CONCURRENT AUDIT IN BANKS
Concurrent Audit means checking of day to day transactions. The concurrent auditor's
main task is to check the correctness and accuracy of the voucher and documentation.
OBJECTIVES
The system of Concurrent Audit was introduced mainly with the following objectives:
1) To keep the routine work of the branch under continuous check so as to supplement
the HO/RO’s efforts in ensuring proper controls over critical and sensitive areas of
the branch functioning.
2) To ensure that violations, if any, of the procedures of the Bank, are brought to the
notice of the management so as to ensure timely corrective and remedial action and
sustenance of the same.
3) To tone up the house-keeping at branches, particularly in large/very large branches,
where due to sheer size, the internal control systems could become weak.
4) To capture the application and effectiveness of risk management procedures and risk
assessment techniques in arriving at the RISK PROFILE which will determine the
strengths and weaknesses of the branch in all areas of operations on the basis of
which corrective and remedial measures can be put in place by the management.
System of Concurrent Audit in Banks was introduced by RBI in Oct 1993 pursuant to the
recommendation of the Ghosh committee on Frauds & Malpractices in Banks.
With changing scenario, role of concurrent audit has become very crucial & important for
banks. Particularly for timely detection of irregularities & lapses, which help in
minimisation of irregularities as well as prevention of frauds.
The Concurrent Auditors should certify all the reports under Branch CONCURRENT
AUDIT POLICY 2014-15 as introduced by al banks
Statutory Audit System wherever Concurrent Audits are conducted by external Chartered
Accountants. Such Concurrent Auditors has to provide various Certifications done earlier
by Branch Statutory Auditors, covering NPA provisioning, Insurance coverage, P & L
Account, ALM, CRAR, DICGC, LFAR etc., similarly, Certification regarding Tax Audit
may also be taken from the Concurrent Auditors. It is pertinent to note that the concurrent
Auditors are carrying out all the verifications on a continuous basis which the Branch
Statutory Auditors are supposed to do annually for giving these Certificates.
Concurrent Audit_ ACAE_29.04.2014
APPOINTMENT & ACCOUNTABILITY AS PER RBI GUIDELINES:a) Any Bank’s own staff or a firm of Chartered Accountant’s can be engaged.
b) Both must be independent of branch where concurrent audit is being
conducted.
c) Initially 1st year appointment done extendable upto 3 year’s & after that firm
can be shifted to another branch.
d) On a/c of serious act of omission or commission noticed in their working fact
may be reported to RBI & ICAI.
ELIGIBILITY CRITERIA GIVEN IN GENERAL FOR EMPANELMENT AS
CONCURRENT AUDITOR BY BANKS
“ The CA Firms must meet the following eligibility requirements:
I. It should be a partnership firm with a standing of at least 5 years and sufficient
experience of bank related audit work. It should preferably have undertaken
Statutory Audit / Internal Audit / Concurrent Audit in SBI / Associate Banks / other
Public Sector Banks.
II. The Firm should have, as a partner, at least two FCAs for undertaking concurrent
audit of branches upto scale – III, and at least three FCA partners for scale – IV &
above branches. Such FCA partners should have been with the firm for at least two
years in immediate past.
III. The firm should have an office at the center/ city and for smaller towns within the
District where bank branches may be proposed to be covered under concurrent
audit.
IV. Where there are common partners/ directors in more than one firm, only one of such
firms may be empanelled.”
v. Concurrent Auditors will, be appointed from the RBI panel based on the Branch
Gradation System.
GENERAL TERMS OF APPOINTMENTS:
1)
2)
One audit firm shall not normally be assigned with more than one branch of the
Bank for concurrent audit.
The audit firm should not engage or sub-contract to, any outside firm of Chartered
Accountants/ other person/s the concurrent audit of the branch assigned to them,
even though such person/s are qualified Chartered Accountant/s.
Concurrent Audit_ ACAE_29.04.2014
3)
4)
The team of auditors auditing the branch should be headed by qualified Chartered
Accountant (Leader) and he/she shall visit the branch for the purpose of carrying out
concurrent audit at least 15 working days in a month. He/She shall conduct the audit
of all major areas of branch’s functioning and routine work connected with audit
may be done by experienced assistants/article clerks under his/her (Leader)
supervision.
The Auditor should adhere strictly to the time schedule of submission of the reports.
