Concurrent audit guidelines for banks revised

Concurrent audit means doing examination of the financial transactions at the time of happening or parallel with transaction

As a step to tone up oversight of operations within banks, especially in branches, Reserve Bank of India (RBI) has revised the rules for the concurrent audit system.

Revision in rules was felt necessary due to the changes in banks’ organisational structure, business models, use of technology like rollout of Core Banking Solutions, RBI said in a communication to bank chiefs.

Concurrent audit means doing the examination of the financial transactions at the time of happening or parallel with the transaction.  It is part of a bank’s early warning system to ensure timely detection of irregularities and lapses. It helps in preventing fraudulent transactions at branches.

RBI said banks should immediately review their present concurrent audit system, incorporate necessary changes necessary changes and place before audit committee of the board. They should review the effectiveness of the system once in a year and correct the lacunae in the implementation.

The concurrent audit at branches should cover at least 50 per cent of the advances and 50 per cent of deposits of a bank. The risk profile of branches should be taken into account while selecting them for concurrent audit. The branches with high risk are to be subjected to concurrent audit irrespective of their business size.

The new areas posing risk may be brought under the purview of concurrent audit. The branches with high risk should be subjected to concurrent audit irrespective of their business size, RBI said.

Further, specialised branches like agriculture, SME, treasury, foreign exchange and corporate, retail assets, portfolio management, treasury, foreign exchange (forex) within the ambit of the audit.

Audit should focus on whether transaction or decisions are within the policy parameters and regulatory norms. A concurrent auditor may not sit in judgement over the decisions taken by a branch manager or an authorised official. This is beyond the scope of concurrent audit.

RBI has left it to banks to decide whether appoint internal staff or external auditors including retired staff of its own bank for doing concurrent audit.

Initially, the external audit firm may be appointed for a year. Later, external auditors’ term could be extended up to three years. After this tenure an auditor could be shifted to another branch subject to satisfactory performance.