Audit Risk Ratings

Risk Ratings in an Audit

The Risk Ratings of a Bank office/Branch is assessed based on its performance with regard to Deposit mobilization, Lending of funds, monitoring of accounts (both Deposits and Advances accounts) and handling of Non-performing Assets.

To enable the Auditors/Inspectors, the guidelines may vary from Bank to Bank, however, without deviating from the stipulations laid down by Controller, i.e. Reserve Bank of India.

PROCEDURE TO BE FOLLOWED

With a view to ascertaining the Risk of the Bank Branch in Deposits and Lending Portfolio and related matters, the Inspecting Official has to take a Sample of Accounts as under :

Loans / Advances sanctioned during the Audit Period, i.e. from the last date of Audit till the date of commencement of present Audit	100%
Cash Credit / Secured Overdraft Accounts (Standard category)	100%
Existing Loans with a Threshold limit as prescribed by the Bank Management	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.
Existing Loans below the Threshold limit	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.
Loans and Advances granted to Staff of the Bank	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.
Accounts falling under the categories of Early Alert System and Special Mention Accounts	100%
Loans and Advances accounts that have been newly classified as Non-Performing Assets during the Audit period, i.e. from last audit date till present audit date	100%
Other Sub-standard accounts	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.
Doubtful and Loss Assets	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.

 RECORDING OF OBSERVATIONS

Observations on the above parameters are to be recorded and irregularities be incorporated in the Audit Report.  This will enable to assess the Risk factor in Credit portfolio of the Bank Branch.

RISK IN OTHER AREAS OF OPERATION

Now coming to the assessment of risks in other areas of operation of the Bank Branch, the following areas to be checked and observations are to be recorded in the Audit Report :

 

a)     Deposit Accounts :

·       Go through the Account Opening Forms of all types of Deposit Accounts, say 100% for accounts opened during the Audit period, i.e. from the date of last audit till the date of present audit.

·       Make observations about compliance with regard to Know Your Customer (KYC) guidelines as laid down by the Central Bank (RBI).  Deviations, if any, should be brought to the notice of the Bank Branch Head for immediate rectification.  The Inspecting Official should, invariably, report unrectified/ persisting irregularities in the Audit Report.  Necessary steps would be made by the Controlling Office(s) for rectification thereof. 

·       Conduct of the Deposit accounts, i.e. source of funds credited and reasons for debits made in the account should be inquired with the Bank Branch Head or can be ascertained with the help of Credit challans or Paying-in-slips (in case of credits) and withdrawal instruments (in case of debits). 

·       Source of funds in the event of High value Deposits should be ascertained by the Inspecting Official to confirm veracity/genuineness or legitimate transaction.

·       Mode of a transaction – whether it is Cash / Cheque / Demand Draft / Bankers’ cheque or any other mode of transaction made through digital banking channels should be ascertained.

·       Also, take a list of accounts that have been upgraded to Operative accounts during the period of Audit and go through the documents submitted by the Account holder(s) for correctness.  Analyze the transactions that have taken place in In-operative / Dormant accounts.  Obtain the vouchers related to such transactions and ascertain their genuineness.

b)     Verification Impersonal Accounts :

·       Go through the transactions (manually made) for huge amounts in Sundry and Suspense accounts and in case any doubt arises, the same should be got clarified with the Bank Branch Head.

·       Seek necessary clarifications from the Bank Branch officials for non-reversal of old outstanding entries in Impersonal accounts and incorporate the same in the Audit Report.

 

c)     Income and Expenditure Accounts :

·       Go through the High value and doubtful transactions made (mostly manually) to various Heads of Income and Expenditure accounts and call for necessary clarifications from the concerned Bank Branch Officials.

d)     Earnings and Commissions received :

·  Verify all the entries pertaining to the refund of commissions charged by the system and its reversal.  Ascertain from the Bank Branch Officials to ensure that there are any approvals of Higher Offices in this regard.  If not, report in the Audit Report, which will enable recovery by way of Leakage of Income to the Bank. (Leakage of Income will be dealt with separately).

TO BE CONTINUED,,,,,,,,