The monthly concurrent audit report is to be submitted before 7th of succeeding
month along with a certificate for having covered all the areas mentioned in the
guidelines. Similarly the auditor must submit the quarterly report within 10 th of
succeeding month of the end of the quarter. Since position of rectification of audit
findings is
placed before
Audit Committee of the Board periodically, non –
submission of report within prescribed time
schedule
will attract adverse
comments from Audit committee & may result in cancellation of your appointment
without any notice.
5)
During the course of audit if the auditor finds anything vulnerable to fraud or
fraudulent activity or act of transgression of delegated authority or smell any foul
play in any transaction, he/she should refer the matter directly to the Chairman &
Managing Director of the Bank and the RBI. DBS (RBI, Central office Mumbai, if
amount involved is Rs.100 lacs or more & RBI, Kolkata in other cases) through
Special report
6)
The appointment of Chartered Accountant shall be liable to be terminated, any time
without assigning any reason, whatsoever.
Effective Concurrent Audit
Undernoted needs to be looked into
A. Scope of concurrent Audit
In case of general scope the auditor is required to cover all the areas. He has to report on
the irregularities observed by him during the course of audit.
Following are the areas, which are commonly found in the scope/guidelines issued by
almost all the banks:
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1. Cash Verification:
a) Surprise verification of Cash.
b) Bundles of the cash should not be stapled.
c) Cash Retention Limit.
d) All the Registers relating to cash should be properly maintained and cross verification
with BGL / CGL report if generated
e) Procedure of exchanging and disposing of mutilated notes should be followed.
f) Bait money maintained and verified
2. Postage Stamps and Stamped Documents/Adhesive Stamps:
a) Physical Verification.
b) Unusable or under stamped/torn stamps.
c) Stale Stamped Documents should also be reported.
d) Safe custody.
3. Sensitive Stock(DD stock, pay order, cheque book stock, F.D. receipt, etc) :
a) Physical Verification.
b) Instruments should be kept in lock and key.
c)
Periodical
verification
should
be
carried
d) Non usable stock should be reported.
4. Security Alarm:
Verify that security alarm is properly working or not.
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out
by
the
bank
officials.
5. Opening of and operations in Deposit Accounts:
1. Account Opening forms:
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100 % checking of account opening forms.
Proper Account opening forms are used for appropriate accounts.
Form should be completely filled up.
Latest Photograph of the Depositor.
Residential proof.
Proper Introduction.
Partnership Firm - Partnership deed.
Companies - MOA, AOA, Resolution.
Resolution in bank's format.
Specimen signature - scanned and proper maintenance.
Authentication by Bank Official.
Copy of P.A.N. card or Declaration in Form No. 60/61.
2. Operation in deposit accounts:
Operation in newly opened accounts to be verified for large deposits and withdrawals.
3. Debit balances in savings and current accounts:
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Reasons for debit balance.
Payment of statutory dues.
Payment of LIC, Telephone, Electricity, Credit Cards etc.
Debits in the accounts should be properly authorised.
4. Issue of Cheque Books:
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Proper procedure is followed for issuance of cheque books.
Proper charges collected.
Proper registers maintained.
Necessary precautions for delivery of cheque book to third persons.
Stocks are kept in Lock and key.
5. Nomination:
 Appropriate Nomination forms for Deposits, Lockers etc is to be verified.
 Nomination registers is maintained and updated.
 Signature of person making nomination to be verified.
6. Stop Payment Instructions:
 Instructions to be received in bank's format.
 Letters are properly filed and duly authenticated.
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 Signature is duly verified.
 Stop payment register is maintained and updated.
 Proper charges are collected.
7. Cheque return register:
 Cheque return register is maintained and updated.
 Collection of charges.
6. Voucher Verification:
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All vouchers are properly prepared and authorised.
Daily summary sheets are verified with vouchers.
Daily Summary sheets are signed by the officer verifying the same with vouchers.
Vouchers are stitched, bundled, and properly stored.
Printed flap at the top of the bundle containing details like Date, no. of debit
vouchers, no. of credit vouchers along with signature of the person scrutinizing
the vouchers is done. Missing vouchers are identified and entered in the missing
voucher register Missing vouchers should be traced or duplicate vouchers are
prepared. Details of the same should be entered in the missing voucher register.
7. Safe Deposit Lockers:
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Locker application are properly obtained and stamped as required.
Branch maintains access visit register.
Letters for surrender of locker are properly verified.
Changing of locks when lockers are surrendered and reissued.
Locker rent register for rent dues are properly maintained.
Deposit amounts are obtained as per Head Office circulars.
