1. BANK CONCURRENT
AUDIT
General Audit Procedures, Methods and Reporting
by
DINESH M, B.Com., A.C.A.
Partner
KNMA & ASSOCIATES, Chartered Accountants,
Chennai.
Email: dinesh@knmaassociates.org
3. INTRODUCTION
Bank Concurrent audit was introduced and implemented primarily to attain
the following objectives:
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.
KNMA & ASSOCIATES.
4. INTRODUCTION
To identify whether the Systems & Procedures of the bank have been
properly complied and implemented by the bank.
To perform substantive checking of various areas of the bank operations
and to make adequate rectification of deficiencies in the earliest possible
period.
To give advisory opinions to bank in areas such as taxation, financial
analysis, etc., as and when it is necessary.
KNMA & ASSOCIATES.
11. DISCLAIMER
The Areas covered herein are ONLY GENERAL and would be included
MOSTLY in concurrent audits of the All the banks.
There are also CERTAIN AREAS which may be covered exclusively by Each
bank.
Hence, the SPECIFIC AREAS would have to be examined and understood
on CASE to CASE basis, subject to the requirement of each bank.
KNMA & ASSOCIATES.
13. GENERAL AUDIT PROCEDURE
Concurrent Audit is not a ONE TIME activity.
It is CONTINUOUS process wherein each aspects of banking operations
are covered periodically & repeatedly
The General audit procedures includes of 2 kinds of verification:
ON-SITE
OFF-SITE
KNMA & ASSOCIATES.
14. GENERAL AUDIT PROCEDURE
ON-SITE:
Verification of Loan and other related documents.
KYC Norms.
Voucher verification (including income & expenses)
Cash management, Collection & clearing of Cheques.
Checking of Daily reports generated.
Unit inspection, Verification of Stock statements, Audited &
Projected Financials of the Borrowers.
KNMA & ASSOCIATES.
15. GENERAL AUDIT PROCEDURE
ON-SITE:
Application of Interest (received/paid) for all the accounts.
Verifying the suspicious transactions in all the accounts including
Staff accounts.
Checking the Various compliance functions to be adhered by the
Branch such as TDS & Service tax (Remittances & Returns), Monthly
& Quarterly returns & Certificates submitted to the Controlling office,
etc.,
KNMA & ASSOCIATES.
16. GENERAL AUDIT PROCEDURE
ON-SITE:
Physical verification of Sensitive items such as Cheque books, blank
DDs & Term deposit Forms, Jewels, etc.
Collection of Data regarding Loans accounts for the purpose of
creating a DATABASE.
KNMA & ASSOCIATES.
17. GENERAL AUDIT PROCEDURE
OFF-SITE:
Analysis of Various reports generated by us from the CBS regarding
areas such as
Irregular/Overdue Loans, TOD/Excess allowed, NPA & Watch category
accounts, Interest deviation, Day end reports, VVR, Cash Transactions, BS
& PL, etc.,
Reporting of Key deficiencies identified.
KNMA & ASSOCIATES.
18. GENERAL AUDIT PROCEDURE
OFF-SITE:
Identification of Accounts & Transactions that are subjected to further
verification(verification can be done either ON-SITE or OFF-SITE).
Comparison & Analysis of Branch performances in achieving its TARGETS
and Positions of its ACTUALS.
Comparative Analysis of BALANCE SHEET & PROFIT and LOSS
Creation and Updating the DATABASE for Loan accounts and scrutinizing it
periodically.
KNMA & ASSOCIATES.
20. ESSENTIAL DOCUMENTATION &
OTHER RECORDS
Scope of the audit includes Verification of Several and Diversified
operations of the bank.
Concurrent audit requires PROPER DOCUMENTATION of the Auditor
with:
Completeness
Timely Updation
DOCUMENTATION refers both to the
Manuals concerning the Banking operations; &
Audit findings corroborating the discrepancies identified.
KNMA & ASSOCIATES.
21. ESSENTIAL DOCUMENTATION &
OTHER RECORDS
BEFORE COMMENCEMENT OF AUDIT – (Permanent Files)
Following Documents to be collected and maintained :
BOOKS OF INSTRUCTIONS – Rules regarding Operations & Functioning
MANUAL OF DOCUMENTATION – Advances & Deposits.
LOAN POLICY DOCUMENT – Objectives & Stipulations for each financial year.
MANAGER’S DISCRETIONARY LENDING POWER– Credit facilities sanctioned by the
Branch Manager.
