Scope of Internal/Concurrent Audits of Banks

Concurrent Audit – on the spot examination of transactions & activities at very frequent intervals to assure substantive checking in key areas rather than test checking. In the present scenario, risk-prone area to be covered under concurrent audit.

After the recent Nirav Modi PNB Fraud and Vijay Mallya Case, a question has been put on the auditors, “Who will audit the auditors?” To nullify this requirement, determining the scope of Audit becomes a necessity.

In this Article, we have briefed the scope of a concurrent audit, which will be elaborated in the next articles.

  • The scope of Concurrent Audit
  • Generally, an auditor should cover all the areas of operations of the bank under Concurrent Audit.
  • Following are the areas, which are commonly found in the scope/guidelines issued by almost all the banks:
    • Surprise verification/ count of cash
    • Checking Cash retention limit and reporting the cases where cash has been exceeded such limits and branch dispose of the surplus cash.
    • The procedure of exchanging and disposing of mutilated notes should be followed as per RBI norms.
    • Whether registers relating to cash should be properly maintained.
    • Physical verification and safe custody verification of Postage Stamps and stamped documents/Adhesive Stamps.
    • Unusable or under stamped/torn stamps.
    • Physical verification of DD stock, pay order, chequebook stock, F.D. receipt, etc & Checking whether they are kept in lock & key or not. Reporting of Non Usable Stock.
    • Verify whether Security Alarm is properly working or not.
    • Opening & Operations of Deposits Accounts: –
      • 100% Checking of Account Opening forms & Compliance of KYC Norms as per RBI.
      • Operation in newly opened accounts to be verified for large deposits and withdrawals.
      • Debit balances in savings and current accounts.
      • The issue of Cheque Books.
      • Stop Payment Instructions.
      • Nomination for Deposits/Lockers to be verified.
      • Cheque Return Register Checking.

 

  • Voucher Verification
    • Vouchers to be properly prepared and authorised and summary sheets to be verified with vouchers & are signed by the officer verifying the same.
    • Vouchers are stitched, bundled, and properly stored.

 

  • Safe Deposit Lockers
    • Locker application is properly obtained and stamped as required.
    • Branch maintains access visit register.
    • Letters for the surrender of the locker are properly verified & changing of locks when lockers are surrendered and reissued.
    • Locker rent register for rent dues is properly maintained.
    • Deposit amounts are obtained as per Head Office circulars.
    • Notices are affixed on lockers and hirer should not be given access to locker if the locker rents are in arrears.

 

  • Advances
    • All pre Sanction and post sanction formalities issued by HO are to be checked for verification of Advances.
    • Sanctioning is on records and contains all factual information and Disbursement checking
    • All Prescribed documents are obtained and are properly filled up.
    • Creation of security
    • Registration of Banks charge – Banks charge is registered with ROC within 30 days from the date of disbursement.

 

  • Bank Guarantee
    • Two types: Performance and Financial.
    • Proper sanction, Proper commission charged adequate security margin & Proper procedure for issue / renewal.
    • Liability register is maintained.
    • Margin by way of Term Deposit is discharged and lien marked.
    • Proper follow up in case of expired guarantees.

In this Article, we Have Discussed some of the aspects of the scope of Internal/concurrent audit of banks which will be further discussed later on.

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