out about expenditure made. Payment for services like salary, lift maintenance, electricity, water supply etc needs to be checked. Find if there has been any misappropriation of funds as this is very common problem in housing societies.
Income tax: You may find housing society may not be having a PAN, in case they don't it will be good if you apply for one as AOP. As per income tax, funds received by housing society by way of contribution by members are not subject to tax. However, income from any surplus which is not divided among members but is invested is subjected to tax. Make sure tax is paid on such income.
Why should be register housing society in Income tax?
Surplus is generally invested in FD, which require PAN cards as primary documents. If pan card is not submitted interest from FD is subject to 20% tax. Generally interest earned is lower than taxable limit so if you regularly file tax returns it will be beneficial for you at the time of maturity as tax may not be applicable.