BARODA BRANCH OF WIRC OF ICAI - STUDY CIRCLE MEETING Date : 28/04/2015 Bank Concurrent Audit
41
CONCURRENT AUDIT OF BANK By CA SUNITA SONI & CA ALTAF GOHIL BARODA BRANCH OF WIRC OF ICAI - STUDY CIRCLE MEETING Date : 28/04/2015 Bank Concurrent Audit (ADVANCES,OPERATIONS & REVENUE LEAKAGES)
BARODA BRANCH OF WIRC OF ICAI - STUDY CIRCLE MEETING Date : 28/04/2015 Bank Concurrent Audit
BARODA BRANCH OF WIRC OF ICAI - STUDY CIRCLE MEETING Date :
28/04/2015 Bank Concurrent Audit
Slide 2
INTRODUCTION 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 up gradation of the working of the bank. Bank Concurrent
Audit
Slide 3
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.
Thus early detection of irregularities and lapses by concurrent
auditors will help in preventing fraudulent practices of at
branches. ( Third Eye ) Bank Concurrent Audit
Slide 4
GENERAL AUDIT PROCEDURE Bank Concurrent Audit 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
Slide 5
ON SITE : Bank Concurrent Audit 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. Application of Interest
(received/paid) for all the accounts.
Slide 6
Bank Concurrent Audit 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(15G/15H) & Service tax (Remittances & Returns), Monthly
& Quarterly returns & Certificates submitted to the
Controlling office, etc., 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. ON SITE :
Slide 7
Bank Concurrent Audit 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. 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. OFF SITE :
Slide 8
COVERAGE Advances Reven ue Leakag es Operations Bank Concurrent
Audit
Slide 9
ESSENTIAL DOCUMENTS & OTHER RECORDS : BEFORE STARTING THE
AUDIT Bank Concurrent Audit BOOKS OF INSTRUCTIONS Rules regarding
Operations & Functioning MANUAL OF DOCUMENTATION Advances &
Deposits. LOAN POLICY DOCUMENT Objectives & Stipulations for
each financial year. MANAGERS 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 Banks website or Intranet.
Slide 10
ESSENTIAL DOCUMENTS & OTHER RECORDS : BEFORE STARTING THE
AUDIT Bank Concurrent Audit 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
Slide 11
ADVANCES IMPORTANT TECHNICAL TERMS Bank Concurrent Audit
Mortgage Equitable mortgage Simple Mortgage or Registered Mortgage
It is just Depositing of Original Title deeds to the Property with
the Bank. It is a proper mortgage where it is registered in the
name of the Bank. Hence, The Banks name is not official registered,
even though Property cannot be sold Hence, The borrower cannot
dispose of this property without Banks permission
Slide 12
Bank Concurrent Audit In case of default in payment. Bank can
sell the property as the Mortgage deed mentions it. Bank requires
courts permission. To sell the property. Simple mortgage Deed is
registered in Sub Registrar Office EM is notarized with Notary
Public. Simple mortgage is done when Property is obtained as
primary security EM is done when property is obtained as collateral
security
Slide 13
Bank Concurrent Audit 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., PLEDGE OR LIEN: Pledge or Lien is surrendering of the
Security to the banks control for the loan. Hence, the Bank have
100% control over the asset. Ex: Jewel Loan, Loan against
deposits
Slide 14
Verification of Advances Bank Concurrent Audit FUND BASED &
NON-FUND BASED ADVANCES 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
Slide 15
Bank Concurrent Audit The following are steps followed by banks
in sanctioning a Credit facility: Appraisal : Theoretical working
of the eligible amount based on the application form and attached
papers like income proof, KYC, Project Report. Pre-sanction : Pre
sanction visits & due diligence. Documentation : Prescribed by
Bank. Post-sanction compliances : Post sanction visits, Vetting of
documents. Periodical assessing of the Working of the Account :
Insurance, Stock, MIS, Turnover in the account.
Slide 16
Bank Concurrent Audit PERIODICAL ASSESSMENT OF THE LOAN
ACCOUNT:- FRESH OR RENEWED 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.
Slide 17
Bank Concurrent Audit 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.
Slide 18
Bank Concurrent Audit 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: Housing
Loan & Loan against bank deposits) Vetting of Documents by
Advocate or Legal Department (may be prescribed for loans beyond
certain limit) Year end or Qtr end entries are passed in CC
accounts to Current Accounts.
Slide 19
Bank Concurrent Audit 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.
Slide 20
Bank Concurrent Audit Cash credit (CC)/Overdraft loans accounts
are distinct from Other type of loan accounts due to following
reasons: The Credits in this account should be sufficient enough to
at least service the Interest debited. Internal / External credit
rating of the accounts. Every month Bank fixes the Drawing power
periodically (mostly monthly) for this account. CC/OD ACCOUNTS
SPECIAL POINTS
Slide 21
Bank Concurrent Audit VERIFICATION OF DRAWING POWER 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. if Limit DP Max Amount= DP
Slide 22
Bank Concurrent Audit The Auditor has to analyse whether DP has
been properly calculated. For this, he has to analyse the
following: STOCK STATEMENT & DEBTOR STATEMENT. STOCK VALUELESS:
CREDITORS FOR STOCKLESS : STOCK UNDER LCLESS: MARGINDRAWING POWER
AS PER STOCK DEBTORS VALUELESS: DEBTORS AGING MORE THAN 90
DAYSLESS: MARGINDRAWING POWER AS PER DEBTORS
Slide 23
Bank Concurrent Audit 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.
