AUDITING CREDIT PORTFOLIO-PART 2

 

 

In this Post, I am going to give the Checklist to be taken into account by the Inspecting Officer while conducting audit of Credit portfolio. 

Release and End use of funds:

 

After completing the perusal of file, the Inspecting Officer should ensure that the Branch has completed all the pre-release formalities.  In some cases sanctioned by Higher Office, they would have stipulated some additional documentation formalities like obtaining Undertakings, Declarations etc.  Ensure that they have since been obtained and held on record.

In some loans sanctioned by Higher Offices, requirement of Credit Process Audit, Legal Audit, Pre-release audit etc. would have been stipulated.  Audit Official should ensure that these Audits are completed and their observations vis-a-vis rectification, if any required.

After completing the above exercise, the Audit Officer should go through the transactions that have taken place in the account. The loan should have been disbursed strictly as per terms spelt out in the Sanction Letter. Ensure that the adequate margin is brought in to the system by the borrower. 

 

 In the case of Consortium advances (where the Auditee Bank is not the leader), copy of the compliance certificate should be obtained from the Leader of the Consortium along with the copy of Sanction Letter.  If any non-compliance is noticed, the matter should be brought in the Audit Report.

Any Sanction of Limit/facilities is subject to availment by the applicant within a stipulated time period.  If the borrower has not availed the facilities within that stipulated time limit, the applicant should should submit a request letter to the concerned Sanctioning Authority whether it is the Branch or Higher Office(s) and get the sanction re-validated.  The reasons for non-availment of the facilities within the stipulated period should be explained and the same should be convincing.  The Sanctioning Authority may re-validate the sanction for a further period of availment.

The Inspecting Officer should peruse the account opened in the system, go through the Account Master and ensure that the Repayment period, installment amount, Rate of Interest, repayment schedule are entered correctly.

The Inspecting Officer should also ensure that necessary Service Charges like Processing Charges, Documentation Charges, other incidental charges like Valuation charges, SRO Registration charges, Legal service charges are recovered from the borrower.  If not, the same should be computed and reported in the Leakage of Income statement in his Audit Report.  He should also ensure that the service charges are recovered during the course of the audit itself.

It should be ensured by the Auditor that the funds sanctioned by the Bank are utilized for the purpose for which the facilities are sanctioned.  There should be supporting vouchers, invoices, bills held on Branch records, duly verified by the Branch officials ascertaining the end use of funds.

If the loan is sanctioned for the purchase of some articles/machinery, the amount should be directly released to the supplier or the vendor.  This amount should be exclusive of the margin amount to be brought in by the borrower.  It is always better to ensure that the borrower pools in the margin amount into their account with the Branch wherefrom the same can be debited for combining with the loan amount while issuing Demand Draft / RTGS / NEFT payments to the suppliers.

The Inspecting Officer should ensure that the Branch has made Stage-wise inspections wherever required and are applicable and proper verification has been made by the Branch officials so that the end use of funds is confirmed.

The Branch should have made CERSAI registration with regard to the properties mortgaged to the Bank.  This should be ensured by the Auditing Official.

 

Regarding monitoring of Advances by the Branch will be posted in the next article.