Building Societies are organisations which exist to offer a savings and investment medium to the public and to lend to individuals money to enable them buy their own houses taking as security the deeds of the houses. They are not limited companies but are run by a board of directors elected by the investors and permanent staff. There are strong similarities in the legislation covering building societies and that covering companies.
There are additional control problems peculiar to building societies:
i. The large volume of deposits and withdrawals of small amounts of cash;
ii. The granting of loans on mortgage
iii. Control over documents of title
iv. Control over investments and their related income
It shall be the duty of the auditors of a building society to carry out such investigations as will enable them to form an opinion as to the following matter.
(a) Whether the society has kept proper books of account;
(b) Whether the society has maintained a satisfactory system of control over its transactions and records;
(c) Whether the balance sheets and revenue and appropriation account are in agreement with the books of account and records of the society and if the auditors are of the opinion that the society has failed to keep proper books of account or proper records or a proper system of control they should state that fact in their report.
Key Audit Areas
1. The auditor must examine the procedure for checking deeds on receipt from the lawyers to ensure that they are complete in accordance with the advance records properly executed and stamped;
2. Examine the maintenance of records that show the location of all deeds and the dates of any changes in the location of any of them.
3. Examine the procedure that ensures that the deeds are received from the society's lawyers without undue delay;
4. Examine the authority required for the release of deeds for a temporary period from their normal custody and the proper control for their prompt return;
5. Examine whether there is a continuous independent check of the deeds against the advance records or the borrowers ledger accounts;
6. Examine the necessity for satisfactory cross reference between the advance records, the cash book, the borrower's ledger account and the deed.
7. Examine the procedure for the release of deeds on redemption of the mortgage.
Other matters the auditor needs to be concerned with are:
Examination of deeds
• Ensure that the mortgage is in the name shown in the advance records;
• That there is a document of title to the property under mortgage and that the society's lawyers have been satisfied as to the borrower's title;
• The amount of the advance as stated in the mortgage deed is not less than that shown on the advance records;
• The mortgage deed is stamped, properly signed, witnessed and is prima facie in order;
• The property is adequately insured, the premium is paid up to date and the society's interest as mortgage is endorsed in the insurance policy.