Respected Members,

For improvement in “Bank Audit allotment system, We a group of CAs called “SAVE CERTIFICATION RIGHT” has prepared a memorandum & file a petition at www.change.org. We appeal all CAs to sign it by clicking on the link given below:-

SIGN PETITION

Memorandum for Suggesting Changes in the Process of Allotment Of Statutory Bank Branch Audits to Chartered Accountants

We are Chartered Accountants located in different parts of India. We have noted with concern the various issues that have arisen over the past few years in the matter of appointment of auditors of Bank Branches. This has not only adversely affected the NPAs of various bank branches (which in turn affects the economic health of the banking industry which forms the backbone of the Indian economy) but also resulted in several small and medium sized firms of Chartered Accountants losing an important stream of revenue. It is in this background that we humbly request you to kindly go through the below memorandum and to take appropriate action at the earliest. A few representatives of the signatories would be privileged to attend before you personally and explain the matter in detail.

Present System of Allotment of Bank Branch Audits:

A. Every year, ICAI forwards the Bank Branch Auditors’ Panel to Reserve Bank of India (RBI). The said panel is classified into following three lists by RBI:-

i. List of auditors stationed at 33 centres where cooling period of two years is applicable after completion of their cycle of 4 years of branch statutory audit – this list is not forwarded to any bank.

ii. List of continuing auditors who have yet to complete their cycle of 4 years of allotment of bank branch statutory audit – this list is forwarded by RBI to respective banks.

iii. List containing balance names is forwarded by RBI to all the Public Sector Banks to select their branch statutory auditors, as per their requirement.

B. Out of the 3rd list, Banks select few CA firms as per their discretion to replace the firms which have completed their cycle of 4 years. The concerned bank then seeks the selected auditors’ confirmation either by an Email and/or phone call . On getting their confirmation, an appointment letter is issued to them.

C. Auditors in 2nd list are sent appointment letters automatically in the normal course.

Earlier System of Allotment of Bank Branch Audit, upto 2008 :

Earlier also, ICAI forwarded the Bank Branch Auditors’ Panel to RBI which classified the list in 3 parts as mentioned above with the only and major difference that the 3rd list of new auditors was not common for all banks as is being done now. Selection of new auditors for each bank was done separately by RBI in a very transparent and undisputed manner which was never questioned by any auditor in the past 4 decades. There was no clash of same names of new audit firms in more than one bank, as is happening now. Today, because of the deficient system, some CA Firms get multiple offers for appointment from 2-3 banks. Separate list of new auditors was sent by RBI to each bank and the banks had no say in the appointment of branch auditors. As a result, independence of the auditor was well and truly safeguarded by RBI.

PROBLEMS IN THE  CURRENT  SYSTEM OF BANK  BRANCH  AUDIT ALLOTMENT  :  

1. The main problem area is the 3rd List, whereby banks are selecting new auditors as per their own discretion because there is neither any automated software for making the selection nor is there any prescribed procedure for the same. And this is creating a very volcanic situation. As the same 3rd list is sent to all the banks, as mentioned earlier, some CA firms get offers from 2- 3 banks whereas there are many CA firms who are not getting offer of appointment from any bank since last 5- 6 years. Also, some CA firms are getting the allotment continuously without any break even after 4 years and on the other hand, some CA firms are getting after a gap of may be 4-5 years or may be not getting even after 4-5 years. Category-IV firms are the worst hit by this new system of allotment of bank branch audits. In light of the above, it is respectfully submitted that this system is neither logical nor fair.

Ever since the process of allotment of Statutory Bank Branch Audits of Nationalised Banks was shifted by Ministry of Finance, GOI, from RBI to respective banks in 2008 vide Letter No. F.No. 1/14/2004-BOA dt. 21/11/2008, there has been widespread discontent among the Chartered Accountants regarding the methodology and fairness in allotment of branches to auditors, which has also been affecting the independence of auditors, in some way or the other.

2.  As if this was not enough, in 2012, the Govt. raised the Statutory Audit cut-off limit of Rs.3 crore of advances to Rs.6 crore and further enhanced this cut-off limit to Rs.20 crores in 2013. As a result of these decisions, the number of bank branches under audit got reduced drastically in the last 3 years, giving further impetus to the – “Setting – Getting” culture in allotment of bank branch audits, which is proving damaging for the banks and Govt. of India as well. Ever since this increase in cut-off limit for audit of branches has been effected, NPA figures have gone up drastically in the last 3 years. From 2.32% in 2011 (when branches above 3 crores were audited), the NPA ratio has gone upto 3.84% in March, 2013 and 4.40% in 2014. And this has further increased to 4.60% in June’2014. By all standards, this is an alarming increase in NPAs. Now, if we compare this NPA ratio of last 3 years with that of 2008 to 2011 when most of the bank branches were under audit, the point that is sought to be brought out by this Memorandum becomes crystal clear. NPA was 2.33% in 2008 and 2.32% in 2011 i.e. stagnant over that period of 3 years. Comparative figures of NPAs of Public Sector Banks are given below for ready reference :-

Year Amount (in Billion Rs.) Per Cent (%)
2008 396.00 2.33
2009 440.32 2.10
2010 572.93 2.28
2011 710.80 2.32
2012 1,124.89 3.17
2013 1,558.90 3.84
2014 4.40

Various frauds have also occurred in some bank branches with advances below Rs.20 crores. Looking at this increasing trend of NPAs, there is clearly no logic for enhancing the cut–off limit for audit of bank branches to Rs.20 crores by the Govt.

