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Bank Audit Check List & Procedure (Concurrent Audit)

Updated on:  

08 min read

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:

Sr.NoCheckpointsYes/No
1Is the account opening form duly filled?
2Is the application signed by an officer?
3Are all the necessary proofs collected in original and verified as per KYC and AML norms?
4Are all the details inputted in the CBS correctly and is the account created?
5Is the signature and photo scanned in CBS?
6Are the account number, customer id and account opening date specified on the application form?
7Are all the documents correctly filed and stored properly?
8Are the interest rates correctly applied, verified by conducting test checks in the CBS?
9Check if the fixed deposits that have an OD facility have lien marked?
10Test check if all the charges, prematurity penalties are correctly charged in the CBS

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:

Sr.NoCheckpointsYes/No
1Is the application duly filled?
2Are all the documents collected for loan processing?
3Are all documents self-attested and verified with originals?
4Are all checks required for checking credibility performed like CIBIL report?
5Are all the documents collected for guarantors as well?
6Are the pre-sanction and post-sanction inspections conducted and are the reports stored?
7Are all the processing charges collected?
8Are the interest rates in line with the bank policies?
9Does the sanction letter include all accurate details?
10Are all the particulars specified in CBS accurately?

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:

Sr.NoCheckpointsYes/No
1Check the cash balances in the cash book and ensure that it as per the policy.
2Conduct surprise audits to verify the cash in hand.
3Verify the insurance cover and ensure that the cash is kept safely.
4If any expense which is sizable in nature is made in cash, the authorizations for the transaction must be verified.

Safety lockers

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

Sr.NoCheckpointsYes/No
1Is the locker register maintained correctly?
2Is the locker rent collected duly as per the size of the locker, any deviations should be backed up by satisfactory explanation?
3Does the rent account in CBS reflect all the transactions?
4Is the insurance policy for the lockers up to date?
5Are there any suspicious transactions like multiple visits in a short duration by a customer or customers visiting only at a particular time or for a longer duration?

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.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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