LOAN & DEPOSIT PRODUCTS – Category of Loans & Deposits & its conditions which
can be traced from the Bank’s website or Intranet.
KNMA & ASSOCIATES.
22. ESSENTIAL DOCUMENTATION &
OTHER RECORDS
BEFORE COMMENCEMENT OF AUDIT – (Permanent Files)
Following Documents to be collected and maintained :
INTEREST RATES AND OTHER SERVICE CHARGES – Revenue Aspect.
CIRCULARS – Amendments & Highlights.
CBS MANUAL – Menus & Reports generated
BRANCH PROFILE – regarding Basic Data, Scale of Operations, etc., of the branch.
KNMA & ASSOCIATES.
23. ESSENTIAL DOCUMENTATION &
OTHER RECORDS
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.
KNMA & ASSOCIATES.
24. ESSENTIAL DOCUMENTATION &
OTHER RECORDS
AFTER COMMENCEMENT OF AUDIT – (Current Files)
Following Documents to be collected and maintained:
MONTHLY REPORTS & WORKINGS – includes all the reports generated from CBS,
audit workings & findings, other data collected, etc. for the Respective month.
PENDING & FOLLOW –UP REGISTER– regarding the Areas which are pending and
are required to be followed-up in succeeding months.
UPDATION OF PERMANENT FILES – particularly concerned with recent Circulars
issued by RBI/Bank HO, Loan products, Changes in Interest rates & Service charges.
AUDIT NOTE ON KEY AREAS – based on matters discussed with Branch officials.
KNMA & ASSOCIATES.
26. BRIEF INTRODUCTION
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-Fund based:
Letter of Guarantee & Letter of Credit
Co-acceptance of bills
Deferred Payment guarantee (for capital goods purchase)
KNMA & ASSOCIATES.
27. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
The following are steps followed by banks in sanctioning a Credit facility:
Appraisal
Pre-sanction
Documentation
Post-sanction compliances
Periodical assessing of the Working of the Account
KNMA & ASSOCIATES.
28. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
APPRAISAL:
In this process, the Bank would WEIGH & RATE the Financial Worth of the
prospective borrower in order to sanction the Credit facility.
Such WEIGHING & RATING would be based on following criteria:
Purpose of the loan – either Business or Personal
Income potential of the borrower – based on Income tax returns, Project reports,
Nature & Value of Security available with Borrower – ex: Property, Jewellary, Bank
deposits, Etc.,
Net-worth of the Guarantor – providing guarantee to the loan
KNMA & ASSOCIATES.
29. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
APPRAISAL – GENERAL STEPS
COMPARISON OF
ASCERTAIN THE CONDITIONS &
LOAN PRODUCTS PROCEDURES
CONSOLIDATE
CRITICALLY ANALYSE
& REPORT
KNMA & ASSOCIATES.
30. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
VERIFICATION OF APPRAISAL:
Following are the GENERAL steps to be employed by auditor for verification:
ASCERTAIN the Loan products regarding the pre-requisites, Eligibility criteria,
Essential documents to be obtained, etc.,
COMPARE these conditions with the procedures adhered by the Branch.
CRITICALLY ANALYSE whether borrower is eligible & has the potential to
repay specific loan.
CONSOLIDATE & REPORT any discrepancy noted during verification.
KNMA & ASSOCIATES.
31. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
VERIFICATION OF APPRAISAL:
Following PRECAUTIONS to be considered:
Verify the Manager’s Discretionary Power to ascertain whether the
amount of loan falls under his Lending powers. If the limit exceeds
the allotted power, then only the HIGHER AUTHORITY can process
the loan.
Examine carefully whether the branch has obtained all the
documents as stipulated by the bank.
Critical Analysis regarding Borrower’s potential should be done
with UTMOST DUE DILIGENCE so as to report any serious matters.
KNMA & ASSOCIATES.
32. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
PRACTICAL ISSUE IN APPRAISAL:
Since the verification is based on case-case basis, auditor should verify each
loan distinctly & not by same procedures.
Most of the banks have created separate Cell/Centre for processing
Important loans such as Housing loans, Business loans, High value Term
loans, etc.
In such cases, it is out of our scope of verification since we are concerned
mainly with the Branch’s operations.
KNMA & ASSOCIATES.
33. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
PRE-SANCTION :
Once the Appraisal has been completed & the Loan has been
processed, the Next stage is PRE-SANCTION.
