Shares may consist of subscription shares and paid up shares. Interest on shares may be credited to the accounts instead of being paid to ensure proper control the following should be covered by the system:
- There should be proper custody of unused share and deposit pass book, receipt forms and share certificates;
- There should be proper instructions to the staff as to the making of entries in the pass books and the issue of receipts;
- Withdrawal terms, notice and specimen signatures;
- Authorization of withdrawals by the ledger department or against the pass books;
- Records of deaths, marriages, powers of attorney and transmission of shares and deposits;
- The comparison of the balance shown in the pass book with that shown in the ledger.
Possibility of error and misappropriation always accompany the handling of cash. Building societies transactions to a large extent are in cash. This however does not involve audit considerations which differ in principle from those encountered in any other business. So there should be surprise cash counts and any discrepancies should be investigated in detail.
Auditors should examine transactions which have the effect of showing as at the balance sheet date a state of affairs particularly the society's liquidity which is materially better than it was during the year and shortly after. Of particular attention are:
1. Large deposits received shortly before the year end and repaid shortly after;
2. Large mortgage repayments received shortly before the year end and re-advanced on the same property shortly after;
3. Unusual delay until after the year end in making payments in accordance with applications received for withdrawals of shares or deposits;
4. An abnormal year end accumulation of commitments for advances followed by the making of the advances shortly after the year end;
5. The significance of items in the bank reconciliation statements.
Not only does the auditor report to the members on the financial statements, he is also supposed to give a report to the registrar of societies to accompany the annual return.