Compliance audit is an assessment as to whether the provisions of the applicable laws, rules and regulations are complying with various orders and instructions issued by the competent authority. This audit by its nature promotes accountability, good governance and transparency as it is concerned with reporting deviations, identifying weaknesses and assessing propriety.
In short, the Compliance Audit report determines whether the company or organization complies with the applicable rules.
Few of the objectives of compliance audit are as under:
1. The Security check of data as most of the business are now based on ONLINE Technology.
2. Getting actual position of Cash Flows / Financial Position.
3. Awareness about documentation what, why and for how long documentation is required.
4. Health and Safety, Environmental Aspects.
5. Quality Management Standards
6. Delegation of Duties and responsibilities
7. Risk Indicators.
8. Methodology to be adopted for healthy business.
9. Market Analysis and modification / improvement required.
10. Assessment of overall effectiveness of Business as per practice, policy, protocol, standards
Most of the Business owners are not even aware which all compliances are applicable for their business
There are various compliances applicable on business keeping in view Business Constitution and Industry type. Business registered in India must follow such compliances, depending on various criteria. Like The Factory Act 1948, The Payment of Wages Act, 1936, The Minimum Wages Act, 1948 , The Equal Remuneration Act 1976, The Industrial Employment Act, 1946, The Trade Union Act 1926, The Maternity Benefits Act, Shop and Establishment Act, Industrial Dispute Act, Employee Provident Fund Act, Environmental Protection Act, Foreign Trade Act, Employee Liability Act, Information Technology Act etc.
Easy understanding of some of the compliances which are discussed above as below.
|Legislation||Applicability||Compliance||Fine / Penalty / Prosecution for non-compliance|
|Secretarial Audit under section 204 of Companies Act, 2013||♠ Every listed company
♠ Every public company having paid up capital of Rs. 50 crore or turnover of Rs. 250 crore or loans of Rs. 100 crore
|Audit will be carried out by the Company Secretary and Audit report in Form MR-3 shall be submitted with the Management of the company||Rs. 1 lakh to 5 lakh|
|Return filing compliance under Factories Act||Organization registered under Factories Act||♠ Annual return in Form 21 by 15th January and half yearly return in Form 22 by 15th July
♠ Annual return of accident in Form 31 by 31st January
|General penalty of Rs. 1 lakh for any offence under Factories Act.|
|Payment of Wages Act, 1936||Applicable on all employees drawing wages upto Rs. 6,500 p.m.||♠ Payment of wages before 7th of the month, if the workmen are less than 1,000
♠ Payment of wages before 10th of the month, if the workmen are more than 1,000
♠ Maintaining statutory registers and records
|Rs. 1,500 to Rs. 7,500|
|The Minimum Wages Act, 1948||Every employer that employs more than 1000 personnel in a state except employees of the undertaking owned by the Central Government or Railways||♠ Employer shall pay to every employee engaged in a scheduled employment which is notified by the Central Government, wages at the rate not less than the minimum rate of wage fixed by the Central Government||Imprisonment for 6 months to 3 years and fine upto Rs. 50,000 in Delhi|
|Equal Remuneration Act, 1976||Every Employer||♠ Employer shall have to pay equal remuneration to every employee performing the same work or work of a similar nature regardless of their gender.
♠ No discrimination shall be made while recruiting for the same work against women
♠ Maintain registers and other documents in relation to the workers employed by him.
