Auditing Procedures for Healthcare, Hospitality, and Co-operative Societies

Posted on Nov 5, 2025 in Business Administration and Innovation Management

Auditing Healthcare Organizations

Healthcare Organizations primarily include hospitals and nursing homes. They are established to provide medical services to the public. These organizations may be run and funded by the Government, local authorities, or charitable trusts, and are generally non-profit seeking. However, hospitals may also be established by private sector organizations, which are profit-seeking (popularly known as private nursing homes). Since healthcare organizations largely differ from other commercial organizations on account of their business processes, an auditor needs to prepare a comprehensive audit plan addressing the unique aspects of these organizations. Accordingly, the audit procedure must highlight the following steps:

  1. Understand the Constitution

    Study all the relevant documents to determine the organization’s nature and ownership structure (i.e., trust, partnership, or company). Study the trust deed (in case of a trust), partnership agreement (in case of a partnership business), and articles and memorandum of association (in case of a company). Accordingly, identify the rules and regulations relating to its management and the process of preparation of accounts.

  2. Assess the Internal Control System

    Evaluate the internal control system associated with the acquisition and maintenance of assets, authorization of transactions, etc., and determine the scope of the audit work.

  3. Consult the Minute Book

    Carefully examine the notices and minutes of the meeting of the Board of Directors, Managing Committee, and other committees (such as the purchase committee) and identify the decisions which may affect the accounting. Confirm that the decisions undertaken with respect to the operation of bank accounts, approval of expenditure, etc., have been duly complied with.

  4. Verify Receipts Related Transactions

    1. In case of a hospital run by the state government or any local authority, vouch the grants received from the state or the local authority based on Government Orders, sanction letters, and counterfoils of receipts.
    2. Vouch collection from patients admitted to the paying beds based on the Patient Admission Register and counterfoils of receipts/copies of bills.
    3. Vouch collection from various pathological tests based on the counterfoils of receipts/copies of bills.
    4. Vouch donations based on the counterfoils of receipts.
    5. In case hospitals having guest houses, assess the collections based on the register, counterfoils of receipts, and accounting entries.
    6. Interest and/or dividend income should be vouched with reference to the Investment Register and Interest and Dividend warrants.
    7. In case of legacies and donations which are received for specific purposes, it should be ensured that any income therefrom is not utilized for any other purposes.

  5. Verify Payments Related Transactions

    1. Verify that all capital expenditure associated with machinery, furniture, vehicles, etc., is approved and supported by documentary evidence such as counterfoils cheque, invoices, and tenders.
    2. Vouch the salary paid to staff based on the attendance register, payroll, etc. Examine that the appointment of casual staff and payment of their salaries are duly authorized.
    3. Doctor’s remuneration should be verified based on the list of visits and operations performed.
    4. Verify the purchases of pathological test kits, X-ray plates, and other consumables based on tenders, orders placed, and invoices received.
    5. Vouch all other overhead expenses like telephone bills, electricity bills, fuel bills, etc., based on appropriate documentary evidence.

  6. Verification of Assets and Liabilities

    1. Verify the stock registers of medicines, food items, and other equipment and check their valuations.
    2. Conduct physical verification of fixed assets and investments based on the Fixed Asset Register and Investment Register, respectively.
    3. Check the adequacy of depreciation and its accounting.
    4. Collect the list of all liabilities and verify them based on the contracts and arrear bills.

  7. Verification of Financial Statements

    1. Verify that the financial statements have been prepared in the manner and format appropriate to the nature (profit seeking or non-profit seeking) and ownership structure of the organization.

Auditing the Hospitality Sector

The Hospitality Sector covers a wide range of organizations which can broadly be divided into four categories: (A) Food and Beverages (Restaurants), (B) Travel and Tourism, (C) Lodging (Hotels and Guest Houses), and (D) Recreation (such as Cinema Halls, Theme Parks, etc.). Since the organizations in the above categories largely differ in their business processes, auditing procedures will certainly be different for each of them, barring a few common areas.

General Audit Steps for Hospitality Businesses

  1. Understand the ownership structure of the organization (such as sole proprietorship, partnership, private limited companies, or public limited companies) and determine the regulatory requirements to be examined relating to management as well as accounting.
  2. Evaluate the internal control system and determine the nature, timing, and the extent of the audit procedures.
  3. Check that the organization has a valid license from an appropriate authority to run the business.

