Basic of Concurrent Audit

1. BANK CONCURRENT AUDIT General Audit Procedures, Methods

and Reporting byDINESH M, B.Com., A.C.A.PartnerKNMA &

ASSOCIATES, Chartered Accountants,Chennai.Email:

[email protected]

2. INTRODUCTION.

3. INTRODUCTIONBank Concurrent audit was introduced and

implemented primarily to attainthe following objectives: 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 upgradation of the working of the bank. KNMA &

ASSOCIATES.

4. INTRODUCTION 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.

KNMA & ASSOCIATES.

5. SCOPE OF CONCURRENT AUDIT KNMA & ASSOCIATES.

6. SCOPE OF CONCURRENT AUDIT Verification of Advances –

Appraisal, Pre-sanction Documentation Post-sanction Unit

inspection Review & Renewal, etc., Verification of Deposits –

New accounts opened including operations in SB/CA, Transactions

regarding Term deposits, KNMA & ASSOCIATES.

7. SCOPE OF CONCURRENT AUDIT Inoperative accounts, KYC

Norms, etc., Verification of House keeping – Cash Management,

Cheques & DDs, Vouchers, Periodical returns to Controlling office,

Maintenance of Specified Registers and Records KNMA &

ASSOCIATES.

8. SCOPE OF CONCURRENT AUDIT Sensitive stationeries,

Locker maintenance, etc., Verification of Revenue Leakage –

Identification of Under recovery & Excess recovery of Income &

Expenditure including Interest credited & paid, P&L Analysis,

Budgetary comparison, etc., KNMA & ASSOCIATES.

9. SCOPE OF CONCURRENT AUDIT Verification of FOREX

transactions – NRE/NRO/FCNR accounts, FCRA transactions,

Packing Credit, Foreign currency business, Submission of

Returns, etc., Verification of Other Key areas – TDS, Service tax,

Staff matters, Government transactions, etc., KNMA & ASSOCIATES.

10. DISCLAIMER KNMA & ASSOCIATES.

11. DISCLAIMER The Areas covered herein are ONLY GENERAL and

would be includedMOSTLY in concurrent audits of the All the banks.

There are also CERTAIN AREAS which may be covered exclusively by

Eachbank. Hence, the SPECIFIC AREAS would have to be examined

and understoodon CASE to CASE basis, subject to the requirement of

each bank. KNMA & ASSOCIATES.

12. GENERAL AUDIT PROCEDURE KNMA & ASSOCIATES.

13. 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 KNMA & ASSOCIATES.

14. GENERAL AUDIT PROCEDUREON-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. KNMA & ASSOCIATES.

15. GENERAL AUDIT PROCEDUREON-SITE: Application of Interest

(received/paid) for all the accounts. 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 & Service tax (Remittances & Returns), Monthly & Quarterly

returns & Certificates submitted to the Controlling office, etc., KNMA &

ASSOCIATES.

16. GENERAL AUDIT PROCEDUREON-SITE: 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. KNMA & ASSOCIATES.

17. GENERAL AUDIT PROCEDUREOFF-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. KNMA &

ASSOCIATES.

18. GENERAL AUDIT PROCEDUREOFF-SITE: Identification of

Accounts & Transactions that are subjected to further

verification(verification can be done either ON-SITE or OFF-SITE).

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. KNMA &

ASSOCIATES.

19. ESSENTIAL DOCUMENTATION & OTHER RECORDS KNMA &

ASSOCIATES.

20. ESSENTIAL DOCUMENTATION & OTHER RECORDS Scope of

the audit includes Verification of Several and Diversified operations of

the bank. Concurrent audit requires PROPER DOCUMENTATION of

the Auditor with: Completeness Timely Updation

DOCUMENTATION refers both to the Manuals concerning the

Banking operations; & Audit findings corroborating the discrepancies

identified. KNMA & ASSOCIATES.

21. ESSENTIAL DOCUMENTATION & OTHER RECORDSBEFORE

COMMENCEMENT OF AUDIT – (Permanent Files) Following

Documents to be collected and maintained : 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. KNMA &

ASSOCIATES.

22. ESSENTIAL DOCUMENTATION & OTHER RECORDSBEFORE

COMMENCEMENT OF AUDIT – (Permanent Files) Following

Documents to be collected and maintained : 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. KNMA & ASSOCIATES.

