2014 Jayaraman & Krishna Chartered Accountants A.G. Harish Kumar Article Assistant 9994006960
Concurrent Audit in Banks An Overview
This Document discusses about the areas to be covered while conducting a concurrent audit. Highlight of this document is that, this is based on the point wise approach and detailed check lists are provided for each areas of the audit.
CONCURRENT AUDIT IN BANKS
March 5, 2014
CONCURRENT AUDIT Concurrent Audit is a systematic process by which the day to day operations of the banks are monitored by qualified persons, to ensure that the activities done are according to the prescribed circulars in force and within powers of the authorities, to ensure that no mistakes and frauds are committed in exercising the powers. The person who conducts the concurrent audit is called as Concurrent auditor. It is a method of Internal Control by which the functioning of branches is monitored by external persons.
The areas to be covered under concurrent auditor are as follows 1) 2) 3) 4) 5)
Checking Revenue leakage Checking KYC norms Checking Cash Jewel Loan Verification Checking the Loans and advances
Checking Revenue leakage: Revenue leakage to the bank means either short fall or omission in collection of the charges to be recovered from the client for the services rendered and facilities provided. It may also due to difference in interest rates also.
Areas where revenue leakage occurs are as follows 1) 2) 3) 4) 5) 6) 7)
Short Collection of Processing Charges for new loans Non Collection of processing charges for lapses period in case of Cash credit accounts Equitable Mortgage Charges Difference in Interest rates Charged for loan facilities Additional interest for adhoc limits in case of Cash Credit accounts Additional interest for excess over limits case of Cash credit accounts Not charging of Penal interest for non-submission or late submission of stock statements and quarterly book debts statements 8) Additional interest for non-submission of external rating in case of Cash credit accounts as per terms and conditions. 9) Non collection of commission in case of issue of Bank Guarantees. 10) Locker rent arrears
A.G. Harish Kumar
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CONCURRENT AUDIT IN BANKS
March 5, 2014
Checking for KYC norms: KYC – Know Your Customer is a policy framed and implemented by the Reserve Bank of India (RBI) to eliminate the money laundering and organize the accounts opened in banks. It makes strict rules as to the supporting documents which are needed to be provided compulsorily while opening the accounts. It’s the duty of the concurrent auditor to check the accounts opened in a branch during a particular month and certify that the accounts opened are according to the KYC norms only and no deviations made.
Areas to be checked for the KYC norms 1) 2) 3) 4) 5) 6) 7) 8) 9)
Address Proof ID Proof PAN card/Form 60 Photo of the person opening the account Introducer Signature Authorized Signature of a bank official to open the account. RC copy in case of opening Current account Partnership deep in case of the opening name in the name of the firm MoA and AoA and Resolution of board authorizing to open the account in the name of the company 10) In case of minor children, details of guardian to be provided.
Checking of Cash: Cash verification is a process of verifying the cash balance in bank on any day in a surprise manner. This acts as $a moral check on the clerical officers & prevents frauds.
Process of Cash Verification: 1) 2) 3) 4)
Cash can be verified either with the closing balance or opening balance Cash register to be checked to find out the actual cash balance Physical verification of the till cash and reserve cash if any to be verified In case of any shortage found, it must be reported.
Jewel Packets verification: Jewel verification is a process by which the numbers of packets as per the control register and the actual packets in the safe lockers are physically verified and cross checked with the outstanding number of loans as per the system.
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CONCURRENT AUDIT IN BANKS
March 5, 2014
Checking of Loans and advances: Loans and advances are the major areas of bank which needs utmost attention of the concurrent auditors as this area involves the high element of risk.
Loans may be categorized under the following heads. 1) Business Purpose 2) Personal Purpose
Business Purpose Loans: These types of loan facilities are designed to cater the need of business people and business needs. It may be further be classified into 1) Fund Based facilities 2) Non-Fund Based facilities. Fund-Based Facilities: 1) Open cash credit 2) Secured Over draft 3) Term loans for purchase of Machinery or commercial vehicles.
Check list for OCC/SOD accounts: 1) In case of proprietorship business check for the RC copy 2) In case of Partnership business check for the Partnership deed and ensure that the partnership is registered 3) In case of companies MoA, AoA, Certificate of incorporation, Certificate of commencement of business in case of public limited companies 4) Check whether the stock statements are submitted by the party regularly 5) Check whether any excess is permitted in the accounts. In case any frequent excess is allowed verify for Regional Confirmation and report the same 6) Check whether any temporary over drafts are allowed in the current accounts 7) Check whether the audited financial statements are given by the partier every year. 8) Check whether the CMA data is furnished by the party for review or renewal of limits 9) Check whether the drawing power entered by the branch is correct and as per the margin in sanction terms and conditions 10) Check whether the quarterly book debts statements, Quarterly performance statements are furnished by the party in time A.G. Harish Kumar
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CONCURRENT AUDIT IN BANKS
March 5, 2014
11) Check for the adequate insurance on the stock. 12) Check for the bank clause in the insurance policy document 13) Check for the godown address in the document whether correct or not 14) In case of stock is stored in more than one godown those places also the be covered under the policy or floating insurance policy to be taken.
Check List for Term loan 1) 2) 3) 4)
Check for the quotation of the machinery of vehicle to be purchased Check whether the purchase receipt is available in the file in case of machineries Check whether the RC copy is available in case commercial vehicles Check whether adequate insurance cover has been available for the value of machineries and the vehicle
Non-Fund Based facilities: 1) Bank Guarantees 2) Letter of Credit
Check list for BGs and LCs: 1) Check for the BG commission whether collected as per the service charges circular 2) Check for the BGs expired are reversed in time properly 3) Check whether BG margin is kept as deposits
Personal Loans: 1) 2) 3) 4) 5) 6)
Housing loans Vehicle loans Salary loans Pension loan Loan against deposits Jewel Loan
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CONCURRENT AUDIT IN BANKS
March 5, 2014
Check List for Loan Against Fixed assets Name of the Client Constitution Loan Party Line of Activity personal & Sector Business Address for Communication Details Address of the Office/Manufacturing Unit Address of the Stock yard/Godown Mobile Number Type of Facility Limit Sanctioned Rate of Interest for the product Loan Details Rate of Interest as per sanction Rate of Interest as per system
Collateral property Check list
Document Check list
Insurance Details Revenue Details Others
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Original Document of the property Sale Deed Legal Opinion Valuation Report Upto Date EC with bank clause MoD Date Supplementary MoD in case of enhancement of limits EM Date Central Registry Insurance of the Property in case of Building Insurance of Stock in case of OCC Insurance of Machinery for Term Loan EM Charges Processing Charges Search Report in case of companies Vetting of the Document in case of limits above 1 crore Second Valuation report for the properties in case of Value above 50lakhs Second Legal Opinion in case of property Value of above 50 lakhs
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CONCURRENT AUDIT IN BANKS
March 5, 2014
Important Registers to be maintained in the Branch: 1) 2) 3) 4) 5)
Drawing Power register EM register Insurance register Document Execution Register Property Inspection Register
Conclusion: These are the important areas which a person conducting concurrent audit must verify for the compliance of the terms and conditions and to ensure that nothing in the branch is misappropriated either by mistake or due to fraud based on which the report is to be prepared and submitted to Zonal Office/Regional Office/Inspectorate of the respective banks.
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