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Concurrent Audit

Concurrent audit is a systematic and timely examination of financial transaction on a regular basis to ensure accuracy, authenticity, compliance with procedures and guidelines.

  • 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 not in its documentation. In concurrent audit, there is an emphasis in favour of substantive checking in key areas rather than test checking.
  • This concurrent audit is essentially a management process integral to the establishment of internal accounting functions and effective controls and setting the tone for a vigilance internal audit to preclude the incidence of serious errors and fraudulent manipulations. The main focus while conducting concurrent audit it to ensure that transactions are not dealt with in routine but in adherence with the systems and procedures laid down. The study of various fraudulent transactions with the systems and procedures, by the bank employees, which resulted in misuse of one’s position. Hence, the focus of concurrent audit is on adherence to laid down systems, procedures and safeguards.
  • A concurrent auditor may not sit in judgement of the decisions taken by a branch manager or an authorised official. The concern was that this is beyond the scope of concurrent auditor. However, the auditor will necessarily have to see whether the transaction 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 with in the delegated authority and in compliance with the terms and conditions for exercise of the delegated authority.In every large branch, which has different divisions dealing with specific activities, concurrent audit is a means to help the in-charge of the branch to ensure on an ongoing basis that the different divisions function within laid-down parameters and procedures.We will help you in the following areas:
  • Ascertaining whether sanction for advances and expenditures is taken from competent authority. Examining books of accounts records and registers to ensure that they are maintained in accordance with the prescribed systems. Ensuring compliance of laid down systems, procedures and policies.
  • Adequate measures are being taken in advance to prevent future frauds, etc., to avoid difficulties, which may arise. To check cash, securities,etc., to ensure that they are in due order and in agreement with books. Detection and arresting of any leakage of income, if any. Evaluating the quality of customer services provided and giving useful suggestions.
  • Assessing overall performance of the branch while assessing productivity and profitability and to offer useful comments on the basis of audit conducted. Restriction of matter discussed on the spot with the help of concerned official. Reporting any inefficiency in any operational level. Reporting any irregularity in working which may result in financial or other loss to branch.
  • Reporting to appropriate levels of management for appropriate actions for remedial measures. Scrutinising the completeness of documents submitted for availing advances and other facilities and physical checking of stocks and other assets at relevant places. To follow up with authorities to ensure timely rectification of irregularities reported which were not rectified on the spot. Verify prompt timely and regular submission of the periodical and statutory returns.

Important point to checks

1. 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

  1. Bank will able to save crores of

2. If it is over calculated

  1. 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

  • 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.
  • He may get handsome money by way of rewards

2. 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 are:

  • Photo Identification proof
  • Address proof
  • Guarantor having account with bank
  • Income proof mainly in advances
  • Attached attested photograph of customer in account opening form.

3. Cash management

It includes at least once in a month cash physical verification Identifying reasons of keeping cash in access of retention limit

4. House keeping

It includes

  • Discrepancies, if any observed during physical verification (Cash, Foreign Currency, Security forms i.e. blank draft cheques etc):
  • Accounts with RBI/SBI have been reconciled
  • Accounts showed Debit balances
  • Balancing of books
  • Reconciliation of Clearing Accounts.
  • TDS deduction in area of salary/Interest on deposits
  • Service tax matter if any
  • Any other irregularity the Auditors desire to mention including Computer Deficiencies:
  • Locker rent
  • Total account open and close during the month

5. Foreign exchange transaction if any

An Foreign exchange transaction may be useful in managing the currency risk associated with importing or exporting goods and services denominated in foreign currency, investing or borrowing overseas, repatriating profits, converting foreign currency denominated dividends, or settling other foreign currency contractual arrangements.

On the contract date the contract amount must be exchanged with your Foreign exchange provider at the contract rate, irrespective of where the foreign exchange rate is at the time.

How does your Foreign exchange provider determine your contract rate?

It is the agreed exchange rate at which the currency pair will be exchanged on the date of maturity. Your currency provider determines the contract rate, taking several factors into account including:

  • the currency pair and the time zone you choose to trade in
  • the maturity date set by you
  • inter-bank spot foreign exchange rates
  • the contract amount, and your currency providers ability to trade small amounts on the inter-bank market
  • market volatility
  • inter-bank interest rates of the countries of the currency pair.

6. Advances

Importantarea to check

  • Non Submission of Stock Statement
  • Inadequate / Non Insurance of Stock
  • CC Accounts Due for Review as at end of Month
  • Branch manager Visit to High Net Worth customer place
  • Cases of Overdrawing in CC/OD Accounts
  • Cases of Overdrawing in Term Loan Accounts
  • Irregularities / Defects in documentation / Non-Compliance of Terms – this require through checking of all document start from KYC till assurance of loan amount and payment of installments on time
  • NPA Position on month on month basis
  • List of Potential NPA

7. Deposit

  • Other then KYC we need to check all transaction over and above 10 Lakh objective is to identify any abnormal transaction.
  • Debit balance in deposit account.
  • Check List of items to be checked in above said areas of coverage

