IAL-8 CONCURRENT AUDIT

Objective Of the Topic After perusing the write up, the reader is
expected to understand
 The importance of Concurrent
Audit
 The objectives of Concurrent Audit
Contents 01. Scope & coverage
02. Objectives
03. Areas to be covered
04. Reporting & closure of reports

SCOPE & COVERAGE

1 The system of Concurrent Audit has been in vogue in some Banks since 1970. In our
Bank Concurrent Audit was first introduced in 1983. RBI issued a circular on
11.10.1993 to all Banks for introduction of a system of Concurrent Audit as
recommended by the „Ghosh Committee on Frauds and Malpractices in Banks‟. As
per the directive, Concurrent Audit system should cover at least 50% of the Bank’s
aggregate credit and other risk exposures and 50% of aggregate deposits.
2 Concurrent Audit is conceived as a systematic examination of all financial
transactions at a Branch on a continuous basis to ensure accuracy, authenticity and
due compliance with the internal systems, procedures and guidelines of the Bank.
The emphasis in this regard is on substantial checking rather than on test checking.
3 Concurrent Audit is essentially a management process towards the establishment of
sound accounting functions and effective control to minimize the incidence of
serious errors and fraudulent manipulations.
4 The main role of Concurrent Audit is to supplement the efforts of the Bank in
carrying out simultaneous checking of each transaction and other verifications and
compliance with the procedures laid down on day to day basis.

Coverage of Business/ Branches

The Divisions at the Head Office dealing with Treasury functions viz.
Investments,
Funds Management including Inter-Bank Borrowings, Bills Rediscounting and Foreign
Exchange Business are to be subjected to Concurrent Audit. In addition, all branch
offices undertaking such business and Dealing rooms have to be subjected to
Concurrent Audit.

The coverage of branches should ensure that Concurrent Audit covers (a)
branches whose total Credit and other risk exposures aggregate to not less than 50%
of the total Credit and other risk exposures of the Bank and (b) branches whose
aggregate Deposits cover not less than 50 % of the aggregate Deposits of the Bank.
 However, the Concurrent Audit Policy of the bank stipulates 70% coverage instead
of 50% as advised by the Reserve Bank of India. The bank as per the Policy adopted
by the Bank ensures that the business of the branches brought under the Concurrent
Audit covers a minimum of 70% of the Credit including Risk based exposure and 70%
of the Deposits of the Bank.

While complying with the above, it is necessary to ensure that the coverage of
Concurrent Audit shall include 100% of:

1) All Exceptionally Large Branches and Very Large Branches.

2) All Branches handling Forex business, Merchant Banking business, Large Companies/
Wholesale Banking business, Dealing room operations and other specialized
business.
3) Any branches identified based on Risk perception.
4) Fraud Prone branches
5) Head Office Departments dealing in Treasury/Funds Management, Investment
portfolio and other Branches or Divisions where in the opinion of the Bank
Concurrent Audit is desirable. The Concurrent Audit covers the following Divisions
at Head office in addition to Treasury Branch, Mumbai:

a. I T Division
b. Financial Management Division
c. Premises Division
d. FTS Centre
e. Corporate Communication, Publicity & Public Relations Division
f. IBR Cell
g. Printing & Stationary Division
h. Centenary Library
i. Credit Card Division
j. Staff Provident Fund, Pension & Gratuity Section

OBJECTIVES

1 The system of Concurrent Audit has been introduced mainly with the following
objectives:
2 To ensure that the interval between occurrence of transactions and its overview is
kept to the minimum extent and examination of transactions by an external
agency/internal trained staff is perceived as an effective means of control.
3 To keep the routine work of the Branch under continuous check so as to
supplement the efforts of the Head Office to ensure a good internal control system
at the Branch in the critical and sensitive areas of the Branch functioning.
4 To ensure that violations, if any, of the procedures of the Bank, are brought to the
notice of the management for timely corrective and remedial action and for
avoiding their repetition.
5 To tone up the house-keeping standards at the Branches, particularly in large/very
large Branches, where due to sheer size (of the branch & volume of transactions)
the internal control systems tend to be weak.
6 To capture the application and effectiveness of risk management procedures and risk
assessment techniques in arriving at the Risk Profile which will determine the
strengths and weaknesses of the Branch in all areas of operations on the basis of
which corrective and remedial measures can be put in place by the management.

