CONCURRENT AUDIT IN BANKS
Concurrent Audit means checking of day to day transactions. The concurrent auditor's main task is to check the correctness and accuracy of the voucher and documentation.
OBJECTIVES
The system of Concurrent Audit was introduced mainly with the following objectives:
1) To keep the routine work of the branch under continuous check so as to supplement the HO/RO’s efforts in ensuring proper controls over critical and sensitive areas of the branch functioning.
2) To ensure that violations, if any, of the procedures of the Bank, are brought to the notice of the management so as to ensure timely corrective and remedial action and sustenance of the same.
3) To tone up the house-keeping at branches, particularly in large/very large branches, where due to sheer size, the internal control systems could become weak.
4) To capture the application and effectiveness of risk management procedures and risk assessment techniques in arriving at the RISK PROFILE which will determine the strengths and weaknesses of the branch in all areas of operations on the basis of which corrective and remedial measures can be put in place by the management.
System of Concurrent Audit in Banks was introduced by RBI in Oct 1993 pursuant to the recommendation of the Ghosh committee on Frauds & Malpractices in Banks.
With changing scenario, role of concurrent audit has become very crucial & important for banks. Particularly for timely detection of irregularities & lapses, which help in minimisation of irregularities as well as prevention of frauds.
On 26th Sept., 2012, a new Master Circular no. F. No. 7/124/2012-BOA has been issued, by the Govt. of India, Ministry of Finance giving guidelines / instructions to Public Sector Banks on Audit Systems
The Govt. had appointed a Committee under the Chairmanship of Mr. Basant Seth, ex CMD of Syndicate Bank to address the issues. The Committee has submitted its’ Report to the Govt. outlining the urgent need to address some of the areas of concerns
1. In spite of regular audits being conducted by CA Firms, frauds & revenue leakages could not be contained / detected
2. The remuneration paid to the CA Firms for conducting Concurrent Audits is not at par with the skill set required and the quantum of time to be spent
3. System of appointing Concurrent Auditors is arbitrary and there is a casual approach of the Banks in this regard.
There is urgent need to streamline the Internal Audit System, to make Concurrent Audits more effective by making them Risk based and to enhance the role of Information System Audit considering the fact that major frauds are now IT related. It is submitted by the Committee that the Statutory Audits have become routine and are not effective in the CBS era. Based on the Report, the Govt. has issued the Circular outlining guiding principles in respect of Internal, Concurrent and Branch Statutory Audits and has directed the Chairmen of PSBs to implement the Guidelines immediately, by suitably adapting them to their particular organization. The Circular, while listing out General Guiding Principles in respect of various audits being conducted in PSBs, also lists out separate Guiding Principles in respect of Risk Based Internal Audit, Information Systems Audits & Concurrent Audit. While stressing the need to streamline the number of audits by strengthening the Internal Audit & Concurrent Audit, the Circular expects that this would not only lead to improvement in the quality of audits and reduction in the overall cost of audits to the Banks but would also lead to phasing out the existing Branch Statutory Audit System
The Circular advises the Banks:
1. To form Audit Committee of Executives of General Managers at Central Level and Zonal Audit Committees at lower levels.
2. Such Audit Committees to work under the guidance of Audit Committee of the Board & to meet regularly, at least 6 times a year and minutes of their meetings to be put up before the ACB. High Risk Audit Reports and Critical Findings should be directly put up before the ACB.
3. The Banks should switch over to software based audit process.
4. The Audit & Inspection Dept. should be strengthened & should be adequately manned. For attracting better talent in the Audit Dept., HR Policies should be adequately modified.
5. Off-site Monitoring Cell to be set up in the Audit Department which should review the MIS on critical items on daily basis & apprise Top Management of serious irregularities, if any, immediately.
6. Banks to devise & implement suitable training programs for all the auditors, whether internal or concurrent.
7. Auditors to sign an undertaking containing the Do's & Don'ts.
Looking at the general guiding principles certain points become quite clear:
1. The Government is concerned about the multiplicity of audits conducted in banks which consumes huge amount of time and attention of the functionaries.
