Bank Audit Check List & Procedure (Concurrent Audit)

A financial entity requires continuous monitoring of transactions. For an entity like a bank, the review mechanism must be robust and unabating. Hence the need for a concurrent audit.

Concurrent audit means a parallel examination of the financial transactions, i.e. examination at the time of the happening of the transaction. It is part of an early warning system of a bank for ensuring timely detection of lapses or irregularities.

Concurrent Audit

As the name itself suggests, it is an audit that takes place at the moment when transactions take place, that means it is parallelly conducted. Unlike most audits that are post transactional review, the concurrent audit is as and when transactions take place. It gives an early warning to ensure timely detection of irregularities and lapses.

Concurrent Audit Procedure

The concurrent audit covers all transactions of the bank. Hence to understand how this audit needs to be conducted, an understanding of the processes of the banks is imperative. Banking functions are inclusive but not limited to the following:

• Acceptance of deposits
• Loans and advances
• Cash management
• Safety Lockers
• Forex
• Bill payment

To conduct a concurrent audit, functions of the bank must be fragmented to transactions, and the necessary checks and balances must be assigned.

Acceptance of deposits

Acceptance of deposits is a core function of banks. The deposits are of varied nature depending on the holder and purpose of the account. Nevertheless, the process of acceptance of deposits can be summed up as follows:-

• Collection of details
• KYC and AML norms compliance
• Creation of account in Core Banking System (CBS)

The following steps must be adhered to ensure correctness:

The KYC norms will differ as per the status of the holder of the accounts. Hence the document verification must be carried on accordingly.

Loans and advances

The lending of funds is the other core function of the bank. The bank accepts deposits at a certain rate and lends at a higher rate. The margin is the bank’s profit. Lending function ranks higher on the risk factor as there is a possibility of the debt not being recovered. Hence there is a great significance and need for proper documentation.

There are several loans and advances that a bank offers. However, the process for disbursement remains more or less the same. The process for disbursement of loan can be summed up as the following transactions:

• Building a relationship with the customer
• Collection of all requisite documents
• Checking the credibility of the customer
• Disbursing the loan and monitoring the loan

To reduce instances of defaults and fraudulent transactions, the following points must be taken into consideration:

The documents required for loan processing will vary depending on the type of loan. The auditor must verify all the documents and ensure that they are placed safely. Post sanction, 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.

Cash management

Since the bank earns interest on the rupee it lends, maintaining a high cash balance can result in interest losses. However, banks need to hold enough to fund the ATMs. Hence the bank must achieve a balance. As an auditor, one must:

Safety lockers

Banks also hold valuables of the customers in lockers. As an auditor, the following checks must be done:

Forex

For forex operations of a bank, the auditor must ensure the following checks:

• Rate of foreign exchange on the transaction date and correct entry in books
• Adherence to RBI norms relating to forex
• Correct valuation of forex held in hand at the time of the audit

Bill payments

This is an add on service offered by banks; wherein a customer can make payments towards public utilities through the bank. The auditor will have to verify:

• If standing instructions have been received from customers, then ensure that the same has been noted in the CBS to generate an auto payment
• Ensure proper reconciliations of the utility accounts

Income leakage

For an auditor to ensure completeness of audit it is imperative to check that all charges are collected, interest rates are inputted accurately in the CBS. The auditor must generate MIS to analyze the various charges and interest computations. Also, there has to be a documented process for changing the rates in the system, and the same must be strictly monitored.

The concurrent audit aims at reducing the gap between the occurrence of a transaction and its examination. A concurrent audit report covers all transactions and hence is the second line of defense for a bank.

Related Articles

Statutory Audit of Banks

Internal Audit of Banks

Standards on Auditing