Concurrent Audit

Are you familiar with Concurrent Audit of Banks in India? It’s a crucial process that ensures accuracy and compliance with internal systems, procedures, and guidelines in financial institutions. This systematic examination is vital to prevent revenue leakage and other issues that may arise in the banking system. In this blog post, we’ll provide you with all the essential information about Concurrent Audit and its key areas. Keep reading to learn more about this critical function of the banking industry in India.

1. Understanding Concurrent Audit in Banks

Concurrent audit in banks is a parallel examination of financial transactions, which means it is conducted at the moment when the transactions take place. It is an early warning system that ensures timely detection of lapses or irregularities. This audit covers all transactions of the bank, and unlike most audits that occur post-transaction, the concurrent audit is as transactions take place.

The primary objective of concurrent audit in banks is to ensure that the transactions comply with the guidelines and obligations assigned to them. It helps in identifying inconsistencies, burden of work, overlapping transactions, and can be beneficial as the year draws to a close. The auditor must fragment banking functions into transactions and assign necessary checks and balances.

According to the bank audit checklist and procedure, the concurrent audit should cover areas such as acceptance of deposits, lending of funds, monitoring non-performing assets, cash balance, public utility payments, and loan disbursement. The documentation process for loan disbursement must include; building a relationship with the customer, checking the credibility of the customer, disbursement of the loan, and monitoring the loan.

In summary, concurrent audit in banks is a robust and necessary mechanism that ensures that every department complies with the guidelines and obligations assigned to them, thereby maximising profits. 

2. Importance of Concurrent Audit for Banks

Concurrent audit is a crucial aspect of banking operations, and its importance cannot be overstated. It provides an early warning system for detecting lapses or irregularities in financial transactions and ensures timely corrective action. As a result, banks can maintain their trustworthiness, integrity, and credibility in the eyes of their customers and stakeholders.

According to industry experts, concurrent audit helps banks in several ways, such as:

– Ensuring compliance with internal systems, procedures, and guidelines of the bank and the Reserve Bank of India.
– Providing regular feedback to management to plug gaps, mitigate risks, and improve processes.
– Detecting fraud and errors in a timely manner, and minimizing losses.
– Reducing operational risk and improving operational efficiency.
– Enhancing the quality and reliability of financial reporting.

In today’s competitive banking environment, where customers demand transparency, accountability, and trust, concurrent audit plays a significant role in meeting their expectations. As one banker put it, “Concurrent audit strengthens the governance framework of banks by ensuring that their financial reporting, risk management, and compliance functions are functioning effectively and efficiently.” Hence, banks must ensure that they empanel qualified and experienced professionals as concurrent auditors and provide them with the necessary tools, systems, and guidelines to carry out their duties efficiently. 

3. Empanelment Process for Concurrent Audit

Concurrent Audit is an important process for banks in India to ensure transparency and accuracy of their financial statements. Empanelment is the first step towards conducting a Concurrent Audit. The empanelment process with Union Bank of India is conducted once a year, and the Bank publishes the Empanelment Process Document. Interested firms of Chartered Accountants are invited to submit their applications in the prescribed format online. The Bank emphasizes that only one application should be submitted, and no other mode of application will be entertained. The empanelment is valid for one year, and firms are required to upload adequately sized self-attested copies of the necessary documents while applying online. Besides, firms need to submit duly signed application forms and other relevant documents as and when advised by the Bank.

“Application forms need not be printed and sent to the Bank. Self-attested copies are to be uploaded while applying online, subject to each attachment should be below 5MB only. However, it is mandatory for the applicant to submit duly signed application form and other relevant documents as and when advised by the Bank.”

Firms should ensure that they meet all the eligibility criteria highlighted in the Empanelment Process Document. The Bank reserves the right to allot the Concurrent Audit assignment during the empanelment period as and when there is a requirement. Therefore, applicants need to keep in mind that the mere submission of an application does not constitute any right for allotment of any audit job from the Bank. 

4. Key Areas Covered in Concurrent Audit

Concurrent Audit of Banks in India covers various key areas that are critical to ensure accuracy and due compliance with the internal systems, procedures, and guidelines of the bank. Some key areas of Concurrent Audit are verification of loan and other related documents, KYC norms, voucher verification, cash management, collection and clearing of cheques, unit inspection, verification of stock statement, audited and projected financials of borrowers, and verification of daily reports generated. Additionally, rate of interest for all accounts, other security norms like camera, burglary alarm, cash locker, and verification of all suspicious accounts are also important areas covered in Concurrent Audit.

As the scope of Concurrent Audit is extensive, it is important to follow the latest circulars from the Inspection Department. The auditor should find out the maximum number of revenue leakages and maximum observations in the audit report that are meaningful and effective. A high attendance level at the branch can help in renewing the audit assignment, and having knowledgeable, qualified, sincere, and humble staff at the bank premises is critical. Following the guidelines and procedures as circulated by the head office, timely submission of the Concurrent Audit report, and using the specific audit software provided by the bank are also important aspects of Concurrent Audit. 