3. In FY 2012-13, In 25 public sector banks, more than 55% branches were left unaudited due to the advances criteria with UCO Bank leading the list with 71.1% followed by Central Bank of India with 67.9%. There is a serious question on the extent to which one can rely on the financial statements of UCO Bank whose 28.9% branches only were audited during 2012-13 as against 64.1% during 2011-12 without bringing this fact into knowledge of even shareholders of bank.

4. This “Setting – Getting” culture is not in consonance with the preamble of the new Govt. which has vowed to remove corruption from every field. The recent arrest of the CMD of Syndicate Bank and cancellation of postings of CMDs of 6 Nationalised Banks are self-explanatory and indicators of the mass corruption existing in the banking sector. In such a scenario, the top management of any banks can very easily appoint branch auditors of their choice and suitability with the ulterior motive of covering up misdeeds. It may be noted here that Central Statutory auditors (CSA) do not have access to loan documents and terms and conditions of sanction which are available only at the branches. In small branches, it has been noticed during audit that date of sanction is wrongly fed and repayment schedule is not fed properly in the master data of the borrower at the time of conversion of the branch to CBS due to which the bank’s software is unable to recognise it as an NPA at the appropriate time. Dates can also be altered temporarily by the bank branch officials to show reduced figure of NPA. Details given in computer software are mostly incomplete/incorrect and hence mislead the auditor. Branch auditor always has an edge because he can verify the documents physically. This privilege is not available with the CSA as he is sitting at a distant place without access to physical documents & sanction letter.

5. In many cases, CA firms of North India are allotted audits of bank branches in South/West/East India and vice-versa. This entails wastage of time of auditors and also entails unnecessary traveling costs for the banks. This is neither beneficial to the banks nor to the auditors. There is no area mapping of the location of a branch and the auditor especially in case of medium and big branches. The Setting-Getting formula is in the crux of this problem also.

6. Another important problem relating to bank audits is that auditors do not get sufficient time to conduct the audit in the desired manner due to undue pressure of timeline for audit set by the top management of the bank. Normally, the banks are asking their auditors to complete the audit (including the huge no. of certifications) of 2-3 branches within a week, which is proving to be a big hindrance to the conduct of a quality audit.  Surprisingly, some banks are even mentioning this time deadline in the appointment letters also. In fact, at the top level, there appears to be a race between all the public sector banks to complete their audit process fast and to become the first to publish the Balance Sheet. Their main concern seems to be an expeditious publication of their Balance Sheet and not Quality Audit.

7. On the one hand, banks are allotting upto 3 branches to every auditor and pressurizing them to complete audit of all 3 branches within a week and on the other hand, many CA firms in the 3rd list are not allotted branch audit by any bank. This clearly indicates that the system fails to distribute work equitably and efficiently amongst the pool of Chartered Accountants in the country

8. A large portion of funds of public welfare schemes are routed through small and rural branches which are under the sole discretion of the branch managers. Almost all such branches have been moved out of the audit purview because their advance portfolio is less than Rs.20 crores. The moot question is why is this done? Is it just to cut costs? On an average, the audit fees of a rural/small branch having advances below 10 crores will be about Rs.50,000/-. Such a small amount can be very easily saved by the bank branches by controlling various expenses through proper control & management. Banks have increased their profits in the last 4-5 years, by selling insurance and other financial products. Even rural branches are generally having profits of more than 1 crore. In such a scenario, incurring audit expenses of just around Rs. 50,000/- can hardly be considered as prudent and rational. The importance and benefits of external audit in public financial institutions far outweigh the nominal cost of the audits.

9.   It is worth mentioning here that the system of audit which has been prevalent for over 4 decades has proved itself in all the tests of times. All the Indian banks survived comfortably even during recession when the entire banking sector of the world faced a financial crisis leading to insolvency of major banks of the World. In such circumstances, it is strange that the Government is of the view that the audits and checks require to be reduced.

10.  In all the scams that have come to light, whether it relates to stock market or public expenditure or social schemes or education etc. the channelizing is through the banks and thus this becomes one of the prime areas requiring  independent audit of transactions. It is not necessary that frauds/scams are committed in large bank branches only. The only difference is that scams in large branches get highlighted due to the quantum. Several scams are committed in rural & small branches in the disbursement of payments relating to socio-economic and public welfare schemes and in the sanctioning of loans under government sponsored schemes like KCC, PMRY, SHG, Agricultural Loans, etc.

Farmer’s loan waiver scam unearthed by CAG in its audit report talks about how the rural banks have manipulated the system. An extract from the CAG Report is reproduced below:

“The audit carried out from April 2011 to March 2012 covered 25 states involving field audit of a total 90,576 farmers’ accounts in 715 branches of banks in 92 districts. 13.46 per cent accounts were those who were eligible but were disqualified by the lending institutions. Six per cent of the checked accounts were not extended their rightful benefits. 8.62 per cent were those who were not eligible but still got either complete waiver of debt relief. More than 34 percent farmers were not issued debt waiver certificates thus making them ineligible for future loans. In a large number of cases there was proof of tampering, overwriting and alteration of records. Though the scheme was meant for farmers directly, in many cases the monies were disbursed to micro finance institutions. Also, lending institutions fraudulently claimed amounts related to interest charges. Finance Ministry left it to the banks to do self-monitoring. There was no oversight by finance ministry while reimbursing claims,”

Had these branches been subjected to an external audit, the gravity of loss could have been reduced considerably.

12.   As the money lying with the banks belongs to crores of depositors, it is also essential to ensure that the same is  utilized as per the directions of the regulatory authorities and now, since 70% branches have gone out of the purview of audit, potential risks have increased manifold.

