Executive Summary:
This circular from the Reserve Bank of India (RBI) revises guidelines for the Concurrent Audit System in Scheduled Commercial Banks (excluding Regional Rural Banks, Small Finance Banks, Payments Banks, and Local Area Banks). The revisions aim to provide flexibility considering differing levels of centralization and diverse activities across banks. Banks are directed to review their current concurrent audit systems and incorporate necessary changes with prior approval from their Audit Committee of the Board of Directors (ACB)/Local Management Committee (LMC).
Key Points / Main Content:
Coverage:
* The scope and coverage of concurrent audits are at the discretion of the head of internal audit, with ACB/LMC approval.
* Risk-sensitive areas must be covered; detailed scope determined and approved by ACB/LMC.
* Coverage must include random transaction testing.
* All Centralized Processing Centers and business origination and monitoring activities must be covered.
Appointment of Auditors:
* Banks can use internal staff or external auditors, including retired staff.
* The head of internal audit should participate in selecting external auditors and ensure quality review.
* If a Chartered Accountant firm partner is a bank director, that firm cannot be a concurrent auditor for the same bank.
* Internal concurrent auditors must be experienced, well-trained, and independent of the unit being audited.
Accountability:
* External firms' appointments can be cancelled for serious omissions, with an opportunity to be heard; the fact must be reported to ACB/LMC, RBI, and ICAI.
* Banks must have a policy for fixing accountability for omissions by internal or retired staff acting as concurrent auditors.
Tenure:
* ACB/LMC decides the maximum tenure of external concurrent auditors, generally not exceeding five years continuously.
* The age limit for retired staff as concurrent auditors is capped at 70 years.
* No concurrent auditor can stay at a branch/business unit for more than three years.
Remuneration:
* ACB/LMC decides remuneration for external concurrent auditors, based on scope, coverage, skills, staff, and time.
Review of Effectiveness:
* ACB/LMC must annually review the effectiveness of the concurrent audit system and the performance of concurrent auditors.
Reporting System:
* The Internal Audit Department should develop a reporting system for concurrent auditors, with ACB/LMC approval.
* Findings should be received in a structured format.
* Minor irregularities should be rectified immediately; major deficiencies should be reported to Head Office/Controlling Office.
* A quarterly review of important findings must be presented to the ACB/LMC.
* Fraudulent transactions must be immediately reported to the Internal Audit Department, Head Office, Chief Vigilance Officer, and Branch Managers (unless the Branch Manager is involved).
* Follow-up action and rectification of deficiencies should be prioritized.
Minimum Areas of Coverage (Annex):
* Cash transactions (including physical verification)
* Loans and Advances (including verification of securities and end-use)
* KYC/AML guidelines adherence (including transaction monitoring and reporting)
* Remittances and Bills for Collection (including SWIFT transactions)
* House Keeping (including reconciliation of accounts)
* Treasury operations
* Non-fund based business
* Foreign Exchange transactions
* Clearing transactions
* Verification of Merchant Banking Business
* Verification of Credit Card/Debit card business
* Conduct of employees, misselling of products, etc.
* Compliance with RBI guidelines and internal Policy guidelines
Impact Analysis:
Scheduled Commercial Banks (excluding RRBs, Small Finance Banks, Payments Banks, and Local Area Banks):
Impact: Banks must revise their existing concurrent audit systems to align with the revised guidelines, enhancing their internal controls and early warning systems for detecting irregularities and preventing fraud.
Action Required: Review the current concurrent audit system, incorporate necessary changes with prior approval of the ACB/LMC, and implement the revised guidelines.
Key Entities Referenced
Reserve Bank of India: The central bank of India, the issuing authority of this circular.
Scheduled Commercial Banks: The category of banks to whom this circular is addressed, excluding Regional Rural Banks, Small Finance Banks, Payments Banks and Local Area Banks.
Regional Rural Banks: A type of scheduled commercial bank in India.
Small Finance Banks: A type of bank in India.
Payments Banks: A type of bank in India.
Local Area Banks: A type of bank in India.
Concurrent Audit System: The subject of the circular, referring to the system of auditing bank transactions shortly after they occur.
Audit Committee of the Board of Directors: A committee within a bank responsible for overseeing the audit process.
भारतीय �रजव र् बक�
_________________ RESERVE BANK OF INDIA_________________
www.rbi.org.in
RBI/2019-20/64
DBS.CO.ARS.No.BC.01/08.91.021/2019-20 September 18, 2019
All Scheduled Commercial Banks (other than Regional Rural Banks), Small Finance
Banks, Payments Banks and Local Area Banks
Madam/ Dear Sir,
Concurrent Audit System
Please refer to circular DBS.CO.ARS.No.BC.2/08.91.021/2015-16 dated July 16, 2015
on ‘Concurrent Audit System in Commercial Banks - Revision of RBI's Guidelines’.
2. As you are aware, concurrent audit aims at shortening the interval between a
transaction and its independent examination. It is, therefore, integral to the establishment
of sound internal accounting functions and effective controls and is regarded as part of a
bank's early warning system to ensure timely detection of serious errors and irregularities,
which also helps in averting fraudulent transactions and preventive vigilance in banks.
3. RBI has in the past, been prescribing guidelines for scope, coverage of
business/branches, minimum items of coverage, etc. for concurrent auditors of banks.