Slide 24
Bank Concurrent Audit 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. Additional interest
has been charged or not.
Slide 25
Bank Concurrent Audit LABOD/ODBOD:- Difference between
LABOD/ODBOD ? LABOD is Like Term Loan with equated repayment terms
and OD BOD is like CC a/c repayable only on Demand. Auditor has to
verify whether: Documentation part. Rate of Interest, generally 1%
excess on FDR Interest. Verification of ROI in case of renewal of
FDR. Lien mark on FDR. Lien mark once again whenever the FDs are
renewed.
Slide 26
Bank Concurrent Audit Important points related to BG & LC:-
Difference between BG & LC ? Auditor has to verify :
Documentation part. Commission, Amendment & Extension charges.
Bill discounting against LC. Margin for issuance of BG & LC.
Reversal & Closure of BG. Invoke BG & Devolment of LC.
Slide 27
Bank Concurrent Audit VERIFICATION OF RETAIL & CROP LOAN
Following points kept in mind by the auditor for verification of
Retail & Crop Loan :- Retail Loan Bank has complied all the
terms & conditions as per sanction. It includes Vehicle Loan,
Housing Loan, Personnel Loan etc. In case of vehicle loan RC Book
copy required with HP clause in the favor of bank. In case of
Housing loan : Mortgage & registration there of. Insurance
policy in favor of bank. Post Inspection report after the
disbursement of the loan. Rate of interest, levy of processing
& documentation charges.
Slide 28
Bank Concurrent Audit VERIFICATION OF RETAIL & CROP LOAN
Crop loan has to be repaid within one year if not repaid than
subsidy is not available and also ROI is charged on higher site.
Rate of interest, levy of processing & documentation charges.
Generally a charge is created on the Land with Talati (Noted in
7/12 form) Crop Loan
Slide 29
Bank Concurrent Audit Revenue Leakages
Slide 30
Bank Concurrent Audit Income Interest from Loans Processing
Charges Penal Charges Commission Locker Rents Other Service Charges
Expenditure Interest Paid on Deposits Rent & Telephone Printing
& Stationery Charges Travelling Exp. Other Operating Exp.
Slide 31
Bank Concurrent Audit 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.
Slide 32
Bank Concurrent Audit Income Leakage : Common Reasons Interest
rate wrongly keyed in the CBS Changes done in the Interest rates
without Authorisation Interest debited not serviced. Interest on
Loans Mistake in the calculation of Processing charges Non-recovery
or Under recovery of PC PROCESSING CHARGES Omission to collect it
properly. Mistake in calculating the correct amount. OTHER INCOMES
Check with the Branch about the charges collected in system and
those manually Collected. Otherwise there will be double leavy of
charges. Eg. Charges for non receipt of stock statement are auto
collected as penal interest. Mannual charges are eg. Insepction
charges, Standing Instruction charges etc. Manually Collected
Charges
Slide 33
Bank Concurrent Audit Expenditure Leakage : Common Reasons
Interest rate wrongly keyed in the CBS Changes done in the Interest
rates without Authorisation INTERST PAID ON DEPOSITS Incurring
expenditure over & above the powers of the Manager. Incurring
without proper bills & vouchers. Unreasonable amount Accounting
Errors: Capital & revenue, A/C heads OPERATING & OTHER
EXPENSES
Slide 34
Bank Concurrent Audit Verification of Other Operational Areas
Deposits : - Key aspects and their Verification In the deposits
accounts, the auditor has to verify the following things: Account
Opening FormsAdherence to KYC guidelines In case o f large
deposits, follow due diligence practices to confirm the income
source. Take permissions of Higher authorities for large
depositsConduct in the Newly opened AccountsInoperative
Accounts
Slide 35
Bank Concurrent Audit ATM CARDS & PIN: Auditor Should
verify whether :- Register of Debit cards and PINs are maintained
recording the date of receipt related a/c no., date of delivery,
signature of a/c holder are verified before delivery to
customers.(Any letter of authority given to 3 rd person for
collecting cards or pins is strictly prohibited.) Debit cards and
PINs are handled by separate officers. Debit cards are blocked and
PINs are destroyed as per guidelines. ALTERNATE DELIVERY
CHALLANS
Slide 36
Bank Concurrent Audit 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. House Keeping
Slide 37
Bank Concurrent Audit Stationery Items: 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. The same should be tallied with the system. House
Keeping
Slide 38
Bank Concurrent Audit Sensitive Entries: Auditor should examine
the following sensitive Accounts :- Sundry Deposits Account Sundry
Creditors Account Suspense Account Proxy Accounts Check for manual
entries in these accounts Migration Account Special Debits A/c with
other Banks House Keeping
Slide 39
Bank Concurrent Audit LOCKER MAINTENANCE: Auditor should verify
whether: Locker Accessing Register are signed by customer before
operating the locker. Locker rent is collected each year as per
Locker sizes 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. House
Keeping
Slide 40
Bank Concurrent Audit Report Generation: Auditor should verify
and report whether branch is mandatorily generate the following
reports on daily basis and maintaining a copy duly authorised by
the Branch head on records: Supplementary Cash Book Exceptional
Transaction Inter Sol Transaction Administration Part