SELECTION OF AUDIT FIRMS AND TERMS OF APPOINTMENT

1 The Audit Firms for Concurrent Audit shall be selected based on their experience
in conducting similar assignments in Banks, their past satisfactory conduct of
such audit in the Bank, qualified staff strength, location of the main Office of
the firm etc. The Bank during the year 2017 has introduced a system wherein
the applications for Concurrent Audit of the branches are called from Chartered
Accountant Firms online.
The Terms & Conditions for Audit, Eligibility Criteria of the Firms, and other
requisite information is uploaded in the website of the Bank where provisions
are made for the firms to submit their application along with the required
documents.
2 The terms of engagement of Concurrent Auditors will be initially for a period of
one year and subject to satisfactory performance, will be extended for one more
year. However, the terms of engagement shall not be more than three years
continuously at any one or at any of the Branches of the Bank. They may,
however, be considered for engagement again after a gap of cooling period of
one year.
3 Notwithstanding what is stated above, the engagement of any Chartered
Accountant as Concurrent Auditor shall be liable to be terminated, any time
without assigning any reason, whatsoever.
4 Renewal of Concurrent Audit Assignments are based on their performance which
is evaluated through a self-appraisal by the audit firms and an evaluation process
by the Branches through Zonal Offices.
5 The team of Auditors auditing the Branch should be headed by a qualified
Chartered Accountant (Leader) and he/she shall visit the Branch for the purpose
of carrying out Concurrent Audit at least 15 working days in a month. He/she
shall conduct the audit of all major areas of Branch working and routine work
connected with the Audit may be done by experienced assistants/article clerks,
under his/her (Leader) supervision.
6 The Audit Firm shall not engage or sub contract the Concurrent Audit of the
Branch assigned to them to any outside firm of Chartered Accountants/Other
Person even though such person/s is/are qualified Chartered Accountant/s.
7 The Audit Firm shall not be subject to any of the disqualification under Section
226 of the Companies Act, 1956 for being engaged as Concurrent Auditor of the
Bank, namely,
 a. A Body Corporate
b. An Officer or Employee of the Company (Bank)
c. A person who is a partner or who is in the employment as an Officer
or employee of the Company (Bank).
d. The Audit Firm / any Sister / Associate Concern is not conducting the
Statutory (Central or Branch) audit of the Bank.

8 One Audit Firm shall not be assigned with more than one Branch of the Bank for
Concurrent Audit.
The partners of the Audit Firm should discharge the assignment faithfully, truly
and to the best of their skill and ability and perform the duties required of them
as a professional Concurrent Auditor of the Bank

9 Third Party Entities(TPE) clause: In the event of reports/certification by the

auditor/ firm turns out to be wrong, the bank may seek such clarifications as may
be required to enquire into the matter and fix up the responsibility. In the event,
it is established that there was gross negligence on the part of auditor/ firm in
causing pecuniary damage / loss / reputational damage to the Bank, the bank may
recommend such auditor/ firm for including in the caution list being
maintained by the Reserve Bank of India
(RBI) / Indian Banks' Association (IBA) for circulation amongst member banks as per
advice received from the RBI as the IBA has been mandated to do so. Further, the
appointment shall be subject to the distinct understanding that in the event of
noticing any serious acts of Commission and Omission in the conduct of audit, it
shall be viewed as professional incompetence and assignment will be liable for
immediate termination by the Bank apart from reporting the matter to ICAI for
initiating necessary action.

10 The Concurrent Auditor, auditing the Branch will not communicate or allow to be
communicated to any person not legally entitled thereto, any information relating
to the affairs of the Bank or to the affairs of any person having dealing with the
Bank nor will he/she allow any such person to inspect or have access to any books
or documents belonging to or in the possession of the Bank and relating to the
business of the Bank or to the business of any person having any dealings with the
Bank.