2. Although 70% of business of banks is covered by concurrent audit, it has not proved to be effective in containing frauds and irregularities. It is proposed to strengthen Concurrent Audit System by making it risk focused. It is also proposed to give training to concurrent auditors.
3. It is proposed to strengthen Audit and Inspection Department which is so far has been neglected function. It is proposed to appoint Chartered Accountants, Cost Accountants, CISAs, professionals having experience in banking functions. To attract talent, it is proposed to modify HR policy of banks. The important point here is government sees much larger role for Chartered Accountants in various banking functions, more particularly in Audit and Inspection Department which shows that huge untapped job opportunities are available in this sector for Chartered Accountants
The Circular has also laid out certain guiding principles in respect of Risk Based Internal Audit (RBIA), Information System Audit (ISA) and Concurrent Audit. As regards Risk Based Internal Audit, the Circular seeks to fix the periodicity of audits for high risk branches at 9-12 months, 12-15 months for medium risk branches and 15-18 months for low risk branches. It also advises that the Risk Based Internal Audit (RBIA) compliance should be done within 90 days of submission of the report and should not be delayed more than 120 days.
Further it seeks to streamline the process of appointment of Concurrent Auditors. To obtain quality services, the Circular advises the banks to enhance the fees payable for concurrent audit suitably. But at the same time seeks to make the audit performance based with inclusion of deterrent provisions in the Letter of Appointment for delayed submission of reports and unsatisfactory performance. Performance Review of Concurrent Auditors on annual basis would now become mandatory. The role of Concurrent Auditors is sought to be enhanced by transferring many of the functions of Statutory Branch Auditors to Concurrent Auditors including annual certifications.
APPOINTMENT & ACCOUNTABILITY AS PER RBI GUIDELINES:-
a) Any Bank’s own staff or a firm of Chartered Accountant’s can be engaged.
b) Both must be independent of branch where concurrent audit is being conducted.
c) Initially 1st year appointment done extendable upto 3 year’s & after that firm can be shifted to another branch.
d) On a/c of serious act of omission or commission noticed in their working fact may be reported to RBI & ICAI.
ELIGIBILITY CRITERIA GIVEN IN GENERAL FOR EMPANELMENT AS CONCURRENT AUDITOR BY BANKS
“ The CA Firms must meet the following eligibility requirements:
- It should be a company/ partnership firm with a standing of at least 5 years and sufficient experience of bank related audit work. It should preferably have undertaken Statutory Audit / Internal Audit / Concurrent Audit in SBI / Associate Banks / other Public Sector Banks.
- The Firm should have, as a partner, at least two FCAs for undertaking concurrent audit of branches upto scale – III, and at least three FCA partners for scale – IV & above branches. Such FCA partners should have been with the firm for at least two years in immediate past.
- The firm should have an office at the center/ city and for smaller towns within the District where our branches may be proposed to be covered under concurrent audit.
- Where there are common partners/ directors in more than one firm, only one of such firms may be empanelled.”
GENERAL TERMS OF APPOINTMENTS:
1) One audit firm shall not normally be assigned with more than one branch of the Bank for concurrent audit.
2) The audit firm should not engage or sub-contract to, any outside firm of Chartered Accountants/ other person/s the concurrent audit of the branch assigned to them, even though such person/s are qualified Chartered Accountant/s.
3) The team of auditors auditing the branch should be headed by qualified Chartered Accountant (Leader) and he/she shall visit the branch for the purpose of carrying out concurrent audit at least 15 working days in a month. He/She shall conduct the audit of all major areas of branch’s functioning and routine work connected with audit may be done by experienced assistants/article clerks under his/her (Leader) supervision.
4) The Auditor should adhere strictly to the time schedule of submission of the reports. The monthly concurrent audit report is to be submitted before 7th of succeeding month along with a certificate for having covered all the areas mentioned in the guidelines. Similarly the auditor must submit the quarterly report within 10th of succeeding month of the end of the quarter. Since position of rectification of audit findings is placed before Audit Committee of the Board periodically, non – submission of report within prescribed time schedule will attract adverse comments from Audit committee & may result in cancellation of your appointment without any notice.
