Thiruvananthapuram: The Comptroller and Auditor General (CAG) has decided to audit chit fund operations run by cooperative societies, marking the first time such transactions will come under its scrutiny. The audit will begin in Kerala as part of the first phase.

The CAG has written to the state's Cooperation Department seeking details of the chit schemes operated by each cooperative society. According to its preliminary assessment, many of these schemes are not being run through the prescribed registration process, resulting in a possible loss of the government's share of taxes and other statutory dues.

The move also comes amid allegations that the Union government has been making sustained efforts to tighten oversight of Kerala's cooperative sector.

So far, the state government has maintained that cooperative societies do not operate chit funds. The Registrar of Cooperative Societies had also issued a circular directing societies not to run any savings scheme using the term "chit". Instead, cooperatives have been operating schemes similar to chit funds under the name Monthly Savings Scheme (MSS).

In its communication, the CAG has outlined the legal definition of a chit under the Chit Funds Act. It states that a chit involves a specified number of subscribers contributing a fixed amount at regular intervals over a fixed period, with each subscriber becoming entitled to receive the pooled amount through a draw, auction or another predetermined method.

Based on this definition, the CAG has clarified that the nature of a scheme, rather than its name, determines whether it qualifies as a chit. It has indicated that monthly deposit schemes and group deposit schemes run by cooperative societies would fall within the definition of a chit under the law, even if they are not described as chit funds.