In this stage, the branch has the following functions:
Preliminary inspection of the Business unit or Residence of the
Borrower.
Inspecting the nature of the securities offered particularly immovable
properties.
Preparing Reports after such inspection stating Specific reasons for
either SANCTIONING/REJECTING the loan.
KNMA & ASSOCIATES.
34. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
VERIFICATION OF PRE-SANCTION :
Perusal of the Inspection Reports – so as to ascertain the nature of
business functioning or regarding the immovable property charged
as Security.
Validating the remarks/comments mentioned in such report with
the areas verified under Appraisal.
KNMA & ASSOCIATES.
35. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
PRACTICAL ISSUE IN PRE-SANCTION :
Branches generally do not perform Pre-Sanction in REAL terms; but
just for the COMPLIANCE purpose.
Our scope is limited only to the verification of Inspection report at
this stage of loan.
We can verify the information given in this report only during OUR
UNIT INSPECTION.
Also, as specified earlier, when the loans are processed by Separate
Loan cells, Pre-sanction is done by their Officials not by the branch.
KNMA & ASSOCIATES.
36. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
DOCUMENTATION:
Documentation deals with preparation of Essential documents
before the Disbursement of the Loan sanctioned.
The type & Number of the document would be enlisted in the
Manual of Documentation.
Branch will prepare the Complete set of All documents signed by
the Borrower and the Officer Concerned.
These Documents should be maintained & kept separately in a SAFE
manner.
KNMA & ASSOCIATES.
37. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
VERIFICATION OF DOCUMENTATION:
Auditor should peruse the Loan Documents obtained & compare
with the list specified in the Documentation manual.
He should verify whether:
All the particulars in the document have been FILLED IN.
All the particulars filled in are CORRECT.
Signature and Acceptance from the BORROWER has been obtained
including the Sanction letter.
Branch official concerned have verified & authorized that all the
documents have been duly obtained.
KNMA & ASSOCIATES.
38. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
PRACTICAL ISSUES IN DOCUMENTATION:
Most Banks would not allow the Concurrent Auditors to mention
any Error in documentation.
They would convince us stating they would change it immediately.
But they may forget/omit to change those errors.
So, it is HIGHLIGHTED that the errors noticed in the
documentation should be specified in the Concurrent report.
KNMA & ASSOCIATES.
39. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
POST-SANCTION COMPLIANCES:
After the disbursement of the loan, the branch should monitor and
comply all the term & conditions specified in Loan sanction letter.
This compliance includes the following:
Verification of End-use of funds – whether they are utilized for intended
purpose.
In case of Immovable property offered as Security:
Mortgage has created & registered.
Valuation report, Legal opinion report, Latest Encumbrance certificate
have been obtained.
KNMA & ASSOCIATES.
40. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
POST-SANCTION COMPLIANCES:
This compliance includes the following:
In case of vehicle loan – whether Registration certificate & Insurance policy
has been obtained with one month of Loan.
In case Building and/or Stock given as security: Insurance policy has been
duly done with adequate value covering the risk.
KNMA & ASSOCIATES.
41. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
VERIFICATION OF POST-SANCTION COMPLIANCES:
Even though Post-Sanction compliances vary for each category of
loan, they would be enlisted completely in the sanction letter.
So, the Auditor should study it carefully & check whether all the
points are adhered 100% by the branch .
Any lapses should be reported both to the Branch officials & Higher
authority through audit report.
Also, Auditor should document the Key areas in the sanction letter
so as to verify it later during the periodical review of the account.
KNMA & ASSOCIATES.
42. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
PRACTICAL ISSUES IN POST-SANCTION COMPLIANCES:
Certain terms & conditions might not be complied immediately due
to some delays that are beyond the control of Branch authority.
Ex: Mortgage registration for Immovable property, Vehicle registration
from RTO, etc.
In such cases, Auditor should note these areas in his Follow up
register and has to verify them in the forthcoming months.
When they are pending for longer time, it should be reported by the
auditor.
KNMA & ASSOCIATES.
43. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
PERIODICAL ASSESSMENT OF THE LOAN ACCOUNT:
After all the Compliance enlisted above have been done, Loan
amount will be disbursed to the borrower.
After Disbursement, the Bank has to CAREFULLY follow-up &
monitor the following points:
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.
KNMA & ASSOCIATES.
44. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
PERIODICAL ASSESSMENT OF THE LOAN ACCOUNT:
The verification of auditor includes the following:
Assess the position of each loan account at the end of the month &
inform the bank regarding any IRREGULAR accounts.
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 efforts done by the Branch in case of NPA
accounts & Potential NPA accounts.
KNMA & ASSOCIATES.
45. ADVANCES
KEY ASPECTS & THEIR VERIFICATION
PERIODICAL ASSESSMENT OF THE LOAN ACCOUNT:
The verification of auditor includes the following:
Examine periodically INSURANCE details of each loan & report to bank
regarding EXPIRY date or INADEQUATE insurances.
Verify the accounts that are due for REVIEW/RENEWAL.
Check whether ACKNOWLEDGEMENT OF DEBT (AOD)/REVIVAL
LETTER(RL) has been obtained for all loans that are more than 36
months old. (Exception: Jewel Loan & Loan against bank deposits)
KNMA & ASSOCIATES.
46. ADVANCES
IMPORTANT TECHNICAL TERMS
MORTGAGE:
It is an official registration which gives right to bank to hold it as
security for the loan.
Mortgage is done for Immovable property.
Mortgage is of TWO TYPES:
SIMPLE MORTGAGE
EQUITABLE MORTAGE
KNMA & ASSOCIATES.
47. ADVANCES
IMPORTANT TECHNICAL TERMS
MORTGAGE
Simple Mortgage or
Equitable mortgage
Registered Mortgage
It is a proper mortgage It is just Depositing of
where it is registered in Original Title deeds to the
the name of the Bank. Property with the Bank.
Hence, The borrower
Hence, The Bank’s name is not
cannot dispose of this
official registered, even though
property without Bank’s
Property cannot be sold
permission
KNMA & ASSOCIATES.
48. ADVANCES
IMPORTANT TECHNICAL TERMS
MORTGAGE
Simple Mortgage or
Equitable mortgage
Registered Mortgage
Generally done for properties It is MOST COMMON
that do not have Original practice followed all over
title deeds India (since procedures is
simple)
Ex: Inherited Properties
OPTIONAL
COMPULSORY REGISTRATION
REGISTRATION
Exception: Tamilnadu
KNMA & ASSOCIATES.
49. ADVANCES
IMPORTANT TECHNICAL TERMS
HYPOTHECATION:
It is similar to Mortgage but it is applicable to MOVABLE
PROPERTIES that are given as security.
Even though the bank does not have Direct control over these
securities, Still the bank has the right to take the possession of
them whenever required.
Unlike Mortgage, there are no Stringent Procedures to be followed.
Ex: STOCK, DEBTORS, VEHICLES, ETC.,
KNMA & ASSOCIATES.
50. ADVANCES
IMPORTANT TECHNICAL TERMS
PLEDGE OR LIEN:
Pledge or Lien is surrendering of the Security to the bank’s control
for the loan.
Hence, the Bank have 100% control over the asset.
Ex: Jewel Loan, Loan against deposits
KNMA & ASSOCIATES.
51. ADVANCES
CC/OD ACCOUNTS – SPECIAL POINTS
Cash credit (CC)/Overdraft loans accounts are distinct from
Other type of loan accounts due to following reasons:
It is Limit based account mainly given for Business purposes.
(Mostly to meet the Working capital gap)
It is a continuous account wherein the Borrower utilizes the limit as
& when required.
There is no Fixed EMI repayment to this loan.
The Bank expects the borrower to route all this business turnover
through this account.
The Credits in this account should be sufficient enough to atleast
service the Interest debited.
KNMA & ASSOCIATES.
52. ADVANCES
CC/OD ACCOUNTS – SPECIAL POINTS
Cash credit (CC)/Overdraft loans accounts are distinct from
Other type of loan accounts due to following reasons:
Every month Bank fixes the Drawing power periodically (mostly
monthly) for this account.
Bank reviews the functioning & operation of this account
periodically (mostly quarterly).
KNMA & ASSOCIATES.
53. ADVANCES
CC/OD ACCOUNTS – SPECIAL POINTS
DRAWING POWER(DP):
It is common term associated with CC accounts.
DP is fixed by the Bank each month based on the Stock
statement/Debtors statement filed by the borrower.
Significance of DP is that it determines the limit up to which
amount can be withdrawn from CC account, i.e.,
Max. Max.
If Limit < If DP >
Amount Amount
DP Limit
= Limit = DP
KNMA & ASSOCIATES.