5. Tips for Effective Concurrent Audit

Concurrent Audit of Banks in India is a crucial process that ensures accuracy and due compliance with the internal systems, procedures, and guidelines of banks. To conduct an effective Concurrent Audit, here are some tips for new articles doing concurrent audits.

Firstly, follow the latest circular from the Inspection department of concurrent audit. Secondly, find out the maximum number of revenue leakages, as it is the heart of concurrent audit. Thirdly, put the maximum number of meaningful and effective observations in the audit report to ensure compliance. Fourthly, put knowledgeable, qualified, sincere, and humble staff at the bank premises. Lastly, follow the scope of audit circulated by the head office and ensure that the concurrent audit report is submitted on time, as the majority of banks have a deadline of the 10th of every subsequent month.

As a Concurrent Auditor, it is also important to have a high attendance rate at the branch and build a good relationship with the bank staff. By following these tips, new articles can learn a great deal about banking core knowledge, new banking software, and RBI norms. Being thorough and precise in conducting concurrent audits ensures the credibility of the audit report and maintains trust between banks and their customers.

6. Scope and Guidelines for Audit in Banks

In India, the scope and guidelines for audit in banks are well-defined to ensure that banks operate efficiently and maintain transparency in their financial transactions. The concurrent audit of banks is conducted to ensure compliance with the Reserve Bank of India’s guidelines. Concurrent audit is carried out parallel to the regular audit process to minimize the risk of fraudulent activities and errors.

As per RBI guidelines, the scope of concurrent audit includes verification, reconciliation, and monitoring of all transactions of the bank. The auditor checks the compliance of various operational guidelines set by the bank and RBI. This includes scrutinizing the bank’s overall activities, internal control systems, and the implementation of regulatory guidelines.

The guidelines for a concurrent audit are broadly categorized into two types- mandatory and discretionary. The mandatory guidelines prescribe the frequency, tools, and approach for the audit. These guidelines ensure that the auditor examines all aspects of the bank’s functioning. The discretionary guidelines, on the other hand, allow the auditor to customize the audit process as per the bank’s requirements.

Apart from this, the audit also helps in identifying and rectifying operational problems and efficiency gaps in a timely manner. Concurrent audits provide excellent opportunities to evaluate credit risk exposure, credit quality, and early warning signals with respect to credit losses. It also offers banks the chance to become more competent in adapting to environmental changes.

In conclusion, concurrent audit is an essential process to maintain the stability of the banking sector in India. The prudent implementation of concurrent audit guidelines will continue to ensure a healthy and stable banking sector in the future. As per the words of Lee R. Raymond – “The aim of education is the knowledge not of fact, but of values”. Similarly, complying with the guidelines for audit helps in the betterment of the banking sector’s values.

7. Step-by-Step Guide for Conducting Concurrent Audit

Con audit is an essential process for banks in India. It helps them detect errors, discrepancies, and fraudulent activities in a timely manner. Conducting a concurrent audit can be a daunting task, especially for those who are new to the process. Here is a step-by-step guide that can be helpful in conducting a concurrent audit:

1. Define the Audit Scope: The first step in a concurrent audit is to define the audit scope. This includes identifying the areas that need to be audited, the timelines, and the audit objectives.

2. Form a Team: A team of experienced auditors must be formed for conducting the concurrent audit. The team should have a leader who will coordinate the audit process and ensure that the objectives are met.

3. Plan the Audit: The team should plan the audit and prepare an audit program that outlines the stages of the audit, the areas to be covered, the audit procedures, and the timeline.

4. Conduct the Fieldwork: Once the audit program is prepared, the team can start the fieldwork. During this stage, the auditors should collect data, conduct interviews, and test the controls.

5. Review the Findings: After the fieldwork is completed, the auditors should review the findings and prepare a draft report. The report should highlight the strengths, weaknesses, and areas for improvement.

6. Discuss the Findings: The team should discuss the draft report with the bank’s management and obtain their feedback.

7. Finalize the Report: Based on the feedback received, the auditors should finalize the report and submit it to the management. The report should be clear, concise, and cover all the key findings.

Conducting a concurrent audit can be challenging, but by following these steps, the process can be streamlined and efficient. As the banking sector continues to evolve, the importance of concurrent audits will continue to increase. “A good concurrent audit process helps to provide early warning signals on issues that may arise and lead to material impact on financial statements” said by Jatin Jhawar, Senior Manager, Risk Advisory Services, Deloitte. Therefore, it’s essential to have a robust and effective concurrent audit process in place.

8. Significant Role of Loan Disbursement in Audit

Loan disbursement is one of the significant functions of banks, but it also draws greater risk factors for the bank due to the possibility of the debt not being recovered. Therefore, proper documentation is essential while disbursement of loans to reduce instances of defaults and fraudulent transactions. The auditor must closely examine all the loan processing documents, including pre-sanction and post-sanction inspections, and report any discrepancies.

