CONCURRENT AUDIT POLICY INDEX

Transcription

1 INDEX Sl No Particulars Page No 1 Preamble 2 2 Regulatory Requirement 2 3 Concurrent Audit Coverage 2 4 Branch Audit and Duties of Concurrent Auditors 2 5 Selection of the Branches and other offices. 4 6 Selection of the audit firms. 4 7 Appointment of Concurrent Auditors, fees and other 6 conditions. 8 Conduct and follow up 9 9 Review of Concurrent Audit System Concurrent Audit of Foreign Branches Review of the Policy 13

2 1. Preamble: CONCURRENT AUDIT POLICY The Bank shall put in place an effective concurrent audit system to comply with the RBI guidelines as also to supplement the efforts of the internal audit department to strengthen the internal control system. The concurrent audit system will be a part of Bank's early-warning system to detect irregularities and lapses, which helps checking repeated / recurring violations of the internal and regulatory guidelines, controlling risks and in preventing fraudulent transactions. The General Manager/Department Head of Inspection Department will be the custodian of the Policy. 2. Regulatory requirement: The RBI requirement regarding coverage of not less than 50% of deposits as well as not less than 50% of credit and other risk exposure of the Bank under concurrent audit to be ensured on an on-going basis. Similarly the RBI requirement that the Department at the Head Office dealing with Treasury functions is to be subjected to concurrent audit will also be complied with. The RBI guidelines as indicated under circular No.DOS.No.B.C.16/08-91/021/96 dated August 14, 1996 to be taken into consideration while implementing the concurrent audit systems in the Bank. 3. Concurrent Audit Coverage: The concurrent audit shall cover 70% of deposits and 70% of advances of the Bank as against RBI s stipulation for coverage at minimum of 50% of deposits and 50% of advances. A large number of activities / operations are being carried out in a centralized manner at various units set up for that purpose and the scale of transactions / operations undertaken at these units is large. With a view to ensuring that the functioning of these units is as per the internal as well as regulatory guidelines and mitigating the risk associated with large-scale operations, such non-branch units shall also be subjected to concurrent audit. 4.Branch Audit: The Concurrent Auditors should certify all the reports under Branch 2

3 Statutory Audit System wherever Concurrent Audits are conducted by external Chartered Accountants. Such Concurrent Auditors should be advised to provide various Certifications done earlier by Branch Statutory Auditors, covering NPA provisioning, Insurance coverage, P & L Account, ALM, CRAR, DICGC, LFAR etc., similarly, Certification regarding Tax Audit may also be taken from the Concurrent Auditors. It is pertinent to note that the Concurrent Auditors are carrying out all the verifications on a continuous basis which the Branch Statutory Auditors are supposed to do annually for giving these Certificates. Concurrent auditor should also undertake stock audit function for which they may be suitably remunerated. Concurrent auditors should not be entrusted with Stock audit of any of the account of the same branch. The role of Concurrent Auditors shall be enhanced since Concurrent Auditors will, henceforth, be appointed from the RBI panel based on the Branch Gradation System. 4.1 Branch Audit and other duties to be performed by Concurrent Auditors: a) Credit Audit is to be conducted by qualified concurrent audit firms/inspectors of Inspection Centres. b) Apart from daily checking of transactions, the Concurrent Auditor has to undertake the following:- 1. Half yearly Revenue audit. 2. Quarterly ATM audit % verification of Bill of Entry, A1,A2 & A3 and other FOREX operations. 4. Pre-disbursal audit/ post-sanction follow up, whenever required. 5. Verifying compliance to KYC / AML norms. 6. Verification of E-filing of TDS deduction done c) Pre Release Audit shall be carried out as per the extant guidelines. In case the pre release audit gives a qualified report for a particular sanction, pending compliance of certain conditions, verification progress in compliance of pending terms and conditions will be taken 3

