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Bank Audit Check List & Procedure (Concurrent Audit)

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Mar 20, 2024

15 Mins

Introduction:

Continuous monitoring of transactions is essential for a financial entity. In the case of a bank, it is crucial to have a robust and uninterrupted review mechanism. This is where a concurrent audit comes into play.

Concurrent audit refers to the parallel examination of financial transactions, meaning it takes place at the time of the transaction. It serves as an early warning system for banks to timely detect any lapses or irregularities.

Concurrent Audit Procedure

The concurrent audit encompasses all bank transactions. To understand how this audit should be conducted, it is imperative to have a clear understanding of the bank's processes. These processes include, but are not limited to:

1. Acceptance of deposits

2. Loans and advances

3. Cash management

4. Safety lockers

5. Forex

6. Bill payment

To conduct a concurrent audit, the bank's functions must be fragmented into transactions, and the necessary checks and balances must be assigned.

Acceptance of Deposits

Accepting deposits is a core function of a bank. The deposits can vary in nature depending on the account holder and purpose. However, the process of accepting deposits can be summarized as follows:

1. Collection of details

2. Compliance with KYC and AML norms

3. Creation of an account in the Core Banking System (CBS)

The following steps must be followed to ensure accuracy:

Serial No. Checkpoints Yes/No

1. Is the account opening form duly filled?

2. Is the application signed by an officer?

3. Are all necessary proofs collected in original and verified as per KYC and AML norms?

4. Are all details inputted in the CBS correct and is the account created?

5. Is the signature and photo scanned in the CBS?

6. Are the account number, customer ID, and account opening date specified on the application form?

7. Are all documents correctly filed and stored properly?

8. Are the interest rates correctly applied, verified by conducting test checks in the CBS?

9. Check if the fixed deposits that have an OD facility have lien marked?

10. Test check if all charges and prematurity penalties are correctly charged in the CBS.

The KYC norms vary depending on the account holder's status, so document verification must be carried out accordingly.

Loans and Advances

Lending funds is another core function of a bank. A bank accepts deposits at a certain rate and lends at a higher rate to make a profit. However, lending carries a higher risk as there is a possibility of non-recovery of debt. Therefore, proper documentation is crucial.

The bank offers several types of loans and advances, but the disbursement process remains more or less the same. The disbursement process can be summarized as follows:

1. Building a relationship with the customer

2. Collecting all necessary documents

3. Checking the customer's credibility

4. Disbursing the loan and monitoring it

To reduce instances of defaults and fraudulent transactions, the following points must be considered:

Serial No. Checkpoints Yes/No

1. Is the application duly filled?

2. Are all documents collected for loan processing?

3. Are all documents self-attested and verified with originals?

4. Are all necessary checks for checking credibility performed, such as the CIBIL report?

5. Are all documents collected for guarantors as well?

6. Are pre-sanction and post-sanction inspections conducted, and are the reports stored?

7. Are all processing charges collected?

8. Are the interest rates in line with the bank's policies?

9. Does the sanction letter include all accurate details?

10. Are all particulars specified in CBS accurately?

The required loan processing documents may vary, so the auditor must verify all documents and ensure their safekeeping. After sanctioning the loan, it must be periodically monitored to detect any signs of Non-performing Assets (NPA). The concurrent auditor must closely examine NPA management and report any discrepancies.

Cash Management

As banks earn interest on the rupees they lend, maintaining a high cash balance can result in interest losses. However, banks still need to hold enough cash to fund the ATMs. Therefore, a balance must be achieved. As an auditor, one must:

Serial No. Checkpoints Yes/No

1. Check the cash balances in the cash book and ensure they adhere to the policy.

2. Conduct surprise audits to verify the cash in hand.

3. Verify the insurance coverage and ensure the cash is securely kept.

4. Verify the authorizations for any sizable cash expenses.

Safety Lockers

Banks also provide lockers to customers for storing valuable items. As an auditor, the following checks must be carried out:

Serial No. Checkpoints Yes/No

1. Is the locker register maintained correctly?

2. Is the locker rent duly collected based on the locker size, and if deviations occur, are there satisfactory explanations?

3. Does the rent account in CBS reflect all transactions?

4. Is the insurance policy for the lockers up to date?

5. Are there any suspicious transactions, such as multiple visits in a short duration or customers visiting only at particular times or for longer durations?