As per the banking norms, the documents required for loan processing will vary, depending on the type of loan and borrowers. However, there are some common checks that need to be performed, such as collecting all documents for loan processing, verifying all the documents with the originals, checking the credibility of the borrower, and conducting all necessary checks like CIBIL reports, etc.

Furthermore, the auditor must ensure that interest rates adhere to the bank’s policies and that all details, including particulars specified in CBS, are accurate. The loans and advances must be monitored periodically for warning signs of Non-Performing Assets (NPA). Proper documentation and monitoring help in reducing the risk of defaults and fraudulent transactions, which is crucial for the banks’ financial stability.

“Documentation is the heart of concurrent audit.” – Unknown.

9. Cash Balance and Public Utility Payments

Cash balance is an important aspect for banks as they earn interest on the rupees they lend. It is necessary for banks to maintain a high cash balance to ensure that they can meet the demands of their customers. Concurrent audit plays a crucial role in ensuring that the cash balance of a bank is maintained accurately. The concurrent auditor checks the cash balance of the bank to ensure that it is in line with the policies of the bank. Additionally, the auditor examines public utility payments made by the bank to ensure that they are made in a timely manner. Public utility payments include payments made for electricity bills, telephone bills, and other services used by the bank. Any discrepancy in the payments is reported by the auditor. The goal of the concurrent audit is to ensure that the bank operates smoothly and transparently. By examining the cash balance and public utility payments of a bank, the auditor can help prevent irregularities and lapses that can harm the bank and its customers. 

10. Future Trends in Concurrent Audit of Banks

With the Reserve Bank of India (RBI) issuing new guidelines on concurrent auditing at branches, the future trends in concurrent audit of banks in India are set to change. As the banking sector continues to modernize and gain digital traction, the role of concurrent auditors will become more nuanced. Banks will require auditors with specialized skills in cybersecurity and data analytics to protect against fraud and ensure compliance in a rapidly changing regulatory environment.

The Indian banking industry is shifting its focus towards personalized financial services. As such, the future trends in concurrent audit of banks in India is expected to involve more emphasis on analyzing customer experience and satisfaction. By being more customer-centric, banks will require auditors to assess the effectiveness of communication, grievance resolution, and query handling mechanisms.

Another important trend in concurrent audit of banks in India is the improvement of risk management practices. Banks will require auditors to conduct a thorough risk assessment of their branches, identify potential threats, and formulate proactive measures to mitigate them. The role of auditors will not remain limited to checking compliance with regulatory requirements but extend to offering strategic advice on risk management to banks.

As competition increases and the financial market widens, banks have become more reliant on data-driven decision-making processes. In the future, concurrent auditors will play a crucial role in implementing these data analytics processes by using artificial intelligence and machine learning algorithms to extract insights from vast datasets. 

11. Documents required for Concurrent Audit in India

Con audit is a systematic examination of all transactions at a bank branch on a continuous basis to ensure accuracy and compliance with internal systems, procedures, and guidelines of the bank and Reserve Bank of India. Here are some of the documents required for a concurrent audit in India:

– Loan and related documents

– KYC norms

– Voucher verification

– Cash management

– Collection and clearing of cheques

– Unit inspection

– Verification of stock statements

– Audited and projected financials of borrowers

– Verification of daily reports generated, such as the balance sheet, profit and loss account, and cash report

– Other security norms, such as camera and burglary alarm functioning

– Verification of suspicious accounts

As per the latest circular from the inspection department of concurrent audit, the auditor must find out the maximum number of observations in the audit report and attend the branch regularly to renew the audit assignment. Moreover, banks provide specific audit software and access via domain ID and password. The auditor must ensure timely submission of concurrent audit reports, which is usually by the 10th of every subsequent month. The lending function of banks is of higher risk, and hence, proper documentation must be maintained to prevent debt recovery issues. 

12. Process of Concurrent Audit in India

Concurrent Audit in India is an integral part of a bank’s early warning system to detect lapses and irregularities. The process of Concurrent Audit involves a parallel examination of the bank’s financial transactions, as and when they take place. This audit covers all transactions of the bank, and it is essential to understand the processes of the banks to conduct a Concurrent Audit. The procedure for acceptance of deposits and lending of funds involves several checks and balances to ensure timely detection of irregularities and lapses.

To conduct a Concurrent Audit, the bank’s functions must be fragmented into transactions, and the necessary checks and balances must be assigned. The auditor must verify all the documents required for loan processing, and the loans and advances have to be monitored periodically for warning signs of Non-performing Assets (NPA). The concurrent auditor must closely examine the NPA management and report any discrepancies.

In India, Concurrent Audit of Banks is conducted every month, and it is an ongoing audit. The need for continuous support to finance personnel to enhance the management of finances and systems for accounting. The lack of follow-up audits can lead to repeated mistakes that last long. Hence, with a robust audit management system in place, banks can avoid inconsistencies, the burden of work, overlapping of transactions, and provide reliable financial reports to their stakeholders. As the saying goes, “An ounce of prevention is worth a pound of cure.”