4 up by concurrent auditor till full compliance. 5. Selection of the Branches and other offices for Concurrent Audit: ACE/ZACE may identify the branches and other units / offices for concurrent audit from time to time. Audit Committee of Board should be kept informed of the developments / progress on half yearly basis. However, while selecting the branches for concurrent audit, the risk profile of the branches also needs to be considered. It is important for the bank that the branches with high risk are subjected to concurrent audit irrespective of their business size. Specialized branches viz., Agri, SME, Mid Corporate, Infrastructure, Large Corporate, CPU, retail assets, portfolio management, forex, back office etc may also be covered under the Concurrent Audit, in case already not covered under Concurrent Audit. The concurrent audit assignments may be undertaken internally by Bank's officers and also outsourced to external audit firms. a) The concurrent audit shall cover 70% of deposits and 70% of advances of the Bank b) All specialized branches viz., Agri, SME, Corporate, Retail Assets, Microsate, Portfolio Management, Treasury, Forex, Back Office etc shall also be covered under the Concurrent Audit. c) While selecting the branches for concurrent Audit, the risk profile of the branches needs to be considered. The branches with high risk are to be subjected to concurrent audit irrespective of their business size. d) Audit Committee of Executives / Zonal Audit Committee of Executives may also identify the branches and other units / offices for concurrent audit from time to time. Audit Committee of Board should be kept informed of the developments / progress on half yearly basis. 6. Selection of the audit firms for conducting concurrent audit: The following basic criteria should be kept in mind while selecting a firm for concurrent audit assignments: - a) It should be a partnership firm of Chartered Accountants. We may 4

5 consider Sole proprietorship firms also in case of non-availability of Partnership firms. b) The firm should be selected from the RBI panel as per gradation suggested for Branch Statutory Auditor appointment. c) Audit firms engaged by banks for audit work should have qualified Information System Auditor (CISA/DISA) with necessary exposure to systems audit since all banks are fully computerized and IS audit should form an integral part of audit of banks in the circumstance. Exceptions may be allowed in case of nonavailability of CISA/DISA qualified persons. d) Weightage to be given to the firms where the partners themselves were ex-bankers or the firm has got tie-up with ex-bankers with requisite experience and exposure. e) It is to be ensured that the audit firm or any sister / associate concern / network firm is not conducting the statutory audit of the Bank or any of its branches. f) Weightage to be given to a firm having exposure in conducting concurrent audit of the Bank branches for a few public sector / major private sector banks. g) The firm should have necessary office set up and adequate personnel to ensure proper deployment and timely completion of the assignments. h) The firm should execute undertaking of fidelity and secrecy on its letterhead in the format prescribed by the Bank. i) The assignment should be carried out in a professional manner and in case of any misconduct & negligence the Bank is free to report the matter to ICAI / RBI under the guidelines from time to time. This will be in addition to the disengagement from the assignment. j) The firm should not sub-contract the audit work assigned to any outside firm or other persons even though such persons are qualified chartered accountants. 5

6 k) A declaration to be furnished by the firm that credit facilities availed by the firm or partners or firms in which they are partners or directors including any facility availed by a third party for which the firm or its partners are guarantor/s have not turned or are existing as non- performing assets as per the prudential norms of RBI. In case the declaration is found incorrect, the assignment would get terminated besides the firm being liable for any action under ICAI / RBI guidelines. l) Any other terms and conditions of the assignment would be decided by the Bank on a case-to-case basis. 7. Appointment of Concurrent Auditors, their fees and other conditions: a) The appointment of the concurrent auditors for various concurrent audit assignments needs to be done from the RBI panel as per the gradation based on the size of the Branch with the approval of delegated authority in Audit Department. Suitable firms would be identified for each assignment and would be approved taking into account their experience and exposure, similar activity carried out for the Bank or other banks, availability of adequate trained resources, location of the audit unit etc. The monthly fees payable to the auditors will be approved by Board. b) The tenure of the concurrent audit would be initially for one year and would be extended for a further period of two years (overall three years), based on the performance of the auditor in the first year. c) After completion of specific period, the firms may be considered for audit assignment in other locations or areas. Cooling period of two years would be observed for a firm to become eligible for appointment in the same audit unit. This will be purely at the discretion of the Bank and no rights whatsoever accrue to the firm for such appointment. d) At any one point of time, not more than one audit assignment would be awarded to any single firm. An audit assignment that 6