Notices are affixed on lockers and hirer should not be given access to locker if the
locker rent are in arrears.
8 Advances:
Verification of advances is an important area during the course of audit. All pre-sanction
and post sanction formalities issued by Head Office are properly followed.
Following are the general points to be verified:
A Pre-sanction Formalities:
1. Loan application is properly filled up.
2. Photograph, Address Proof, Latest Income Proof of the Borrower and Guarantor is
obtained.
3. Income of the Borrower and Guarantor is adequate as per the laid down norms.
4. Documents obtained are verified from originals.
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5. Bank Account statements for last six months are obtained.
6. MOA/AOA in case of Companies and Partnership Deed in case of Partnership Firms
are obtained.
7. Credit Reports from Borrowers Bank is obtained.
B Sanctioning and Disbursement:
1. Sanction Note is on record.
2. Sanction Note contains factual information as contained in the supporting documents
3. Adverse observations of the auditor mentioned in the Notes on Accounts affecting
credit decision is brought on record.
4. Ratification of sanctioned loan is obtained from appropriate authority.
5. Adhoc limits are ratified by the higher authorities.
6. Stamped receipt in original is held on record.
7. Computer Master Printouts are generated, checked and held on record.
8. Rate of Interest applied is as per sanction.
9. In case of Project Loans, Periodic Investment done by the Promoters and certified by
the chartered accountant/architects is obtained.
10. Originals Bills/receipts in case of project loan disbursement is on record.
C. Documentation:
1. All prescribed security Documents like Demand Promissory Note, Deed of
Hypothecation, Letter of Guarantee, Mortgage Deeds etc are obtained.
2. All the documents are properly filled up.
3. All the documents are duly signed by the Borrower.
4. Letter of Guarantee is duly signed by the Guarantor.
5. All the documents are properly stamped.
6. Documents are verified by the officer of the Bank. In case of Big advances the said
documents are to be vetted by the legal department of the Bank.
7. All the Documents obtained are entered in the Security Register.
8. Documents required to be obtained along with the Recording Letter are obtained and
held on record. (Equitable Mortgage)
9. Mortgage is created for sanctioned amount.
D Creation of security:
1. Equitable mortgage stipulated as Principal Security is created.
2. Equitable mortgage stipulated as Collateral Security is created.
3. Stock and debtors statement is obtained and verified by the branch before making first
disbursement
E Registration of Banks charge:
Banks charge is registered with ROC within 30 days from the date of disbursement.
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F. Verification of Specific Loans and Advances:
I. Clean Advance:
1. All the advances which are not secured by any legally enforceable tangible security or
by surety / sureties are classified as clean advances.
2. Normally clean advances are not encouraged. Temporary overdraft in saving/current
A/c. up to a certain limit can be allowed
3. Reasons for such overdrafts should be scrutinized and the account should be
regularised.
II. Personal Loans (Secured/Unsecured):
Purpose of such loans: House Repairs, Medical Expense, Marriage, Purchase of new
house, Vehicle, computers, consumer items etc.
Following points should be ensured while verifying Personal Loans:
1. Details such as Name of the borrower, Sanctioned Limit, Facility, Sanctioning
authority, Sanction Date, etc. are taken on records.
2. Loan has been sanctioned by appropriate authority having the powers to sanction the
same.
3. Process fees and agreement charges are properly collected.
4. Application Letter and Sanction letter are on records.
5. Letter of Acceptance of terms and conditions is signed by the borrower/s and the
guarantors.
6. All the necessary documents (i.e. Drawing Power Note, Loan Agreement, Letter of
Guarantee, etc.) are on records
7. All the documents should be properly filled up, stamped, and signed.
8. Stamped Receipt and Invoice are on records.
9. Insurance for Prime security and collateral security is on record and the policy is
assigned in favour of the bank.
10. In case of Home Loan Visit Report, Title Report , Index Inspection, Legal opinion
and Valuation Report is on record.
11. In case of Home Loan Equitable Mortgage is created and No Objection Certificate
from the society for creating and registering charge is on record.
12. All other terms and conditions of the sanction are complied with.
III Term Loans:
Term loans are sanctioned for the purchase of machinery, land and building, etc. and it
may be sanctioned for a period of 3 years or 5 years or more. The repayment should be
done in fixed installments already calculated at the time of sanction.
Following points should be ensured while verifying Term Loan accounts:
1. Details such as Name of the borrower, Sanctioned Limit, Facility, Sanctioning
authority, Sanction Date, etc. are on records.
