CLF Audit Policy
SEP-2022
Uttar Pradesh State Rural Livelihood Mission
(UPSRLM)
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INDEX
Sr.No Particular Page No
1 CLF Audit Policy 3
2 Internal Audit 4
3 Statutory Audit 5-6
4 Reporting: 7
Documents/Records, Services and facilities to
5 7
be provided mandatorily by the CLF:
6 Selection of Statutory Auditor 8
7 Period & Timing of Audit 8
8 Procedure & Place of conducting audit at CLFs 8
Composition of Review Committee and review
9 9
procedure to monitor audit work
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CLF Audit Policy
Background
The Uttar Pradesh State Rural Livelihood Mission (UPSRLM) under the aegis of Rural Development
Department, Government of Uttar Pradesh, is an autonomous society registered under the Societies
Registration Act, 1860. Mandate of UPSRLM is to implement the Deen Dayal Antyodaya Yojna-National
Rural livelihood Mission in Uttar Pradesh which aims to create efficient and effective institutional
platforms of the rural poor enabling them to increase household income through sustainable livelihood
enhancements and improved access to financial services.
Cluster Level Federations (CLF’s)
CLF is the second level federation of SHGs covering a cluster of villages, generally about one fourth of a
block. CLF is designed to serve as a platform of larger collective action required for the promotion of
livelihoods and social development of the member households. The CLF by virtue of its large
membership can help the small producers and service providers gain through aggregation and collective
marketing.
As per Community operations manual issued by government of India and various decisions taken at
appropriate level, CLF has to manage following funds as –
• Share Capital from SHGs/SHG Members
• Corpus fund/CIF
• Annual Membership Fee/Contribution from SHGs and/or SHG Members
• Savings by SHGs
• Members’ savings towards Gender Fund, Food, Nutrition and Health etc.
• Start-up Funds
• Vulnerability Reduction Fund (VRF)
• Interest (on CIF and other funds) income
• Income/Surplus from collective business activities and enterprises
• Funds from GP and other convergence
• Commission/Service charges for direct CLF services or through Community Cadres
• Institutional Charges for Training and Social Capital Deployment
• Livelihoods Fund against Business Plan(s)
• Interest margin from Community Investment Fund (CIF) flows against Micro Credit Plans
(MCPs)
• Loans from Banks and other agencies
• CRP/Sr.CRP honorarium Fund
• ICRP/Sr. ICRP honorarium Fund
• Bank Sakhi honorarium Fund
• Krishi Sakhi/ PashuSakhi honorarium Fund
• Other related cadre honorarium Fund
• Grants from other organizations, including NRLM
Since CLF receives above funds therefore statutory audit of CLF is necessary. In this regard the
provisions of various types of Audits of CLFs as per Clause 5.10 of Section-5 Part I of Master Circular
issued under DAY-NRLM states “The State Missions will ensure that the annual accounts of the
CLFs are compulsorily audited by a statutory auditor and placed before the GB for approval. In
addition, the Mission may also promote internal audit, social audit and peer audit as appropriate.
The audit objections if any need to be followed-up by the Mission for rectification. The Mission may
meet the audit charges from its own funds or advice the CLFs to pay for the auditing services.”
Thus the Policy documents contain the provisions of Internal Audit and Statutory Audit as follows:-
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Internal Audit
Internal audit is a process through which an organization get to know the loopholes in the system and
improves the respective aspects for making themselves more efficient. Internal audit also provides
management with the tools necessary to attain operational efficiency by identifying problems and
correcting lapses before they are discovered in an external audit.
Objectives of Internal Audit
The key objectives of internal audit are:-
1. Proper Control: One of the main objective of an internal audit is to keep stringent control over all
the activities of an organization. The management needs assurance of the authenticity of the financial
records and the efficiency of the operations of the firm. An internal audit helps to establish both.
2. Perfect Accounting System: An internal audit keeps a very close check on the accounting system of
an organization. It checks everything from the vouchers, to the authority of transactions to
mathematical accuracy. All entries are verified against documents and other proof. Chances of
mistakes or frauds are greatly reduced.
3. Review of Activities and Social Business: The purpose of an internal audit is to keep a check on the
financial and operational aspects of a social business and its activities. So as the current financial year
is ongoing, internal audit can point out the mistakes, weak points, and strengths of the business. This
will allow an ongoing review, instead of waiting till the year-end.