54. ADVANCES
CC/OD ACCOUNTS – SPECIAL POINTS
VERIFICATION OF DRAWING POWER(DP):
The Auditor has to analyse whether DP has been properly
calculated.
For this, he has to analyse the following: STOCK STATEMENT &
BOOK DEBTS. Their calculation is as follows:
STOCK VALUE DEBTORS VALUE
LESS: CREDITORS FOR LESS: DEBTOR AGING
STOCK MORE THAN 90 DAYS
LESS: MARGIN LESS: MARGIN
DRAWING POWER AS DRAWING POWER AS
PER STOCK PER DEBTORS
KNMA & ASSOCIATES.
55. ADVANCES
CC/OD ACCOUNTS – SPECIAL POINTS
VERIFICATION OF DRAWING POWER(DP):
Important points:
In case of Stock statement, auditor should verify, based on the
nature of the Business of the borrower, whether particulars given
are SUFFICIENT ENOUGH.
UNPAID STOCKS should be reduced for the computation.
In case of Debtors statement, the auditor should not take into
account the Value of debtors who are outstanding for more than 90
days.
Also, the Borrower should submit CA certificate for the Debtors
balance outstanding for every quarter. KNMA & ASSOCIATES.
56. ADVANCES
CC/OD ACCOUNTS – SPECIAL POINTS
PRACTICAL ISSUES IN DRAWING POWER:
Creditors for Stock (or Unpaid stocks) are not reduced.
Debtors aging more than 90 days are not reduced.
Quarterly CA certificate not submitted by borrower.
Particulars regarding Stock not furnished comprehensively.
KNMA & ASSOCIATES.
57. ADVANCES
CC/OD ACCOUNTS – SPECIAL POINTS
TEMPORARY OVERDRAFT (TOD)/EXCESS ALLOWED:
Branch manager has the power to sanction an account holder to
draw amount in excess of the available limit or balance based on his
credibility & business expediency. Such excess is called TOD.
TOD is generally for a shorter period of time, say 30 to 60 days
within which the borrower has to repay the amount.
For this, Bank charges additional interest at prescribed rate.
TOD can also be sanctioned for SB & Current accounts.
KNMA & ASSOCIATES.
58. ADVANCES
CC/OD ACCOUNTS – SPECIAL POINTS
TEMPORARY OVERDRAFT (TOD)/EXCESS ALLOWED:
Auditor has to verify whether:
Branch manager has used his powers judiciously.
Frequent TODs granted to the same account more than the prescribed
times.
Proper documents & security have been obtained.
TODs have been settled within the due dates or there are still
outstanding in such accounts.
KNMA & ASSOCIATES.
59. ADVANCES
NPA & WATCH CATEGORY ACCOUNTS
NON-PERFORMING ASSETS (NPA):
NPA is one which does not generate any income to the bank.
Following may be causes to become NPA:
Interest/EMI overdue for more than 90 days.
OD/CC account is out of order for more than 90 days.
In case of NPA, the bank should
Make Provision for Bad debts
Should Recognise Income only on RECEIPT basis not on ACCRUAL
BASIS
For better understanding, Refer RBI Master Circular on
Prudential Norms on IRAC dated 1.7.2011 KNMA & ASSOCIATES.
60. ADVANCES
NPA & WATCH CATEGORY ACCOUNTS
VERIFICATION OF NPA:
Auditor is concerned with whether the bank has
Correctly Classification of Each of Loan account as per IRAC norms
Provisioning has been done accurately.
Interest & other incomes have been charged as per the norms
Auditor should examine the Efforts taken by the Bank for recovery
of these accounts. Recovery procedures may be as follows:
Regular Follow-up of the accounts & the borrower.
Filing Suits in the Courts.
Taking action under the Securitization and Reconstruction of Financial
assets and Enforcement of Security Interest Act, 2002. (SARFAESI act)
KNMA & ASSOCIATES.
61. ADVANCES
NPA & WATCH CATEGORY ACCOUNTS
WATCH CATEGORY ACCOUNTS:
These are the Loan accounts which have the potential to become
NPA in the near future.
Every bank applies Different norms & uses Different names for
classifying these category of accounts.
General norm is that:
Account overdue for more than 30 days.
Interest not serviced for more than 30 days.
KNMA & ASSOCIATES.
62. ADVANCES
NPA & WATCH CATEGORY ACCOUNTS
VERIFICATION OF WATCH CATEGORY ACCOUNTS:
On the basis of the norms fixed by the Bank, Auditor should
scrutinize the accounts.