7 needs to be carried out across the branches / units at different locations would be considered as a single assignment for this purpose. e) The concurrent auditor should adhere to the audit coverage strictly as per the scope as may be decided by the Bank from time to time. f) The concurrent auditors should not undertake any other activities / assignment on behalf of the branch or unit without obtaining the concurrence of the audit department in writing. g) No out of pocket expenses or traveling allowance / halting allowance would be paid to the concurrent audit firms for carrying out the assignment. However, the service tax, education cess etc. would be paid as applicable from time to time in addition to the basic fees. The concurrent auditors may be reimbursed actual out of pocket expenses incurred in connection with travel involved for conducting stock audits. The payment to the concurrent auditors would be subject to deduction of tax at source at appropriate rates. h) All the necessary certificates that need to be given as a part of the concurrent audit assignment (Bills of Entry verification, A1/A2 Forms etc.) would be given by the audit firm under its letterhead without any additional certification fee. i) There is a need to transform the present concurrent audit system to Risk based concurrent audit. Therefore, the concurrent auditors would give rating or grade either numerical or phrased one for the audit entity. This rating should be based on his observations about branch functioning. The format used for risk based concurrent audit has been designed on the lines of RBIA. Various check lists under Business and Control parameters are incorporated in the format and assessed for their risks. Overall risk rating is assessed through a risk matrix taking into account the business and control risks. j) A detailed checklist and other operating guidelines will be provided 7

8 to the concurrent auditors. Necessary training / consultation required would be provided to them for enhancing the quality of the audit. They would be made aware of the guidelines and circulars issued subsequent to commencement of assignment and having impact on the concurrent audit, to keep them abreast of the changes in the operational and regulatory guidelines. k) Necessary arrangement should be made for providing space, workstation and access to systems (viewing rights only) to the concurrent auditors for ensuring smooth conduct of audit assignment. This would be the responsibility of the controller of the audit unit / Branch Head. l) The Bank will prescribe structured formats for the audit reports and also stipulate the time limits for submission of the reports. Letter of caution will be given to Concurrent auditors for late submission of reports. Timely submission of reports is one of the areas assessed in the half yearly performance review of the auditors. Their services may be discontinued if there is continuous non compliance. m) The audit formats would be reviewed on an annual basis. The firms should strictly adhere to the format and the time limit. Bank may prescribe different periodicity for different reports within the same audit unit. n) Audit assignments and subsequent renewals shall be given to Concurrent Auditors during the month of July every year. o) Removal/Delisting of Concurrent Auditors: Concurrent Auditors, who have colluded with borrowers for pecuniary benefit and who failed to report major irregularities and frauds of more than Rs. One Crore, will be included in the IBA s Caution List (Under Third Party Entity (TPE) and auditors whose names are included in the IBA Caution List from time to time will also be removed from the Concurrent audit as per extant guidelines. Concurrent Auditors will be Delisted /removed by placing a note to General Manager (I&C) in the following instances: 8

9 Frauds of financial loss less than Rs.1 cr not detected / not reported. Poor ratings in the Half yearly performance by the respective Inspection Centres; Not complying with our requirements viz., refusing to attend assignments like Pre-release audit and Credit Audit, etc. Not conducting audit for the minimum required number of days; Poor quality of reports etc. and; Who have resigned in the middle of their assignment period. 8. Conduct and follow up of concurrent audits and functional role of verticals: a) Each branch / audit unit should identify nodal officer/s as a single point contact for coordinating the concurrent audit work. The audit units should ensure rectification of the deficiencies without any loss of time so as to achieve the very purpose of concurrent audit. b) The bank should provide the concurrent auditor with requisite initial induction to the branch activities and further support the auditor with the MIS generated from the CBS system. c) Head-Audit to put in place necessary systems to initiate follow up on the concurrent audit reports with the respective branches / units under intimation to the controllers of the functions. However the Controllers will be responsible for further follow up with the branches / units to ensure compliance. d) A formal wrap-up discussion with the branches and non-branch segments along with the concurrent auditors will be held once in six months for the more important branches in each Zone. Initially the focus would be on those branches having significant corporate exposure including critical non-branch segments. e) At present significant findings on concurrent audit reports are reported to Audit Committee of Executives and thereafter to Audit Committee of Board on quarterly basis. 9