13.   On one hand, Government legislates that a private limited company having a share capital of even Rs. 1 lakh must undergo statutory audit even when it’s capital consists of private money and on the other hand, it takes a decision that there is no need to get a bank branch audited if advances are upto Rs. 20 crores – and this is done despite the fact that huge public deposits are held by banks knowing well that these small bank branches are the custodians of public money of small depositors.

Hence, in order to get rid of the above mentioned problems, we respectfully suggest the following changes in the method of allotment of statutory bank branch audits:-

PROPOSED SOLUTIONS:

1. We request the Govt. to look into the matter and make statutory bank branch audit compulsory for all bank branches, irrespective of the amount of advances and/or deposits of the branch. This is also a must in the era of Governance about which the Hon’ble Prime Minister- Shri Narendra Modiji has committed time and again to the people of India. Hence, the policy of cut-off limit of advances of Rs.20 crores should be scrapped immediately as it is detrimental in every respect and NPAs are drastically increasing in this regime of curtailment of audits. This is a very dangerous signal for the economy.

2. And to achieve maximum governance in minimum possible time, there is one very effective tool with the government – allotment of Bank Branch Audits to CA Firms  be done by RBI and the suggestions given in this Memorandum be considered while framing the methodology of allotment.

2. DIVISION OF BRANCHES ON THE BASIS OF SIZE: All branches should be divided into category I, II, III & IV on the basis of size and overall business of the bank branch.

3.  ALLOTMENT OF AUDIT ON THE BASIS OF SIZES: Audit for Category l branch should be allotted to Category I CA firms & so on.

4.  NO COOLING PERIOD: There should not be cooling period on the basis of place, as this rule is being misused by certain unscrupulous persons.

5.  PRINCIPLE OF ALLOTMENTS: Bank Branch audit can be equally divided among all firms so that all firms get bank audits – may be on the basis of principal of “One Firm, One Bank Branch Audit on the basis of size of bank branch & CA Firm” or other similar principal. This system will have multiple benefits like equitable allotment, quality audit (as the auditor will get sufficient time to conduct audit as he has to audit only 1 branch) and lastly, completion of audit well within the timeline set by the bank. In no case should any CA Firm be allotted more than 2 branches.

6.  BANKS SHOULD BE GIVEN A SMALL LIST OF AUDIT FIRMS: Banks should be sent list of eligible audit firms on the basis of its requirements. For example, if a Bank has 100 branches which require audit – CATEGORY I BRANCH: 30, CATEGORY II BRANCH: 20, CATEGORY III BRANCH: 10, & CATEGORY IV BRANCH: 40 then such a bank should not be sent the entire list but only a small list – say list of 100 firms according to size of the CA firms & branch size. This will reduce the discretion of Bank to allot audits. This discretion has created many problems under the existing system which can be eliminated by implementing this suggestion.

7.  APPOINTMENTS BY TAKING “MAPPING TECHNOLOGY”:  Latest technology can be used to appoint auditors. Mapping concept can be used to save travel costs of banks and precious time of the auditors. By using mapping technology, the auditor who is located near a branch can be appointed as the branch auditor.  It is very likely that the travel costs so saved by bank branches would meet part of the audit fees.

8. Under existing system, Category IV CA Firm has very less chance of being allotted a  bank audit. The Government must take steps to reduce the gap between large firms and small and medium sized firms. It is equally important to give newly qualified CAs and relatively newer entrants to the profession an assured revenue by way of bank audit fees. This would go a long way in helping such CAs establish themselves. It is respectfully submitted that just as the Govt. gives protection and priority to SSI units, similarly it should give protection and priority to small practitioners by implementing the policy of not allotting bank branch audit to CA Firms having turnover exceeding the following specified limits, depending upon size of the city :-

Branch Audit Cut-Off Limit for Bank
A. Metro Cities of Delhi, Mumbai, Kolkata & Chennai Rs.50 Lacs
B. Tier-2 Cities – Hyderabad, Bangalore, Pune, Indore, Chandigarh, Ghaziabad, Noida, Gurgaon, Lucknow, Ahmedabad, Baroda, Jaipur,          Kanpur, Bhubaneshwar, Surat, Raipur, Coimbatore, Ludhiana, Nagpur, Guwahati Rs.30 Lacs
C.All other Cities Rs.20 Lacs
And Cooling Period system should be applicable only in the 4 Metro cities.

9. Grameen Bank Audits allotted through NABARD should be reserved for Category-IV (proprietorship) and Category- III (only 2 partners) firms only. Moreover, it should be ensured that audit of Grameen Banks is allotted only to those CA firms which were not allotted statutory branch audit of banks. This will provide some relief to the small firms.

10. A Priority List of Auditors should be prepared by RBI/ICAI containing names of CA Firms who have not been allotted any Statutory Bank Branch audit in the last 2 years and the 3rd List of new auditors to be prepared by RBI should be prepared from this priority list only. Other names should be considered only if the requirement exceeds the available nos. in the priority list. This will reduce the discontent among CA Firms who have not been allotted any bank branch audit in the last 2 to 5 years.

11. In case the Govt. decides to have a cut-off limit of advances of say Rs.3 to 5 crores, we suggest that the branches falling below this limit should be audited once in 3 years instead of the present system of 5 years, which is an extra long period and gives impetus to wrong doings at such branches.

