In this article we will cover followings;
What is a concurrent audit?
Who is eligible to conduct a concurrent audit? and the auditor’s top 10 roles and responsibilities.
In India we have two different types of audits: external audits and internal audits. Before discussing these, let us understand the term “audit”.
The term “audit” usually refers to examination and evaluation of an organisation’s financial statement to make sure that the books of account are a fair and accurate representation of the transaction that they claim to represent.
When an audit is conducted by outside independent professionals having expertise on the subject, it’s referred to as external audit.
A company statutory audit is referred to as external audits as these are conducted by practising chartered accountants.
In contrast, in internal audit, the role of the auditor is to make sure that the organisation’s risk management, governance and internal control processes are operating effectively. It can be conducted by external parties or by the organisation’s own staff.
The main objective of concurrent audit is similar to internal audit. Now, let us discuss the meaning of concurrent audit.
What is a concurrent audit?
The word “concurrent” means happening or occurring at the same time.
Therefore concurrent audit means a parallel examination of financial transactions in a bank at the time of happening. In simple words, concurrent audit is a type of audit that takes place in a bank at the time when transactions take place.
The main intention of conducting a concurrent audit of a bank is to get early warnings to ensure timely detection of irregularities and lapses.
Concurrent audit systems have been introduced by RBI as an early warning system for banks to make sure that irregularities and lapses are timely detected. It helps as a preventive measure to make sure that fraudulent transactions are not taking place at a branch.
Why concurrent audit?
Like any other organisation, banks have their own internal control system. Sometimes the internal inspection machinery fails to highlight or pinpoint the existence of irregularities.
Here are some of the most important irregularities that most often taken place due to failure of internal control;
- Improper credit appraisal;
- Disbursement without observing the terms and conditions of sanctions;
- Failure in post-disbursement supervision; and
- Unauthorised excess drawls.
To prevent these types of irregularities at the time of occurrence, RBI has advised banks to introduce a concurrent audit system.
Which branches are covered in concurrent audit?
Following branches are to be subjected to concurrent audit;
- The Departments/Divisions at the Head Office dealing with treasury functions viz. investments, funds management including inter-bank borrowings, bill rediscount, stock invest scheme, credit card system and foreign exchange business are to be subjected to concurrent audit. In addition, all branch offices undertaking such business, as also large branches and dealing rooms have to be subjected to continuous audit.
- The problem branches, which are continuously getting poor or very poor ratings in the bank’s annual inspection/audit and where the housekeeping is extremely poor may be covered.
Banks may also include additional branches at their discretion on the basis of need; that is their professional judgement about the overall functioning of the branches.
Who is eligible to conduct a concurrent audit of banks?
Banks can appoint external auditors (professionally qualified Chartered Accountants) or its own staff as concurrent auditor.
In case of its own staff, the bank must ensure that these officers are well experienced and of sufficient seniority in order to exercise necessary independence and objectivity while conducting concurrent audit.
Appointment , terms and conditions, and remuneration is fixed by the banks with the broad guidelines approved by the Board and/or by the Registrar of Co-operative Societies of the State concerned.
Top 10 role of concurrent auditor while conducting audit of banks
The main role of the concurrent auditor depends on the terms and conditions specified in the appointment letter.
Here are the most important roles and responsibilities that are broadly covered by the concurrent auditor of bank;
- Daily cash transactions with particular reference to any abnormal receipts and payments.
- Ensure that in respect of purchase and sale of securities, the branch has acted within its delegated power having regard to its Head Office instructions.
- Ensure that loans and advances have been sanctioned properly (i.e. after due scrutiny and at the appropriate level). Verify that instances of exceeding delegated powers have been promptly reported to Controlling/Head Office/Board by the branch and have been confirmed or ratified at the required level. Verify whether the sanctions are in accordance with delegated authority.
- Ensure that post disbursement, supervision and follow-up is proper, such as receipt of stock statement, instalments, renewal of limits, etc.
- Verify whether there is any misutilisation of the loans and advances and whether there are instances indicative of diversion of funds.
- Check whether the letters of credit issued by the branch are within the delegated power and ensure that they are for genuine trade transactions.
- Check the bank guarantees issued, whether they have been properly worded and recorded in the register of the bank. Whether they have been promptly renewed on the due dates.
- Verify whether the classification of advances has been done as per RBI guidelines.
- Ensure prompt reconciliation of entries outstanding in the inter-branch and inter-bank accounts, Suspense Accounts, Sundry Deposits Account, Drafts Accounts, etc. Ensure early adjustment of large value entries.
- Carry Out a percentage check of calculations of interest, discount, commission and exchange. Check whether debits in income accounts have been permitted by the competent authorities.
Minor irregularities, wrong calculations etc can be corrected on-the-spot by the concerned branch manager. In case these irregularities are not rectified within a reasonable period of time, these can be reported to the head office.
Serious irregularities should be straight away reported to the Head Office immediately.
Can a statutory auditor be appointed as concurrent auditor of a bank?
As per the notification issued by RBI,
“Chartered Accountants / audit firms associated with the bank for internal / concurrent audit assignments should not undertake statutory audit assignments during the same period. The firms associated with internal / concurrent audit should relinquish the internal / concurrent audit before accepting the statutory audit assignment during the year.”
