1. CONCURRENT AUDIT OF BANK
(ADVANCES,OPERATIONS & REVENUE Leakages) By
Ca SUNITA SONI
&
CA ALTAF GOHIL
Bank Concurrent Audit
BARODA BRANCH OF WIRC OF ICAI - STUDY CIRCLE MEETING Date : 28/04/2015
Bank Concurrent Audit

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

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

4. GENERAL AUDIT PROCEDURE
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
Bank Concurrent Audit

5. ON – SITE : 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.
Bank Concurrent Audit

6. ON – SITE :
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.
Bank Concurrent Audit

7. OFF – SITE :
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.
Bank Concurrent Audit

8. COVERAGE
Advances
Revenue Leakages
Operations
Bank Concurrent Audit

9. ESSENTIAL DOCUMENTS & OTHER RECORDS : BEFORE STARTING THE AUDIT
BOOKS OF INSTRUCTIONS – Rules regarding Operations & Functioning
MANUAL OF DOCUMENTATION – Advances & Deposits.
LOAN POLICY DOCUMENT – Objectives & Stipulations for each financial year.
MANAGER’S 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 Bank’s website or Intranet.
Bank Concurrent Audit

10. ESSENTIAL DOCUMENTS & OTHER RECORDS : BEFORE STARTING THE 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
Bank Concurrent Audit

11. ADVANCES IMPORTANT TECHNICAL TERMS
Mortgage
Simple Mortgage or Registered Mortgage
Equitable mortgage
It is a proper mortgage where it is registered in the name of the Bank.
It is just Depositing of Original Title deeds to the Property with the Bank.
Hence, The borrower cannot dispose of this property without Bank’s permission
Hence, The Bank’s name is not official registered, even though Property cannot be sold
Bank Concurrent Audit

12. Simple mortgage is done when Property is obtained as primary security
EM is done when property is obtained as collateral security
Simple mortgage Deed is registered in Sub Registrar Office
EM is notarized with
Notary Public.
In case of default in payment. Bank can sell the property as the Mortgage deed mentions it.
Bank requires court’s permission. To sell the property.
Bank Concurrent Audit

13. Unlike Mortgage, there are no Stringent Procedures to be followed.
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 bank’s control for the loan.
Hence, the Bank have 100% control over the asset.
Ex: Jewel Loan, Loan against deposits
Bank Concurrent Audit

14. Verification of Advances
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
Bank Concurrent Audit

15. Pre-sanction : Pre sanction visits & due diligence.
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.
Bank Concurrent Audit

16. 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.
Bank Concurrent Audit

17. 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.
Bank Concurrent Audit

18. 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.
Bank Concurrent Audit

19. 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.
Bank Concurrent Audit

20. CC/OD ACCOUNTS – SPECIAL POINTS
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.
Bank Concurrent Audit

21. 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.
Max Amount= Limit
if Limit >DP
Max Amount= DP
if Limit <DP
Bank Concurrent Audit

22. The Auditor has to analyse whether DP has been properly calculated.
For this, he has to analyse the following: STOCK STATEMENT & DEBTOR STATEMENT.
DEBTORS VALUE
LESS: DEBTORS AGING MORE THAN 90 DAYS
LESS: MARGIN
DRAWING POWER AS PER DEBTORS
STOCK VALUE
LESS: CREDITORS FOR STOCK
LESS : STOCK UNDER LC
LESS: MARGIN
DRAWING POWER AS PER STOCK
Bank Concurrent Audit

23. UNPAID STOCKS should be reduced for the computation.
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.
Bank Concurrent Audit

24. 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.
Bank Concurrent Audit

25. 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.
Bank Concurrent Audit

26. 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.
Bank Concurrent Audit

27. 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.
Bank Concurrent Audit

28. 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)
Bank Concurrent Audit

29. Revenue Leakages
Bank Concurrent Audit

30. Interest Paid on Deposits
Interest from Loans
Interest Paid on Deposits
Processing Charges
Rent & Telephone
Penal Charges
Printing & Stationery Charges
Income
Expenditure
Commission
Travelling Exp.
Locker Rents
Other Operating Exp.
Other Service Charges
Bank Concurrent Audit

31. 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.
Bank Concurrent Audit

32. Manually Collected Charges
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
Bank Concurrent Audit

33. INTERST PAID ON DEPOSITS
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
Bank Concurrent Audit

34. 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 Forms
Adherence 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 deposits
Conduct in the Newly opened Accounts
Inoperative Accounts
Bank Concurrent Audit

35. ALTERNATE DELIVERY CHALLANS
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 3rd 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.
Bank Concurrent Audit

36. House Keeping 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.
Bank Concurrent Audit

37. House Keeping 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.
Bank Concurrent Audit

38. House Keeping 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
Bank Concurrent Audit

39. House Keeping 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.
Bank Concurrent Audit

40. Administration Part 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
Bank Concurrent Audit

41. Thank You
Bank Concurrent Audit