12. The basic structure for allotment of bank branch statutory audit should be revised & should be based on the advance plus deposits exposure of branch instead of advances only. The auditors are responsible for the authenticity of deposits also. We have to audit the whole balance sheet and not merely the advances. The Balance Sheet consists of various components and one of the important items is Deposits. Without deposit mobilization, lending of the bank is not possible. We have to also check the KYC, Money Laundering, Interest Calculation and other important aspect regarding deposit also.

13. Appointment of auditors should be made in the month of February itself so that each auditor can plan his pre-audit and scrutiny in March itself and complete the audit by duly complying with all the prescribed audit procedures well within the timeline set by the bank. Presently, appointment letters are generally issued after 15th March.

14. Central Auditor should not be allotted any branch audits. Presently, the CSA gets all the big branches of the bank. This only results in favoring the larger firms and the social parity cannot be achieved if this is allowed to continue.

In the larger interest of the thousands of small and mid sized practitioners of the country and in the interest of the banking industry which is the backbone of the Indian economy, it is our humble request to seriously consider the above suggestions and implement the same at the earliest.

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65 Comments

  1. CA Ravi Shankar Gupta says:

    “The Mission of the Professional Development Committee is to explore, derive, develop, assure and make available opportunities for the use of the professional talents and skills of Chartered Accountants in different sectors of the world of Business, Trade and Commerce, Service, Infrastructure Governance and Society as a whole and to ensure that such opportunities are available equitably to all Chartered Accountants with due regard to their professional abilities and attributes.” Professional Development Committee of ICAI must take some action for this.

  2. OM PRAKASH RATHI says:

    AFTER A COOLING PERIOD OF 2 YEARS AND AFTER 2 YEARS THEREOF I.E. AFTER 4 YEARS WE ARE NOT ALLOTTED ANY AUDIT. IT IS BEEN TOLD IF YOU HAVE ANY CONTACTS YOU WILL GET THE SAME. IT IS RIDICULOUS.

  3. Vinod Kumar Aggarwal says:

    Dear sir,
    My firm MEF No. 01700 Category is II H/O. at Dausa Rajasthan I have alloted Statutory Branch Audit of SBBJ Bank from Last 2011 to 2014. this year i have not alloted any statutory branch audit of any bank, are their any chance in policy of allotment of SBA Dausa station is not in cooling period list.
    Please guide me what can i do
    thanks

  4. a.n.saripalli says:

    Many of the points raised are ground realities that everyone involved in policy making is aware of but very little being done to address them. Bank audit has become a farce as 275 days of transactions to be reported upon in a day or two engaging a team of two or three. Talk of financial inclusion and NPAs another farce. A small defaulter is hounded while the big fish are invited for settlements. Thinking that our banks got saved from collapse during the financial crisis because of our excellence of checks & balances is naive. What saved our banks is the black money parked in our assets offered as collateral. Ironically the same black money is responsible for failure of our governments to address the maladies of social services be it in health, education, livelihoods etc vital for creating a level playing field. All of us know that bulk of the black money finds its way into land and if the government has the political will, it can plug it immediately by establishing a LAND EXCHANGE and ensuring that a mechanism is put in place so that all private land is dealt in DEMAT form. If after this is done and our banks survive then we can pat our backs for the excellence of our banking systems. All of us give kudos to our private banks like HDFC, ICICI, Kothak etc. Is there a level playing field for all banks in that they have a uniform code of what they can and cannot. Take this. HDFC charges for non maintenance of minimum balance in a savings account is Rs.687/- per month. Hence no wonder it can show profits and foolish of the poor to step in. The question is does it really cost the bank that much to maintain the account. Worse still to note that the government takes its share of 14.5% in the form of service tax and no one understands what service is provided by the bank in levying a penal charge for maintaining the account that the poor depositor cannot even afford to have a minimum balance.

  5. CA Dinesh Vijay says:

    Dear Friends,
    Firstly I am cent percent agree to the points raised by the author in the petition.
    I would like to add that even the audit of Private sector banks, such as, HDFC, ICICI and Axis Banks should be conducted through the ICAI panel of auditors in the like manner.

  6. J.Bagga says:

    I Agree with the petition.
    How an interested person can appoint himself an auditor where public money is involved.
    There can not be independance for the auditors if Interested person appoints him.

  7. CA Ram Avtar Sharma says:

    It is very good discussion but in the end what is result of discussion is not shown and it is very sad.And if result is zero then it is only wastage of energy.

  8. CA. Gopal Gupta says:

    I agree , system of allotment of bank audit must be changed. Central statutory
    auditors must not be alloted the Branches. New CA should be alloted audit also.

  9. CA Deepak Gupta says:

    Dear All Professional Friend,
    We are jaipur based firm but allotment process which the GOI and ICAI for allotment is totally against the dignity of our professional. The concept of “setting-getting” will automatically force the young chartered accountants to do job and even they can’t think of the doing of practice since in the initial years of practice it was every hard moments for young CA’s. I can not protest to make allotment to newly CAs but at least change the process so that young chartered also motivated to do practice. Can we all come together and proceeds further to change this setting getting procedure.? Please we all of us come and write to ICAI president for this make representation to GOI.

    If you agree with me please make reply on my mail id:-
    Name CA Deepak Gupta (Jaipur)
    Mail ca21071992@gmail.com

  10. MAHESH KUMAR says:

    Dear Sir,

    The ICAI & Govt.of India will not do anything, we can have hope only from the Supreme Court.We should collectively contribute funds, hire a best lawyer and file petition before Supreme Court.

