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Prosecution against Auditors on account of misutilisation and Misappropriation of Funds of Co-op Societies

It has been stated in said circular that when departmental auditors do Special or Test Audit they are reporting the misutilisation and misappropriation of funds of Co-operative Societies. However, Statutory Audit report does not reflect misutilisation and misappropriation of funds of the same year.

The Office of the Commissioner for Cooperation and Registrar, Cooperative Societies, Maharashtra State, Pune issued a circular dated 14th July, 2010 on “Launching of prosecution on account of misutilisation and Misappropriation of Funds of Cooperative Societies”.

It has been stated in said circular that “when departmental auditors do “Special or Test Audit” they are reporting the misutilisation and misappropriation of funds of Co-operative Societies. However, Statutory Audit report does not reflect misutilisation and misappropriation of funds of the same year.

CIRCULAR IS AS FOLLOWS

Office of the Commissioner for Cooperation and Registrar, Cooperative Societies, Maharashtra State, Pune

No. URB/D-4/Proctn/Accounts/mis Funds/Action/2010/1442

Date- 14/07/2010

CIRCULAR

Subject- Launching of prosecution on account of Misutilisation and Misappropriation of Funds of Cooperative Societies.

Read – 1. Government of Maharashtra, Agriculture and Cooperation Department, No. CCU 270/84605/C-7, Sachivalaya Annexe, Bombay -32 Dated 136‘ June 1972

2. No. A DT-552 of 1972, Office oldie Cooperative Societies, M.S. Poona, The 5`h September, 1972

3. Government of Maharashtra, Home Department Circular No CII, 3769 /5218 I VII.A Sachivalaya Bombay -32 7th August 1972

4. Government of Maharashtra, Agriculture and Cooperation Department, Circular No.C3M-1381/30472/6-C Mantralaya Annexe Bombay-32, Dated 126‘ June 1981.

5 Government of Maharashtra Agriculture and Cooperation Department Sachivalaya Annexe Bombay -32, 2nd February 1971, Circular No. CCI – 1270-34605-C-3,

6. Government of Maharashtra, Home Department Government Circular No. CII -0108/Pra.Kra -11/POL-12 Mantralaya Mumbai -32 Dated 14th January 2008

The Circular mentioned above outline the need and modalities of launching and monitoring prosecution against the concerned regarding misutilisation and misappropriation of funds of Cooperative Societies, the instances which came to be detected during audit process. There are instances seen in recent years that misutilisation and misappropriation of funds of Cooperative Societies are ascertained in re-audit, Special audit,oTest audit and report of flying squad which is taken subsequently by Registrar. However Statutory Audit report does not reflect misutilisation and misappropriation of funds of Cooperative Society of the same year.

However, recently instances arc reported where the auditors entrusted with the duty of verification and audit have been indulging in acts of misreporting consisting of two broad categories. The First is non reporting of serious instances which are detected/ could have been detected during audit and timely reporting of which could save further complications which adversely affect the well being of members, depositors and society at large. The second category is misreporting of instances which present an altogether different picture of the status and affairs of the society, which also due to this kind of misreporting tends to jeopardize the well being of members, depositors and society at large. The first is called Suppression of Truth and the other is Representation of falsehood. There may be a possibility that these two may overlap and there may be a string of instances wherein both are present.

These instances are to be differentiated from mere negligence, though amounting to professional lapse or shortcoming, does not amount to fraudulent reporting consisting of suppression of truth or suggestion of falsehood which either singly or jointly constitute fraud, which is an offence in itself. As such, the following guidelines are issued to take care of fraudulent reporting and not for mere negligence in conducting audit process or reporting the outcome of Audit process.

Where fraudulent reporting is observed, it be ascertained whether the concerned professional is prima facie liable under conspiracy along with the other persons who have actually committed the acts of commission and omission while conducting the affairs of society. If that is so, the concerned auditor or person responsible for verification will. he liable jointly and severally with the other offenders. However, where the element of conspiracy cannot be substantiated then it should be seen whether the concerned professional, who is also a Public servant while conducting his statutory responsibility, has conducted himself to protect any person front legal punishment or to save any person from punishment or to save any person from punishment of a higher degree and has tried to bring such person under another kind of a higher degree and has tried to bring such person under another kind of punishment which is of a lesser degree. This kind of conduct is covered under Section 217 of Indian Penal Code, 1860 which provides for an offence by a Public Servant disobeying direction of law with intent to save any person from punishment or any property from forfeiture.

In the present circumstances, there is a need to analyze deviations from statutory duty minutely to ascertain whether the delinquent office bearers employees and other persons are tried to be protected by professionals who themselves are responsible for an early detection of frauds and other serious misdeeds on part of people entrusted with the management of the Societies. As such, this circular is issued to take care of fraudulent reporting by professionals where conspiracy is involved or otherwise.

(Rajagopal Devara)

Commission or Cooperation and
Registrar CooperativeSocieties,
Maharashtra State, Pune.

Copy forwarded for information 😕

1. The Chief Secretary , Maharashtra State , Mantralaya Mumbai -400 032.

2. The Additional Chief Secretary, (Home), Home Department, Maharashtra State, Mantralaya Mumbai -400 032.

3. The Principal Secretary, (Cooperation & Marketing), Maharashstra State, Mantralaya Mumbai -400 032.

Copy forwarded for information and necessary action to:?

1. Divisional Joint Registrar, Cooperative Societies (All)

2 Divisional Joint. Registrar, Cooperative Societies (Audit) (All)

3 District Deputy Registrar, Cooperative Societies, (All)

4 District Special Auditor, Cooperative Societies, (All)

Categories: Finance

View Comments (1)

  • Why can't the Registrar of Companies penalise companies or prosecute managements which siphon off funds by way of creation of sundry debtors and loans and advances. Has SEBI or MOCA ever done a study or has ICAI ever taken action against defaulting CA's who connive with the management in such rapine endeavours?

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