23. ESSENTIAL DOCUMENTATION & OTHER RECORDS Perusal

of following reports: CONCURRENT AUDIT REPORT OF THE

PREVIOUS MONTH – to understand the Current Status of concurrent

audit. RBI/CO INSPECTION REPORT (Latest) – to make note of the

Major findings & observations regarding any account, particularly

Advances. STOCK AUDIT REPORTS – regarding Cash credit

accounts more than Rs. One crores. REVENUE AUDIT REPORTS –

to understand the major deficiency found in the Revenue aspect of the

Branch SPECIAL AUDITS (if any) – regarding any prime issue

covered under such audits. KNMA & ASSOCIATES.

24. ESSENTIAL DOCUMENTATION & OTHER RECORDSAFTER

COMMENCEMENT OF AUDIT – (Current Files) Following

Documents to be collected and maintained: MONTHLY REPORTS &

WORKINGS – includes all the reports generated from CBS, audit

workings & findings, other data collected, etc. for the Respective

month. PENDING & FOLLOW –UP REGISTER– regarding the Areas

which are pending and are required to be followed-up in succeeding

months. UPDATION OF PERMANENT FILES – particularly

concerned with recent Circulars issued by RBI/Bank HO, Loan

products, Changes in Interest rates & Service charges. AUDIT NOTE

ON KEY AREAS – based on matters discussed with Branch officials.

KNMA & ASSOCIATES.

25. ADVANCES KNMA & ASSOCIATES.

26. BRIEF INTRODUCTION Advances (or Credit Facility) are of

following types: FUND BASED & NON-FUND BASED 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 Co-acceptance of bills Deferred Payment

guarantee (for capital goods purchase) KNMA & ASSOCIATES.

27. ADVANCES KEY ASPECTS & THEIR VERIFICATION The

following are steps followed by banks in sanctioning a Credit facility:

Appraisal Pre-sanction Documentation Post-sanction

compliances Periodical assessing of the Working of the Account

KNMA & ASSOCIATES.

28. ADVANCES KEY ASPECTS & THEIR VERIFICATION

APPRAISAL: In this process, the Bank would WEIGH & RATE the

Financial Worth of the prospective borrower in order to sanction the

Credit facility. Such WEIGHING & RATING would be based on

following criteria: Purpose of the loan – either Business or Personal

Income potential of the borrower – based on Income tax returns,

Project reports, Nature & Value of Security available with Borrower –

ex: Property, Jewellary, Bank deposits, Etc., Net-worth of the

Guarantor – providing guarantee to the loan KNMA & ASSOCIATES.


APPRAISAL – GENERAL STEPS COMPARISON OF ASCERTAIN

THE CONDITIONS &LOAN PRODUCTS PROCEDURES

CONSOLIDATE CRITICALLY ANALYSE & REPORT KNMA &

ASSOCIATES.


VERIFICATION OF APPRAISAL: Following are the GENERAL steps to

be employed by auditor for verification: ASCERTAIN the Loan

products regarding the pre-requisites, Eligibility criteria, Essential

documents to be obtained, etc., COMPARE these conditions with the

procedures adhered by the Branch. CRITICALLY ANALYSE whether

borrower is eligible & has the potential to repay specific loan.

CONSOLIDATE & REPORT any discrepancy noted during verification.

KNMA & ASSOCIATES.


VERIFICATION OF APPRAISAL: Following PRECAUTIONS to be

considered: Verify the Manager’s Discretionary Power to ascertain

whether the amount of loan falls under his Lending powers. If the limit

exceeds the allotted power, then only the HIGHER AUTHORITY can

process the loan. Examine carefully whether the branch has obtained

all the documents as stipulated by the bank. Critical Analysis

regarding Borrower’s potential should be done with UTMOST DUE

DILIGENCE so as to report any serious matters. KNMA &

ASSOCIATES.


PRACTICAL ISSUE IN APPRAISAL: Since the verification is based

on case-case basis, auditor should verify each loan distinctly & not by

same procedures. Most of the banks have created separate

Cell/Centre for processing Important loans such as Housing loans,

Business loans, High value Term loans, etc. In such cases, it is out

of our scope of verification since we are concerned mainly with the

Branch’s operations. KNMA & ASSOCIATES.

