Summary: Bank concurrent audit is crucial for safeguarding public funds in the banking sector. The role involves ensuring the proper use of funds and detecting anomalies or fraud. The task is demanding due to the large volumes of transactions and the need for meticulous documentation. Key practices include investing time and effort into understanding the bank’s system, maintaining accurate records, and applying robust checks on high-value transactions. Auditors must be adept at scrutinizing financial documents, identifying discrepancies, and adhering to regulatory guidelines. Regular reviews of past audit reports and focusing on problem areas are essential. Proficiency in bank concurrent audit comes with experience, ongoing learning, and staying updated on financial regulations and market developments.
1. Bank Concurrent audit is vast field and improving it is need of the hour as we see many frauds happening in Banking sector involving huge public funds. This raises many times questions on the way of working and performance of auditors, vigilance department and all concerned. It is often said that Bank Concurrent Audit is not that much remunerative as compared to other areas of practice, many do it as it is respectable job and improves reputation. It is important that more focused attention, time, dedication and energy is devoted to Bank concurrent audit because there is public money involved in Banks, and it’s a onerous duty entrusted on the auditors (by law and also morally) to ensure that public funds are utilized in the best possible manner and the general public are not cheated of their hard earned money.
2. To safeguard the banks from mishappenings such as fraud, particularly of high value in tens of thousands of crores, the apex Bank, Reserve Bank of India, has devised various mechanism such as internal controls, internal check, RBI Inspection, Bank’s own internal Audit system, audits such as stock audit, revenue audit, MIS audit and appropriate training to staff and Managers at regular intervals. These all set procedures are designed and implemented to ensure that errors and frauds are minimized and financial health of the Banks are maintained. Banks are the pillars of the economy and if, time and again, we hear news of fraud, scam, etc. the general public tend to lose faith in the financial system of the country. So it is of utmost importance that all concerned persons (concurrent auditors, Banks internal auditors, Key officers etc.) consider the task of Concurrent audit very seriously and are in alert mode while doing their work to find out anomalies, deficiencies, errors and most specifically, fraud, while doing their work.
3. The system of Bank, in simple words is receiving money from public in the form of deposits and pay them interest at the rates decided by the policy guidelines of RBI and lend money to companies, industries and other public requiring loans and receive the interest from such advance to them. The difference amount (interest received from advances and interest paid to deposit holders) is the profit of the bank, from which salaries, administrative and other expenses is deducted to arrive at the final profit. The vital factor in the whole cycle is that the money lent as advance should fetch regular interest and principal repayment and it does not slip to NPA – Non performing asset i.e. bad loans from which the recovery of interest and principal repayment has stopped. Other factors such as end use of funds, security, insurance, compliance of banks guidelines, RBI guidelines, prudential norms for income recognition and asset classification are strictly adhered to i.e. performing, non-performing, standard, doubtful, loss assets etc. are classified properly.
4. One crucial point is that the documentation of the bank is well maintained for audit purposes and general record purpose, also the documents received are correct and not fake. It is a tendency observed that sometimes the borrower takes loan based on fake and fabricated documents such as fake Income tax return, fake tax paid challan copy, fake bank statements, unrealistic projections of profits. It is therefore clearly evident that such loans, obtained through manipulation and malafide intention, ultimately slips to NPA and the Bank suffers losses apart from other problems such as time, cost and energy (productive manhours of the bank staff) in litigation, court procedure, which causes considerable loss and hardships to the bank. A Chartered Accountant, has experience in financial documents during his articleship training and job experience and is in a better position to check and find out which one is genuine and which is fake document and thus, he can curb the malpractices of the manipulative/fraud customers and save bank from heavy financial losses.
5. The Banking cycle starts when a customer applies for a account (savings, current, CC, OD) with the Bank. At this stage itself, if the problem areas are addressed, many future problems and hassles can be avoided. The concurrent auditor should carefully scrutinize the Application form, attached documents as proof of address, identity and other required papers as per the Banks guidelines, ensure that all the fields are filled in the form, and based on his experience, if he finds something wrong, incomplete and doubtful, he should note down in his working papers. Finally he should approach the concerned officer/Manager of the bank and resolve the queries then and there, if the queries are not resolved it will have to be mentioned in the draft concurrent audit report. If it is pending to be resolved, that query will appear in the final concurrent audit report, and in the subsequent month, if resolved, the query will be dropped from the report.
