BANK CONCURRENT AUDIT – ALL YOU NEED TO KNOW ABOUT
Concurrent audit is an examination which is contemporaneous with the occurrence of transactions or is carried out as near thereto as possible. It attempts to shorten the interval between a transaction and its examination by an independent person.
There is an emphasis in favour of substantive checking in key areas rather than test checking. This audit is essentially a management process integral to the establishment of sound internal accounting functions and effective controls and setting the tone for a vigilant internal audit to preclude the incidence of serious errors and fraudulent manipulations.
A concurrent auditor may not sit in judgment of the decisions taken by a branch manager or an authorized official. This is beyond the scope of concurrent audit. However, the audit will necessarily have to see whether the transactions or decisions are within the policy parameters laid down by the Head Office, they do not violate the instructions or policy prescriptions of the RBI, and that they are within the delegated authority.
Bank Concurrent Audit is a kind of internal audit where auditor responsibility is to review and correct assign bank branch internal control system.
However compare to other internal audit, concurrent audit is little different; in concurrent audit auditor seats in branch for whole month (either himself/herself or his/her assistant) like any other branch employee, bank also allots a separate PC to them for their work. However like other employee he doesn’t report to Branch Manager since he recruited by HO hence work with Branch Manager.
Most important challenges to any auditor in concurrent audit is, he seats in branches do audit of branch books, identify branch employee mistakes, ask them to rectify even if they are not directly liable to do so and with all this maintain good relation with bank employees.
We must note that this is very routine job until and unless you are highly interested in banking sector and want to learn and grow in banking sector, in that case this is an excellent platform, it might not be very remunerative at begging but learning is unlimited if you really want to learn since you have access of all area of any bank branch like any other internal auditor there is no limitation in your scope as a concurrent audit.
Types of activities to be covered
(1) The main role of concurrent audit is to supplement the efforts of the bank in carrying out simultaneous internal check of the transactions and other verifications and compliance with the procedures laid down.
(2) The scope of concurrent audit should be wide enough/focused to cover certain fraud - prone areas such as handling of cash, deposits, advances, foreign exchange business, off-balance sheet items, credit-card business, internet banking, etc.
(3) The detailed scope of the concurrent audit should be clearly and uniformly determined for the bank as a whole by the bank's Inspection and Audit Department in consultation with the bank's Audit Committee of the Board of Directors (ACB).
(4) In determining the scope, importance should be given to checking high-risk transactions having large financial implications as opposed to transactions involving small amounts.
Important point to checks:
I. Revenue Leakages Objective of this is to identify and review area of revenue leakages on day to day basis. Most of auditors limit this area as checking of charges for cheque returns either inwards or outwards, DD charges, penalty and interest for not making interest payment on time in case of CC or OD, not submitting of stock statements.
However in most of the cases auditor doesn’t check month on month interest calculations with believe that since it is system generated it will be true, even if during new loan & advances review he found some differences in his calculation and system generated interest calculations. In this case he accept that his calculation is wrong, however I will suggest we must go ahead and escalate this issue to HO, in 90 % of the cases we may be wrong even if, it will improve our understanding about interest calculation and we will not make such mistake in future, but suppose our observation lie in 10 % of the cases where we are right what can be the benefits.
From bank point View
1) If interest is under calculated a. Bank will able to save crors of Rs
2) If it is over calculated a. Bank will able to save its goodwill in market which may lose if some outsiders identify this case (By this bank can eliminate most of legal audit, compliance etc before arising which may arise if some outsider identify this satiation). In this case bank will be most benefited.