4. Asset Protection: In the process of internal audit, there is always a valuation and verification of an
asset. There is also a physical verification of the ownership and possession of the asset. In case of
special transactions like sale, purchase or revaluation of the asset, the authorization of this is also
audited in an internal audit. So the assets enjoy complete protection.
5. Keeps a Check on Errors: In a financial audit, the auditor will be able to determine if any mistakes
were made in the financial records. But this only happens at the end of the financial year and the
mistakes are corrected thereafter. But in case of an internal audit, the mistakes are spotted as soon as
they are made and corrected immediately.
6. Detection of Fraud: In case the company has an internal audit in place, the detection of fraud
becomes much easier. This is because there is a year-round check on the employees.In fact an
employee is less likely to attempt fraud in the presence of an internal auditor. He will not have any
time gap between the occurrence of fraud and its detection to cover it up. This will dissuade
employees from committing fraud.
The Rural Livelihood Division Department of Rural Development under Ministry of Rural
Development has approved the Community Auditor Policy vide letter no 1-12011/55/2019-RL-C) e-
368979 dated 2nd September 2022. The internal audit of SHG / VOs / CLFs would be regulated by
the Community Auditor Policyof UPSRLM. UPSRLM will issue various functions /operations
related directions and various formats for better accounting, management of internal audit
activities and intensive monitoring.
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Statutory Audit
A Statutory Audit is an audit of organization’s financial records by external entity such as Chartered
Accountants, authorized statutory body etc. This audit is mandated by statute of law that governs an
organization’s principles and ethics.
Since the CLFs are registered under the Society Registration Act, 1860, the Statutory Audit of CLF is
required for the renewal of society’s registration certificate. Thus the statutory audits of Financial
Statements of CLFs are required to be conducted for each financial year by independent Chartered
Accountant firm. For this purpose the Panel of Chartered Accountants firms shall be created at SMMU
level, who shall audit the books of accounts of CLF.
Objectives of the Statutory Audit:
The main objectives of the Statutory Audit of CLFs are as follows:-
(i) Maintenance of Books of Accounts and statutory records as per the provisions of various schemes
framed under Project and in terms of Accounting Standards issued by Institute of Chartered
Accountants of India.
(ii) Finalization of Books of Accounts as per the various schemes framed under Project as per
Manuals, MOU’s and various guidelines for specific funds and the Project Implementation Plan
(PIP):-
(iii) Enabling the statutory auditor to express a professional opinion on the annual financial statements
of CLFs in accordance with the Standard of Auditing issued by Institute of Chartered
Accountants of India.
(iv) To assess CLF wise Community Investment Fund (CIF) status report as on 31st March of each
Financial Year (distribution amount, interest earned, payment amount, CIF balance and
outstanding interest amount).
(v) Comment on the effectiveness of the overall financial management arrangements including the
system of internal controls as documented in the Manuals, MOU’s and various guidelines for
specific funds and the Project Implementation Plan (PIP).
(vi) Specific assertion that the grants from the project have been used for intended purpose and bring
to the attention any fraud-related issues, including the diversion of funds from intended purpose
or misuse of funds.
Scope of Statutory Audit
In conducting the audit, compliance and adherence to the following aspects must be assessed to ensure
that:
(i) Audit of CLFs will be done for each Financial Year from the date of its registration or opening of
bank accounts whichever is earlier.
(ii) Proper treatment of Community Investment Fund (CIF) provided by State to the SHGs and
Linked VOs, to be recorded in the books of accounts of CLF as Corpus Fund, whether routed
through CLF or otherwise (BMMUs, DMMUs, SMMU etc). The auditor shall comment upon
whether the CIF provided to the Linked VOs and SHGs are in conformity with the MIS data
maintained by NRLM
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(iii) All funds (grants) received from the project have been used in accordance with the conditions of
the relevant guidelines [CIF, Revolving Fund (RF), Startup Fund (SF) Livelihood Fund etc] and
only for the purposes for which the financing was provided. Auditor will submit the fund wise
expenditure and opening and closing balance of that fund in their report;
(iv) All the required books of accounts as prescribed by the scheme and necessary supporting
documents (vouchers, bills, receipt and records), minute books have been kept by CLF in respect
of all transactions &that clear synchronizations exists between accounting records, accounts
books and the financial reports/statements prepared by CLF. The preparation of financial
reports/statements shall be responsibility of Management of CLF and the auditor shall comment
on the same.
