Concurrent Audit

As the term implies, a concurrent audit occurs simultaneously with the transaction, meaning it is conducted in real-time. Unlike traditional audits, which review transactions after they have occurred, a concurrent audit takes place while the transactions are happening. This allows for early detection of any irregularities or errors, providing timely alerts to address issues promptly.

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Bank Audit Check List & Procedure (Concurrent Audit)

A financial institution, such as a bank, needs constant oversight of its transactions. To ensure this, a strong and ongoing review mechanism is essential. This is where concurrent audit comes into play. Concurrent audit involves real-time examination of financial transactions, meaning the review occurs as the transactions happen. It serves as an early detection system within the bank, helping identify any lapses or irregularities promptly.

Concurrent Audit Procedure

A concurrent audit encompasses all of a bank's transactions. To effectively carry out this audit, it is crucial to first understand the bank’s processes. Banking activities include, but are not limited to:

Accepting deposits
Providing loans and advances
Managing cash
Offering safety lockers
Handling foreign exchange
Bill payments

For a successful concurrent audit, the bank's functions need to be broken down into individual transactions, with the appropriate checks and balances assigned to each.

Acceptance of deposits

Accepting deposits is a fundamental function of banks, with various types of deposits depending on the account holder and the purpose of the account. The general process for accepting deposits can be summarized as follows:

Gathering necessary details from the depositor
Ensuring compliance with KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations
Setting up the account in the Core Banking System (CBS)

Loans and advances

Lending funds is another essential function of a bank. The bank receives deposits at a certain interest rate and lends at a higher rate, with the difference being the bank’s profit. Lending carries a higher risk due to the possibility of non-repayment, which makes proper documentation crucial.

While banks offer various types of loans and advances, the disbursement process remains generally consistent. The key steps in the loan disbursement process are as follows:

Establishing a relationship with the customer
Collecting all necessary documents
Verifying the customer’s creditworthiness
Disbursing the loan and monitoring its repayment

The documents required for loan processing will vary depending on the type of loan. The auditor must verify all the documents and ensure that they are placed safely. Post sanction, the loans and advances have to be monitored periodically for warning signs of Non-performing Assets (NPA). The concurrent auditor must closely examine the NPA management and report any discrepancies.

Forex

For the foreign exchange operations of a bank, the auditor must verify the following:

The foreign exchange rate on the transaction date and ensure accurate recording in the books
Compliance with RBI regulations regarding foreign exchange transactions
Accurate valuation of the foreign exchange holdings at the time of the audit

Bill payments

This is an additional service provided by banks, allowing customers to make payments for public utilities. The auditor needs to verify:

If standing instructions have been received from customers, ensure these are recorded in the CBS to enable automatic payments
Confirm that the utility accounts are properly reconciled

Income leakage

For an auditor to ensure the audit is comprehensive, it is crucial to verify that all charges are collected and interest rates are correctly entered into the CBS. The auditor should generate MIS reports to analyze the various charges and interest calculations. Additionally, there must be a documented procedure for updating the rates in the system, and this process should be closely monitored. The purpose of a concurrent audit is to minimize the time between the occurrence of a transaction and its review. A concurrent audit report covers all transactions, making it the second line of defense for a bank.