    CA.Mahesh Kumar

  11. CA. Subhash Chandra Podder says:

    The Chairman,
    Professional Development Committee.
    The Institute of Chartered Accountants of India, New Delhi,
    Sub : Non Allotment of Bank Branch Statutory Audit for the year 2014-2015 even after cooing period of Three years ( 2011-2012,2012-2013 and 2013-2014 )
    Dear Sir,
    This is to bring to your kind attention that I am the Sole proprietor of “ S.C.Podder & Associates , Chartered Accountants “ Kolkata , Firm Registration No 322421 E , MEF No: 09341, Unique Code no 340378 , Applied for Bank Branch Audit for the year 2014-2015 also, In the “ Revised Draft Final Bank Branch Auditors Panel for the year 2014-2015 “as hosted in the MEF Portal on 19/12/2014 which is stated below : Cooling Period was Three years .2011-2012, 2012-2013 and 2013-2014 , The firm has conducted Bank Branch audit of Central Bank of India , for Four years ended 31/3/2011 ( 2010-2011 )
    Before those periods the firm has conducted Bank Branch Statutory audit of Allahabad bank (Four years) and UCO Bank (Four years)
    Revised Draft Final Bank Branch Auditors Panel for the year 2014-15 from MEF05001-MEF10000

    MEF09341 322421E 340378 S C PODDER & ASSOCIATES KOLKATA North 24 Parganas IV

    Dated : 19/12/2014

    In this Connection kindly note that I am in the active Profession since 1971as one of the Partners in a reputed firm in Kolkata from 1971 to 1993, and as the proprietor of S.C.Podder & Associates from 1994 to till date ( more than 44years in active profession since 1971 )
    I shall be thankful if you kindly inform me the reason for non – allotment of Bank Branch Audit for the year 2014-2015 even after Cooling Period of three years ( 2011-2012.2012-2013 and 2013-2014 ) ?
    Regards,
    CA. Subhash Chandra Podder, FCA
    MRN : 012073
    Mobile : 9433008778
    Land Line 033 2551 4770// 2547-0594
    Email
    Place : Kolkata
    Date : 22/03/2015

  12. CA. Subhash Chandra Podder says:

    CAN I HAVE AN ANSWER PLEASE!
    The Bank audit allotment process starts from the month of July every year Via MEF – ICAI .ORG .Empanelment Process starts for the year 2014-2015 from the month July 2014, and series of mails are being sent to the applicants to verify their status as hosted in MEF –ICAI, ORG.
    Revised Draft Final Bank Branch Auditors Panel for the year 2014-15 has been hosted on 19/12/2014. After Considering all matters by the PDC – ICAI , the Names of eligible auditors , category , status , MEF application no., Firms Registration No ., Sending Declaration and financial documents ( 10% ) from the Applicants etc . the process is not so easy as I Know from the year 1971 to 2014 -2015 ( more than 44 years in active profession ,)
    The system of Cooling Period has been Fixed Two years , but it is not the actual cooing periods .In my Case the Cooling Period was 2011-2012,2012-2013, 2013-2014 ( Three years ) and may again one year more ( 2014-2015 ) Why this discrimination ? Why the lists of Cooling periods Applicants are not referred to the RBI and Respective Banks?
    In My Case ( Firm Name : S.C.Podder & Associates , Chartered Accountants , MEF Application No : 09341. Firm’s Registration No :322421 E , Unique Code No : 340378, Declaration and a Print of Acknowledgement has been sent on 02/07/2014 . duly hosted in MEF Portal on 24/7/2014 , In the Application It was mentioned that Firm’s Cooing Periods was 2011-2012,2012-2013, 2013-2014 ( Three Years ) , The details of my Email is given below for your information ‘ Besides this we have to attend Meeting , National Web-Casts on Bank Audit 2014-2015 , Reading Bank Audit Books Etc . What is the necessity for doing Bank audit? Why Proper scrutiny has not been done for the Firms Cooling Period Lists?

  13. CA Girdhari Lal Sharma says:

    Dear Sir,
    We are not getting audit for last 4 years. We are not aware how some firms are getting bank audit without any break. What is the role of our institute to resolve the issue ‘

  14. CA SATHIYANARAYANAN says:

    I agree entirely.But i like to add one more thing that is RBI should analise the LFAR and TAX AUDIT REPORT of the branch auditor and based on performance he should get appointment without break.Let performence speaks.

  15. Rajesh pareek says:

    i am very much agree with u and i think our president and the officials should take necessary steps . we vote these people for saving our profession’s,but in these years they are look like government officials. i think no need to give vote these people’s

  16. CA MANOJ PANDYA says:

    DEAR Sir, as per my opinion if its bank branch audit limit decrease to 3cr or 6cr. i think most of problem solved and benefit to small and medium firm to whole of india and public i

  17. CA MANOJ PANDYA says:

    Dear sir, if bank branch audit limit decrease to rs. 6 cr. then most of problem can be solved. further its advantage to all small and medium firm and whole of india.

  18. Rad Gopal says:

    Although the other proposals seem to be in order , I dont agree to the proposal that CA Firms in Metropolitan cities should have a cooling period after 4 years.There should not be any discrimination based on area classification.

  19. satyabhama gupta says:

    The system of allotment of bank branch audit and central statutory audit is fully defective and does not maintain the independence of auditor.

  20. DURGA PRASAD MISHRA says:

    With free for all situation only those firms with good contacts or extremely lucky can except an appointment as SBA.There should be a system in place whereby all the firms get appointments according to their size.Maximum number of branches can be reduced to two instead of three to ensure equitable distribution of branch audit assignments.