Specific Audit Procedures by Category

A. Restaurants (Food and Beverages)

  1. Verify the total revenue recognized based on the daily and monthly sales report.
  2. Check that the revenue has been realized in cash based on bank statements. Check whether arrears written off, if any, have been duly approved by the person responsible.
  3. Vouch all payments made to suppliers based on documentary evidence such as orders placed, invoices, and bank records.
  4. Carefully examine the petty cash book. Any irregularity should be examined further.
  5. Vouch payments on account of rent, electricity, and other overhead expenses.
  6. Vouch the payment of salary based on payroll, attendance register, and bank records.
  7. Carefully examine the valuation of stock. Large writing off of any perishable item should be carefully examined.
  8. Conduct physical verification of fixed assets and investments based on the Fixed Asset Register and Investment Register, respectively.
  9. Check the adequacy of depreciation and its accounting.
  10. Collect the list of all liabilities and verify them based on the contracts and arrear bills.

B. Travel and Tourism

  1. Vouch the collections from customers based on their booking details, counterfoils of receipts, etc. Determine arrears, if any, at the end of the year.
  2. Vouch revenue out of commissions from various companies and tour partners.
  3. Vouch the payment made on account of tour bookings (divided into Air Travel, Rail, Road, Sea, etc.) and hotel accommodations.
  4. Vouch transactions related to the cancellation of bookings.
  5. Check that discounts offered to individual customers are approved by the competent authority.
  6. All overhead expenses including electricity bills, telephone and broadband bills, taxes to local authorities, etc., should be vouched based on the respective bills.
  7. Verify the salary paid to permanent staff based on their payroll, attendance records, and leave applications. Payment of incentives should be checked carefully.
  8. Conduct physical verification of fixed assets and investments based on the Fixed Asset Register and Investment Register, respectively.
  9. Collect the list of all liabilities and verify them based on the contracts and arrear bills.

C. Hotels and Guest Houses (Lodging)

  1. Vouch the collections from boarders based on their check-in and check-out information recorded in the register, counterfoils of bills, and cash book.
  2. Verify the room rent receipts and daily occupancy reports. Ask for proper clarification for differential rent charged from any boarder. Be careful while verifying the adjustment of unrealized room rent and cancellation charges of booking accommodation at the time of closing of accounts.
  3. Vouch collections on account of special events such as conferences, wedding ceremonies, etc., separately based on counterfoils of receipts and cash book.
  4. Income from bar, casino, health center, etc., associated with the hotel should be vouched based on counterfoils of bills and cash book. Vouch the rent from shops situated in the premises of the hotel, if any.
  5. Vouch transactions relating to the purchase of food materials, drinks, and other materials. Check whether the payments have been made based on purchase orders or contracts, invoices, etc.
  6. Verify the salary paid to permanent staff based on their payroll. Salary paid to casual and contractual employees should be verified based on documentary evidence like authorization by management.
  7. All overhead expenses including electricity bills, telephone and broadband bills, taxes to local authorities, etc., should be vouched based on the respective bills.
  8. Carefully examine the valuation of stock. If possible, remain physically present at the time of stock taking.
  9. Conduct physical verification of fixed assets and investments based on the Fixed Asset Register and Investment Register, respectively. Check the adequacy of depreciation and its proper accounting.
  10. Collect the list of all liabilities and verify them based on the contracts and arrear bills.

Auditing Co-operative Societies

Unique Features of Co-operative Societies

A co-operative society may broadly be defined as an association of persons who have voluntarily joined together to achieve a common economic objective through the formation of a democratically-controlled business organization, making equitable contributions to the capital as required, and accepting a fair share of risks and benefits of the undertaking. Elimination of middlemen and sharing of gains of economic activities seems to be the hallmark of a co-operative society.

A co-operative society may be formed for different purposes. Accordingly, there may be consumers’ co-operative societies, housing co-operative societies, industrial co-operative societies, urban and rural co-operative banks, etc.