10 f) In line with RBI s directive it is now proposed to formally close the audit reports once a quarter. g) The pending issues of the previous reports need to be mentioned as a persisting irregularity / deficiency in the subsequent reports h) While carrying out internal audits, the quality of compliance with the concurrent audit report would be covered and commented upon by the Internal Auditors. Functional Role: a) CO Inspection Department i.co-ordinating the concurrent audit of HRM, Expenditure / Stationery / Reconciliation, Credit Card (Departments of CO) and Treasury Branch, Chennai where monitoring and follow up thereof shall be carried out by the respective departments. ii. Placing the concurrent audit report of Treasury Branch and the review notes on major observations in Concurrent Audit reports, including adherence of KYC/AML guidelines by branches to Audit Committee of the Board (ACE), every quarter. iii. Empanelment of External auditors for concurrent audit following due process and iv. Concurrent audit assignment of branches as per the approved fee structure. b) Inspection Centre i. Organising / Conducting pre-disbursal audit through concurrent auditors for the CA branches ii. Evaluation of performance of concurrent auditors on the quality of their reporting on half-yearly basis iii. Scrutiny of adherence to KYC norms from concurrent audit reports, follow up through Zonal Offices.etc 9. Review of the Concurrent Audit System: The concurrent audit system should be subjected to annual review as prescribed under RBI guidelines. Such review would be carried out by June end every year. Similarly, policy to be modified in tune with 10

11 regulatory requirements issued from time to time. a. Submission Channel : All Concurrent Audit reports are to be submitted to Branch / Office which is under Concurrent Audit, respective Zonal office and Inspection Centres. Copies of reports of Treasury Branch, all OSBs, CO departments under concurrent audit and dealing room audit reports are to be sent to CO: Inspection Department. b. Follow up action : The follow up of the Concurrent Audit report of branches is to be done by the Zonal offices concerned and monitored by respective ICs. The salient features of the Concurrent Audit reports are to be placed in ZACE and directions of the committee are to be followed up for compliance / closure. Any specific persisting irregularity appearing in three consecutive monthly audit reports should be reported separately for immediate action / rectification. Audit department should ensure that the deficiencies pointed out in the concurrent audit are closed within three months. Significant observations of the concurrent audit reports would be placed before the Audit Committee of Executives on a quarterly basis. Any serious observation requiring attention of Audit Committee of Board needs to be placed before them at the first available opportunity. Inspection Centres have to prepare the quarterly Review of Concurrent Audit Reports of branches Zone wise and submit to CO : Inspection Department for placing before Audit Committee of Board. c. Closure of Concurrent Audit Report In line with RBI s directive it is now proposed to formally close the audit reports within three months. ZACE should close the concurrent Audit Reports only on rectification of all major irregularities. Closure of reports is to be recorded in the ZACE meetings. In exceptional cases of prolonged/chronic pending issues, if any, where the rectification is not possible due to reasons beyond control of BM/ZM, the same should be recorded in the minutes, before taking a conscious decision for closure of report in ZACE citing valid reasons. The same should be followed up 11

12 vigorously till closure and monthly progress report should be placed in the ZACE in the format given hereunder: Sl No Pending major Specific Expected date irregularities reasons for pendency of rectification d. Reviews to be placed: The following reviews on concurrent audit have to be placed: i)the results of audit of treasury and investment transactions, which are separately subjected to a concurrent audit by internal auditors/external auditors, should be placed before the CMD of the Bank every month. Concurrent audit report of Treasury Branch should cover dealing room operations and the report to be forwarded to C.O. Inspection Dept under copies to CO: International Division. CO Inspection Dept will place quarterly review note to ACB. ii) Half yearly review of performance of Concurrent auditors and interaction with them will be done at respective Inspection centres, as on 30th April and 31st October. The exercise will be completed within one month i.e before 31st May and 30th November. The compiled report of review and interaction is to be submitted by the Inspection centres to CO: Inspection Department within 15 days from date of completion. iii)the review of performance of concurrent auditors is to be done with particular reference to the quality of their reports assessed by verifying their working papers which will be available with the concurrent auditors. The interaction with concurrent auditors is to be done according to the structured format provided by the Inspection Department. Periodical structured meetings involving Zonal Managers, Inspection Centres and Concurrent auditors are to be held to improve the quality of reporting, performance of auditors and to have the feedback/ suggestions from the auditors to improve the audit system. 10. Concurrent Audit of Foreign Branches: Foreign Branches are also subjected to Concurrent Audit. Approval for assignment of Concurrent auditors for foreign branches vests with Chairman & Managing Director. 12

13 11. Review of the Policy : The policy shall be reviewed based on further regulatory guidelines and operational experience. Chairman & Managing Director is empowered to approve changes /modifications/ amendments/ relaxations/ exemptions, if any required to be made in the Policy. Such approvals are to be reported to the Board. 13