  21. rc bansal says:

    The grounds of petition are valid. The bank are appointing CAs from far distance so that the CAs can enjoy paid holidays and they can maintain comfort in curbing the NPAs or irregularities. It is true that a local CA can detect NPAs which the branch has not shown only after checking the ledger accounts and terms of sanction. This is a time consuming procedure and if a CA of Cat. IV from UP is appointed to take up audit at Kolkata (true example), this is not possible.

    In nut shell with my experience of nearly 25 years, I suggest the CA should be appointed maximum by mid of march for Stat. audit and the present tendency of appointment of CAs for far distance should be totally curbed. Rest issues can be settled timely.

  22. Rajeev says:

    Dear All,

    Why these things are discussed here where we see lot of comments on ICAI and its members. Some people have gone to the extent of filing cases against ICAI also.

    By sharing all these things, others(ABBBB) will take all the advantage.

    Hence please share these professional issues only in sites which is meant for CA’s like pdc@icai or other sites where you have to login only with your membership no.

  23. Sathianarayananan says:

    I agree with the author. I am having more than 25 year of experience in bank audit. Unless there is an outsider audit in a particular branch, the branch will not give importance to proper NPA classification and particularly to the better loan documentation and house keeping. My suggestion is, why the petition is silent on private banks and its audit. In recent years, there are a lot of frauds committed in those banks. Hence, the petition should be included this aspect also.

  24. CA. Subhash Chandra Podder says:

    I have gone through the petition hosted in the Tax guru web site on 15/11/2014 with respect to “ ALLOTMENT PROCESS OF STATUTORY BANK BANCH AUDIT NEEDS CHANGE- SIGN ON LINE PRTITION “
    The write up in the petition is absolutely correct and must consider by the respective authorities and regulators, and take up the matter by the Institute of Chartered Accountants of India, Reserve bank of India, and Ministry of Finance etc. It is true that the fraud are routed though from the Unaudited bank branches, as the quantum may be small in amount for which that are not highlighted , all the basic documents are laying at the branches , hence those needs to be checked by the auditors statutorily . auditors are not only verify the loan portfolios , but deposits and other areas of the banks. Auditors have to give audit certificates on various statements besides main audit reports. The CAG has given unsatisfactory reports on the Scam on rural banks, known to RBI, Banks and other bodies and media.
    Scrap the system of allotment of audit in banks immediately as suggested in the petition, failing which day will come when banking system will collapse and failed just pack of cards. Already PSB banks has loosen faiths of public at large , Time has come to reconsider the allotment process immediately .The ICAI will take up the matter immediately with the regulators , so that the allotment will be completed by mid- February each year, so that auditors may get time to equipped themselves before commencement of audit. All auditors must commenced their audit by 3rd week of March and complete the audit by 2nd week of April , so that there should not be any delay. Central Auditors should be given not more than 4to 5 branches , . As I am in the profession since 1970, I have fairly knowledge about the bank audit , may it be Central statutory Auditors of branch auditors as proprietor since 1994. Last audit conducted 2010-2011 ( Cooling Period three instead of TWO – ? )
    CA. Subhash Chandra Podder , FCA, MRN. 012073
    Kolkata

  25. CA. Subhash Chandra Podder says:

    I am in the profession since 1970,( Continuously ) , Last bank branch audit was conducted in the year 2010-2011.( four years ,2007-08,2008-2009,2009-2010, 2010-2011) by my firm. S.C.Podder & Associates,( Firms registration No. 322421 E, Category IV ) cooling period as per directive is Two years ( i.e. 2011-2012, and 2012-2013 ) but no audit allotted in the year 2013-2014 ) thus cooling period/ rested in my case is three years , I don’t understand the reasons ( might be the negligence of the respective authority ). As per our practice for doing any audit/ specially bank branch audit I along with our staff members doing exhaustive audit process as per the directive of ICAI and my own experience ( in conducting Central Statutory audit of Banks for 16 years ( five banks ) and have supervised and signed the reports .) we took at least 12 to 14 days to complete the audit , team comprises with senior staff headed by me as a proprietors. The allotment process for last few years is not at all satisfactory , besides we the CAs, are not doing proper audit and given certificates . Core banking is no excuse for increase the limit to 20 crores from the earlier limits. Bad loans are now being granted from the un- audited branches . Categorization of firms are faulty ( firms are responsible – many firms are shown maximum nos of sleeping partners, ) However , All firms should get audit ( Eligible CA firms as hosted / published by MEF-ICAI , for bank branch audit for the year 2013-2014 and onward . ” SAVE CERTIFICATION RIGHT ‘
    CA. SUBHASH CHANDRA PODDER , FCA
    MRN 012073
    Kolkata
    17/11/2014

