Revision of RBI guidelines on Concurrent Audit System

Reserve Bank of India (RBI) on Thursday (19.09.2019) revised the guidelines on concurrent audit system on the basis of the certain recommendations made by the expert committee headed by Y.H. Malegam.
As per the new norms, the appointment of concurrent auditors will be appointed for a period of not more than three years instead of earlier tenure at five years on a continuous basis. Further, the age limit for retired staff engaged as concurrent auditors may be capped at 70 years. An individual bank continues to have the discretion to decide whether the concurrent audit should be done by the bank’s own staff or external auditors (which may include rea tired staff of its own bank). In the past, RBI used to prescribe the guidelines for scope, coverage of business/branches, minimum items of coverage, etc. for concurrent auditors of banks and the audit covered at least 50% of the advances and 50% of deposits of a bank.
In the revised guidelines, the scope of work for concurrent auditors is left to the discretion of the head of internal audit of banks, with the due prior approval of the Audit Committee of the Board of Directors (ACB) of the bank or Local Management Committee ((LMC) in case of foreign banks. However, banks need to identify precise risk sensitive areas in their business model which has to be covered under Concurrent Audit.
The broad areas of audit coverage include random transaction testing of sufficiently large sample of such transactions wherever required. The minimum areas of coverage shall be (i) Physical verification of cash and also verification of cash transactions (ii) Charge created on securities offered to the bank and physical verification of securities, (iii) delegation powers of sanctioning authorities, (iv) Verification of end use of the money borrowed by the borrower, (v) monitoring of loans and advances accounts with excess drawings, as well as monitoring of projects, etc. (vi) Observance of KYC / AML/FATCA/CRS guidelines, and reporting of CTR/STR, etc. (vii) Monitoring of transactions in new accounts/staff accounts, (viii) verification of transactions related to remittances/ Bills for Collection including SWIFT transactions, (ix) Monitoring of overdue statements (bills purchased / discounted / negotiated, etc.). (x) Examining the house keeping including reconciliation of accounts, monitoring of General Ledger/Subsidiary General Ledger/Parking Accounts, opening of internal accounts, etc. (xi) verification of Treasury operations. (xii) Verification of Non fund based business. (xiii) Verification of Foreign Exchange transactions. (xiv) Verification of clearing transactions. (xv) Verification of Merchant Banking Business. (xvi) Verification of Credit Card / Debit card business.
All Centralized Processing Centres (business origination and monitoring), Conduct of employees, mis-selling of products, etc., verification of RBI guidelines and internal Policy guidelines compliance are also covered under the scope of concurrent audit. The fraudulent transactions as and when detected, should be immediately reported to the Head Office, Chief Vigilance Officer and Branch Managers concerned (unless the branch manager is involved).