Forensic audit in banks

In our previous posts we have talked about (1) Legal audits in banks, (2) What is a stock audit (3)  Tax audit (4)  Concurrent Audit System in the bank. (5) What is a statutory audit?.  In this post let us study what is a Forensic audit?

A forensic audit is a process of conducting the audit of an organization or of an individual’s financial information, to produce the same as evidence in the court. The forensic auditor’s report may help to nail and prosecute the parties involved in fraud, embezzlement, or other types of financial misappropriations.

In banks, a forensic audit signifies an examination and evaluation of all types of decisions taken by the bank and also the basis on how decisions were taken. The audit reviews the discretionary power of the person who has taken the decision on sanctioning the limit or allowed excess over delegated authority, whether the decision was taken in haste or after inordinate delay, whether excess granted over the sanctioned limit/drawing power was promptly reported to controlling office, whether the mistakes are repeated several times etc. The audit report similarly covers the credit decisions, investment decisions, leakage of income, expenditure above delegated power, deviation and violation of RBI guidelines, etc. The audit report also mentions all remedial steps initiated by the bank.

The scope of the forensic audit includes identifying deficiencies in the system and procedure of the bank and comparing the same with their peers in the banking industry. The audit shall identify and report the illegalities in recruitment, promotions, and transfers, besides unlawful activities practiced by the bank in violation of rules and regulations which have ramifications on the reputation of the bank, loss to the customers, and threat to the economy.

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