|♠ For unequal payment and discrimination in recruitment, fine of Rs. 10,000 to 20,000 or imprisonment of 3 months to 1 year or both
♠ For failure to maintain register and records, fine of Rs. 10,000 or imprisonment of 1 month or both
|Industrial Employment (Standing Orders) Act, 1946||Every industrial establishment wherein 100 or more workers are employed or were employed on any day in previous 12 months||♠ Submit 5 copies of Draft Standing Order within 6 months of applicability of this act to the Certifying Officer (see Note-1 for standing order)||For the failure of submitting the Standing Order, Rs. 5,000 and for continuing offence Rs. 200 per day|
|Payment of Bonus Act, 1965||Every factory and every other establishment in which 20 or more worker are employed. Not applicable on LIC, RBI or other similar institution mentioned in section 32 and NGOs||♠ Payment of minimum bonus shall be done within 8 months from the end of accounting year (see note-2 for Eligibility, minimum & maximum bonus)
♠ Maintaining registers in Form A, B and C
♠ Filing annual return in Form D on or before 1st February
|Imprisonment of 6 months or fine of Rs. 1,000 or both|
|Employees Provident Fund and Misc. Provisions Act, 1952||Every establishment which employs more than 20 employees. Employees drawing upto Rs. 15,000 p.m. has to be mandatorily registered under EPF Act||♠ Payment of PF, Pension Fund and insurance fund has to be done within 15 days of following month (refer Note-3)
♠ A return of new members enrolled, and members left within 15 days of following month
♠ Detail of employer/employee contribution shall be filed by 25th of the following month
|♠ For delayed payment of PF contribution penalty shall be as mentioned in Note-4
♠ For other offence, imprisonment for 1 to 6 months and fine of Rs. 5,000
|Employees Compensation Act, 1923||Every Employer employing persons listed in Schedule II and carrying on an occupation listed in Schedule III||♠ Shall pay compensation if the personal injury is caused to an employee during an accident arising out of and in course of his/her employment
(refer Note-5 for computation of compensation)
|Simple interest at the rate of 12% p.a. together with 50% of such amount as penalty|
|Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013||Every organized and unorganized sector in India||♠ Constitute an Internal Complaint Committee (ICC), in case there are more than 10 employees (including women) working
♠ To include in its Annual Return, number of cases filed and disposed during the year
|Penalty of Rs. 50,000 that may be doubled in case of repetitive offence. The offence under this Act is non-cognizable|
> Details Enclosed in Standing Orders
The information which is generally provided in the standing orders include:
> Eligibility for Bonus
Any employee is eligible for availing bonus if the following conditions are satisfied:
> Payment of Minimum and Maximum Bonus
> PF Contribution Rate
Contribution of Pf paid by employer & employee is 12% of (basic pay + dearness allowance + retaining allowance). Equal contribution is paid by the employer & employee. The establishment which employees less than 20 persons shall be restricted to contribute 10% for both employee & employer contributions.
The entire 12% of employee contribution goes into EPF account of employee and 12% from employer wherein 3.67% in EPF account and balance 8.33% EPS (Employee’s Pension Scheme) account.
> Penalty in payment of P.F. dues
Delay in deposit of P.F. dues attracts penal damages. Charges are levied by EPFO at the following rates:
|No. of months delayed||Penalty rate|
|Delay for up to 2 months||5% per annum|
|Delay ranging from 2 months to 4 months||10% per annum|
|Delay ranging from 4 months to 6 months||15% per annum|
|Delay exceeding 6 months||25% per annum (It may correspondingly go up to 100%)|
> The minimum ceiling limit of compensation for death is Rs 1,20,000/-
> The minimum ceiling limit of compensation for permanent total disablement is Rs 1,40,000/-
|Where death of a workman results from the injury||An amount equal to 50% of the monthly wages of the injured workman multiplied by the relevant factor or an amount of Rs. 1,20,000, whichever is more|
|Where permanent total disablement results from the injury||An amount equal to 60% of the monthly wages of the deceased workman multiplied by the relevant factor or an amount of, Rs. 1,40,000 whichever is more|
|Where permanent partial disablement results from the injury (injury listed in part II of schedule I)||% of loss of earning capacity that such % of compensation payable|
|Where temporary total/ partial disablement of a workman results from the injury||An amount equal to 25% of the monthly wages payable every half-month, the compensation is payable if the worker is disabled for more than three consecutive days, maximum tenure for the compensation is five years|
About the Author
Author is Gloria Jaggi, CEO of PK Chopra and Co., Chartered Accountants providing Auditing Accounting, Taxation and Advisory services and having head office at New Delhi Connaught Place and branches at Mumbai, Ahmedabad, Kochi, Lucknow, Bangalore, Coimbatore and Gurgaon. Ms. Jaggi joined PKC in 1995 and having history of expertise in the area of Management Advisory, Statutory Compliances, Internal Control and Compliances Audit for over 25 years. Firm is focused on helping Foreign Companies in setting up Business in India and complying with various tax laws applicable, Building Business, Strategy Planning, NGO NPO CSR sector.