Sinking co-ops: CAs? role under cloud

None | By, Indore
Feb 14, 2006 01:40 AM IST

THE ROLE of chartered accountants (CA) has come under scanner as depositors of sinking credit cooperatives have raised protest against auditors for neglecting their moral and professional obligation laid down by laws.

THE ROLE of chartered accountants (CA) has come under scanner as depositors of sinking credit cooperatives have raised protest against auditors for neglecting their moral and professional obligation laid down by laws.

HT Image
HT Image

They alleged that the auditors hired by cooperatives did not warn their clients against mounting overdrafts, unlimited liabilities, uninsured deposits, transactions with non-members, unduly elected board of directors, unauthorised transfer of deposit funds to other organisations and banking without RBI permit.

And therefore, depositors say, CAs had a role to play towards the financial crisis of credit societies and loss of their money invested in those organisations.

Some depositors have e-mailed the complaint to Institute of Chartered Accountants at New Delhi quoting Section 51 of MP Swayatta Sahakarita Adhiniyam 1999, which enlists their professional responsibilities. The Section states that the auditor should indicate every deviation in actual expenses and income from the estimated expenses and income in the approved budget.

Besides, a CA is also required to state whether any of the directors had, at any time during the financial year under review, became ineligible to continue in office and whether the cooperative had ability to insulate personal assets from exposure to business risk. But, not many auditors followed it.

Incidentally, State Cooperative Department, too, didn’t object to this foul play though cooperatives are law-bound to file returns with Registrar within 30 days of holding the annual general meeting (Adhiniyam Section 52). The Department, sources said, has no update on the annual returns (which includes audited financial statement of accounts) filed by cooperative institutions in the district.

The latest to join the protest is Gujarat Mercantile Credit Sahakarita Amanatdar Peedit Sangh that has sought explanation from auditors of Gujarat Mercantile Credit Sahakarita Limited (GMCSL) and Mahagujarat Credit Co-operative Society Limited.

In letters dispatched to Dinesh Nagori of GMCSL and M R Sundrawat of Mahagujarat today, the Peedit Sangh pinpointed the flips in audited balance-sheets and has demanded to know the reason for rising overdraft of GMCSL from Rs 32.42 crore in 1999-2000 to over Rs 100 crore in 2004-05 and whether the columns showing the names of overdraft beneficiaries were verified.

The aggrieved association has also insisted on knowing the reasons for transferring Rs 38.65 crore from GMCSL to loss-incurring Mahagujarat during 2003-04, and whether the auditors took note of it and also of the fact that some GMCSL clerks and peons were on the board of Mahagujarat.

Besides, CAs have been asked whether they verified the benami transfers made into Bharti Industry having account with IndusInd Bank.

The letter quotes statistical report of Mahagujarat filed on 31.3.04, in which the cooperative body confessed that it offered no financial service to members or non-members, though it accepts the responsibility of Rs 38.66 crore. Of its 38 members, 25 were present at the AGM (held on 03.06.04) of whom only 10 had voting rights. The Peedit Sangh has asked the two financial assessors to furnish certified copy of annual returns of both the organisations of past five years.


The recourse
CITY-BASED CA and Institute of Chartered Accountants of India Central Council member Manoj Phadnis said, “If depositors have complaint against the chartered accountants, they should address it to the secretary of the Institute at New Delhi under Chartered Accountants Act 1949 along with draft of Rs 100.

The Council, which at present is dealing with cases filed in 2004-05, is an impartial body and has taken stringent measures against auditors who were found guilty of professional misconduct. The Council has even cancelled the registration of CAs for professional breach, a decision that was upheld by Gujarat High Court.”

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    Padma is a Special Correspondent and looks after Central govt and political parties. She has special interest in local history of Indore and Malwa region, art and architecture.

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