CONCURRENT AUDIT OF BRANCHES - AREAS TO BE

COVERED FOR VERIFICATION

1 The audit should cover all functional areas of the Branch including the following major
areas:

i. Cash Management, Security items etc.

ii. Deposits.
iii. iii. Advances/Bills Purchased and Discounted/BGs/LCs
iv. House-Keeping
 v. Support Services / Security /Lockers etc.
vi. Other Items.
vii. Recovery of NPAs
viii. Foreign Exchange transactions
ix. Precious Metals Transactions (Bullion Business)
Investments
x. Seepage of income
xi. Customer Service
xii. KYC Compliance

2 Day to day observations should be informed to the concerned officials of the branch so as
to get the irregularities rectified on the spot.
3 The rectification carried out by the Branch should invariably be verified by the
qualified Chartered Accountant personally on the next day and after satisfying
himself/herself the observations may be removed from the report.
4 As on the last working day of every month, all the outstanding irregularities/defects,
not rectified by the Branch should be incorporated in the monthly report (in
triplicate) in the format prescribed by the Bank. The report should be discussed
thoroughly with Branch Head before submission.
5 Original report should be submitted to the respective Zonal Office promptly. The audit
firm should submit the monthly report by the 7th day of the succeeding month to the
Zonal Office/Branch unfailingly.
6 The duplicate copy of the report should be handed over to the Branch Head against
his acknowledgement on the original report. Third copy of the report should be
forwarded to the respective Circle Audit Office.
7 At the end of every month, unrectified irregularities, should be carried over to the
next month report. That is the unrectified entries of January month should be
carried over to February and February to March. However, all the irregularities will
have to be rectified at the end of the calendar quarter and no more carry over of
irregularities is permitted. All the Concurrent Audit reports of calendar quarters are
necessarily to be closed after rectification of all the observations in the report.
8 In addition to the above at the end of every month, Seepage of Income detected by
the Auditors during the month / pending for recovery will have to be compiled
separately and reported as per format provided (excel), directly to Inspection and
Audit Division, H.O. with copies endorsed to Zonal Office and Branch. This report
is termed as “Monthly Report on Seepage of Income”.
9 The audit firm should report serious irregularities, including frauds, if any,
fraudulent tendencies, manipulation of books of accounts and such other matters
of serious consequences observed, by means of a Special Report immediately to the
Zonal Office, Inspection & Audit Division at Head Office and to Circle Audit Office,
without waiting for end of the month or for finalization of the monthly report. If
there are no malafide intentions on the part of the members of the staff, a copy of
the Special Report may be handed over to the Branch Head and forward a copy each
to the Zonal Office, IAD, H.O and CAO.
10 Notwithstanding what is stated in Para above, 1st day of each and every month a
„Flash Report‟ on details of major/serious irregularities/fraudulent tendencies/
manipulations of books of accounts etc., which are likely to have serious
 consequences should be submitted separately to the Executive Director, Head
office, Mangaluru with copies endorsed to the Branch and the Zonal Office. Even if
no major irregularity of this type is noticed, a „NIL‟ report should invariably
be submitted to Zonal Office and CAO and no report should be sent to Head Office.
11 It is reiterated that Flash/Special reports must be judiciously used for reporting
very serious irregularities like fraud, fraudulent acts, manipulation of
Books/Documents etc. and not for routine matters.
12 On half yearly basis the Concurrent Auditor is required to assess the Risk Profile of
the Branch and quantify his risk perceptions independently in a separate
"Risk Matrix Chart".

CONCURRENT AUDIT OF HO DIVISIONS/ OTHER OFFICES

1. Financial Management Division, Printing & Stationery Section, Premises

Division Staff Provident Fund Section, Corporate Communication, Publicity &
Public Relation Division, Information & Technology Division, Centenary Public
Library, Credit Card Division, Treasury Branch, IBR Cell, FTS Centre, and
Depository Participant Branches are under Concurrent Audit. Any other Division
may be brought under Concurrent Audit based on the need. Likewise, audit of a
Division may be discontinued at the discretion of the General Manager, IAD.
Depending upon exigency, the audit activity may be outsourced. Reports in
respect of the audit shall be submitted to the concerned Division/Section every
month / quarter on conclusion of the audit and the concerned General Manager in
charge of the Division/Section shall ensure compliance to the audit findings and
recommend the closure of the report to the Inspection & Audit Division, H.O and
ensure closure of the report within 2 months from the date of report.

2 The Inspection & Audit Division, H.O. shall place before the Audit Committee of the
Board for review, a status report on closure of concurrent audit reports on
Branches/Divisions/Offices every quarter together with the important findings
of the audit as also action taken/proposed to be taken thereon. The Inspection
and Audit Division, HO shall also place before the Audit Committee of the Board
an annual appraisal of the Concurrent Audit system in the Bank.