Identify such accounts & report to the Bank to take adequate steps
to prevent from becoming NPA.
Auditor should ensure that after the commencement of audit,
Accounts should not be classified as NPA without being reported
under Watch category list.
KNMA & ASSOCIATES.
64. DEPOSITS
BRIEF INTRODUCTION
Deposits
Savings Current Term
Bank account deposits
KNMA & ASSOCIATES.
65. DEPOSITS
KEY ASPECTS & THEIR VERIFICATION
In the deposits accounts, the auditor has to verify the following
things:
Account opening forms
Adherence KYC guidelines (including AML)
Conduct in the Newly opened Accounts
Inoperative accounts
KNMA & ASSOCIATES.
66. DEPOSITS
KEY ASPECTS & THEIR VERIFICATION
Account opening forms:
Auditor should verify all the Deposit account forms with regard to
whether :
All the particulars have been properly filled in.
Account holder has signed in all the appropriate places.
Photo have been properly affixed & attested.
Branch officials have authorized & signed.
PAN or Form 60 has been duly obtained.
Proof of Identity & Proof of Address have been Correctly obtained.
Details of the account holder keyed in the CBS correctly
KNMA & ASSOCIATES.
67. DEPOSITS
KEY ASPECTS & THEIR VERIFICATION
Adherence to KYC norms:
Know Your Customer (KYC) norms have been prescribed so as to:
Confirm regarding Identity & Existence of the customer.
Bank Account is not used for Illegal purposes.
Money laundering is strictly prevented. (as per PMLA, 2002)
KYC norms are as follows:
Introductory reference by Existing customer.
Obtaining Valid documents as Proof of Id & Address and Verifying them
with the original.
Ceiling on the Cash transactions to be entered by the Customer:
Ex: Issue of DD against cash for Rs. 50,000/- & more.
KNMA & ASSOCIATES.
68. DEPOSITS
KEY ASPECTS & THEIR VERIFICATION
Adherence to KYC norms:
Auditor’s responsibility is to check & examine whether the
Sufficient & Adequate Documents have been obtained to corroborate KYC
adherence.
Bank has in REAL terms implemented the policy of KYC norms.
Operations of the Accounts opened during last 6 months does not involve
High value transactions.
KNMA & ASSOCIATES.
69. DEPOSITS
KEY ASPECTS & THEIR VERIFICATION
Inoperative accounts:
If the Deposits Accounts (particularly SB & Current) are not
operated for a longer period of time, CBS of the bank automatically
categorize it into Inoperative/Dormant status.
Once an account is flagged Dormant, the Bank monitors all the
transactions done after that & also the Specimen signature is
automatically blocked.
Since there is a possibility that fraud can happen through
Inoperative accounts, Auditor has to be very cautious with
Inoperative accounts.
KNMA & ASSOCIATES.
70. DEPOSITS
KEY ASPECTS & THEIR VERIFICATION
Inoperative accounts:
The Auditor has to verify the Operations & Status of the Inoperative
Accounts once in a week in Off-site.
If any discrepancy is noticed, it should be examined so as to ensure
NO SERIOUS issue pertains to it.
Auditor should also discuss with the bank when any dormant is
shifted to ACTIVE status.
KNMA & ASSOCIATES.
72. HOUSE-KEEPING
CASH MANAGEMENT:
Surprise verification of Cash by Auditor & Branch official
How many days Excess cash held by branch against the Retention
limit.
Amount of Cut-notes & Soiled notes held by Branch.
Nature of Dealing of Counterfeit currencies.
Inward & Outward remittance of Cash (including Insurance)
How Excess/shortage of cash by cashier is dealt with.
KNMA & ASSOCIATES.
73. HOUSE-KEEPING
CHEQUES:
Issue of Cheque books to the customers.
Procedure for Collection & Clearing of Cheques.
Reconciling of Inward & Outward cheques with Clearing house.
In case of Cheque returns, collecting appropriate charges.
DEMAND DRAFTS & PAY ORDER:
Procedure of Issue of Demand drafts & Pay Order
Collection of appropriate charges.
Service branch for making Payments against DD & Pay order.
KNMA & ASSOCIATES.
74. HOUSE-KEEPING
VOUCHERS:
Vouchers are the basic input documents which the Bank maintains
invariably for all the transactions.
Voucher Verification gives the auditor the COMPREHENSIVE
OPINION on the operations dealt with by the bank.
