Faulty System of Alloting Statutory Bank Branch Audit

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Faulty System of Alloting Statutory Bank Branch Audit

India is a country with a population of 135.81 cores. A strong regulatory body is a must in such a country for every work to ensure transparency and independence of work. Regulator must ensure that independentness of auditor don’t get compromised for any reason whatsoever.

Let us have a look at some of the facts about the present system in bank audits.

How are bank audits appointed now?

Every year, ICAI forwards the Bank Branch Auditor’s Panel to Reserve Bank of India (RBI). The said panel is classified into following three lists by RBI:-

 Out of the 3rd list, Banks select few CA firms as per their discretion to replace the firms which have completed their cycle of 4 years. The concerned bank then seeks the selected auditors’ confirmation either by an Email and/or phone call. On getting their confirmation, an appointment letter is issued to them.

Auditors in 2nd list are sent appointment letters automatically in the normal course.

 In earlier system of allotment of Bank audits the allotment was done by RBI and it was done without the involvement of banks.

Problems faced with the current system of allotment of bank audits:

  1. Problem of area mapping:

In many cases, bank audits are not allotted on the basis of area or locations.

For example – Many CA firms of North India are appointed as auditors of branches of South/ West/ East or central region. This increases the cost of travelling of the auditors. A lot of time is wasted. This is neither beneficial to the banks nor to the auditors. Is it a diplomatically adopted technique by the bank to ensure that audit is completed with the lesser staff in a time bound manner?

  1. Lack of time for the auditors to conduct audit:

Due to undue pressure from the banks, auditors are not able to conduct audit in the desired manner. Banks even monitor the time deadline for completion of audit. There appears to be a race between all the public sector banks to complete their audit process fast and to become the first to publish the Balance Sheet. Why the banks don’t appoint 6the auditor in middle of the year or at least by January or February?

  1. Lack of efficiency:

Every auditor is appointed 2 or more branches at the same time. The banks are also pressurizing them to complete the audit of all branches allotted to them as early as possible. Because of this the auditor is not able to conduct audit efficiently and there is chance of increase in fraud. Why so much pressure to complete the audit in a hurry?

  1. Increase in risks:

As the money lying with the banks belongs to crores of depositors, it is also essential to ensure that the same is utilized as per the directions of the regulatory authorities, how? Since 70% branches have gone out of the purview of audit, potential risks have increased manifold.

  1. Independence of auditor:

Appointment of bank audit by the bank itself does hamper the independence and autonomy. Earlier system of appointment of auditor by RBI was ensuring better independence. Now, if any auditor is not agreeing to the auditee views, they have to face the music during next year audit allotment as it is auditee only who have to select th4e auditors.

Allotment of Statutory Bank/ Branch Audits based on ICAI Software (FY 2018-19)

  • Appointment of auditors of public sector (PSU) banks/ branches for FY 2018-19 will be based on software which has been developed by ICAI, i.e. allotment of bank-branch audits for FY 2018-19 will be made using web-based automated software, to ensure uniformity in allotment of audit besides being fair, transparent and equitable.
  • Also, the new procedure will suitably address the concerns of ICAI and Professionals regarding the autonomy of banks in the selection of bank-branch auditors.
  • As you know, we have over the years expressed our concern on the appointment of auditors of public sector banks by Banks’ Board themselves and on the autonomy given to them. To address this, as you are very well aware, ICAI had developed automated web-based software for the selection of statutory branch auditors of public-sector banks. On our request, RBI requested all banks to take help of this software or any other software to allot bank-branch audit. And last year, the ICAI software was utilized by three banks, namely Dena Bank, Syndicate Bank and Oriental Bank of Commerce, and we got a letter of appreciation.

For all said and done, following action will ensure better compliance with the audit system.

  1. Allotment of auditor should not be done by the auditee (i.e. bank itself) but must be done by the regulator (i.e. RBI).
  2. Audit allotment should not be in the last month of the financial year but should be in the middle of financial year.
  3. At least, a month’s time should be there to complete the audit of branches.
  4. Auditor’s appointment must be based upon their Head Office or branch office address.

Hope, someone is seriously interested in getting their records audited and enquiring the transparency in the system.

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