5) During the course of audit if the auditor finds anything vulnerable to fraud or fraudulent activity or act of transgression of delegated authority or smell any foul play in any transaction, he/she should refer the matter directly to the Chairman & Managing Director of the Bank and the RBI. DBS (RBI, Central office Mumbai, if amount involved is Rs.100 lacs or more & RBI, Kolkata in other cases) through Special report
6) The appointment of Chartered Accountant shall be liable to be terminated, any time without assigning any reason, whatsoever.
Effective Concurrent Audit
Undernoted needs to be looked into
A. Scope of concurrent Audit
In case of general scope the auditor is required to cover all the areas. He has to report on the irregularities observed by him during the course of audit.
Following are the areas, which are commonly found in the scope/guidelines issued by almost all the banks:
1. Cash Verification:
a) Surprise verification of Cash.
b) Bundles of the cash should not be stapled.
c) Cash Retention Limit.
d) All the Registers relating to cash should be properly maintained and cross verification with BGL / CGL report if generated
e) Procedure of exchanging and disposing of mutilated notes should be followed.
f) Bait money maintained and verified
2. Postage Stamps and Stamped Documents/Adhesive Stamps:
a) Physical Verification.
b) Unusable or under stamped/torn stamps.
c) Stale Stamped Documents should also be reported.
d) Safe custody.
3. Sensitive Stock(DD stock, pay order, cheque book stock, F.D. receipt, etc) :
a) Physical Verification.
b) Instruments should be kept in lock and key.
c) Periodical verification should be carried out by the bank officials.
d) Non usable stock should be reported.
4. Security Alarm:
Verify that security alarm is properly working or not.
5. Opening of and operations in Deposit Accounts:
1. Account Opening forms:
Ø 100 % checking of account opening forms.
Ø Proper Account opening forms are used for appropriate accounts.
Ø Form should be completely filled up.
Ø Latest Photograph of the Depositor.
Ø Residential proof.
Ø Proper Introduction.
Ø Partnership Firm - Partnership deed.
Ø Companies - MOA, AOA, Resolution.
Ø Resolution in bank's format.
Ø Specimen signature - scanned and proper maintenance.
Ø Authentication by Bank Official.
Ø Copy of P.A.N. card or Declaration in Form No. 60/61.
2. Operation in deposit accounts:
Operation in newly opened accounts to be verified for large deposits and withdrawals.
3. Debit balances in savings and current accounts:
Ø Reasons for debit balance.
Ø Payment of statutory dues.
Ø Payment of LIC, Telephone, Electricity, Credit Cards etc.
Ø Debits in the accounts should be properly authorised.
4. Issue of Cheque Books:
Ø Proper procedure is followed for issuance of cheque books.
Ø Proper charges collected.
Ø Proper registers maintained.
Ø Necessary precautions for delivery of cheque book to third persons.
Ø Stocks are kept in Lock and key.
5. Nomination:
Ø Appropriate Nomination forms for Deposits, Lockers etc is to be verified.
Ø Nomination registers is maintained and updated.
Ø Signature of person making nomination to be verified.
6. Stop Payment Instructions:
Ø Instructions to be received in bank's format.
Ø Letters are properly filed and duly authenticated.
Ø Signature is duly verified.
Ø Stop payment register is maintained and updated.
Ø Proper charges are collected.
7. Cheque return register:
Ø Cheque return register is maintained and updated.
Ø Collection of charges.
6. Voucher Verification:
Ø All vouchers are properly prepared and authorised.
Ø Daily summary sheets are verified with vouchers.
Ø Daily Summary sheets are signed by the officer verifying the same with vouchers.
Ø Vouchers are stitched, bundled, and properly stored.
Ø Printed flap at the top of the bundle containing details like Date, no. of debit vouchers, no. of credit vouchers along with signature of the person scrutinizing the vouchers is done. Missing vouchers are identified and entered in the missing voucher register Missing vouchers should be traced or duplicate vouchers are prepared. Details of the same should be entered in the missing voucher register.
7. Safe Deposit Lockers:
Ø Locker application are properly obtained and stamped as required.
Ø Branch maintains access visit register.
Ø Letters for surrender of locker are properly verified.