Housing Society Audit Checklist: What to Prepare Before the Auditor Arrives

The housing society audit checklist

The statutory audit is the one external examination most societies face every year, and committees routinely approach it as an inconvenience to be survived rather than a deadline to prepare for. The result is a rushed fortnight, a qualified report, and observations that repeat annually until members start asking why.

Preparation takes about a week if the books have been kept through the year, and about a month if they have not. This checklist is what the auditor will ask for.

Audit requirements, the auditor panel, appointment process and deadlines are set by your state's co-operative act and rules, and vary. Confirm yours.

Before the audit

Appointment. The auditor is appointed by the general body from the panel approved under your state's rules, within the prescribed time. Diarise this — an unappointed auditor is itself a default, and in some states attracts registrar action.

Close the books. Totalled, balanced, and not still being written up when the auditor arrives.

Complete reconciliations. Every bank account, at year end, with the reconciliation statement prepared and the reconciling items explained. This is the first thing examined.

The records to assemble

Accounting

• Cash book and bank book, closed and totalled
• General ledger and trial balance
• Members' personal ledger with arrears aged 30/60/90+
• Receipt book with the numbered sequence intact — gaps must be explained
• Vouchers and supporting bills for every payment
• Fixed asset register with additions, disposals and depreciation
• Investment register with certificates
• Sinking fund and repairs fund registers, separately

Banking

• Bank statements for the full year, every account
• Year-end reconciliation per account
• Fixed deposit certificates and interest statements
• The current bank mandate

Governance

• Minute books — general body and committee, written up and signed
• Register of members, shares and nominations
• Copies of resolutions authorising charges, rates and major expenditure
• The current list of committee members with their term

Compliance

• TDS challans, quarterly returns, and Form 16A issued
• Income-tax return filed, and GST returns where registered
• Previous year's audit report and the rectification report responding to it
• Statutory certificates — lift, fire, structural audit where applicable

Contracts

• Vendor contracts and AMCs
• Insurance policies
• Comparative statements and resolutions for major works

The reconciliations to complete first

Do these before the auditor arrives, not with them:

• Bank to books, every account
• Billed to collected to outstanding — the total billed for the year should tie to collections plus the movement in arrears
• Arrears ageing to the balance sheet figure
• Vendor ledger to payments made and TDS deducted
• Fund balances to the investments held against them
• Fixed assets to the physical assets, with a walk-round

The billing reconciliation is the one that most often will not tie, and the reason is usually part payments allocated inconsistently or receipts issued outside the sequence.

Common audit observations, and how to avoid them

That last row deserves emphasis. An observation repeated three years running is a governance failure that any member reading the report can see, and it is the one that damages a committee's credibility most.

After the audit

• Receive the report and read it, including the observations, not only the opinion.
• Prepare the audit rectification report where your state requires it, responding to each observation with what has been done.
• Place the audited accounts before the AGM for adoption, circulated with the notice.
• File with the registrar within the prescribed time — the report, the return, and the rectification report.
• Act on the observations during the year, not the week before the next audit.

Handling a qualified report

A qualification is not a scandal, but it must be addressed openly. Explain to the general body what was qualified and why, what has been corrected, and what will change.

Committees that present a qualified report without explanation invite exactly the suspicion they are hoping to avoid. Committees that explain it plainly usually find members reasonable — most qualifications arise from record-keeping rather than misappropriation, and saying so with the evidence is the strongest available position.

Beyond the statutory audit

Several states require or encourage an internal audit for larger societies, and it is worth having regardless of the threshold. The point of an internal check is to find the problem before the statutory auditor does, when it is cheap to fix.

A half-yearly internal review of bank reconciliations, arrears ageing, TDS and approvals will prevent most of the observations above.

Frequently asked questions

Who appoints the auditor for a housing society? The general body, from the panel approved under your state's rules, within the prescribed time.

What records does a society auditor need? Books and ledgers, members' personal ledger with ageing, bank statements and reconciliations, vouchers and bills, minute books, statutory registers, TDS and tax filings, contracts, and the previous report with its rectification.

What is an audit rectification report? A response to the auditor's observations stating what has been done about each, required in several states and filed with the registrar.

What happens if a society does not get audited? Penalties under the state act, and in serious or persistent cases registrar action, which can extend to appointing an administrator.

Is a qualified audit report serious? It needs addressing, but most qualifications concern record-keeping rather than misappropriation. Explain it plainly to the general body and fix the cause.

Should a society have an internal audit as well? Larger societies often must, and all benefit. It surfaces problems while they are still cheap to fix.

Related: housing society accounting · statutory compliance calendar · society treasurer responsibilities · society financial statements