CONCURRENT AUDIT OF BANKS BY CA KUMAR GAURAV Cakumar.gaurav@gmail.com/9350514064

Appointment Letter What the appointing authority expects from us, say for example some of the banks like Bank of Maharashtra doesn’t expect the Concurrent Auditors to perform Unit Visit while most of the other banks require the same. Composition of the Audit Team Days of Attendance of the Audit team Minimum visits of the Partners Report to be submitted to whom and when

Other Compliances Peer Review Board compliance: What the Institute expects from us considering Peer Review for performing Attest functions and compliance with Standards on Auditing while performing Audit. Documents which needs to be kept in Working Paper File. Compliance with RBI’s Master Circulars and Circulars/Notifications issued otherwise

Know Your Branch Whether Branch is doing Forex business, Government Business? Power of Branch Head in terms of Lending (Fund Based/Non Fund Based), Granting TOD/Excess, Expenses Targets of the Branch in terms of Advances, Deposits, NPA Recovery, Priority Sector Lending etc.

One of the major Focal Point of RBI: KYC Why the KYC: RBI (principal Regulator) is focusing heavily on KYC compliance as it is required to be complied with and is in consonance with Prevention of Money Laundering Act’2002 and Anti Money Laundering measures. RBI Policy requirements: Customer Acceptance Policy Customer Identification Procedures Monitoring of Transactions Risk Management

Bank’s Policy with KYC Latest Photograph ID Proof Address Proof PAN/Form 60 Account Opening Form properly authorized Risk Classification Fixing Threshold limit for new accounts as per Risk classification and feeding the same into system Monitoring of Transactions as per RBI Guidelines like ` 10 Lacs cash transaction limit, breach of threshold limit or series of transactions together

Nature of Returns Submitted Flash Report Advances Sanction List TOD/EOD Statement B.P/B.D Statement B.P/B.D Returned Unpaid Statement Compliance of Audit reports like Statutory Audit, Internal Inspection,          Surprise Inspection, RBI Inspection, Credit Audit, FOREX Audit or          Concurrent Audit TDS Return Service Tax Return

Registers to be maintained Register of adhoc/temporary sanction Register of suit filed accounts Guarantee issued register Proposal sanctioned register Irregularities pointed out in previous RBI/LFAR/Inspection reports are not rectified. Poor follow up of NPA / suit filed / decreed accounts

Management Representation As some of the banks require some certificates from the Auditors and everything cannot be checked by us, so safeguard yourselves by obtaining a MR in relation to that which could relate to the following: We hereby certify that no fraud, irregularities or serious fraud has occurred during the current month Only clean and unstapled notes are issued to the public and accepted as well No writing is done on the watermark portion of the notes. Staples, Adhesives are not used to secure notes

Cont…. We certify that we do exchange the soiled and mutilated notes when customer asks for the same We accept Ashoka Pillar notes but do not issue them to public, instead remit them to RBI We stamp on the forged notes and impound the same, issue a receipt to the Customer and then lodge a FIR with simultaneous forwarding to the nearest Police station. We also send a report in this regard to the Forged Notes Vigilance Cell along with a copy of the FIR. We have the Ultra Violate Machine for detection of fake notes and this is used for detection as well. We have correctly collected service tax on various customer services and transferred the same to G/L Service Tax payable

Revenue Leakage Possible points of Revenue Leakage could be: Process fee for adhoc limit is being levied. Levying of 1% additional interest above the applicable rate in case of adhoc sanctions under BO/RO/HO powers. Penal Interest for late submission of stock statement. Inspection charges as per policy of the bank. Process fee on pro-rata basis is being charged w.e.f the date of expiry of limit to the date of review/renewal.

Cont…. Appropriate charging of Commission on LC, BG etc. Folio Charges at year end. Processing charges. Documentation charges. Cheque returning charges. Cash handling charges (if applicable). Non maintenance of minimum balance. Against Clearing Charges(If it is the policy of the bank) TOD/Excess charges In case of CC/OD A/cs, penal interest for returning of Cheque must be charged by the bank.