6. Concurrent auditor must make it a point to see to it that documentation is well maintained of all the work done in the Bank branch. Even if the query is raised and resolved, it must be mentioned in the Auditor’s observation or query sheet as it proves that the auditor has gone through and checked those areas. In case of advances, utmost care and caution should be taken to ensure that all the relevant work is done meticulously and documentation is done of all the major aspects. This is as per the ICAI guidelines, and also the working papers will act as a safeguard against Disciplinary Action on CA in future, if any. Documentation part should never be underestimated as nobody can remember each and every detail and after 2-3 years , if there is litigation regarding that work, the auditor will find it difficult to recollect the data, and also the court/other authority accepts evidence in the form of documentation. So, documentation should be done and preserved by the CA as per the ICAI guidelines and need of the profession.
7. The concurrent auditor should be aware of the Banks system where the customer’s data are maintained, masters, ledger, loan accounts and other details. He should have knowledge of the commands of the system to extract various reports, example: loan account, saving account statement, master sheet containing the details such as rate of interest on loan, security, insurance details etc. Banks system is very exhaustive and contains various fields to capture the customer’s data. Having a familiarity with the Bank’s system is helpful for the concurrent auditor in discharging his duties efficiently. There are various reports available from the Bank’s system to do the analysis and to find out the problematic areas. On the click of a button, concurrent auditor can get the relevant reports, save time and enhance his quality of work.
8. Some Banks have concurrent audit in Manual form and some have in Electronic form known as E-Audit. In manual form, the reporting is done in paper form, monthly and quarterly reports in paper binding form, while in E- Audit, there is no necessity to take print out, the reporting is through the software where we record the daily queries. In any case, the skills, judgements, business acumen, technical proficiency of the auditor remains the same, whether audit is done through paper mode or electronic mode. The auditor should have a broader understanding of his responsibility, as how much in depth checking he should do, how much staff should be employed, what areas to be checked with greater emphasis, so that the results are satisfactory.
9. If we consider any average branch of a bank, the transactions are numerous, voluminous, huge and its practically impossible to check each and every transaction, because the Concurrent Audit report is to be submitted within 7th or 10th of the next month, there are 4 sundays holiday, 2 saturdays holiday, 1 or 2 bank holiday in a month. Considering the practical difficulties of less working days and more quantum of work, the auditor has to apply test checking or sample check in transaction which are of less importance and low value. However, for important, high value and vital transactions, the auditor should, without fail, ensure that there is 100% checking. But this extent of checking and other instructions are generally mentioned in the Bank’s appointment letter which should be strictly adhered to. In the event of any fraud in future, the auditor will be charged for negligence or violation of code of conduct because he did not discharge his duty properly.
10. The auditor should go through the previous months reports of internal auditor, statutory auditor, Stock Audit report, RBI Inspection report so that he is able to find out what are the recurring irregularities, the customers/loan accounts which are frequently defaulting in various compliance like non submission or late submission of Stock statements, insurance, QIS statements, customers defaulting in interest and principal payments etc. This helps him to get a broad understanding of the Bank’s profile and accordingly he devices strategies to tackle the difficult areas.
Going through the previous month/quarter audit reports, discussion with Manager, meeting with the branch key officials helps in getting an overall understanding of the Bank’s performances, customer profile, and accordingly he comes to know strengths and weakness of various departments from the audit perspective and whether internal control system within the bank is properly functional and effective or not. Suppose after review of the previous month reports etc. the concurrent auditor observes that there is small problems in KYC area and loan documentation shortcomings in small personal loans, education loan or auto loans, other advance portfolio being more or less 95% accurately maintained. In such case the Concurrent auditor draws the inference that there is not much problem and the branch is functioning well and the areas where there are problems, he will concentrate more while auditing by deploying more staff having adequate experience in handling concurrent audits. However, if the Auditor concludes that KYC, small documentation, ledger scrutiny, etc. are in normal range, but there is problem is High Value transactions, Exceptional Transactions, Government Transactions, Statutory Compliances, high value loans advanced to promoters without complete documentation and outside the discretionary powers of the Branch Manager, NPA ratio increasing, he will extend his audit procedures and deal with the problem areas effectively by referring to the Bank’s guidelines, RBI Guidelines, ICAI Guidance Notes and other resources.