General procedures followed:
Vouchers should be stitched properly & in order.
Vouchers stitched should be kept safely & securely for prescribed period
of years.
Voucher verification report is prepared in CBS. (in some Banks, this is not
in practice.)
KNMA & ASSOCIATES.
75. HOUSE-KEEPING
VOUCHERS:
Voucher includes the following documents:
Deposit & withdrawal forms.
DD vouchers
Transfer challans
Cash Scrolls & EOD reports, etc.,
Auditor should examine
Whether All the vouchers are properly secured.
The Transactions represented by the Voucher & should get clarified
from the Branch officials in case of Queries.
KNMA & ASSOCIATES.
76. HOUSE-KEEPING
PERIODICAL RETURNS:
Branch should submit Certain Periodical returns to its Higher
authority as may be prescribed them.
Auditors should get the list of Such Returns to be filed along with
the Due Date of submission.
Each month, he should verify:
The Returns have been filed promptly.
The Facts mentioned in such returns & examine it accuracy.
KNMA & ASSOCIATES.
77. HOUSE-KEEPING
MAINTENANCE OF REGISTERS & RECORDS:
The Bank has prescribed the Branch to maintain Certain registers &
records in the Book of Instructions.
The auditor shall go through it & shall verify whether:
Prescribed registers & records are maintained.
Particulars written are complete & accurate.
The Records & Registers are Updated periodically.
Auditor should also mention in his report:
List of registers not maintained by the branch.
Any Factual errors identified in the report.
KNMA & ASSOCIATES.
78. HOUSE-KEEPING
SENSITIVE STATIONERY:
Sensitive Stationeries include
Cheque books
Demand Drafts & Pay orders
Term deposits Receipts
ATM cards & pin-mailers
Auditor should examine whether
Inward & Outward movement of these stationeries entered in the
Movement register.
Physically verify these items periodically
Proper control is exercised over Wasted items or Lost items.
KNMA & ASSOCIATES.
79. HOUSE-KEEPING
LOCKER MAINTENANCE:
Safe Custody Lockers are provided by Banks to their customers for
storing & maintaining their Essential items & documents.
For Locker operations, One key is provided to the Customer &
Another key is available with the concerned official. Only with these
two keys, lockers can be accessed.
Lockers of different size are held by Bank.
For this service, the Bank charges appropriate Locker rent.
KNMA & ASSOCIATES.
80. HOUSE-KEEPING
LOCKER MAINTENANCE:
Auditor should verify whether:
Locker Accessing Register are signed by customer before operating the
locker.
Locker rent is collected each year.
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 another customer.
In case of a locker not being accessed for a longer time, the Branch has
referred the higher authority for breaking the lock.
KNMA & ASSOCIATES.
82. INCOME & EXPENDITURE
INTEREST FROM INTEREST PAID
LOANS ON DEPOSITS
PROCESSING
RENT &
CHARGES ON
TELEPHONE
LOANS
PENAL CHARGES EB CHARGES
INCOME EXPENDITURE
COMM. ON DD
PRINTING &
& FUND
STATIONERY
TRANSFER
TRAVELLING
LOCKER RENTS
EXPENSES
OTHER
OTHER SERVICE
OPERATING
CHARGES
EXPENSES
KNMA & ASSOCIATES.
83. REVENUE LEAKAGE
REVENUE LEAKAGE:
Revenue Leakage refers to the
Under Recovery in the Income of the bank.
Excess charging of the Expenditure of the Bank.
Banks generally STRESS more this aspect of the audit.
Auditor has to CAREFULLY & CRITICALLY examine each and every
transaction so as to ascertain whether there is a possibility of
leakage.
When leakage is found out, he should ensure that the amount has
been properly recovered for such transactions.
KNMA & ASSOCIATES.
84. REVENUE LEAKAGE
REVENUE LEAKAGE:
In case of Income, since there are large avenues covered by the
Branch, the Auditor should go thorough all the manuals regarding
to Interest rates & other charges levied by the bank.
He should be SPOT-ON in identifying the lapse & report it
immediately to the branch officials.
In case of Expenditure, auditor should go through the powers &
limits of Manager and should confirm whether Expenditure are
done accordingly.
Also, he should analyse the prudence & mode of operation in
incurring such expense.
KNMA & ASSOCIATES.
