Introduction to concurrent audit
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The document discusses the objectives and scope of concurrent bank audits. Concurrent audits are designed for continuous external control of bank branches to supplement internal checks and reduce the time between transactions and examination. The scope of concurrent audits includes verification of advances like loan appraisals and documentation, deposits like new accounts and KYC norms, housekeeping areas like cash and records, and identifying potential revenue leakage. Key areas like NPAs, deposits, advances like periodic loan assessment, and housekeeping functions like locker maintenance are also discussed.
Introduction to concurrent audit
- 2. NEED OF CONCURRENT AUDIT Concurrent audit is designed for the continuous external control on the branch Concurrent audit is the first check on transactions by bank
- 3. OBJECTIVES OF CONCURRENT AUDIT To supplement the efforts of the bank in carrying out simultaneous internal checks, not just reporting the errors identified. To reduce the interval between a transaction and its examination by an independent person not involved in its documentation. To improve the functioning of the bank, resulting in the upgradation of the working of the bank. To identify whether the Systems & Procedures of the bank have been properly complied and implemented by the bank.
- 4. MAIN PRODUCTS OF A BANK Savings Bank Account Cash Credit Account Retail loans Gold Loans Current Account Bank Guarantees Letter of credit Lockers
- 5. SCOPE OF AUDIT Verification of Advances – Appraisal, Pre-sanction Documentation Post-sanction Unit inspection Review & Renewal, etc.,
- 6. Verification of Deposits – New accounts opened including operations in SB/CA, Transactions regarding Term deposits, Inoperative accounts, KYC Norms, etc.,
- 7. Verification of House keeping– Cash Management, Cheques & DDs, Vouchers, Periodical returns to Controlling office, Maintenance of Specified Registers and Records Sensitive stationeries, Locker maintenance, etc.,
- 8. Verification of Revenue Leakage – Identification of Under recovery & Excess recovery of Income & Expenditure including Interest credited & paid, P&L Analysis, Budgetary comparison, etc.,
- 9. Verification of FOREX transactions– NRE/NRO/FCNR accounts, FCRA transactions, Packing Credit, Foreign currency business, Submission of Returns, etc.,
- 10. Verification of Other Key areas – TDS, Service tax, Staff matters, Government transactions, etc.,
- 11. PERUSAL OF FOLLOWING REPORTS: CONCURRENT AUDIT REPORT OF THE PREVIOUS MONTH – to understand the Current Status of concurrent audit. RBI/CO INSPECTION REPORT (Latest) – to make note of the Major findings & observations regarding any account, particularly Advances. STOCK AUDIT REPORTS – regarding Cash credit accounts more than Rs. One crores. REVENUE AUDIT REPORTS – to understand the major deficiency found in the Revenue aspect of the Branch SPECIAL AUDITS (if any) – regarding any prime issue covered under such audits.
- 12. ADVANCES Advances (or Credit Facility) are of following types: FUND BASED & NON-FUND BASED Fund based: Term Loans – ex: Housing loan, Education loan, Car loan, Jewel loan, etc., Cash credit – ex. : Loan against Hypothecation of Stock/Debtors. Overdrafts Non-Fundbased: Letter of Guarantee & Letter of Credit Co-acceptance of bills Deferred Payment guarantee (for capital goods purchase)
- 13. PERIODICAL ASSESSMENT OF THE LOAN ACCOUNT: Afterall the Complianceenlistedabove have beendone, Loan amount will bedisbursed tothe borrower. After Disbursement, the Bank has to CAREFULLY follow-up & monitor the followingpoints: Repayment of EMI & Servicing of Interest. Utilising of Limit, Adequate Turnover, Submission of Periodical Stock/Debtor statements, Unit inspection, Audited financial statements, (in Case of Business accounts). Overdue, if any, has been pending for longer period of time
- 14. PERIODICAL ASSESSMENT OF THE LOAN ACCOUNT: The verification of auditor includes the following: Assess the position of each loan account at the end of themonth & inform the bank regarding any IRREGULARaccounts. Verify & analyse the FACTS & FIGURES presented in PERIODICAL STATEMENTS filed by the Borrower. Examine the Frequent UNIT INSPECTION done by the branch & highlight any serious lapses. (Auditor may also accompany the bank officials in any of the unit inspection.) Verify & comment the recovery effortsdone by the Branch in case of NPA accounts & Potential NPA accounts.
