Sunday, 31 March 2013
Doing Bank Audit - Tips By CA Sanjeev Bedi
I was about to doze off to sleep on my Sunday afternoon siesta. Then I felt like writing something. Couldn't find anything better to write on than the hot topic of the day: Bank Audits.
The below is particularly relevant for members who are doing bank audit for the first time:
Stepping into your branch without having read the RBI Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances is a bit like stepping into a boxing ring without your gloves on. You will come out of the ring without a bloody nose only if your opponent is a featherweight and you are a heavyweight. Since the branch manager is likely to be around 50 years of age and will therefore have already spent nearly half his life in banking, he will instantly know where you stand in terms of knowledge of banking. Think thrice and be very sure before you raise a query/objection. A faux pas that betrays your featherweight status will immediately give the manager a psychological upper hand over you. He will begin to patronize and be condescending towards you. It would be tragic if that happens.
So steep yourself in the RBI Circular. You can't call yourself a statutory branch auditor till the time you have got that circular running in your blood. The ICAI Guidance Note on Bank Audit is also freely available on the ICAI website. It runs into 955 pages. Obviously it's not possible to read it the way one read "A Suitable Boy" by Vikram Seth. Life would be awful if our computers didn't have the Ctrl + F function, wouldn't it?
Please also go through the Circular/Manual for Annual Accounts Closing of the particular bank allotted to you. You must already have got it via email. If you haven't, it's high time you laid your hands on it. Familiarize yourself with the account codes and account heads. If the manual says two codes in the ledger must tally, make sure they do tally.
Advances:
Statutory branch audit is all about NPAs, is it not? The power to have an account declared NPA is the most lethal weapon an auditor has ever possessed. The way those branch managers plead before you to not to go ahead with that dreaded Memorandum of Changes (MOC) is to be seen to be believed. Mind you, this is the same manager who might have turned up his nose at a local CA who approached him with a CC limit case and curtly told him "I don't deal with CAs!" Don't be taken in by his faux emotions. Remember these are the same guys whose feedback has coined such colourful phrases as "multiplicity of audits" and "audit fatigue". Besides, if we are going to lose bank audits anyway, why have mercy? It's better to go down with our flag flying high.
Window dressing:
Jacking up advances as well as depositsâ€"at the fag-end of the year is a tried-and-tested trick of the trade in bank branch accounts manipulation business. An auditor who can't detect it, or worse still after detecting it lets it go for a quid pro quo, has no right to apply for bank audits in the coming year. It is because such black sheep in our profession that things have come to such a pass on the bank audit front. Watch out for unusual movements in advances and deposits after 25 March 2013.
For branch officials, getting around the CBS NPA detection software is as easy as pie. No matter how advanced the computer system for Advances Classification installed in the bank is, it can't beat human ingenuity. To save an account turning into an NPA, the branch manager may generate artificial or even genuine credits in the account on the crucial dates. Such borderline cases that would have been NPAs but for that magic credit that materialized on the 90th day should cause alarm bells to ring in your head. There are some accounts that are kept alive just like doctors keeping alive a patient on a ventilatorâ€"the solitary credit in the account being the ventilator in this case. But actually those advances are no more useful than a beating-heart cadaver. They are clinically dead and non-performing and should be declared as such.
Documentation:
Keep an eagle eye out when you verify documentation relating to loans. A coloured Xerox copy of a sale deed is scarcely distinguishable from an original one. We live in an age of 3-D photocopying, where even metallic objects can be replicated. It might be unethical and not very hygienic, but a good way to tell a photocopy apart from an original is applying your saliva to the portion of the document containing the signatures. Even if the document is 20 years old, the ink will disperse upon the application of the slightest amount of liquid. On a photocopy, it will not.
Examine the loan application, the appraisal form, the CIBIL report to confirm the applicant's name does not figure in that all-India defaulter database, the sanction letter (the amount sanctioned may not necessarily be within the power of the branch incumbent), the approved valuer's report, the search report, the Non-Encumbrance Certificate (NEC), the mortgage deed executed in favour of the bank, the ROC charge, the MOA and AOA or the Partnership Deed, the balance sheetsâ€"past as well as projected. This list is by no means exhaustive.