85. REVENUE LEAKAGE
INCOME LEAKAGE: Common reasons:
• Interest rate wrongly keyed in the CBS
INTERST ON • Changes done in the Interest rates
LOANS without Authorisation
• Interest debited not serviced.
• Mistake in the calculation of
PROCESSING Processing charges
CHARGES • Non-recovery or Under recovery of
PC
• Omission to collect it properly.
OTHER • Mistake in calculating the correct
INCOMES amount.
KNMA & ASSOCIATES.
86. REVENUE LEAKAGE
EXPENDITURE LEAKAGE: Common reasons:
• Interest rate wrongly keyed
INTERST in the CBS
PAID ON • Changes done in the
DEPOSITS Interest rates without
Authorisation
• Incurring expenditure over
& above the powers of the
OPERATING Manager.
& OTHER • Incurring without proper
EXPENSES bills & vouchers.
• Unreasonable amount
KNMA & ASSOCIATES.
87. REVENUE LEAKAGE
P&L ANALYSIS:
The auditor should analyse the P&L account of the branch at the end
of each month.
Profitability should compared for each month with the previous
month.
Any such following discrepancies should be noted & reported:
Debit Balance in Income head & Credit balance in Expenditure head.
Abnormal transactions occurred during the month
Revenue vs. Capital expenditure
Any other uncommon features.
KNMA & ASSOCIATES.
88. REVENUE LEAKAGE
BUDGETARY ANALYSIS:
Auditor should compare the ACTUALS vs. BUDGETARY TARGETS of
the Branch.
Any sudden spurt or fall should be examined & discussed with the
branch official.
This analysis is applicable both for Revenue items & Advances-
deposits items.
KNMA & ASSOCIATES.
89. OTHER KEY AREAS
TDS & SERVICE TAX:
With respect to TDS, auditor should verify the following:
TDS on Interest paid on Fixed deposits have been properly deducted.
Form 15G/H have duly obtained & submitted for applicable cases.
TDS made on other applicable expenses such as Rent, Professional charges,
etc. should be examined.
Whether TDS deducted is remitted within due date (i.e, 7th of next month)
Quarterly TDS return has been filed.
Form 16A has been given to respective deductees.
KNMA & ASSOCIATES.
90. OTHER KEY AREAS
TDS & SERVICE TAX:
With respect to SERVICE TAX, auditor should verify the following:
Service tax collected on incomes such as Processing charges, Charges on
Specific services rendered have been done at Statutory rate of tax.
ST collected have been remitted within due date (i.e. 6th of next month)
Half yearly return have been filed properly.
KNMA & ASSOCIATES.
91. OTHER KEY AREAS
STAFF MATTERS:
With respect to Staff, the Bank gives various concessions &
privileges to be enjoyed by them in banking operations.
Also, each staff enjoys certain administrative powers based on the
position of Duty.
Hence, it is possible that he/she may misuse the powers assigned to
them.
Thus, Auditor has the scope of verifying the Accounts & other
operations of the Staff.
KNMA & ASSOCIATES.
92. OTHER KEY AREAS
STAFF MATTERS:
Salary & other allowances to Staff are controlled directly by the
higher authority. Hence it is OUT OF AUDIT SCOPE.
Auditor should scrutinize the Bank accounts of the Staff maintained
in the respective branch so as to ensure that:
No Abnormal or Unrelated transactions are recorded frequently in their
account.
Staff does not misuse their powers to indulge in frauds or other serious
issues.
Auditor should verify each & every staff accounts in this respect.
KNMA & ASSOCIATES.
93. OTHER KEY AREAS
GOVERNMENT TRANSACTIONS:
Generally, Banks accepts & process Government challans thereby
acting as its Collecting agent.
Example of Transactions are:
Direct tax & Indirect tax collections
Pension payments for Government employees, etc.
For these transactions, they may/may not be given any commission
by the bank.
In case of commission being given, the auditor should check
whether the commission has been properly received & duly
accounted for.
KNMA & ASSOCIATES.
94. OTHER KEY AREAS
PENSION PAYMENTS:
For most government retired employees, Bank acts as collecting agent
for the pension paid by the government.
The government directly credits the pension to the Bank account
provided by the employees.
For such function, the Bank has the following functions which the
auditor has to verify:
Obtaining & submitting promptly the Life Certificate & other prescribed
documents (once in a year)
Pension payment register & master is maintained.
Securing safely the Records such as Pension payment orders, Life certificate,
Nomination form, etc.,
KNMA & ASSOCIATES.