33. ADVANCES KEY ASPECTS & THEIR VERIFICATION PRE-

SANCTION : Once the Appraisal has been completed & the Loan

has been processed, the Next stage is PRE-SANCTION. In this

stage, the branch has the following functions: Preliminary inspection

of the Business unit or Residence of the Borrower. Inspecting the

nature of the securities offered particularly immovable properties.

Preparing Reports after such inspection stating Specific reasons for

either SANCTIONING/REJECTING the loan. KNMA & ASSOCIATES.


VERIFICATION OF PRE-SANCTION : Perusal of the Inspection

Reports – so as to ascertain the nature of business functioning or

regarding the immovable property charged as Security. Validating the

remarks/comments mentioned in such report with the areas verified

under Appraisal. KNMA & ASSOCIATES.


PRACTICAL ISSUE IN PRE-SANCTION : Branches generally do not

perform Pre-Sanction in REAL terms; but just for the COMPLIANCE

purpose. Our scope is limited only to the verification of Inspection

report at this stage of loan. We can verify the information given in this

report only during OUR UNIT INSPECTION. Also, as specified

earlier, when the loans are processed by Separate Loan cells, Pre-

sanction is done by their Officials not by the branch. KNMA &

ASSOCIATES.


DOCUMENTATION: Documentation deals with preparation of

Essential documents before the Disbursement of the Loan sanctioned.

The type & Number of the document would be enlisted in the Manual

of Documentation. Branch will prepare the Complete set of All

documents signed by the Borrower and the Officer Concerned.

These Documents should be maintained & kept separately in a SAFE

manner. KNMA & ASSOCIATES.


VERIFICATION OF DOCUMENTATION: Auditor should peruse the

Loan Documents obtained & compare with the list specified in the

Documentation manual. He should verify whether: All the

particulars in the document have been FILLED IN. All the particulars

filled in are CORRECT. Signature and Acceptance from the

BORROWER has been obtained including the Sanction letter. Branch

official concerned have verified & authorized that all the documents

have been duly obtained. KNMA & ASSOCIATES.


PRACTICAL ISSUES IN DOCUMENTATION: Most Banks would not

allow the Concurrent Auditors to mention any Error in documentation.

They would convince us stating they would change it immediately. But

they may forget/omit to change those errors. So, it is HIGHLIGHTED

that the errors noticed in the documentation should be specified in the

Concurrent report. KNMA & ASSOCIATES.

39. ADVANCES KEY ASPECTS & THEIR VERIFICATION POST-

SANCTION COMPLIANCES: After the disbursement of the loan, the

branch should monitor and comply all the term & conditions specified in

Loan sanction letter. This compliance includes the following:

Verification of End-use of funds – whether they are utilized for intended

purpose. In case of Immovable property offered as Security:

Mortgage has created & registered. Valuation report, Legal opinion

report, Latest Encumbrance certificate have been obtained. KNMA &

ASSOCIATES.

40. ADVANCES KEY ASPECTS & THEIR VERIFICATION POST-

SANCTION COMPLIANCES: This compliance includes the following:

In case of vehicle loan – whether Registration certificate & Insurance

policy has been obtained with one month of Loan. In case Building

and/or Stock given as security: Insurance policy has been duly done

with adequate value covering the risk. KNMA & ASSOCIATES.


VERIFICATION OF POST-SANCTION COMPLIANCES: Even

though Post-Sanction compliances vary for each category of loan, they

would be enlisted completely in the sanction letter. So, the Auditor

should study it carefully & check whether all the points are adhered

100% by the branch . Any lapses should be reported both to the

Branch officials & Higher authority through audit report. Also, Auditor

should document the Key areas in the sanction letter so as to verify it

later during the periodical review of the account. KNMA &

ASSOCIATES.


PRACTICAL ISSUES IN POST-SANCTION COMPLIANCES:

Certain terms & conditions might not be complied immediately due to

some delays that are beyond the control of Branch authority. Ex:

Mortgage registration for Immovable property, Vehicle registration from

RTO, etc. In such cases, Auditor should note these areas in his

Follow up register and has to verify them in the forthcoming months.

When they are pending for longer time, it should be reported by the

auditor. KNMA & ASSOCIATES.


PERIODICAL ASSESSMENT OF THE LOAN ACCOUNT: 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. KNMA &

ASSOCIATES.


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. KNMA & ASSOCIATES.


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: Jewel Loan & Loan

against bank deposits) KNMA & ASSOCIATES.

