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.

Compliance Audit

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

 Note-1

> Details Enclosed in Standing Orders

The information which is generally provided in the standing orders include:

  • Workmen classification into categories such as permanent, temporary, on probation, etc.
  • Method of informing the workmen about working hours, holidays, etc.
  • Shift working.
  • Temporary stoppages of work.
  • Provisions concerning the termination of employment and the notice period.
  • Actions/inactions which are treated as misconduct and the consequences for the fault.
  • Grievance redressal mechanism in case of unjust or unfair treatment by the employer.
  • Attendance marking system for workers.
  • Employment termination and the notice thereof to be provided by both employer and the workers.
  • Procedure for availing leave and encashment, accumulation of leaves.
  • Workmen records and information, etc.

Note-2

> Eligibility for Bonus

Any employee is eligible for availing bonus if the following conditions are satisfied:

  • The employee receiving salary or wages up to Rs. 21,000 per month
  • The employee engaged in any work whether skilled, unskilled, managerial, supervisory etc.
  • The employee who have worked not less than 30 working days in the same year.

> Payment of Minimum and Maximum Bonus

  • The minimum bonus will be 8.33% of the salary during the year, or
    • 100 rupees will be given in case of employees above 15 years and sixty rupees in the case of employees below 15 years, whichever is higher.
  • The maximum bonus is 20% of the salary during the accounting year.

Note-3

> 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.

Note-4

> 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%)

Note-5

> 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.

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