Statutory Audit Requirements (Co-operative Societies Act, 1912)

As per Section 17 of the Co-operative Societies Act, 1912:

  1. The Registrar shall audit or cause to be audited by some person authorized by him by general or special order in writing in this behalf, the accounts of every registered society once at least in every year.
  2. The audit under sub-section (1) shall include an examination of overdue debts, if any, and a valuation of the assets and liabilities of the society.
  3. The Registrar, the Collector, or any person authorized by general or special order in writing in this behalf by the Registrar, shall at all times have access to all the books, accounts, papers, and securities of a society, and every officer of the society shall furnish such information in regard to the transactions and working of the society as the person making such inspection may require.
  4. Here, ‘Registrar’ means a person appointed to perform the duties of a Registrar of co-operative societies under this Act.

Additional Audit Considerations

The following additional points should be kept in mind while auditing a co-operative society:

  1. Qualifications of Auditor: Generally, only a chartered accountant within the meaning of the Chartered Accountants Act, 1949, can be appointed as the auditor of a co-operative society. However, in certain State Co-operative Societies Acts, a person holding a government diploma in co-operative accounts, or in co-operation and accounts, or a person who has served as an auditor in the Co-operative Department of Government may also be appointed as the auditor.
  2. Appointment of the Auditor: An auditor of a co-operative society is appointed by the Registrar of Co-operative Societies and the auditor so appointed conducts the audit on behalf of the Registrar and submits his report to him. Audit fees are calculated according to the scale prescribed by the Registrar, based on the category of the society audited. For example, the audit fees of co-operative credit societies and Urban Co-operative Banks are to be calculated with reference to working capital at the prescribed rates. ‘Working Capital’ here means funds at the disposal of the society inclusive of paid-up share capital, funds built up out of profits, and monies raised by borrowing and by other means.
  3. Books of Accounting Records: Under Section 43(h) of the Co-operative Societies Act, a state government can frame rules prescribing the books and accounts to be kept by a co-operative society. For example, in Maharashtra, co-operative societies are required to maintain a cash book, general ledger, personal ledger, stock register, property register, etc.

    Generally, the following records are maintained by co-operative societies:

    • Cash book: It may be maintained to record particulars regarding cash receipts and expenses under suitable heads, with clear distinction between capital and revenue items of receipts and expenses.
    • Stock register: It may contain detailed information as regards receipts, issues, and balances of stock-in-trade, date-wise. In a producers’ co-operative society, perpetual inventory records may be maintained based on an appropriate costing method.
    • Register of assets and investments: It will contain detailed particulars regarding the various immovable and movable assets belonging to the society, such as, types of assets, location, date of acquisition, cost, depreciation provided, and so on.
    • Register of fixed deposits: In the case of a co-operative credit society, or a co-operative bank, or any other society which is authorized by its bye-laws to accept deposits from members/non-members, a register of fixed deposits may be maintained giving details as regards the dates of acceptance, maturity, interest accrual, repayment, etc.
    • Register of sureties: In the case of a co-operative credit society, loans are given against personal security of members as also surety (guarantee) provided by two other members. The Register of Sureties will give particulars about the number of borrowers in respect of which a member has stood surety, and show whether it is within the overall limit of surety-ship that may be prescribed.
  4. Restriction on Shareholding: Shareholding in a co-operative society is subject to the limit prescribed in Sec. 5 of the Co-operative Societies Act, 1912. Accordingly, no member of the society, other than a registered society, can hold more than twenty per cent of the total number of shares of the society, or such number of shares which in value exceeds ₹1,000. A co-operative society cannot prescribe any other limit in its bye-laws which is violative of this provision. In addition to this, the Acts passed by the states may also prescribe other restrictions as regards shareholding. The auditor should see that the provision regarding shareholding is duly followed.
  5. Restriction on Loan: As per Section 29 of the Co-operative Societies Act, 1912, a registered co-operative society can only grant loans to its members, though, with prior approval of the Registrar, it may grant loans to other registered co-operative societies. The auditor should see that the loans granted by the society are in conformity with this provision.
  6. Restriction on Borrowing: Subject to the restrictions imposed by its bye-laws, a co-operative society may accept loans and deposits from its members as well as non-members. It is the auditor’s duty to ascertain that the restrictions, if any, laid down by the bye-laws are carefully observed.
  7. Investment of Funds: There are restrictions on investment of funds belonging to a co-operative society. Accordingly, a society may invest its funds in any of the following (Sec. 32 of the Central Co-operative Societies Act):
    • Central or State Co-operative Bank,