Housing Loans:
Particularly be vigilant in auditing housing loan cases. Insist on an MC-approved map in case of a loan given for construction of a house. Nowhere else in banking business have we seen a more blatant misuse of bank funds than in housing finance. Thanks to those tantalizingly low rates of interest that a borrower is required to pay on a housing loan, we've got hundreds of crores of outstanding housing loans in this country that are actually commercial loans camouflaged as housing loans. An unscrupulous branch manager is ever ready to look the other way if the kickbacks are alluring enough.
Examine the field officer's visit report and the photographs taken at various stages of construction of the house. In case you feel something is amiss, you can have yourself driven down to the site and see with your own eyes what the borrower has built up with the bank's funds is indeed a house and not a coaching centre or a gym or a beauty parlour!
Rates of Interest, DP, Insurance:
Check that the correct rates of interest are fed into the CBS in all loan cases. GIGOâ€"Garbage in Garbage out. The CBS will not make a mistake in calculating interest. But it's a human being that feeds the parameters at the time of grant of a loan.
In case of CC limits, make sure the DP (Drawing Power) is calculated with reference to the latest stock statements. Compare the value of stock statements with the value of stock in the balance sheet.
Examine the insurance policy. Make sure the policy is alive and covers all stocks, no matter where lying. Policy should be adequate in terms of value to cover up the primary security as well as the collateral one. See the bank clause in the policy.
Annual audit of stocks is mandatory for all CC limits having sanctioned limits of Rs 5 crore and above. Verify the CA's stock audit report in case of all such CC limits.
General:
Go through the previous year's statutory audit report, the concurrent audit report, the branch inspection report, et al.
Go through the LFAR (Long Form Audit Report). It is a wonderfully compiled questionnaire. LFAR is the banking surrogate for a CARO report we issue in case of corporate clients. Anyone having a basic understanding of banking and auditing can carry out a branch audit just by going through that report. It is almost like an Audit Program. You can have an idea about the things you are required to verify in a bank audit.
Bank audit is a race against time. With 12/13 April 2013 being the deadline for completion of branch audits in most cases, we hardly have two weeks to do two or three branches in. But our efforts and the pains we take have to be commensurate with the remuneration.
Of course, bank branch audit is an ocean and we haven't even skimmed the surface. To use another cliché, what you've read above was not even the tip of the bank audit iceberg.
But I hope it was good entertainment.
All the best to all bank auditors!
Thanks,
Sanjeev Bedi
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What were h thought here is , an example ,attached. Wonderful personality. His last posting was 2013 on 360 !!!. After that there is no posting to any Groups.
Shah D J
On Sunday, 15 November 2015 10:22 PM, "worldsbestca@yahoo.com [sensitiveadvisor2008]" <sensitiveadvisor2008-noreply@yahoogroups.co.in> wrote:
Dear All,Below is extract from an Old email of our dearest CA Sanjeev Bedi! How true still ring his words written in 2012:-"........Yes. Those stupid clarion-call SMSs are getting on everyone's nerves. The message simply says: I seek your first preference vote, Please vote and support Mr So-and-so, etc. Why in the whole wide world should we vote for you? Who are you? Where do you come from? What have you done for the profession and what do you plan to do? Have you got a poll Manifesto?Emails certainly are a better means of communication than those pesky SMSs. We have an option do delete the mails in case we don't want to read them. SMSs are more intrusive than emails.Majority of us will vote not for a candidate who has the larger interests of the profession at heart, but who has got allotted or can allot concurrent audit/revenue audit/branch of our choice in case of a statutory branch audit, etc to us. The one who can bail us out if we get into some sort of trouble with the ICAI, CAG, etc. The one who gets the job done for us.The crassest amongst us will vote for people who speak the same language as we do; worship the same God as we do; dress the same way as we do. In other words, Brahmins will vote for Brahmins; Banias will vote for Banias; Sardars will vote for Sardars; Muslims will vote for Muslims.Is abstaining from voting undemocratic? Can I choose to stay put at home on 8 December? Or is it my democratic duty to go out in the shivering cold and caste…..errrrr….. sorry, cast my vote in favour of a candidate who I know to be a crook, but still write "1" against his name since I believe he is less crooked than all the others in the fray?Please advise.Incidentally, how many "Shes" are there in the fray in the NIRC? Last time, I voted for a "She". I didn't know her personally, but still I gave her my first preference vote. And she won!Women are less evil than men.Vanakkam,Sanjeev Bedi.........."CA Sanjeev Bedi's Thoughts Shared Again !!
__._,_.___
Posted by: Dipak Shah <djshah1944@yahoo.com>
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