Bank Audit Checklist & Procedure (Concurrent Audit)

Bank Audit Checklist & Procedure (Concurrent Audit)

Bank Audit Checklist & Procedure (Concurrent Audit)

By Mayashree Acharya

Updated on: Oct 12th, 2021

In order to ensure continuous monitoring of transactions, financial entities, especially banks, need a strong and ongoing review mechanism. This is where concurrent audit comes into play.

Concurrent audit involves the parallel examination of financial transactions as they happen, serving as an early warning system for banks to detect lapses or irregularities in a timely manner.

Concurrent Audit Procedure

Concurrent audit covers all transactions conducted by the bank. To understand how this audit should be conducted, it is important 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 functions of the bank need to be divided into individual transactions, with appropriate checks and balances assigned to each.

Acceptance of deposits

Acceptance of deposits is a crucial function of banks, with deposits coming in various forms depending on the account holder and purpose. The process of accepting deposits can be summarized as follows:

1. Collection of details

2. Compliance with KYC (Know Your Customer) and AML (Anti-Money Laundering) norms

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

To ensure accuracy, the following steps must be followed:

Sr.No Checkpoints Yes/No

1 Is the account opening form filled out completely?

2 Is the application signed by an authorized officer?

3 Have all the necessary proofs been collected and verified according to KYC and AML norms?

4 Have all the details been correctly inputted in the CBS, and has the account been created?

5 Have the signature and photo been scanned into the CBS?

6 Has the application form specified the account number, customer ID, and account opening date?

7 Have all the documents been filed correctly and stored properly?

8 Have the interest rates been applied correctly, verified through test checks in the CBS?

9 For fixed deposits with an overdraft facility, has the lien been marked?

10 Have all the charges and pre-maturity penalties been correctly applied in the CBS through test checks?

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

Loans and advances

Lending funds is another core function of banks, with the bank accepting deposits at a certain rate and lending at a higher rate to generate profit. The lending function poses a higher risk as there is a possibility of non-recovery of the debt. Therefore, proper documentation is crucial.

While there are several types of loans and advances offered by banks, the process for disbursement remains more or less the same. The process can be summarized as follows:

1. Building a relationship with the customer

2. Collecting all necessary documents

3. Assessing the customer's credibility

4. Disbursing the loan and monitoring it

To minimize defaults and fraudulent transactions, the following points should be considered:

Sr.No Checkpoints Yes/No

1 Is the loan application complete?

2 Have all the required documents for loan processing been collected?

3 Have all the documents been self-attested and verified with the originals?

4 Have all the necessary checks for checking the customer's credibility, such as CIBIL reports, been performed?

5 Have all the required documents for guarantors been collected?

6 Have pre-sanction and post-sanction inspections been conducted, with reports properly stored?

7 Have all the processing charges been collected?

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

9 Does the sanction letter include accurate details?

10 Have all the particulars been accurately specified in the CBS?

The documents required for loan processing may vary depending on the type of loan. The auditor must verify all the documents and ensure their safekeeping. After the loan is sanctioned, it must be periodically monitored for signs of Non-performing Assets (NPA). The concurrent auditor must closely examine the management of NPAs and report any discrepancies.

Cash management

Banks earn interest on the funds they lend, so maintaining a high cash balance can result in interest losses. However, banks also need to hold enough cash to fund ATMs. Therefore, achieving a balance is essential. As an auditor, the following checks must be conducted:

Sr.No Checkpoints Yes/No

1 Checking the cash balances in the cash book to ensure compliance with policy

2 Conducting surprise audits to verify the cash on hand

3 Verifying the insurance cover and ensuring the safekeeping of cash

4 Verifying the authorizations for any sizable cash expenses

Safety lockers

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

Sr.No Checkpoints Yes/No

1 Is the locker register maintained correctly?

2 Is the locker rent collected as per the size of the locker, with any deviations backed up by satisfactory explanations?

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

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

5 Are there any suspicious transactions, such as multiple visits by a customer within a short duration or customers visiting only at certain times or for prolonged periods?

Forex

For forex operations, the auditor must ensure the following checks:

1. Checking the foreign exchange rate on the transaction date and ensuring correct entry in the books

2. Adhering to RBI (Reserve Bank of India) norms relating to forex

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

Bill payments

Banks offer bill payment services, allowing customers to make payments to public utilities through the bank. The auditor must verify:

1. If standing instructions have been received from customers, ensuring that they are noted in the CBS for auto payment generation

2. Proper reconciliation of utility accounts

Income leakage

To ensure a comprehensive audit, the auditor must check for completeness by verifying the collection of all charges and the accurate input of interest rates in the CBS. The auditor should generate management information system (MIS) reports 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.

Concurrent audit aims to minimize the gap between transaction occurrence and examination. With a concurrent audit report covering all transactions, it serves as the second line of defense for banks.

