Rbi Tightens Concurrent Audit Rules

For the first time since the system was introduced in 1993, the central bank has directed the CEOs of all scheduled commercial banks to place branches accounting for 50 per cent of total advances as well as deposits under concurrent audit, making it mandatory for all big advances and deposits to be subjected to scrutiny.

Till now, the concurrent auditors were only covering branches accounting for 50 per cent of the banks' total business. In other words, banks could primarily focus on branches with large deposit base and achieve the target without placing the branches with large advances under the concurrent auditor. "With the introduction of the new guidelines, all possible escape routes are blocked since all large advances will have to be compulsorily placed under concurrent auditors," a banker said.

 

The old guidelines on concurrent audit issued in October 1993 have been revised following the recommendations of the audit sub-committee of the board for financial supervision (BFS) of the central bank.

The RBI has directed the bank chiefs that "based on the revised guidelines...a review of the present system of concurrent audit should be carried out immediately". It has also instructed the banks to place the modified concurrent audit system before the audit committee of board of directors of each bank.

"The banks should annually review the effectiveness of the system and take necessary measures to correct the lacunae in the implementation of the programme," the directive, issued by the department of supervision states. The whole gamut of banking operations -- from treasury functions like investments, funds management including inter-bank borrowings, bill discounting and foreign exchange business to handling of cash, deposits and advances and housekeeping -- will come under the umbrella of concurrent audit system.

The RBI has asked the banks to cover branches "whose total credit and other risk exposure aggregate to not less than 50 per cent of the total credit and other exposure of the bank". Besides, the branches whose aggregate deposits account for at least 50 per cent of the aggregate deposits of the bank should also be covered.

"To achieve the twin criteria, it is suggested that branches may be listed according to credit and other risk exposures and selected in the descending order of exposures to achieve a 50 per cent coverage. If the deposit of these branches do not aggregate to 50 per cent of the bank's deposits, additional branches in descending order of deposits may be added to achieve the target," the RBI directive states.

The branches subjected to concurrent audit should not normally be included for revenue/income audit, the apex bank has stipulated.

It has also directed the banks to create a special cell in the inspection and audit department to review the selection of auditors, initiate and operate a system for the appraisal of the performance on concurrent auditors, ensure that the work of concurrent auditors is properly documented and be responsible for the follow-up on audit reports and the presentation of the quarterly review to the audit committee of the board.

Widening the scope of the concurrent audit in banking operations, the new guidelines have suggested that all dealings in cash, investments, deposits and advances, foreign exchange transactions, housekeeping and even customers' complaints should come under the concurrent audit.