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2. Loan has been sanctioned by the appropriate authority having the powers to sanction
the same.
3. Application Letter and Sanction letter is on record.
4. Letter of Acceptance of terms and conditions is signed by the borrower/s and the
guarantors.
5. All the necessary documents (i.e. Drawing Power Note, Loan Agreement, Letter of
Guarantee, etc.) are on records
6. All the documents are properly filled up, stamped and signed.
7. Processing fees and agreement charges are collected
8. Valid Insurance Policy with Bank Clause is on record .
9. In case of Companies Charge is created with the Registrar of Companies.
IV .Industrial and Business loans:
Cash Credit:
Cash Credit limit is sanctioned for day to day business transactions.
Following points should be ensured while verifying Cash Credit accounts:
1. Details such as Name of the borrower, Sanctioned Limit, Facility, Sanctioning
authority, Sanction Date, etc. is on records.
2. Loan has been sanctioned by the appropriate authority having the powers to sanction
the same.
3. Application Letter and Sanction letter should is on records.
4. Letter of Acceptance of terms and conditions is signed by the borrower/s and the
guarantors.
5. All the necessary documents (i.e. Drawing Power Note, Loan Agreement, Letter of
Guarantee, etc.) are on record.
6. All the documents are properly filled up, stamped and signed.
7. Processing fees and agreement charges are properly collected.
8. Drawing Power is properly calculated.
9. All the securities are properly charged to the bank.
10. Insurance
a. Insurance policy is in force.
b. Amount of insurance is adequate.
c. All places of storage of goods are covered.
d. All collateral securities are insured.
e. Insurance policy is assigned in bank's favour.
f. Original policy is held on record.
11. Stock Statements:
a. Received in time
b. In banks format and completely filled up
c. Bifurcation of Debtors above and below 90 days is given
d. Old and obsolete items of stock are excluded.
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12. Penal interest is charged for non/late submission of stock statements.
13. In case of Companies, Charge is created with the Registrar of companies (ROC) by
filing Form No.8 and 13.
14. Mortgage Deed is executed for properties obtained as collateral Securities.
15. Periodical Visits are carried out by the bank officials.
16. Any other terms and conditions of the sanction are complied.
9. Bank Guarantee:
1. Two types: Performance and Financial.
2. Proper sanction.
3. Proper commission charged.
4. Adequate security margin.
5. Proper procedure for issue/ renewal.
6. Liability register is maintained.
7. Margin by way of Term Deposit is discharged and lien marked.
8. Proper follow up in case of expired guarantees.
10. Forex Transactions:
In Forex Transactions the following points are to be verified.
1. Verification of Opening of Letter of Credits
2. Charges on Bills sent for collection.
3. Adherence of FEMA and RBI Guidelines.
4. Advance in the form of Pre-shipment and Post shipment credit.
All foreign exchange transactions are required to be reported to RBI fortnightly in R Returns and overdue export bills are to be reported half yearly in XOS statements. In case
of Import remittance, verification of Bill of Entry is to be reported to RBI half yearly in
BEF statements.
B.
C.
D.
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F.
G.
Obtain Existing Bank Practices and Guidelines for carrying Bank Audit
Pre Audit commencement Planning
Execution of Concurrent Audit
Timely submission of audit reports and quality of reports
Compliance of pending observations given in audit report
Documentation of Audit Planning and Evidence
The Internal Audit Standards Board of the ICAI is offering Certificate Course on
“Concurrent Audit of Banks” to enable members to understand the intricacies of
concurrent audit of banks.
Evaluation Eligibility of candidate is to attend at least 80% of classes failing which, he/
she will not be entitled to appear in the evaluation. There is no limit on the permissible
number of attempts for the evaluation tests. A candidate will be allowed to re-appear for
the evaluation test only after six months of the previous attempt
Concurrent Audit_ ACAE_29.04.2014
The total duration of the course is 6 days divided into 24 technical sessions which is held
either on weekends or on three consecutive days as per the requirement of the concerned
batch . CPE credit of 36 Hours are given to the participants
The fees for the course is Rs 15,000/- for metro cities & Rs 12,500/- for Non metro cities
There is no separate examination fees for the first appearance in the exam. For every
successive appearance, an examination fees of Rs 1,000/- will be Per appearance
Audit in CBS Environment :
Checks & Strategy
Use of Technology in Concurrent Audit
- Audit in Finacle/ ERP Environment
- Data Extraction from Finacle
Concurrent Audit_ ACAE_29.04.2014