11. As far as possible, the transactions should be checked as early as possible after its occurrence, because delay will defeat the very purpose of the system of concurrent audit. Early detection will lead to timely action and thus the error or fraud will have minimum or no effect on the bank’s financial health. Important communications regarding query and its reply to the Management of the Bank should be, as far as possible, in writing, as it serves as an evidence in case of future dispute. Documentation is also mandatory as per Auditing Standards.
12. The auditor should not take the procedural aspects lightly, as it is of prime importance because it has financial implications and with every default by the customer, the bank levies charges on the customers. Revenue audit ensures that the bank gets legitimate revenue in various forms and if these small default points are skipped or missed, it causes revenue loss to the bank. Drawing Power Calculation should be minutely checked and should be in lines with the Bank’s calculation format. Deviations, if any, should be ratified by the concerned authority. It should be ensured that correct interest rate is charged on advances and deposits, as per the bank’s guidelines. It should also be ensured that the borrowed funds should be utilized for the purpose it was given. Any diversion or manipulation of loans should be checked and action taken at the earliest. Locker rent and actual cash v/s retention limit of the branch should be checked as per the Bank’s guidelines.
13. While filling the Concurrent audit report, the Auditor should do value addition in the work of audit, otherwise most of the forms and reports are statistical reports which can be entered from the Sanction letter, Banks System and other documents i.e. this data entry work even a non audit staff can do. What is important is the auditor should mention his observations, where there is some suspicious transaction, where there is violation of law, where there is revenue leakage, where the security papers are not executed properly, where there is wrong interest rate feeded in the system, where there is KYC problem, where the supporting of the vouchers or transactions not present or inadequate. The Auditor, with his rigorous articleship training is in a better position to check the Balance Sheet, Profit and Loss account, Income Tax returns, agreements, partnership deeds and other financial documents and to arrive at conclusions whether the papers submitted are authentic, company is functioning properly or not, whether there is any incipient sickness symptoms in the Company’s financials and whether it will be able to pay the outstanding dues of the bank.
14. Whenever there are fresh sanctions, it should be checked that all the parameters are feeded in the system correctly. Suspense account should be carefully checked and ensured that all the transactions are squared off and there is no suspicious transactions and if any, it should be inquired into and reported. Leakage of income is an area where the auditors need to pay attention because it affects the profit margin of the bank, shows the efficiency of the branch and ensures that the bank recovers its legitimate share of revenue from customers. It also highlights how capable and effective is the concurrent auditor for the branch. The auditor should randomly check the TDS (form 15G and 15H) is feeded correctly in the system or not. Also, he should scrutinize various Exception Reports extracted from the systems at regular intervals and confirm whether everything is in order. In any answer to a Audit Report question, the auditor should not simply write Yes, No or NA – Not applicable, because it is unclear and vague, the auditor should mention the reasons, if applicable in the report otherwise it will show a casual approach of the auditor towards the audit and there will be no value addition done by the auditor. If there are debits to income account, the auditor should ensure that it is approved by the higher authorities. SMA Accounts (Special Mention accounts) are to be closely monitored since these are stress assets and corrective action must be taken to stop them converting into NPA – Non performing asset.
15. Conclusion: Bank concurrent audit subject is ocean of knowledge and if anyone wants to be proficient in the subject, he must have a inclination to work honestly, concentrate on the current problems avoiding distractions, have a out of the box thinking, analytical frame of mind, positive mindset, teamwork, communication skills, computer skills and drafting skills. The level of knowledge goes on increasing as the auditor becomes senior. He must brush up his accounting and auditing skills, should be interested in reading about his field, curiosity to learn, upskill and apply the theory in practical work situations. Apart from this he must be aware of the latest happenings in the financial sector, reading Financial newspapers will help in the long run as it helps to gain knowledge of economy and helps to know market developments, interest rates, RBI policies and other important news beforehand. Being well informed is equivalent to being well equipped. The software, systems, policies and circulars may change over a period of time, however the basics of auditing remains the same. In case of Bank audit, auditor must be more alert due to huge public funds involved and the resultant enhanced accountability and job responsibility. Proficiency will come as one works on the job, gains new experiences day by day and learns in the whole process and after a considerable time, patience and deep inclination to learn and put extra hard work, he finally reaches his goals.
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