Forex

For the bank's forex operations, the auditor must ensure the following checks:

1. Rate of foreign exchange on the transaction date and correct entry in books

2. Compliance with RBI norms relating to forex

3. Correct valuation of forex held at the time of the audit

Bill Payments

Banks offer customers the convenience of making payments towards public utilities. The auditor must verify:

1. If standing instructions have been received from customers, ensure they are noted in the CBS to generate auto payments

2. Proper reconciliation of utility accounts

Income Leakage

To ensure the completeness of the audit, the auditor must check that all charges are collected, interest rates are accurately inputted in the CBS, and generate MIS to analyze various charges and interest computations. Additionally, there must be a documented process for changing rates in the system, which should be strictly monitored.

The concurrent audit aims to reduce the gap between transaction occurrence and examination. A concurrent audit report covers all transactions and serves as the second line of defense for a bank.

Introduction:

Concurrent Audit Procedure

1. Acceptance of deposits

2. Loans and advances

3. Cash management

4. Safety lockers

5. Forex

6. Bill payment

To conduct a concurrent audit, the bank's functions must be fragmented into transactions, and the necessary checks and balances must be assigned.

Acceptance of Deposits

Accepting deposits is a core function of a bank. The deposits can vary in nature depending on the account holder and purpose. However, the process of accepting deposits can be summarized as follows:

1. Collection of details

2. Compliance with KYC and AML norms

3. Creation of an account in the Core Banking System (CBS)

The following steps must be followed to ensure accuracy:

Serial No. Checkpoints Yes/No

1. Is the account opening form duly filled?

2. Is the application signed by an officer?

3. Are all necessary proofs collected in original and verified as per KYC and AML norms?

4. Are all details inputted in the CBS correct and is the account created?

5. Is the signature and photo scanned in the CBS?

6. Are the account number, customer ID, and account opening date specified on the application form?

7. Are all documents correctly filed and stored properly?

8. Are the interest rates correctly applied, verified by conducting test checks in the CBS?

9. Check if the fixed deposits that have an OD facility have lien marked?

10. Test check if all charges and prematurity penalties are correctly charged in the CBS.

The KYC norms vary depending on the account holder's status, so document verification must be carried out accordingly.

Loans and Advances

The bank offers several types of loans and advances, but the disbursement process remains more or less the same. The disbursement process can be summarized as follows:

1. Building a relationship with the customer

2. Collecting all necessary documents

3. Checking the customer's credibility

4. Disbursing the loan and monitoring it

To reduce instances of defaults and fraudulent transactions, the following points must be considered:

Serial No. Checkpoints Yes/No

1. Is the application duly filled?

2. Are all documents collected for loan processing?

3. Are all documents self-attested and verified with originals?

4. Are all necessary checks for checking credibility performed, such as the CIBIL report?

5. Are all documents collected for guarantors as well?

6. Are pre-sanction and post-sanction inspections conducted, and are the reports stored?

7. Are all processing charges collected?

8. Are the interest rates in line with the bank's policies?

9. Does the sanction letter include all accurate details?

10. Are all particulars specified in CBS accurately?

Cash Management

Serial No. Checkpoints Yes/No

1. Check the cash balances in the cash book and ensure they adhere to the policy.

2. Conduct surprise audits to verify the cash in hand.

3. Verify the insurance coverage and ensure the cash is securely kept.

4. Verify the authorizations for any sizable cash expenses.

Safety Lockers

Banks also provide lockers to customers for storing valuable items. As an auditor, the following checks must be carried out:

Serial No. Checkpoints Yes/No

1. Is the locker register maintained correctly?

2. Is the locker rent duly collected based on the locker size, and if deviations occur, are there satisfactory explanations?

3. Does the rent account in CBS reflect all transactions?

4. Is the insurance policy for the lockers up to date?

5. Are there any suspicious transactions, such as multiple visits in a short duration or customers visiting only at particular times or for longer durations?

Forex

For the bank's forex operations, the auditor must ensure the following checks:

1. Rate of foreign exchange on the transaction date and correct entry in books

2. Compliance with RBI norms relating to forex

3. Correct valuation of forex held at the time of the audit

Bill Payments

Banks offer customers the convenience of making payments towards public utilities. The auditor must verify:

1. If standing instructions have been received from customers, ensure they are noted in the CBS to generate auto payments

2. Proper reconciliation of utility accounts

Income Leakage

The concurrent audit aims to reduce the gap between transaction occurrence and examination. A concurrent audit report covers all transactions and serves as the second line of defense for a bank.