  26. CA NITIN RANKA says:

    Add THIS to your representations of CHANGES REQUIRED IN ALLOTMENTS OF STATUTORY AUDIT
    Request to consider upward revision in Concurrent Audit fees to some respectable level.
    Concurrent Audit is one of the most important part of the monitoring of the banking business. Out of all the methods, this function is closest to the happening of the transactions. Not only prompt and efficient reporting is required but a sensible, professional, independent approach is required to analyze the transactions and report them.
    Chartered Accountants is a profession which is the apex body for audit and accounting recognized by government of India. A chartered accountant is not only required to pass one of the highest recognized written examinations but passes through the rigours of the practical training for three and a half year mostly post qualification. The qualification of CA is recognized by most of the Universities in India as eligible for direct entry to Phd courses. Our profession is one of the most regulated and controlled profession which is very effectively monitored by THE INSTITUTE OF CHARTERED ACCOUTANTS OF INDIA a body set up under an Act of Parliament.
    We are happy and glad to note that your esteem bank considers and values the services of Chartered Accountants for the purposes of Concurrent Audit of your Bank branches. At the same time we feel little sad and disappointed to note the fees structure being offered for such services. We humbly request you to kindly consider upward revision of concurrent audit fees as per industry peers if not more. We put forward the following points for your consideration:-
    1. Daily Monitoring of Transactions:- As per the terms of the appointment being offered, the transactions are required to be monitored on a daily basis and weekly rectifications/ discussions are required to be done.
    2. CBS:- Now all the branches have been converted to CBS and hence the staff and CAs are required to be adequately trained and well versed in Computers and Information Technology.
    3. RBIA:- The quarterly requirement of RBIA reporting has put tremendous responsibility of reporting on the CAs. Completing the quarterly reports requires special attention of the senior members of the CA firms and in many cases senior partners themselves.
    4. Articled Assistants not always available:- Banks have probably kept the basis of evaluation of statutoryaudit fees on the premises that CA firms have articled clerks who are paid meager stipends and same may be made available to Banks for daily monitoring. This premises is a thing of the past for many reasons. First, the expectations and level of knowledge required for current day banking cannot be handled by a fresh Articled Assistants. Articles themselves have their commitments of hours of working per week and their examination leaves due to which even the senior Articles are not available many times. We have to thus maintain regular salaried staff for the purposes of statutoryaudit.
    5. Salaries of Staff have gone sky rocketing in recent times:- Fact that the salaries of staff have increased many fold in recent times need no corroborative evidence for such a large PSU bank as yours. A young fresher graduate with computer literacy and with performance attitude is not available for a salary less than 10000-00 per month for a start. How can then expected professional commitments for the StatutoryAudits be kept.
    6. Education, Qualification, Experience and Independence of CAs be given due recognition:- A CA who has undergone rigorous education and training and still after waiting for few more years to gain minimum post qualification experience should be expected to earn satisfactorily atleast to lead a respectable lifestyle and support family.
    7. Why do CAs accept such assignment with low fees:- The nature of general practice of CAs is that they make slow client base who make yearly fees payments. It is very difficult to maintain offices and staff with monthly salaries. StatutoryAudit is one such assignment where regular payments on an monthly intervals is received which helps maintain the operating cycle of the firms. The increase of fees is requested to make StatutoryAudit as a serious main stake of profession which will imbibe lot more of concern and seriousness for the assignment.
    8. India is a Welfare State, Banks an Extended arm of Government should emit such principles:- CA firms do not get any retirement benefits, no employment benefits, not even regular engagements. After a period of two years they are put to Cool period and cannot have assurance of re-appointment. A contractual engagement just of two years and with emoluments not even matching with the Class IV employees of the bank. Responsibilities of the highest degree. Gross negligence can risk lifetime professional career. Even on the basis of humanitarian and ethical grounds, CAs should be paid a respectable fees to maintain their standards in all respects.
    9. Reserve Bank of India has also expressed its concers:- Reserve bank has also expressed its concerns over the low fees for the StatutoryAudit being offered by Banks and have advised them to revise the fees. How much, was left on the conscious of individual banks.
    10. Most of the banks have increased the fees:- If we analyse the minimum fees being offered by different banks tabulated hereunder, its clear that Central Bank of India falls in the lowest category of fees.
    Sr. No. Name of Banks Fees
    1. STATE BANK OF INDIA 45000-00
    2. BANK OF BARODA 25000-00
    3. UNION BANK OF INDIA 25000-00
    4. CANARA BANK 25000-00
    5. PUNJAB NATIONAL BANK 20000-00

    Considering the above facts, we humbly request you to kindly consider the fees of StatutoryAudit be raised to atleast Rs. 25000-00 (Rupees twenty five thousand only) as the lowest benchmark.

  27. Sathyanarayana says:

    Advocates also should be appointed as Auditors of Banks. Because bank runs on rules and regulations, contract, signature, banking law, negotiable instruments act and CAs do not have these legal knowledge and not have strngth to catch the fraudsters. Also police force or paramilitary should be used during audit by the advocates to catch the NPA borrowers

    Then bank audit becomes a Breaking News every year.

  28. mukesh bhasin says:

    Dear sir,

    The undersigned is retired AGM from SBI & presently engaged with a CA firm for Bank concurrent audit & statutory audit jobs.

    I want to share a few thoughts.

    I have seen ur article on changes suggested by you in the appointment of Statutory auditors.

    Further it is seen as & when Bank-branch statutory audit begins, the Regional Manager/Zonal Manager advises the firm to complete audit in 2-3 days for each branch. this is being done under the pretext that they have to consolidate the data and send it to Head office.

    In my view Statutory audit of any medium size branch can not be completed in 2-3 days.

    Proper NPA classification takes a lot of time.

    Further statutory auditors are not sent to Centralised processing cells where major risk has shifted. As & when a CA asks for documents BM will advise that these are at RACPC (centralized).Seeing documents at RACPC is big headache and wastage oif time.

    Further the shortcomings pointed out by internal auditors (annual exercise) are not shared with CAs.

    Further I found that CA firms are not appointed in RACPCs in many Banks e.g. SBI.

