RBI asks banks to cover risk sensitive areas under concurrent audit

The Reserve Bank of India (RBI) has asked banks to cover risk sensitive areas identified by them as per their specific business models under concurrent audit. It also said follow-up action on the concurrent audit reports and rectification of the deficiencies should be accorded high priority by the Head Office/Controlling Office of the concerned branch/business unit of the bank.

In its revised guidelines on the concurrent audit system in banks, which comes in the backdrop of the Rs 13,600 crore letter of credit fraud at Punjab National Bank and the IL&FS imbroglio rattling the financial system, the RBI said the broad areas of coverage under concurrent audit will be based on the identified risk of the unit and must include random transaction testing of sufficiently large sample of such transactions wherever required.

The detailed scope of the concurrent audit, which aims at shortening the interval between a transaction and its independent examination, may be determined and approved by the Audit Committee of the Board of Directors (ACB)/Local Management Committee ((LMC).

The minimum areas of coverage under the concurrent audit include cash transactions including physical verification of cash, etc.; and loans & advances including physical verification of securities, delegation of Powers for sanction, security charge creation, end use verification of funds, monitoring of accounts with excess drawings, monitoring of projects, etc.

The other areas that the audit should go into are: adherence to Know-Your-Customer/Anti Money Laundering guidelines including monitoring of transactions in accounts, compliance with Foreign Account Tax Compliance Act and Common Reporting Standards, monitoring of transactions in new accounts/staff accounts, reporting of cash transactions/suspicious transactions, etc.; remittances/bills for collection including SWIFT transactions, monitoring of overdue statements (bills purchased/discounted/negotiated, etc.); non-fund based business; foreign exchange transactions.

S Ravi, practising Chartered Accountant, said: "The guidelines by RBI on concurrent audit is exhaustive, requiring banks to identify risk sensitive areas. These areas must be in the ambit of the audit." As per the guidelines, if external firms are appointed and any serious acts of omission or commission are noticed in their working, their appointments may be cancelled after giving them reasonable opportunity to be heard and the fact shall be reported to ACB/LMC of the bank, RBI and ICAI.

The bank should frame a policy for fixing accountability in cases of serious acts of omission or commission noticed in the working of bank's own staff or retired staff, working as concurrent auditors.

The ACB/LMC of the bank should decide the maximum tenure of external concurrent auditors with the bank. Generally, tenure of external concurrent auditors with a bank should not be more than five years on continuous basis.

Further, the age limit for retired staff engaged as concurrent auditors may be capped at 70 years. However, no concurrent auditor should be allowed to continue with a branch/business unit for a period of more than three years. The guidelines require the ACB/LMC of the bank to review the effectiveness of the Concurrent Audit system as well as the performance of the concurrent auditors on an annual basis and take necessary measures to suitably strengthen the system.

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