46. ADVANCES IMPORTANT TECHNICAL TERMS MORTGAGE:

It is an official registration which gives right to bank to hold it as security

for the loan. Mortgage is done for Immovable property. Mortgage is

of TWO TYPES: SIMPLE MORTGAGE EQUITABLE MORTAGE

KNMA & ASSOCIATES.

47. ADVANCES IMPORTANT TECHNICAL TERMS MORTGAGE

Simple Mortgage or Equitable mortgage Registered MortgageIt is a

proper mortgage It is just Depositing ofwhere it is registered in Original

Title deeds to the the name of the Bank. Property with the Bank.

Hence, The borrower Hence, The Bank’s name is not cannot dispose

of this official registered, even though property without Bank’s Property

cannot be sold permission KNMA & ASSOCIATES.

48. ADVANCES IMPORTANT TECHNICAL TERMS MORTGAGE

Simple Mortgage or Equitable mortgage Registered MortgageGenerally

done for properties It is MOST COMMON that do not have Original

practice followed all over title deeds India (since procedures is simple)

Ex: Inherited Properties OPTIONAL COMPULSORY REGISTRATION

REGISTRATION Exception: Tamilnadu KNMA & ASSOCIATES.

49. ADVANCES IMPORTANT TECHNICAL TERMS

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., KNMA & ASSOCIATES.

50. ADVANCES IMPORTANT TECHNICAL TERMS 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 KNMA & ASSOCIATES.

51. ADVANCES 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. The Credits in this account should be

sufficient enough to atleast service the Interest debited. KNMA &

ASSOCIATES.

52. ADVANCES CC/OD ACCOUNTS – SPECIAL POINTS Cash

credit (CC)/Overdraft loans accounts are distinct from Other type of

loan accounts due to following reasons: Every month Bank fixes the

Drawing power periodically (mostly monthly) for this account. Bank

reviews the functioning & operation of this account periodically (mostly

quarterly). KNMA & ASSOCIATES.

53. ADVANCES CC/OD ACCOUNTS – SPECIAL POINTS

DRAWING POWER(DP): It is common term associated with CC

accounts. 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. Max. If Limit < If DP > Amount Amount DP

Limit = Limit = DP KNMA & ASSOCIATES.


VERIFICATION OF DRAWING POWER(DP): The Auditor has to

analyse whether DP has been properly calculated. For this, he has to

analyse the following: STOCK STATEMENT & BOOK DEBTS. Their

calculation is as follows: STOCK VALUE DEBTORS VALUE LESS:

CREDITORS FOR LESS: DEBTOR AGING STOCK MORE THAN 90

DAYS LESS: MARGIN LESS: MARGIN DRAWING POWER AS

DRAWING POWER AS PER STOCK PER DEBTORS KNMA &

ASSOCIATES.


VERIFICATION OF DRAWING POWER(DP): 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. KNMA &

ASSOCIATES.


PRACTICAL ISSUES IN DRAWING POWER: Creditors for Stock (or

Unpaid stocks) are not reduced. Debtors aging more than 90 days

are not reduced. Quarterly CA certificate not submitted by borrower.

Particulars regarding Stock not furnished comprehensively. KNMA &

ASSOCIATES.


TEMPORARY OVERDRAFT (TOD)/EXCESS ALLOWED: Branch

manager has the power to sanction an account holder to draw amount

in excess of the available limit or balance based on his credibility &

business expediency. Such excess is called TOD. TOD is generally

for a shorter period of time, say 30 to 60 days within which the

borrower has to repay the amount. For this, Bank charges additional

interest at prescribed rate. TOD can also be sanctioned for SB &

Current accounts. KNMA & ASSOCIATES.


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. KNMA & ASSOCIATES.

59. ADVANCES NPA & WATCH CATEGORY ACCOUNTS NON-

PERFORMING ASSETS (NPA): NPA is one which does not

generate any income to the bank. Following may be causes to

become NPA: Interest/EMI overdue for more than 90 days. OD/CC

account is out of order for more than 90 days. In case of NPA, the

bank should Make Provision for Bad debts Should Recognise

Income only on RECEIPT basis not on ACCRUAL BASIS For better

understanding, Refer RBI Master Circular on Prudential Norms on

IRAC dated 1.7.2011 KNMA & ASSOCIATES.