Legal Compliances Frauds detected must be reported in Flash report. Deduction & Depositing of TDS must be correctly done. TDS returns to be checked. Insurance cover of Cash-in-hand and Cash-in-transit. Observance of KYC/AML guidelines. Whether cash transactions of Rs. 10lacs or above are noted and reported to Controlling Authority well in time. FBT, TDS, Service Tax, Unit Visit (Important) Compliances of Bank Circulars, RBI Notifications & Guidelines etc.

Unit Visit overview Before going for unit visit, read all the documents available with the bank and terms & conditions of sanction and check whether all the conditions are complied with. Management personnel who was available at the unit. Name Plate of the bank at main gate. Whether the unit is working? Whether the stock register is maintained & updated, if yes take a copy of the same. Books of accounts updated till which date, a copy of trial balance is to be obtained. Whether physical stock is APPARENTLY the same as what is appearing in the stock register. Take a receiving of the stock statement and trial balance supplied by them.

Foreign Exchange Verify the foreign bills purchased and collection period thereof. Check whether calculation of FCNR interest is on 360 day basis and is credited to deposit accounts. In case of forex dealing branches, form A1, A2 and Bill of Entry to be checked thoroughly. PC is to be adjusted only through export proceeds. R return register are to be sent to RBI in time.

Operational Part Generation of End of day reports/statements, exceptional reports and authentication of the same by the branch head. Matters relating to secrecy of passwords, locking of passwords on someone’s leave, deleting the user after his relieving etc... Whether ATM card & PIN are with two different personnel to ensure Dual Control Mechanism. Check Overdue in case of Locker Rent. Whether Security forms are under Independent Dual Control? Verify stock of security forms with the physical ones.

Cont…. Inward/Outward chq returning charges to be debited. Look for TODs/Excess in case of Saving/Current accounts. Check whether any difference in clearing has been adjusted by debit/ credit to an intermediary suspense account instead of locating the difference. Suspicious transactions in staff accounts. Cash Payments of sizeable expenditure are to be scrutinized thoroughly. No DD/PO is made in cash of above Rs. 50,000/- No payment is made in excess of Rs. 20,000/- in case of repayment of Demand Deposits. Proper accounting of Inward/Outward remittances is done or not? Income from fund based and non fund based advances are to be shown separately.

Cont…. Comments on revenue & Capital expenditure (vouchers to be signed doubly). Exceptional transactions in case of sundry charges. Ensure all transactions which are system generated must accompany by a corresponding debit & credit slip and properly initialed by a branch official. Check for presence of any soiled/mutilated notes. Complaint register is to be maintained at branch level and no complaints should be pending. Non submission of Control returns for more than a month is to be reported in Flash Report. Guarantees invoked during the month to be noted.

Cont…. Due date diary of following is to be maintained : Insurance Renewal Drawing Power Cheque Purchase register must be there and it must be within branch powers, Realisation of same must be made in appropriate time.

General Points During the opening of branch, was the official key holders of cash were actually present along with Branch Head? While opening of strong room was Guard present and also the main gate remains locked? Does the citizens charter is displayed in the bank premises? Rate of Interest offered on Deposits and Interest on advances are displayed prominently and also updated. Name of the Bank’s Ombudsman along with his contact details are displayed. Addresses and Contact details of concerned Regional & Zonal offices are also to be mentioned.

Cont…. Notice regarding acceptance of old notes and coins to be displayed near the cash counter. Cash/Cheque deposit forms are readily available to customers. List of Service Charges are to be displayed at branch premises. Latest circulars are to be displayed at branch and also the concerned department also needs to be informed with it. While opening new account, the customer must be informed with all the service charges. Persisting Irregularities: Always look for any irregularity which has not been complied with till the next report is to be mentioned in the current month.