(v) The accounting of CLF has been done on cash basis and calculation of interest on loan given to
VO/SHG has been done on accrual basis to ensure full and timely recovery of loan/CIFs from
VO/SHG including Interest
(vi) Decisions taken are supported by adequate recording of the decisions in the minute books of the
CLF. Auditors will ensure that all documents are verified by them.
(vii) The financial reports and Utilization certificates (UCs) submitted by the CLF to UPSRLM are in
agreement with the books of accounts. Auditor will certify the same and shall reportthe same in
Audit Report.
(viii) Adequate records (stock/ asset registers) are maintained to properly reflect the assets of the CLF
including details of cost, identification and location of assets and physical verifications of assets
procured including depreciation charged thereon.
(ix) The auditor shall comment upon procurement guidelines issued by Government of Uttar Pradesh/
UPSRLM and followed by CLFs
(x) Capitalization of surplus fund as per instructions issued by the NRLM project.
(xi) Whether there are any delays in timeliness of the funds flow to CBOs.
(xii) Comments on the profitability/ viability of activities carried out by federation and the realization
of profit and institutional fee from activities are duly recorded in the books of accounts of CLF.
(xiii) CLF is monitoring the receipt of periodic reports and utilization certificates from the VO &SHGs
to follow up on overdue loans and reports are adequate.
(xiv) The auditor shall comment upon the balance confirmation certificates obtained by CLF from
VOs, SHGs and various other activity ventures
(xv) Balance in Bank accounts and with third parties (loans to SHGs etc) and fund the transfers from
the CLF/ Project are duly reconciled.
(xvi) Auditor will conduct physical verification of CLFs assets on sample basis and must covered 10%
of CLFs who have procured the assets more than Rs 50,000/- till the reporting period.
(xvii) Auditor will verify the MOU between concerned unit with other institutions.
(xviii) Auditor will report on persisting irregularities and also on audit compliance by CLFs ofearlier
audit observation.
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Reporting:
The auditors shall submit the report of CLF which shall include the following:-:-
Part A: Main Statutory Audit Report including:-
a. Report on financial statement
b. Management responsibility statement,
c. Auditor’s responsibility statement,
d. Basis of irregularities and suggestions,
e. Audit opinion and
f. Report on other legal and regulatory requirements
Part B:-The Financial Statements of CLFs including:
1. Receipts & Payments Accounts.
2. Income and Expenditure Account.
3. Balance Sheet(with relevant annexure)
4. Summary of Assets Status and Depreciation
5. VO wise details of loan/CIF given and recovered and interest thereon
6. Details of various fund wise balances
7. Repayment schedule including details of month wise Loan/CIF given to VOs, amount collected,
interest calculation, balances with VOs bifurcated into principal and interest
8. Notes to the Accounts
Part C:- It includes assessment and comment on Internal Audit reports of CLF and incorporating the
comments of Internal Auditors in Main Statutory Audit Report.
Part D:- Consolidated Block wise Audit Report and Financial Statements of CLFs.
Part E:- Consolidated District wise Audit Report and Financial Statements of CLFs.
The auditor shall issue the Audit Report along with the UDIN (Unique Document Identification Number).
The Auditor shall submit the Audit Report both in English and Hindi languages to CLF, DMMU and
SMMU for better control and management of funds.
Documents/Records, Services and facilities to be provided mandatorily by the CLF:
(i) CLFs shall provide access to all vouchers, supporting documents, books of accounts,legal
documents, all relevant documents and current financial statements to the auditor. The CLF shall
also provide the Pervious Audit Report, previous Financial Statements and previous books of
accounts to enable the auditor to form an audit opinion on financial statements. For audit evidence
the auditor may require the photocopy or soft copy of above to ensure the compliances.
(ii) The auditor should be given access to correspondence, Financial Rules, Community Operations
Manual, community procurement guidelines, Government Orders and Office Orders and any other
information associated with the Project and as deemed necessary by the Auditor by block / district
office (UPSRLM). Confirmation should also be obtained wherever required and appended to the
report.
(iii) Active support from the officials at SMMU/DMMU/BMMU/CLF levels.
(iv) All audit arrangement will be made by District office / Block Office to ensure timely completion
of Statutory Audit. The CLF would also facilitate the auditors in all respect
(v) CLF wise fund transferred detail will be provided to the auditor by the district unit. Auditor will
ensure to take the data from concerned DMMU.