Bank Audit Checklist & Procedure (Concurrent Audit)

By Mayashree Acharya

Updated on: Oct 12th, 2021

In order to ensure continuous monitoring of transactions, financial entities, especially banks, need a strong and ongoing review mechanism. This is where concurrent audit comes into play.

Concurrent audit involves the parallel examination of financial transactions as they happen, serving as an early warning system for banks to detect lapses or irregularities in a timely manner.

Concurrent Audit Procedure

Concurrent audit covers all transactions conducted by the bank. To understand how this audit should be conducted, it is important 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 functions of the bank need to be divided into individual transactions, with appropriate checks and balances assigned to each.

Acceptance of deposits

Acceptance of deposits is a crucial function of banks, with deposits coming in various forms depending on the account holder and purpose. The process of accepting deposits can be summarized as follows:

1. Collection of details

2. Compliance with KYC (Know Your Customer) and AML (Anti-Money Laundering) norms

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

To ensure accuracy, the following steps must be followed:

Sr.No Checkpoints Yes/No

1 Is the account opening form filled out completely?

2 Is the application signed by an authorized officer?

3 Have all the necessary proofs been collected and verified according to KYC and AML norms?

4 Have all the details been correctly inputted in the CBS, and has the account been created?

5 Have the signature and photo been scanned into the CBS?

6 Has the application form specified the account number, customer ID, and account opening date?

7 Have all the documents been filed correctly and stored properly?

8 Have the interest rates been applied correctly, verified through test checks in the CBS?

9 For fixed deposits with an overdraft facility, has the lien been marked?

10 Have all the charges and pre-maturity penalties been correctly applied in the CBS through test checks?

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

Loans and advances

Lending funds is another core function of banks, with the bank accepting deposits at a certain rate and lending at a higher rate to generate profit. The lending function poses a higher risk as there is a possibility of non-recovery of the debt. Therefore, proper documentation is crucial.

While there are several types of loans and advances offered by banks, the process for disbursement remains more or less the same. The process can be summarized as follows:

1. Building a relationship with the customer

2. Collecting all necessary documents

3. Assessing the customer's credibility

4. Disbursing the loan and monitoring it

To minimize defaults and fraudulent transactions, the following points should be considered:

Sr.No Checkpoints Yes/No

1 Is the loan application complete?

2 Have all the required documents for loan processing been collected?

3 Have all the documents been self-attested and verified with the originals?

4 Have all the necessary checks for checking the customer's credibility, such as CIBIL reports, been performed?

5 Have all the required documents for guarantors been collected?

6 Have pre-sanction and post-sanction inspections been conducted, with reports properly stored?

7 Have all the processing charges been collected?

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

9 Does the sanction letter include accurate details?

10 Have all the particulars been accurately specified in the CBS?

The documents required for loan processing may vary depending on the type of loan. The auditor must verify all the documents and ensure their safekeeping. After the loan is sanctioned, it must be periodically monitored for signs of Non-performing Assets (NPA). The concurrent auditor must closely examine the management of NPAs and report any discrepancies.

Cash management

Banks earn interest on the funds they lend, so maintaining a high cash balance can result in interest losses. However, banks also need to hold enough cash to fund ATMs. Therefore, achieving a balance is essential. As an auditor, the following checks must be conducted:

Sr.No Checkpoints Yes/No

1 Checking the cash balances in the cash book to ensure compliance with policy

2 Conducting surprise audits to verify the cash on hand

3 Verifying the insurance cover and ensuring the safekeeping of cash

4 Verifying the authorizations for any sizable cash expenses

Safety lockers

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

Sr.No Checkpoints Yes/No

1 Is the locker register maintained correctly?

2 Is the locker rent collected as per the size of the locker, with any deviations backed up by satisfactory explanations?

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

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

5 Are there any suspicious transactions, such as multiple visits by a customer within a short duration or customers visiting only at certain times or for prolonged periods?

Forex

For forex operations, the auditor must ensure the following checks:

1. Checking the foreign exchange rate on the transaction date and ensuring correct entry in the books

2. Adhering to RBI (Reserve Bank of India) norms relating to forex

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

Bill payments

Banks offer bill payment services, allowing customers to make payments to public utilities through the bank. The auditor must verify:

1. If standing instructions have been received from customers, ensuring that they are noted in the CBS for auto payment generation

2. Proper reconciliation of utility accounts

Income leakage

To ensure a comprehensive audit, the auditor must check for completeness by verifying the collection of all charges and the accurate input of interest rates in the CBS. The auditor should generate management information system (MIS) reports 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.

Concurrent audit aims to minimize the gap between transaction occurrence and examination. With a concurrent audit report covering all transactions, it serves as the second line of defense for banks.

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