Introduction:

Continuous monitoring of transactions is vital for any financial firm. A bank needs a robust, uninterrupted system for reviewing transactions, where concurrent audits prove invaluable.

Concurrent audits evaluate financial transactions simultaneously, acting as an early warning system for banks to detect potential irregularities promptly.

Concurrent Audit Procedure

Concurrent audits encompass all bank transactions. Understanding a bank’s procedures is essential for conducting effective audits, encompassing:

1. Acceptance of deposits
2. Loans and advances
3. Cash management
4. Safety lockers
5. Forex
6. Bill payment

To conduct a concurrent audit, bank functions are translated into transactions, with assigned checks and balances.

Acceptance of Deposits

The acceptance of deposits is core to any bank. Deposit types vary based on the account holder and purpose. Here is how deposits are typically handled:

1. Collection of details
2. Compliance with KYC and AML norms
3. Account creation in the Core Banking System (CBS)

Steps for accuracy include:

Serial No. Checkpoints Yes/No

1. Is the account opening form duly filled?
2. Is the application signed by an officer?
3. Are all proofs collected and verified as per KYC and AML?
4. Are details inputted correctly, and is the account created in CBS?
5. Is the signature and photo scanned into CBS?
6. Are account number, customer ID, and opening date on the form?
7. Are documents filed and stored properly?
8. Are interest rates applied correctly, and verified via test checks in CBS?
9. Check if fixed deposits with overdraft (OD) facility are lien marked.
10. Test if charges and penalties are correctly applied.

Loans and Advances

Lending is another key bank function. Banks profit by lending at higher rates. However, the risk of non-repayment requires thorough documentation.

The loan process generally includes:

1. Building a relationship with the customer
2. Collecting all necessary documents
3. Checking the customer’s credibility
4. Disbursing the loan and monitoring it

To minimize defaults and fraudulent activities, consider:

Serial No. Checkpoints Yes/No

1. Is the application completely filled?
2. Are all documents collected for processing?
3. Are documents self-attested and verified with originals?
4. Are credibility checks like CIBIL reports performed?
5. Are documents collected for guarantors as well?
6. Are pre-sanction and post-sanction inspections done?
7. Are all processing charges collected?
8. Do interest rates comply with bank policy?
9. Does the sanction letter contain all pertinent details?
10. Are all details recorded accurately in CBS?

Cash Management

A bank retains high cash levels for ATMs, but excessive cash can lead to interest losses. Auditors should:

Serial No. Checkpoints Yes/No

1. Check cash balances in the cash book and policy adherence.
2. Conduct surprise audits for cash verification.
3. Verify insurance coverage and secure cash handling.
4. Verify large cash expenses authorizations.

Safety Lockers

Banks offer safety lockers for customer valuables. Auditors must:

Serial No. Checkpoints Yes/No

1. Is the locker register kept correctly?
2. Is the locker rent collected based on size, and are deviations explained?
3. Does the rent account in CBS reflect all transactions?
4. Is the locker insurance policy current?
5. Are there any suspicious locker usage patterns?

Forex

For bank forex operations, auditors should ensure:

1. Correct entry of foreign exchange rates on transaction dates
2. Compliance with RBI forex norms
3. Correct forex valuation during audits

Bill Payments

Banks facilitate public utility payments. Auditors should verify:

1. Are standing instructions from customers noted in CBS for auto payments?
2. Proper reconciliation of utility accounts

Income Leakage

To complete the audit, ensure all applicable charges are collected, check interest rates in the CBS, and use MIS for charge analysis. The rate change process should be documented and closely monitored.

Concurrent audits aim to close the gap between transaction occurrence and review, serving as a bank's secondary defense line.