60. ADVANCES NPA & WATCH CATEGORY ACCOUNTS

VERIFICATION OF NPA: Auditor is concerned with whether the

bank has Correctly Classification of Each of Loan account as per

IRAC norms Provisioning has been done accurately. Interest &

other incomes have been charged as per the norms Auditor should

examine the Efforts taken by the Bank for recovery of these accounts.

Recovery procedures may be as follows: Regular Follow-up of the

accounts & the borrower. Filing Suits in the Courts. Taking action

under the Securitization and Reconstruction of Financial assets and

Enforcement of Security Interest Act, 2002. (SARFAESI act) KNMA &

ASSOCIATES.

61. ADVANCES NPA & WATCH CATEGORY ACCOUNTS WATCH

CATEGORY ACCOUNTS: These are the Loan accounts which have

the potential to become NPA in the near future. Every bank applies

Different norms & uses Different names for classifying these category

of accounts. General norm is that: Account overdue for more than

30 days. Interest not serviced for more than 30 days. KNMA &

ASSOCIATES.

62. ADVANCES NPA & WATCH CATEGORY ACCOUNTS

VERIFICATION OF WATCH CATEGORY ACCOUNTS: On the basis

of the norms fixed by the Bank, Auditor should scrutinize the accounts.

Identify such accounts & report to the Bank to take adequate steps to

prevent from becoming NPA. Auditor should ensure that after the

commencement of audit, Accounts should not be classified as NPA

without being reported under Watch category list. KNMA &

ASSOCIATES.

63. DEPOSITS KNMA & ASSOCIATES.

64. DEPOSITS BRIEF INTRODUCTION DepositsSavings Current

Term Bank account deposits KNMA & ASSOCIATES.

65. DEPOSITS KEY ASPECTS & THEIR VERIFICATION In the

deposits accounts, the auditor has to verify the following things:

Account opening forms Adherence KYC guidelines (including AML)

Conduct in the Newly opened Accounts Inoperative accounts KNMA &

ASSOCIATES.

66. DEPOSITS KEY ASPECTS & THEIR VERIFICATION Account

opening forms: Auditor should verify all the Deposit account forms

with regard to whether : All the particulars have been properly filled

in. Account holder has signed in all the appropriate places. Photo

have been properly affixed & attested. Branch officials have

authorized & signed. PAN or Form 60 has been duly obtained.

Proof of Identity & Proof of Address have been Correctly obtained.

Details of the account holder keyed in the CBS correctly KNMA &

ASSOCIATES.

67. DEPOSITS KEY ASPECTS & THEIR VERIFICATION Adherence

to KYC norms: Know Your Customer (KYC) norms have been

prescribed so as to: Confirm regarding Identity & Existence of the

customer. Bank Account is not used for Illegal purposes. Money

laundering is strictly prevented. (as per PMLA, 2002) KYC norms are

as follows: Introductory reference by Existing customer. Obtaining

Valid documents as Proof of Id & Address and Verifying them with the

original. Ceiling on the Cash transactions to be entered by the

Customer: Ex: Issue of DD against cash for Rs. 50,000/- & more.

KNMA & ASSOCIATES.

68. DEPOSITS KEY ASPECTS & THEIR VERIFICATION Adherence

to KYC norms: Auditor’s responsibility is to check & examine whether

the Sufficient & Adequate Documents have been obtained to

corroborate KYC adherence. Bank has in REAL terms implemented

the policy of KYC norms. Operations of the Accounts opened during

last 6 months does not involve High value transactions. KNMA &

ASSOCIATES.

69. DEPOSITS KEY ASPECTS & THEIR VERIFICATION Inoperative

accounts: If the Deposits Accounts (particularly SB & Current) are

not operated for a longer period of time, CBS of the bank automatically

categorize it into Inoperative/Dormant status. Once an account is

flagged Dormant, the Bank monitors all the transactions done after that

& also the Specimen signature is automatically blocked. Since there

is a possibility that fraud can happen through Inoperative accounts,

Auditor has to be very cautious with Inoperative accounts. KNMA &

ASSOCIATES.

70. DEPOSITS KEY ASPECTS & THEIR VERIFICATION Inoperative

accounts: The Auditor has to verify the Operations & Status of the

Inoperative Accounts once in a week in Off-site. If any discrepancy is

noticed, it should be examined so as to ensure NO SERIOUS issue

pertains to it. Auditor should also discuss with the bank when any

dormant is shifted to ACTIVE status. KNMA & ASSOCIATES.

