KOCHI: Pointing out that the Karuvanur Cooperative Bank case represents one of the largest and most damaging frauds in the cooperative history of Kerala, the amicus curiae appointed by the Kerala High Court has filed a report stating that most cooperative societies are dominated by political parties, making them vulnerable to corruption and favouritism.
The report highlighted that administrative members are appointed based on political connections rather than merit, and these connections often shield fraudulent activities from legal or administrative action. To prevent future frauds, the report recommended independent, regular, and rigorous audits by external auditors.
“The cooperative sector of Kerala was once an important pillar of the socioeconomic development of the state. At present, it is facing an unprecedented crisis of trust. The cooperative became so politicised that, combined with the lack of any oversight, it became a fertile ground for mismanagement and corruption,” said the report filed by Advocate D Kishore, the amicus curiae.
Political interference in banks or societies creates an atmosphere of impunity that encourages more corruption, the report pointed out. Loans are sanctioned to individuals or groups based on political connections rather than proper procedures or collateral requirements, it said.
To strengthen the framework, the amicus curiae suggested that audits by outside auditors who are independent, regular, and vigorous can be helpful in identifying frauds early.
“These must be done from time to time to ensure transparency and proper health of the financial conditions of cooperatives.
A dedicated compliance monitoring cell should be established in each cooperative society for continuous compliance with legal and financial regulations. The body should monitor the implementation of financial policies and ensure that standards are maintained constantly,” Advocate Kishore noted.
The report stated that the department of cooperatives and the registrar of cooperative societies have failed to enforce proper auditing mechanisms, including compliance.
“Many irregularities could have been prevented if the audits were conducted more strictly. Cooperative societies are not subjected to rigorous oversight from financial regulators like (how) commercial banks are. As a result, compliance and monitoring have had gaps within their systems,” it said.
The report also said that tax evasion, under different terms such as MDS (monthly deposit scheme) or GDS (group deposit scheme), is rampant under the furtive protection offered by Kerala’s cooperative societies.
The registrar of chits (inspector general of registration, Kerala) is to be directed to take immediate steps to prevent the illegality committed by the cooperative societies in conducting the chit business under various schemes like MDS, GDS, GDCS, MMDS etc. The cooperative societies/banks should conduct chits after getting registration under the CFI Act, 1982, the amicus curiae report said.