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Selection of Statutory Auditor
UPSRLM will empanel chartered accountant firms after their technical evaluation for three years.
This panel will be reviewed annually and if the work of a chartered accountant firm is found
unsatisfactory, or it is found involved in any kind of unethical practices, it will be de-empanelled and
UPSRLM may initiate legal action also against that firm. This panel may be given an extension for two
more years after proper annual review by an empanelment committee of UPSRLM.
A single chartered accountant firm shall be appointed by UPSRLM for the whole district from the
panel of Chartered Accountant Firms. The audit of all the CLFs within the geographical area of that
district shall be conducted by that Chartered Accountant firm only.
Period & Timing of Audit
The Audit of each CLF will be carried out at the end of every financial year. UPSRLM will prepare
annual action plan for statutory audit of CLFs at the beginning of financial year. UPSRLM must deploy
district wise auditor before the starting of the financial year. After deployment of auditor, auditors have to
submit their annual audit plan to UPSRLM and DMMU before 30th April. The auditors should give
advance tour program to UPSRLM and DMMU before commencing the audit. This will enable the
DMMU / BMMU to communicate the plan of audit to the community institution. DMMU shall ensure
that books of accounts and Financial Statements of CLF are prepared and completed in all respect before
start of audit, maximum by 31st of May of the end of the year. Audit should be concluded by
30thSeptember from the end of Financial Year for which the audit is conducted. DMMU/ auditors shall
submit consolidated report of the district in prescribed formats to SMMU before 31st December.
Time Schedule of Statutory Audit of CLFs
Sr No Particulars Time Schedule
Preparation of Annual Action Plan for Till 15th April of F.Y. for which audit is
1.
Statutory Audit of all CLFs by UPSRLM to be conducted.
Selection of Statutory Auditor for F.Y. by Before Start of F.Y. for which audit is to
2.
UPSRLM be conducted.
Submission of annual audit plan by Statutory Till 30th April of the F.Y. for which audit
3.
Auditors to UPSRLM and DMMU is to be conducted
Completion of Books of Accounts and Till 31st May of the end of F.Y. for
4.
Financial Statements of CLF which audit is to be conducted
Till 30th September of the end of F.Y.
5. Completion of Statutory Audit of CLFs
for which audit is to be conducted
Submission of Consolidated Audit Report of Till 31st December of the end of F.Y. for
6.
District to UPSRLM which audit is to be conducted
Procedure & Place of conducting audit at CLFs
1. Audit will be conducted for all the CLFs at concerned CLF office.
2. CLF’s President, Secretary and Treasurer shall produce entire accounting books and related
documents.
3. The audited financial statement shall be signed by the President / secretary and treasurer of the CLF
and shall be placed before the EC of CLF for approval.
4. The auditor should ensure that the audit findings are duly discussed with the office bearers of theCLF
and their views are obtained.
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Composition of Review Committee and review procedure to monitor audit work
DMMU shall be responsible for review and monitoring the progress of the CLF's statutory audit. A
committee consisting CDO, DC NRLM and Accountant NRLM will be constituted at DMMU level to
review the audit report and monitor the progress of the assignment and take further remedial measures on
the discrepancies pointed out in audit.
SMMU shall be responsible for review and monitoring the progress of the CLF audit at DMMU level. A
committee consisting SMD, JMD (as nominated by SMD) and CFAO will be constituted at SMMU level
to review the performance report and monitor the progress of the assignment and take further remedial
measures on the discrepancies pointed out in audit.
Audit Fee Structure
The suggested fee structure for CLF statutory Audit thereof is as below-
Sl. Net Worth (Capital + Corpus) Audit Fees (Rs.) per annum
No. (As per Balance Sheet of F.Y.) (GST Extra)
1. Up toRs. 20 lakhs 2500
2. More than Rs.20 lakhs to 50 lakhs 5000
3. More than Rs.50 lakhs to 1crore 7500
4. More than 1 crore 10000
The payment of statutory audit fees shall be made by respective CLFs whose financial statements are
audited. To maintain the sanctity of the audit report advance payment should be encouraged.
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Formats of Financial Statements and Reports
10 | P a g e
11 | P a g e
12 | P a g e
13 | P a g e
14 | P a g e
15 | P a g e