- 15. Examine periodically INSURANCE details of each loan & report tobank regarding EXPIRY date or INADEQUATE insurances. Verify the accounts that are due forREVIEW/RENEWAL. Check whether ACKNOWLEDGEMENT OF DEBT (AOD)/REVIVAL LETTER(RL) has been obtained for all loans that are more than36 months old. (Exception: Jewel Loan & Loan against bank deposits)
- 16. MORTGAGE: It isanofficial registration whichgivesright to bank to hold itas security for theloan. Mortgage isdonefor Immovableproperty. Mortgage is of TWOTYPES: SIMPLE MORTGAGE EQUITABLE MORTAGE
- 17. Mortagage Simple Mortgage or RegisteredMortgage Generally done forproperties that do not have Original titledeeds Ex: Inherited Properties COMPULSORY REGISTRATION Equitablemortgage It is MOSTCOMMON practice followed all over India (since proceduresis simple) OPTIONAL REGISTRATION Exception:Tamilnadu
- 18. HYPOTHECATION: It issimilar to Mortgage but it isapplicableto MOVABLE PROPERTIES thataregivenassecurity. Even though the bank does not have Direct control over these securities, Still the bank has theright to take thepossession of them whenever required. UnlikeMortgage, thereare no Stringent Procedures to be followed. Ex: STOCK, DEBTORS, VEHICLES, ETC.,
- 19. PLEDGE OR LIEN: Pledgeor Lien issurrendering of the Security tothe bank’scontrol for theloan. Hence, the Bank have 100% control overtheasset. Ex: Jewel Loan, Loan against deposits
- 20. Cash credit (CC)/Overdraft loansaccountsaredistinctfrom Other type of loan accounts due to following reasons: It is Limit based accountmainlygiven for Businesspurposes. (Mostly to meet the Working capital gap) It isacontinuousaccountwherein the Borrower utilizes the limit as & whenrequired. There is no Fixed EMI repaymentto this loan. The Bank expectsthe borrowertorouteall this business turnover through thisaccount. The Credits in thisaccountshould besufficientenoughtoatleast service the Interestdebited.
- 21. Cash credit (CC)/Overdraft loansaccountsaredistinctfrom Other type of loan accounts due to following reasons: Every month Bank fixes the Drawing power periodically(mostly monthly) for thisaccount. Bank reviews the functioning & operation of thisaccount periodically (mostlyquarterly).
- 22. ADVANCES CC/OD ACCOUNTS – SPECIAL POINTS DRAWING POWER(DP): It iscommon term associated with CC accounts. DP is fixed by the Bank each month based on the Stock statement/Debtors statement filed by theborrower. Significanceof DP is that itdetermines the limitup towhich amount can bewithdrawn from CC account, i.e., If Limit < DP Max. Amount = Limit If DP > Limit Max. Amount = DP
- 23. TEMPORARY OVERDRAFT (TOD)/EXCESSALLOWED: Auditor has toverify whether: Branch manager has used his powers judiciously. FrequentTODs granted to the sameaccount more than the prescribed times. Proper documents & security have beenobtained. TODs have been settled within theduedates or there are still outstanding in suchaccounts.