71. HOUSE-KEEPING KNMA & ASSOCIATES.

72. HOUSE-KEEPING CASH MANAGEMENT: Surprise verification

of Cash by Auditor & Branch official How many days Excess cash

held by branch against the Retention limit. Amount of Cut-notes &

Soiled notes held by Branch. Nature of Dealing of Counterfeit

currencies. Inward & Outward remittance of Cash (including

Insurance) How Excess/shortage of cash by cashier is dealt with.

KNMA & ASSOCIATES.

73. HOUSE-KEEPING CHEQUES: Issue of Cheque books to the

customers. Procedure for Collection & Clearing of Cheques.

Reconciling of Inward & Outward cheques with Clearing house. In

case of Cheque returns, collecting appropriate charges. DEMAND

DRAFTS & PAY ORDER: Procedure of Issue of Demand drafts &

Pay Order Collection of appropriate charges. Service branch for

making Payments against DD & Pay order. KNMA & ASSOCIATES.

74. HOUSE-KEEPING VOUCHERS: Vouchers are the basic input

documents which the Bank maintains invariably for all the transactions.

Voucher Verification gives the auditor the COMPREHENSIVE

OPINION on the operations dealt with by the bank. General

procedures followed: Vouchers should be stitched properly & in

order. Vouchers stitched should be kept safely & securely for

prescribed period of years. Voucher verification report is prepared in

CBS. (in some Banks, this is not in practice.) KNMA & ASSOCIATES.

75. HOUSE-KEEPING VOUCHERS: Voucher includes the

following documents: Deposit & withdrawal forms. DD vouchers

Transfer challans Cash Scrolls & EOD reports, etc., Auditor should

examine Whether All the vouchers are properly secured. The

Transactions represented by the Voucher & should get clarified from

the Branch officials in case of Queries. KNMA & ASSOCIATES.

76. 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. KNMA & ASSOCIATES.

77. HOUSE-KEEPING MAINTENANCE OF REGISTERS &

RECORDS: The Bank has prescribed the Branch to maintain Certain

registers & records in the Book of Instructions. The auditor shall go

through it & shall verify whether: Prescribed registers & records are

maintained. Particulars written are complete & accurate. The

Records & Registers are Updated periodically. Auditor should also

mention in his report: List of registers not maintained by the branch.

Any Factual errors identified in the report. KNMA & ASSOCIATES.

78. HOUSE-KEEPING SENSITIVE STATIONERY: Sensitive

Stationeries include Cheque books Demand Drafts & Pay orders

Term deposits Receipts ATM cards & pin-mailers 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. KNMA & ASSOCIATES.

79. HOUSE-KEEPING LOCKER MAINTENANCE: Safe Custody

Lockers are provided by Banks to their customers for storing &

maintaining their Essential items & documents. For Locker

operations, One key is provided to the Customer & Another key is

available with the concerned official. Only with these two keys, lockers

can be accessed. Lockers of different size are held by Bank. For

this service, the Bank charges appropriate Locker rent. KNMA &

ASSOCIATES.

80. 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. 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.

KNMA & ASSOCIATES.

81. REVENUE LEAKAGE KNMA & ASSOCIATES.

82. INCOME & EXPENDITURE INTEREST FROM INTEREST PAID

LOANS ON DEPOSITS PROCESSING RENT & CHARGES ON

TELEPHONE LOANS PENAL CHARGES EB CHARGESINCOME

EXPENDITURE COMM. ON DD PRINTING & & FUND STATIONERY

TRANSFER TRAVELLING LOCKER RENTS EXPENSES OTHER

OTHER SERVICE OPERATING CHARGES EXPENSES KNMA &

ASSOCIATES.

83. REVENUE LEAKAGE REVENUE LEAKAGE: Revenue

Leakage refers to the Under Recovery in the Income of the bank.

Excess charging of the Expenditure of the Bank. Banks generally

STRESS more this aspect of the audit. Auditor has to CAREFULLY

& CRITICALLY examine each and every transaction so as to ascertain

whether there is a possibility of leakage. When leakage is found out,

he should ensure that the amount has been properly recovered for

such transactions. KNMA & ASSOCIATES.