From Auditor point of View
1) Auditor will get professional recognition which increases his firm goodwill and he may get some more excellent remunerative work either from same bank of from others. II. KYC Norms It is Know Your Customer means looking for all bank compliance before giving any loan or opening any Deposit accounts. Some important document to be checked is Other then KYC I have covered most of important area that we need to look during checking KYC, however this list is not exclusive. Check List of items to be checked during KYC For New account 1) Name of the account holder 2) Type of a/c saving/current/time/advance 3) A/c no 4) A copy of verified Identity proof 5) A copy of verified residential address proof 6) Whether letter of thanks is send or not to the introducer as well as to new depositor. 7) Signature of authorized signatory obtained 8) Check Certificate of incorporation/MOA/AOA, board resolution, Copy of PAN, power of attorney in case of Company. 9) Cross check no of a/c opening forms with a/c opened in the system 10) Ensure photograph of the a/c holder is obtained and fixed or stapled on the a/c opening form. 11) PAN/Form 60 12) Nomination detail . III. Cash management (i) Surprise physical verification of cash at branch and ATM along with safekeeping and custody. (ii) Daily cash transactions, particularly any abnormal receipts & payments. (iii) Surprise verification of cash by an officer other than the joint custodian. (iv) Proper accounting of and availability of insurance cover for inward and outward cash remittances. (v) Accounting of currency chest transactions and delays/omission in reporting to RBI. (vi) Reporting of Counterfeit Currency. (vii) All cash transactions of Rs. 10 lakh and above reported in CTR. (viii) That all cash transaction of Rs. 50,000 and above invariably indicate Pan No./Form 60. IV. Deposits (i) Adherence to AML guidelines in opening of fresh accounts and monitoring of transactions in such accounts. (ii) Large term deposits received and repaid including checking of repayment of term deposit in cash beyond permissible limit. (iii) Accounts opened and closed within a short span of time i.e., accounts with quick mortality. (iv) Activation and operations in inoperative accounts. (v) Settlement of claims of deceased customers and payment of TDRs against lost receipts and obtention of indemnities, etc. To check revival of dormant accounts and accounts with minimum activities. (vi) Examination of multiple credits to single accounts. V. Foreign Exchange transactions (i) Recovery of charges as per HO Guidelines. (ii) Packing credit released, whether backed by LC or confirmed export order. (iii) Availability of ECGC cover and compliance with ECGC terms. (iv) Submission of statutory returns on export/ import transactions, like BEF statements, XOS, write off of export bills, etc. Follow up of outstanding export bills and exchange control copy of bill of entry. (v) Irregularities in opening of new accounts and operation in NRO, FCNR, NRE, EEFC etc., and debits/credits entries permissible under the rules. (vi) Whether operations in FCRA accounts are as permitted by FCRA guidelines. (vii) Booking, utilization, extension and cancellation of forward contracts. VI. Loans & Advances (i) Report Bills/cheques purchased, if in the nature of accommodation bills. (ii) Proper follow-up of overdue bills purchased/discounted/negotiated. (iii) Fresh loans and advances (including staff advances) have been sanctioned properly and in accordance with delegated authority. (iv) Reporting of instances of exceeding delegated powers to controlling/head office by the branch and have been confirmed or ratified by the competent authority. (v) Securities and documents have been received as applicable to particular loan. (vi) Securities have been properly charged/ registered and valued by competent person. Whether the same has been entered in the bank’s system. (vii) All conditions of sanction have been complied with. (viii) Master data relating to limit, rate of interest, EMI, moratorium period details have been correctly entered and updated/modified in the system. (ix) Value dated entries passed in advances accounts. (x) Post disbursement supervision and follow-up is proper, such as timely receipt of stock and book debt statements, QIS data, analysis of financial data submitted by borrower, verification of securities by third parties, renewal of limits, insurance, etc. (xi) Whether there is any misutilisation of the loans and whether there are instances indicative of diversion of funds. (xii) Compliance of prudential norms on income recognition, asset classification and provisioning pertaining to advances. (xiii) Whether monthly updating of drawing power in the computer system on the basis of stock statements/book debt statement/ other financial data received from the borrowers. (xiv) Recovery in compromise cases is in accordance with the terms and conditions of the compromise agreement. (xv) To check review and renewal of loans. LC/BG (i) LC/BG issued/amended as per the approved format/model guarantee prescribed and standard limitation clause incorporated. Whether counter indemnity obtained as prescribed. (ii) Any deviation from the terms of sanction in regard to margin, security, purpose, period, beneficiary, collection of charges, commission/fee, etc. (iii) Whether payment is made to the debit of party's account on due date without creating overdraft/debiting suspense, in case of deferred payment guarantee. VII. Verification of Credit Card/Debit card (i) Application for the issue of credit card has been properly examined and record of issue of the same has been maintained. (ii) Whether overdraft/debits arising out of the use of credit cards are promptly recovered and informed to higher authorities. (iii) Whether undelivered credit cards are properly kept as security items and followed up with credit card department for further instructions. (iv) Physical verification of ATM cards, debit cards, credit cards, passwords and PINS, control over issue & delivery, safe keeping and custody at all the locations. Report loss of any such items. VIII. Others (i) Compliance of provisions relating to Tax Deducted at Source, service tax, trade tax, other duties and taxes. (ii) Physical verification of inventory, control over issue of inventory, safe keeping and custody of security forms. Report any loss of such items. (iii) Physical verification of other deliverable items, control over issue, safe keeping and custody. (iv) Physical verification of Gold coins, control over issue, safe keeping and custody. Checking of Gold sale transactions. (v) Custody and movement of branch keys. (vi) Locker keys and locker operations-linking of FDR as security for locker/operation of locker/inoperative lockers/ nomination/other issues. (vii) Safe custody of branch documents like death claim cases, issuance of duplicate DD/PO/FDR, checking of indemnities, etc. and verification of documents executed during the period under audit. (viii) Reporting of frauds. By CA Kapil Khandelwal
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