- 24. NON-PERFORMING ASSETS (NPA): NPA isonewhichdoes notgenerateany incometothe bank. Following may becauses to become NPA: Interest/EMI overdue for more than 90days. OD/CC account is out of order for more than 90days. In case of NPA, the bankshould Make Provision for Bad debts Should Recognise Income only on RECEIPT basis not onACCRUAL BASIS
- 25. VERIFICATION OF NPA: Auditorisconcerned with whetherthe bank has Correctly Classification of Each of Loan account as per IRAC norms Provisioning has been doneaccurately. Interest & other incomes have been charged as per thenorms Auditorshould examinethe Efforts taken by the Bank forrecovery of theseaccounts. Recoveryprocedures may beas follows: Regular Follow-up of the accounts & theborrower. Filing Suits in theCourts. Taking action under the Securitization and Reconstruction of Financial assets and Enforcement of Security Interest Act, 2002. (SARFAESI act)
- 27. DEPOSITS KEY ASPECTS & THEIR VERIFICATION In thedepositsaccounts, theauditorhas toverify the following things: Account opening forms Adherence KYC guidelines (including AML) Conduct in the Newly opened Accounts Inoperativeaccounts
- 28. INOPERATIVE ACCOUNTS: TheAuditor has toverify the Operations & Statusof the Inoperative Accountsonce inaweek in Off-site. If anydiscrepancy is noticed, itshould beexamined soas toensure NO SERIOUS issue pertains toit. Auditorshould alsodiscusswith the bank whenanydormant is shifted to ACTIVEstatus.
- 29. HOUSE-KEEPING LOCKER MAINTENANCE: Safe Custody Lockersareprovided by Banks totheircustomers for storing & maintaining their Essential items &documents. For Locker operations, One key is provided to the Customer & Anotherkey isavailable with theconcerned official. Onlywith these two keys, lockers can beaccessed. Lockersof differentsizeare held by Bank. Forthis service, the Bank chargesappropriate Lockerrent.
- 30. HOUSE-KEEPING LOCKER MAINTENANCE: Auditor should verifywhether: Locker Accessing Register are signed by customer before operatingthe locker. Locker rent is collected eachyear. In case of Locker Rent Arrears, Reminders has been sent &customers are prohibited from accessing the locker. After the Locker is closed, the bank should interchange the Lock &Keys before sanctioning it to anothercustomer. In case of a locker not being accessed fora longer time, the Branch has referred the higher authority for breaking thelock.
- 31. REVENUE LEAKAGE INCOME LEAKAGE: Common reasons: • Interest rate wrongly keyed in the CBS • Changes done in the Interest rates without Authorisation • Interest debited not serviced. INTERST ON LOANS • Mistake in the calculation of Processing charges • Non-recovery or Under recovery of PC PROCESSING CHARGES • Omission to collect it properly. • Mistake in calculating the correct amount. OTHER INCOMES
- 32. REVENUE LEAKAGE EXPENDITURE LEAKAGE: Common reasons: • Interest rate wronglykeyed in theCBS • Changes done in the Interest rateswithout Authorisation INTERST PAID ON DEPOSITS • Incurring expenditureover & above the powers of the Manager. • Incurring withoutproper bills &vouchers. • Unreasonableamount OPERATING & OTHER EXPENSES
- 33. OTHER KEY AREAS TDS & SERVICETAX: With respecttoTDS, auditorshouldverify the following: TDS on Interest paid on Fixed deposits have been properlydeducted. Form 15G/H have duly obtained & submitted for applicablecases. TDS made on other applicable expenses such as Rent, Professionalcharges, etc. should beexamined. Whether TDS deducted is remitted within due date (i.e, 7th of nextmonth) Quarterly TDS return has been filed. Form 16A has been given to respectivedeductees.
- 34. OTHER KEY AREAS TDS & SERVICETAX: With respectto SERVICE TAX, auditorshouldverify the following: Service tax collected on incomes such as Processing charges, Chargeson Specific services rendered have been done at Statutory rateof tax. ST collected have been remitted within due date (i.e. 6th of next month) Half yearly return have been filed properly.