Bank Audit
Banks are the foundation of our economy. They handle a huge amount of deposits and savings of the public, so they have to be closely monitored and reviewed. A bank audit is one important process of this monitoring.
‘Audit’ or ‘Auditing’ refers to an activity that is carried out by any business entity on its own or to fulfil the compulsion laid under any law to evaluate the transactions, accounts and documents of the business and to confirm its accuracy and legitimacy. This examination is conducted by internal or external auditors.
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Introduction
Bank Audit can be divided into three categories viz.
- Concurrent Audit
- Internal Audit or Information Systems Audit
- Statutory Audit
Concurrent Audit
Meaning: Concurrent audit refers to the examination or audit of the transaction at the time when it is actually taking place.
Features:
- Continuous audit- Concurrent audit is a continuous audit that takes place throughout the year.
- Monthly basis- Concurrent audit is carried out by external auditors i.e. Chartered Accountants (usually) every month.
- Evaluation of daily transactions- Concurrent audits evaluate and check the transactions that take place on a daily basis which assures regularities.
Purpose:
Concurrent Audit leads to the smooth flow of working in branches of banks and assures the rectification of any mistakes to avert the cascading effect that germinates out of irregularities. Concurrent Audit is a way to help Branches in order to work in a smooth manner and rectify any mistakes to avoid the cascading effect of irregularities immediately at the time it takes place. It helps to detect fraud at formation level which leads to protection of the public funds.
Internal Audit or Information Systems Audit
Meaning: Internal Auditing is when any organization, including a bank, constitutes an audit team within its own organization to cater to its auditing requirements. Internal Audit may focus on any specified area or cover every aspect of the branch, depending on its audit programmes and requirements. It is conducted by the bank itself. The Internal Auditors visit branches one by one and carry out the audit process.
Features:
- One by one visit: The internal auditors constituted from within the organization visit branches one by one at the place and on the time when auditing is to be done.
- Aspect-centric: Internal Audit may be aspect-centric i.e. it may concentrate on any particular area/aspect of the branch or the whole spectrum of the branch, based on the audit programme and need.
- Conducted by the organization itself: Internal audit is conducted by the organization itself or bank itself in case of the bank.
Purpose:
Internal Control audits to ensure the smooth, accurate and safe flow of information within the organization through the channels, the security (of information) etc.
Internal Control audits to ensure the functionality of new banking software along with its accessibility and security standards. Information Systems Audit is a new area gaining importance in the last few years. With the rapid advancement in computerization in the banking sector – core banking, ATMs, mobile banking, internet banking are completely computerized and hence becoming necessary to have a periodical review over the working of these systems. Internal Control audit looks are the information flow, the channels, the security (of information) etc. It also checks and reviews the work ability of new emerging banking software’s and their rating on security and access.
Statutory Audit
Meaning: Statutory Audit refers to the audit that is mandatorily conducted by a Statutory Auditor as required by the law or Act. In the case of Banks, a statutory audit is a mandatory requirement prescribed by RBI. The Statutory Auditor is appointed by RBI in association with the Institute of Chartered Accountants of India.
Features:
- Conducted in the March & April: Statutory Audit is conducted every year at the end of March or beginning of April. In banks, the closure of financial years marks the year-end audit i.e. Statutory Audit.
- Concludes NPA: Statutory Audit concludes NPA and thus it is an important audit. It should be noted that NPA provisions affect the bank’s profits and so the Balance Sheet and Profit & Loss Account and ultimately the dividends of the shareholders.
- RBI appoints the auditors: RBI appoints the Statutory Auditors in association with the ICAI, to appoint Chartered Accountants for conducting the audit.
Purpose:
Statutory Audit lay focus on the loans & advances, adherence to PSL requirements, SLR, CRR & so on along with compliances towards other statutory norms according to the latest notifications by RBI.
Banks carry out numerous transactions on a daily basis which leads to voluminous documentation & other formalities which the banks have to comply with. A concurrent audit helps to encounter any irregularities and non-conformities quickly and rectify it readily. This averts accumulation of irregularities which becomes a big trouble for any branch at the time of end audit. Concurrent Auditors keep a check on daily maximum cash balance adherence, KYC norms, documentation related to disbursement of loan and loan disbursement in consonance with rules & regulations, income leakage etc. Such details are furnished in the ‘concurrent audit report’.
Several banks carry out internal auditing along with concurrent auditing. In the last few years, information systems audit- a part of internal audit has gained tremendous popularity with high-paced digitalization in banking industries. With the computerization of core banking activities and introduction & acceptance of concepts like mobile banking, ATMs, internet banking, periodical review of such systems through internal auditing has become very necessary.
The concurrent and internal audits take care of the fundamental working of the banks, whereas the Statutory Audit invests its attention on the loans & advances, loan disbursement as per RBI rules, compliance to PSL, SLR, CRR, etc.
So, a Bank Audit is a crucial activity to be conducted by internal and external auditors, to confirm compliant and fair banking practice.
Types of financial audit for NGO
There are four types of financial audit carried out for NGO to independently examine the activities of NGO and to verify that the NGO is working in adherence to law and order. The types of audits are as follows:
- External audit
An external audit is executed by independent auditors to give a professional opinion on the credibility and fairness of the financial statements on the basis of careful examination of an array of samples of the records. The opinion of the auditor plays an important role as it provides a set of proofs that financial reports are true and can be trusted by stakeholders, trustees and donors. - Internal audit
An internal audit can be executed by the staff of the NGO or by competent professionals exclusively hired for audit. It includes verification of the NGO’s policies and procedures and their consonance with law. This offers authenticated and updated information about the methods being followed to the trustees. - Donor audit
A donor audit can be performed by the NGO’s external auditors or by donors themselves. This entrusts confidence among the donors that their donations have been duly utilized under the legal conditions. A successful audit often bolsters additional funding’s. - Investigative audit
An investigative audit can be performed when an NGO suspects a particular issue (which is usually related to fraud) and auditor needs to uncover all the primary as well as secondary facts. The auditors may put forth the proofs for the next steps that the NGO may opt to take.
Different Purposes of Different Audits
- An external audit examines the authenticity, accuracy and fairness of the financial statements of the NGO.
- An internal audit examines the policies and procedures followed by the NGO.
- A donor audit examines the terms and conditions followed by the NGO.
- An investigative audit scouts for the evidence connected to particular suspected ill action.
Benefits of Audit for NGO
Plenty of benefits are consequences when an NGO is audited. The two main advantages of Audit for NGO are as follows:
- Proof of authenticity
Audits help an NGO to provide proof of its authenticity and honesty in its financial statements and the practices carried out by them. - Auditor’s Advice
Auditors are updated with the latest amendments made by the government and they are competent enough to provide valuable advice on financial methods and controls to the NGOs. An audit allows an NGO to take and apply the tact’s & knowledge given by auditors, besides taking the help of the auditor in the investigation of particular issues.