However, with the differing levels of centralization in banks, diverse nature of activities
undertaken by various banks and commencement of operations by small finance banks
and payments banks, a common programme of work for concurrent audit applicable to all
banks may not be desirable. Further, the Expert Committee (headed by Shri Y H
Malegam) appointed by the Bank has made certain recommendations in the area of
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ब��कग पयवर् े�ण �वभाग, क�द्र�य कायार्लय, वल्ड र् ट्रेड सेन्टर, कफ परेड, मुम्बई - 400005
Department of Banking Supervision, Central Office, World Trade Centre, Cuffe Parade, Mumbai - 400 005Concurrent Audit. The existing guidelines on the subject have, therefore, been reviewed
and the revised guidelines are given as under:
A. Coverage
i. The scope of work to be entrusted to concurrent auditors, coverage of
business/branches, etc. 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)/Local Management Committee ((LMC) in case of foreign banks) of the bank.
ii. Banks may, however, ensure that risk sensitive areas identified by them as per their
specific business models are covered under concurrent audit. The detailed scope of
the concurrent audit may be determined and approved by the ACB/LMC. The broad
areas of coverage under concurrent audit shall be based on the identified risk of the
unit and must include random transaction testing of sufficiently large sample of such
transactions wherever required. Minimum areas of coverage are given in Annex.
iii. Care may be taken to ensure that all Centralized Processing Centres (business
origination and monitoring) are covered under concurrent audit.
B. Appointment of Auditors
i. The option to consider whether concurrent audit should be done by bank's own
staff or external auditors (which may include retired staff of its own bank) continues
to be left to the discretion of individual banks.
ii. The head of internal audit in the bank should participate in selection of concurrent
auditors where such function is outsourced and should be responsible for the
quality review (including skills of the staff employed) of the work of the concurrent
auditors reporting to her/him. It may, however, be ensured that if any partner of a
Chartered Accountant firm is a Director on the Board of a bank, no partner of the
same firm should be appointed as concurrent auditor in the same bank.
iii. In case the bank has engaged its own officials as concurrent auditors, they should
be experienced, well trained and sufficiently senior. The staff engaged in
concurrent audit must be independent of the branch/business unit, where
concurrent audit is conducted.C. Accountability
i. If external firms are appointed and any serious acts of omission or commission are
noticed in their working, their appointments may be cancelled after giving them
reasonable opportunity to be heard and the fact shall be reported to ACB/ LMC of
the bank, RBI and ICAI.
ii. The bank should frame a policy for fixing accountability in cases of serious acts of
omission or commission noticed in the working of bank's own staff or retired staff,
working as concurrent auditors.
D. Tenure
i. ACB/ LMC of the bank shall decide the maximum tenure of external concurrent
auditors with the bank. Generally, tenure of external concurrent auditors with a
bank shall not be more than five years on continuous basis. Further, the age limit
for retired staff engaged as concurrent auditors may be capped at 70 years.
However, no concurrent auditor shall be allowed to continue with a
branch/business unit for a period of more than three years.
E. Remuneration
i. The remuneration to be paid to external concurrent auditors shall be decided by
the ACB/ LMC of the bank. The remuneration shall be commensurate with the
scope and coverage of audit, skill sets required, number of staff required and the
time to be devoted for the audit.
F. Review of effectiveness of Concurrent Audit
i. ACB/ LMC of the bank should review the effectiveness of the Concurrent Audit
system as well as the performance of the concurrent auditors on an annual basis
and take necessary measures to suitably strengthen the system.
G. Reporting System
i. Banks’ Internal Audit Department should develop a reporting system for concurrent
auditors with the approval of ACB/LMC.ii. The findings of the concurrent auditors may be received in a structured format
prescribed by the bank.
iii. Minor irregularities pointed out by the concurrent auditors shall be rectified on the
spot. The major deficiencies/aberrations noticed during audit should be
immediately brought to the notice of Head Office/Controlling Office of the
concerned branch/business unit of the bank.
iv. A quarterly review containing important features brought out during concurrent
audits should be placed before the ACB/LMC. The zone-wise findings of
concurrent audit may be reported to ACB/LMC on a quarterly basis.
v. Whenever fraudulent transactions are detected, they should immediately be
reported to Internal Audit Department (Head Office) as also to the Chief Vigilance
Officer as well as Branch Managers concerned (unless the branch manager is
involved).
vi. Follow-up action on the concurrent audit reports and rectification of the deficiencies
should be accorded high priority by the Head Office/Controlling Office of the
concerned branch/business unit of the bank.
4. You may ensure that, based on the revised guidelines, a review of the present system
of concurrent audit is carried out immediately and necessary changes are incorporated
therein with the prior approval of the ACB/ LMC of the bank.
Yours faithfully,
(A K Choudhary)
Chief General Manager
Encl: As aboveAnnex
Minimum areas of coverage under Concurrent Audit
1. Cash transactions including physical verification of cash, etc.
2. Loans & Advances including physical verification of securities, delegation of Powers
for sanction, Security Charge Creation, end use verification of funds, monitoring of
accounts with excess drawings, monitoring of projects, etc.
3. Adherence to KYC / AML guidelines including monitoring of transactions in accounts,
compliance with Foreign Account Tax Compliance Act (FATCA) and Common
Reporting Standards (CRS), monitoring of transactions in new accounts/staff
accounts, reporting of CTR/STR, etc.
4. Remittances/ Bills for Collection including SWIFT transactions, monitoring of overdue
statements (bills purchased / discounted / negotiated, etc.).
5. House Keeping including reconciliation of accounts, monitoring of General
Ledger/Subsidiary General Ledger/Parking Accounts, opening of internal accounts,
etc.
6. Treasury operations.
7. Non fund based business.
8. Foreign Exchange transactions.
9. Clearing transactions.
10. Verification of Merchant Banking Business.
11. Verification of Credit Card / Debit card business.
12. Conduct of employees, mis-selling of products, etc.
13. Compliance to RBI guidelines and internal Policy guidelines issued from time to time.