DBS.CO.ARS.No. BC. 2/08.91.021/2015-16
July 16, 2015
Chief Executive Officers of all Scheduled Commercial Banks(other than Regional Rural Banks)
4. The bank should, once in a year, review the effectiveness of the system and take necessary measures to correct the lacunae in the implementation of the Programme.
Chief General Manager
(A) Scope of concurrent audit
Concurrent audit is an examination which is contemporaneous with the occurrence of transactions or is carried out as near thereto as possible. It attempts to shorten the interval between a transaction and its examination by an independent person. There is an emphasis in favour of substantive checking in key areas rather than test checking. This audit is essentially a management process integral to the establishment of sound internal accounting functions and effective controls and setting the tone for a vigilant internal audit to preclude the incidence of serious errors and fraudulent manipulations.
In view of significant developments in the banking sector during the past decade, it is required that new areas posing risk may be brought under the purview of concurrent audit. A large number of activities / operations are being carried out in a centralized manner at various units set up for that purpose and the scale of transactions / operations undertaken at these units is large. With a view to ensuring that the functioning of these units is as per the internal as well as regulatory guidelines and mitigating the risk associated with large-scale operations, such non branch units may be brought under the purview of concurrent audit.
While selecting the branches for concurrent Audit, the risk profile of the branches needs to be considered. The branches with high risk are to be subjected to concurrent audit irrespective of their business size. Further, all specialized branches viz., Agri, SME, Corporate, Retail Assets, Portfolio Management, Treasury, Forex, Back Office, etc., may be covered under concurrent audit. Certain areas where risk has reduced on account of computerization, implementation of core banking system may be excluded from the purview of concurrent audit.
i. Branches rated as high risk or above in the last Risk Based Internal Audit (RBIA) or serious deficiencies found in Internal Audit.
ii. All specialized branches like Large Corporate, Mid Corporate, exceptionally large/very large branches (ELBs/VLBs), SME.
iii. All Centralised Processing Units like Loan Processing Units (LPUs), service branches, centralized account opening divisions, etc.
iv. Any specialized activities such as wealth management, portfolio management services, Card Products Division, etc.
v. Data Centres.
vi. Treasury/branches handling foreign exchange business, investment banking, etc. and bigger overseas branches.
vii. Critical Head Office Departments.
viii. Any other branches or departments where, in the opinion of the bank, concurrent audit is desirable.
(1) The main role of concurrent audit is to supplement the efforts of the bank in carrying out simultaneous internal check of the transactions and other verifications and compliance with the procedures laid down.
(2) The scope of concurrent audit should be wide enough/focused to cover certain fraud – prone areas such as handling of cash, deposits, advances, foreign exchange business, off-balance sheet items, credit-card business, internet banking, etc.
(4) In determining the scope, importance should be given to checking high-risk transactions having large financial implications as opposed to transactions involving small amounts.
(i) The option to consider whether concurrent audit should be done by bank’s own staff or external auditors (which may include retired staff of its own bank) is left to the discretion of individual banks.
(ii) In case the bank has engaged its own officials, they should be experienced, well trained and sufficiently senior. The staff engaged in concurrent audit must be independent of the Branch where concurrent audit is conducted.
To improve the effectiveness of concurrent audit it is suggested that –
(i) Banks arrange for an initial and periodical familiarisation process both for the bank’s own staff when entrusted with the concurrent audit and for the external auditors appointed for the purpose.
(ii) All relevant internal guidelines/circulars/important references as well as relevant circulars issued by RBI/SEBI and other regulating bodies should be made available to the concurrent auditors on an on-going basis.
(iii) Where adequate space is not available, concurrent auditors can commence work immediately after the close of banking hours.
Terms of appointment of the external firms of Chartered Accountants for the concurrent audit and their remuneration may be fixed by banks at their discretion. Broad guidelines should be framed by ACB for this purpose. Suitable packages should be fixed by each bank’s management in consultation with its ACB, keeping in view various factors such as coverage of areas, quality of work expected,
number of people required for the job, number of hours to be spent on the job, etc.
(i) The bank may devise a reporting system and periodicity of various check list items as per its sensitivity.
(ii) Minor irregularities pointed out by the concurrent auditors are to be rectified on the spot. Serious irregularities should be straightaway reported to the Controlling Offices/Head Offices for immediate action.
(iii) There should be zone/area-wise reporting of the findings of the concurrent audit to ACB and an annual appraisal/report of the audit system should be placed before the ACB.