A. For New account

  • Name of the account holder
  • Type of a/c saving/current/time/advance
  • A/c no
  • A copy of verified Identity proof
  • A copy of verified residential address proof
  • Verification of introducer’s signature
  • Whether letter of thanks is send or not to the introducer as well as to new depositor.
  • Signature of authorized signatory obtained
  • Check Certificate of incorporation/MOA/AOA, board resolution, Copy of PAN, power of attorney
  • Cross check no of a/c opening forms with a/c opened in the system
  • Ensure photograph of the a/c holder is obtained and fixed or stapled on the a/c opening form.
  • Also check the following:
  • A/C No.
  • Name of the A/c holder
  • PAN/Form 60
  • Type of account
  • Operating Instructions
  • Nomination detail
  • Sign of the applicants
  • Sign & Stamp of Relevant Officer
  • Details of the introducer
  • Letter of thanks
  • Scanning of Photo & Sign on the same day
  • Identity Proof
  • Residential Proof
  • Fill up KYC Certification
  • Imp Notes

B. For Transaction

  • Records/register to be maintained for all cash transaction of the value more than 10 lacs or its equivalent in foreign currency.
  • Records for cash transaction to be maintained for 10 years from the date of cessation of transaction between bank and customer.
  • Identification of customer through PAN for 10000 and above transaction

C. Loan Files checking:

  • Verify rate of interest with rate circulars
  • Compare rate of interest and calculate EMI on calculator
  • Check title of clearance in respect of Housing or any other property loan and whether it is authorized by bank’s approved advocates.
  • Where immovable properties are held as security by way of deposit of title deeds, verify title deeds register to see whether narration is written for additional limits and all formalities complied with.
  • In the case of company, Whether common seal affixed on the relevant document.
  • Check valuation of assets as per govt authorized valuer.
  • For education loan check receipt or fees payment sleep and confirm it with the college/institution
  • Check the person’s other loan and installment amount. If total installment amount is more than 60% of its net income, then loan cannot be issued.
  • Confirm proper insurance coverage for loan asset or mortgaged asset and their renewal.
  • Check ,Are all documents correctly executed in the latest revised prints ofprescribed formats and properly stamped wherever necessary in terms of StampAct as per manual on documentation and as per circulars on the subject
  • Check requirement of Letter of acknowledgement of debt(LAD). If loan agreement is there then no need to take LAD. If once taken then it ii compulsory to review before 3 years.
  • Ensure maintenance of Insurance register
  • Submission of Tax audit report for all CC a/c
  • Submission of CMA data
  • Check crisil credit rating
  • Submission of monthly Stock statement for C.C. a/c and stock statement register
  • Ensure regular quarterly stock audit for C.C
  • Compute loan rate in case of LABOD by adding 1.5% to average rate of all F.D.
  • Physical verification of loan asset
  • Verify whether credit limits are reviewed or not.
  • Verify whether security documents are held with the bank vis-à-vis stipulation on the sanctioning documents.
  • Verify whether the advances have been classified as per RBI guidelines.
  • Check whether the letters of credit issued by the branch are within the delegated power and ensure that they are for genuine trade transactions
  • Check the Bank guarantees issued, whether they have been properly worded and recorded in the register of the Bank. Whether they have been promptly renewed on the due date.
  • Ensure proper follow up of overdue bills of exchange.
  • Verify whether the submission of claims to DICGC and ECGC are in time.
  • Registration of charges with Registrar of Companies and Resolution passed by appropriate authorities. (By filing Form 8)
  • Withdrawal within limit/ Advance Value (Drawing Power Limit) (D/P)
  • Check Processing fees, stamp duty at the time of sanctioning new advances.
  • Report excess drawing over D.P. (For CC and temporary O.D.)
  • Whether Select Operational Data and Quarterly Information System (nowFRS) Statements in respect of big borrowers have been received promptly? Whether penal rate of [email protected] 1% is being charged for delayed submission/non-submission?
  • Verify whether the branch has charged lead Bank charges in respect of advances under consortium norms.
  • Check folio charges
  • Check Penal interest for delayed/non-submission of returns, financial statement required to be submitted
  • Check Penal interest on advances in respect of lapsed sanction/limit.
  • Check Penal interest on excess over limit.
  • Check Overdue interest on all types of bills, loans and packing credits for overdue period.
  • Check Commitment fee for unutilized limit is collected as per rules.
  • Check Commission of letter of credit, letter of guarantee and charges for safe custody etc.
  • Check Standing information charges.
  • Check stop payment charges. (For all accounts)

D. Cash:

  • Verifying whether exchange of cash between cashiers is made after making entry in the register.
  • Ensure dual control system for cash safe/counting of bundles.
  • verifying cash scroll and the token book with cashier’s summary and Cash Abstract.
  • Verifying whether Cash Remittance in Transit Account is reversed on the same day by debit to a proper head of account designated for it after receipt of proper acknowledgement/receipt where cash is remitted to a branch/Bank.
  • Verifying whether accounting of currency chest transactions and their reporting to RBI is done promptly
  • Ensure cash is retained as per cash retention limit of the branch. Report if the cash is retained in excess of the cash retention limit with the reasons thereof.
  • Verify expense incurred by cash payment involving a sizable amount.
  • Verifying whether keys to Strong Room, Cash Safe, and Almirah for Security Printing Books are in joint custody of the authorized officials?
  • Verifying whether there is any entry outstanding in Cash Remittance in Transit Account for more than 3 days
  • Verifying whether the branch remits all its excess cash to link branch or