MEETING WITH THE ZONAL HEAD

1 During every quarter, each Zonal Office shall hold a meeting of the Concurrent
Auditors of the Zone and discuss all the important aspects of the Braches that are
being audited. The Zonal Managers shall deliberate with the auditors on the ways
of improving the working of the branches and seek suggestions from them. The
Zonal Office may arrange for training sessions to the auditors on the important
aspects of Banking such as Forex, implementation of KYC & AML guidelines etc.
Zones under which there are less than 4 branches under Concurrent Audit may hold
one to one meeting with the auditors. The presence of the Head of the Circle
Audit Office is compulsory in such meetings.
 REPORTING AND CLOSURE OF REPORTS

Concurrent Audit reports shall be submitted to the concerned Branch, Zonal Office
and Circle Audit simultaneously every month by the 7th of the succeeding month or
within such period as may be stipulated from time to time. Comprehensive
compliance report shall be submitted by Branches to the concerned Zonal Office
before the end of immediate succeeding month to which the report relates and the
Zonal Office shall follow up with the Branches to ensure that the report is fully
complied with and submit their recommendation for closure to respective Circle
Audit Offices in respect of ELBs and VLBs. The report shall be closed by CAOs. In
respect of Small, Medium and Large branches Zonal offices will close the concurrent
audit reports after due rectification/ compliance.

In case all the irregularities are not rectified, then they are carried over to the next
month till the end of the quarter. Report of every calendar quarter ending month
need to be closed after rectifying all the irregularities.
The reports pertaining to branches other than ELBs/VLBs are closed at Zonal Offices
after ensuring compliance of all the observations of the auditors.

FOLLOW UP AT ZONAL OFFICE/ CIRCLE AUDIT OFFICE

1 Concurrent Audit reports shall be submitted to (1) the Branch concerned, (2)
Zonal Office and (3) Circle Audit Office every month by the 7th of the succeeding
month or within such period as may be stipulated from time to time.
2 Comprehensive compliance report shall be submitted by Branches to the concerned
(1) Zonal Office and (2) Zonal Audit Office before the end of immediate
succeeding month to which the report relates and the Zonal Office shall follow up
with the Branches to ensure that the report is fully complied with. Thereafter, on
receipt of recommendations from the Zonal Office, the Circle Audit Office shall close
the report by the end of immediate second succeeding month to which the report
relates, under advice to the Inspection & Audit Division, H.O.
3 The Zonal Offices and CAOs should mark attendance of monthly reports received from
Concurrent Auditors. They should ensure receipt of monthly reports latest by 7th day
of the succeeding month. They should send a letter to the Concurrent auditors if
there is undue delay.
4 Delayed submission of reports will attract penalty of 10% if the report is submitted
after 10th but before 20th of the next month to which the report pertains. In case the
report is submitted after 20th but before the end of the month a penalty of 20% will
be deducted from the fees payable. No fees will be payable if the report is submitted
later and the Bank may discontinue your services in case of repeated delays observed
in submission of the monthly reports. No addition fees will be payable for
certification of compliance of Terms of sanction of loans and other certificates
required to be submitted by the branch to various authorities including debits to
income account.
5 Zonal Offices should follow up on Top priority where communications on Flash
Reports and Special Reports are intimated by the Head Office. As these are serious
in nature, follow up of the same to its logical end is essential.
6 Zonal Offices should vigorously follow up the rectification of irregularities pointed
out in the monthly reports as also those in the quarterly report on persisting
irregularities and quarterly report on seepage of income.
7 Zonal Offices should have good liaison with Concurrent Auditors. They should conduct
quarterly meetings with Concurrent Auditors and note to send minutes of the
meetings to Inspection & Audit Division/Circle Audit Office at the Head Office every
quarter.

FOLLOW UP AT IAD, HO

1 The Inspection & Audit Division, H.O., should place before the Audit Committee of
the Executives & Audit Committee of the Board, a status report on closure of
Concurrent Audit reports of ELBs /VLBs/Divisions/Offices at quarterly rest. A note
on the quarterly meetings held with the Auditors will be submitted to the ACE and
ACB once every year.

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