84. REVENUE LEAKAGE 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. KNMA & ASSOCIATES.

85. REVENUE LEAKAGE INCOME LEAKAGE: Common reasons: •

Interest rate wrongly keyed in the CBS INTERST ON • Changes done

in the Interest rates LOANS without Authorisation • Interest debited not

serviced. • Mistake in the calculation of PROCESSING Processing

charges CHARGES • Non-recovery or Under recovery of PC •

Omission to collect it properly. OTHER • Mistake in calculating the

correct INCOMES amount. KNMA & ASSOCIATES.

86. REVENUE LEAKAGE EXPENDITURE LEAKAGE: Common

reasons: • Interest rate wrongly keyed INTERST in the CBS PAID ON •

Changes done in the DEPOSITS Interest rates without Authorisation •

Incurring expenditure over & above the powers of the OPERATING

Manager. & OTHER • Incurring without proper EXPENSES bills &

vouchers. • Unreasonable amount KNMA & ASSOCIATES.

87. REVENUE LEAKAGE P&L ANALYSIS: The auditor should

analyse the P&L account of the branch at the end of each month.

Profitability should compared for each month with the previous month.

Any such following discrepancies should be noted & reported:

Debit Balance in Income head & Credit balance in Expenditure head.

Abnormal transactions occurred during the month Revenue vs.

Capital expenditure Any other uncommon features. KNMA &

ASSOCIATES.

88. REVENUE LEAKAGE BUDGETARY ANALYSIS: Auditor

should compare the ACTUALS vs. BUDGETARY TARGETS of the

Branch. Any sudden spurt or fall should be examined & discussed

with the branch official. This analysis is applicable both for Revenue

items & Advances- deposits items. KNMA & ASSOCIATES.

89. OTHER KEY AREAS TDS & SERVICE TAX: With respect to

TDS, auditor should verify the following: TDS on Interest paid on

Fixed deposits have been properly deducted. Form 15G/H have duly

obtained & submitted for applicable cases. TDS made on other

applicable expenses such as Rent, Professional charges, etc. should

be examined. Whether TDS deducted is remitted within due date (i.e,

7th of next month) Quarterly TDS return has been filed. Form 16A

has been given to respective deductees. KNMA & ASSOCIATES.

90. OTHER KEY AREAS TDS & SERVICE TAX: With respect to

SERVICE TAX, auditor should verify the following: Service tax

collected on incomes such as Processing charges, Charges on Specific

services rendered have been done at Statutory rate of tax. ST

collected have been remitted within due date (i.e. 6th of next month)

Half yearly return have been filed properly. KNMA & ASSOCIATES.

91. OTHER KEY AREAS STAFF MATTERS: With respect to Staff,

the Bank gives various concessions & privileges to be enjoyed by them

in banking operations. Also, each staff enjoys certain administrative

powers based on the position of Duty. Hence, it is possible that

he/she may misuse the powers assigned to them. Thus, Auditor has

the scope of verifying the Accounts & other operations of the Staff.

KNMA & ASSOCIATES.

92. OTHER KEY AREAS STAFF MATTERS: Salary & other

allowances to Staff are controlled directly by the higher authority.

Hence it is OUT OF AUDIT SCOPE. Auditor should scrutinize the

Bank accounts of the Staff maintained in the respective branch so as to

ensure that: No Abnormal or Unrelated transactions are recorded

frequently in their account. Staff does not misuse their powers to

indulge in frauds or other serious issues. Auditor should verify each

& every staff accounts in this respect. KNMA & ASSOCIATES.

93. OTHER KEY AREAS GOVERNMENT TRANSACTIONS:

Generally, Banks accepts & process Government challans thereby

acting as its Collecting agent. Example of Transactions are: Direct

tax & Indirect tax collections Pension payments for Government

employees, etc. For these transactions, they may/may not be given

any commission by the bank. In case of commission being given, the

auditor should check whether the commission has been properly

received & duly accounted for. KNMA & ASSOCIATES.

94. OTHER KEY AREAS PENSION PAYMENTS: For most

government retired employees, Bank acts as collecting agent for the

pension paid by the government. The government directly credits the

pension to the Bank account provided by the employees. For such

function, the Bank has the following functions which the auditor has to

verify: Obtaining & submitting promptly the Life Certificate & other

prescribed documents (once in a year) Pension payment register &

master is maintained. Securing safely the Records such as Pension

payment orders, Life certificate, Nomination form, etc., KNMA &

ASSOCIATES.