    The Concurrent audit quality (by bank staff) is very poor as banks post rejected staff (who are facing departmental/vigilance cases) or those near retirement who come there to prepare for retirement.

    you are requested to take up the matter with RBI/ICAI
    i. to give at least 6-7 days for each branch. Larger period for large credit intensive branches.
    ii. branch allotment/appointment letters should be sent atleast 15 days in advance,
    iii. Concurrent auditors should be posted out of the pool who are not in statutory audit panel as only few firms get this task and new entrants will always miss the opportunity.
    iv. NPA classification should be properly checked.
    v. Exception reports should be generated from FINACLE/CBS and provided to Stat. Auditors.

    submitted for your kind consideration and necessary action with appropriate authority.

  29. mandeep says:

    WHY BANK BRANCH AUDIT NOT REQUIRED:-
    1) Due to core banking, there is no need of bank branch audit. Because all
    system is controlled online.
    2) On other hand CA’s certificate under income tax totally failed to widen
    genuine tax base and other-side it becomes strict hurdle to widen genuine
    tax base.
    3) As per RTI information from various income tax departments, I come to know
    that in 95% cases department made addition more than 2 lack covered under
    tax audit from CA u/s 44AB. Only 5% cases are Non-audited.
    4) Modi government believes in scrap of unnecessary certificates. We need to
    make digital india and old traditions to obtain reports need to give up.
    5) There are many examples of scams in limited companies out of one is SATYAM
    COMPUTER. even that CA’s firms given wrong opinion on bank account balances
    of SATYAM COMPUTER than how can public believe on private CA firms for
    complicated issue like bank branch audit.
    6) Auditor of the banks should be from bank employees. If they are not
    performing their duty with honestly then they should be terminate from jobs.
    It will create quality audit. When such restriction can’t be imposed on
    private CA’s firms.
    7) Only financial accounts knowledge is not sufficient for bank branch audit
    except that legal knowledge about bank laws and other laws also required.

  30. praveen bansal says:

    old system was lawfully justified which maintains the real independance of the auditor. which is soul of the auditor and in the absence ot this the very purpose of the audit is got defeated.

  31. SS Mohideen says:

    Rightly said. The Allotment should be done by the RBI itself. For the simple reason some of the banks like those audit firm Who give a NIL MOC. In some cases when a particular SBA gives a qualified report, next time he will get a lesser Audit fee. The RBI should monitor the scale of Fees that is being paid to the Statutory Branch Auditors year wise during their tenure with a particular bank and the Bank should be called for an explanation in case if there is any reduction in the fees paid to any SBA over the previous year amount . This will remove the fear in the minds of some of the Auditors that giving an adverse MOC would become an ax on their next years fee.

    Some of the Banks have confidential report on the Auditors to be given by the Auditee Branch Manager. This should be dispensed with

    A system of Repeat Branch Audit may be followed by allotting the same branch to the SBA for tow years to get better results in Quality and timely report

  32. CA P Prasanna Kumar says:

    Very nice presentation of facts and information. Even in earlier forums, i have highlighted how a J&K auditors got allotment of bank audits in southern dist of Tamil nadu (geographically >3000 KMs) and the banks are spending huge amounts on travel and allotment is 100% not transparent. This system must go and every firm shd get at least 1 or max 2 firms. Central auditors who hv done stat audit of brnches in the past where the NPA levels have gone up must be made accountable and shd not be considered for reappointment as they failed to give early warning signals. Still some central auditors are getting allotment of other professional work in associate banks of natioanlised banks (vice versa) and RBI shd curtail this also. If a firm is appointed as central auditors that firm shd be totally ineligible for any type of audit in all subsidiaries within and outside India. Some central auditors are insisting allotment of stock audit of customers of same banks by insisting bank staff to discuss the matter with other consortium members to allot from other banks. This also shd be curbed. Before selecting Central auditors, what type of fees they derived from entire banking industry shd be looked into (by calling for Form 26AS copy) and firms who have derived undue benefits because of their central auditor position shd be debarred from conducting central/branch stat audit of banks. Firms who have done more than one bank branch audits have violated ICAI and RBI Regulations. ICAI shd send show cause notice to those firms as to why the COP of all partners shd be withdrawn for this misconduct.

  33. M.N.Srinivasa Prasad says:

    With my past 20 years experience in Bank Branch Statutory Audit, I say that Audit of Small and Rural Branches with a few and less specifically trained officers are prone to many lapses and irregularities, lack of proper internal control and information, requiring more audit time than a Large Branch with Designated Officers for every type of bank operations. In my view the quality of Advances of small branches turned worse, in view of increasing the branch audit limit to Rs. 20.00 Crores.

    Regards

  34. CA Ashok V. Barbole says:

    Dear Author,

    This is very important article. The article is drafted which brings into light the verious facts in the bank audits with the supportive figures. Also the language in the article shows the importance of bank branch audits to smooth functioning of the economy apart from its benefit to new entrants in the CA profession.

    Surely this is one of the best article written to the date and i think that this is the best article to open the eye of Finance ministry as a justification to reduce the limit of audit from Rs.20 crores to either to Rs.3 crores or to Nil.

    I think our institutes should be brought into picture to represent the ministry of finance as we have a justification of NPA figures of last 3 years published data.

    the example of company audit given in the article is an eye openener to the RBI being a protector of public money it has duty to keep the watch on the use of public money through the bank branch audit.

    Thanks a lot for making such a efforts will certainly will bore a fruit in future to the betterment of economy & CA professionals

    Yours Truly

    CA Ashok V. barbole

  35. kailash goyal says:

    We agree even in some cases we have observed that big firms also interefere in the allotement of branch audits to the selected auditors and bank even not bothered about the cooling period .

  36. Prasad says:

    Dear Sir, Hope this in-depth appeal will give success to CA group and also save the nation from corruption. The link is not available, can u please suggest how to sign the above appeal.

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