E. Currency Chest

  • Verifying whether the branch remits its surplus balance with other banks regularly to the designated RBI center
  • Conducting a surprise physical verification of cash in hand , foreign currencies, and foreign travelers’ cheques on any day during the month
  • Verifying whether the receipt and delivery of Security Printing Books are properly recorded under joint signatures
  • Verifying whether physical verification of the Security Printing Books and tallying with the balance.
  • Whether surprise verification of cash done by officer other than joint custodian officer/manager.

F. Clearing:

  • If the branch is independently handling clearing, whether the clearing account is brought to nil every day, if not, comments to be noted down.
  • Whether safeguards are observed to ensure proper handling and custody including returned instruments?
  • Whether service charges/incidental charges as prescribed are charged for the cheques returned in clearing.
  • Whether drawings are allowed against unclear cheques. Whether such cheques are referred through prescribed register and passed by the Controlling Officer, if the drawings exceed the prescribed limit whether these are reported to the Controlling Authority. Examine whether interest was charged and report such omission for rectification.
  • Verifying entries which remain outstanding for more 2 days and checking for action taken for their disposal
  • Verifying whether account with the Main Branch is reconciled every week

G. Other:

  • Check cheques returned/bills returned register and look into reasons for return of those instruments.
  • In case of difference in clearing, there is a tendency to book it in an intermediary suspense account instead of locating the difference.Examine the day book to verify as to how the difference in clearing has been adjusted.
  • Such instances should be reported to Controlling Office in case the difference persists.
  • Check whether debits in income account have been permitted by the competent authorities. Check the transactions of staff members.
  • Study internal inspection/audit reports and ensure that the branch gives proper compliance thereto.
  • Verifying whether the deduction of tax at source (TDS) from interest income on Term Deposits is done as per laid down procedure. Or Form 15H/15G received or not.
  • Verifying whether Form No. 60 where the depositor does not have PAN is held on record and the same are submitted as per laid procedure (For deposit accounts)
  • Verify if inoperative accounts ledger and Specimen Signatures are kept under the custody of Manager/Asst.Manager and access thereto is controlled. (For deposit accounts)
  • Whether dormant/inoperative accounts are transferred to in operative ledger. If not, it should be noted in the register and they should be transferred. (For deposit accounts)
  • Verify that all transactions relating to inoperative ledgers are allowed under the written authorization of the Manager.
  • Check Incidental charges and service charges in Saving Bank Account (including inoperative) having balance below prescribed limit.
  • Check Destruction of old records as per time schedule prescribed.
  • Check Locker rent.
  • 30% scrutiny of transactions relating to the payment of pension..
  • Whether the prescribed certificates – Life, Re-employment, Re marriage etc. obtained, wherever required, in all pension accounts.
  • Physical checking of Govt. and other securities held on behalf of Investment Department and timely collection of interest thereon and their maturity proceeds.

Records to be maintained by concurrent auditor:

Permanent File:

  • Letter of engagement, undertaking/comment by the firm to the Bank
  • Communication to previous Auditor (NOC)
  • Audit checklist
  • Information regarding branch business, data, nodal officer,status of branch, whether computerized/parallel category of branch, etc.
  • Performance of monthly, quarterly, annual report revenue report
  • Correspondence with the Bank for any matter

Current File/Working paper File:

  • Branch Audit Program
  • Branch’s statement as on the data of the report on which basis it is prepared
  • Periodic correspondence with the concerned departmental officer
  • Irregularities intimated to the Controlling Officer
  • Discussion of the audit report
  • Particulars of big borrowers, depositors etc
  • Circulars received from head office of the auditee Bank
  • Reporting to branch head in the below format:
  • Date
  • Irregularity Observed
  • Initial/Authorization of the Concurrent Auditor
  • Initial of Bank Official
  • How irregularity rectified
  • Date of rectification
  • Initial/Authorization of the Concurrent Auditor
  • Initial of Bank Official

Reporting:

Demand Deposit includes

  • Credit balance in overdrafts & Cash Credit accounts
  • Deposits payable at call
  • Overdue deposits
  • Inoperative current accounts
  • Matured term deposits and cash certificates
  • Certificates of deposits, etc
  • The cash credit account would be included if the balance is showing credit balance. The current accounts are also payable on demand. The outstanding telegraphic and mail transfer demand drafts are also to be included under the demand deposit head.

Term deposit includes

  • All deposits repayable after a specified term
  • Fixed deposits
  • Cumulative and recurring deposits
  • Cash certificates
  • Certificates of deposits
  • Annuity deposits
  • Deposits mobilized under various schemes
  • Ordinary staff deposits
  • Foreign currency
  • Non-resident deposit accounts, etc.
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