MAIN : ADMIN-11/2014-15

a DT. 03-04-2014

CO: Inspection
SUB : [Link]-07 FILE M-8 S-807
Department

CONCURRENT AUDIT POLICY 2014-15

The Concurrent Audit Policy in vogue at present was approved by the Board on
02.02.2013 and the same was communicated to the branches vide our Circular No.
ADMN/81/2012-13 dated 22.02.2013. In course of review/revision of the existing
policy, certain modifications and improvements have been made.

The revised Concurrent Audit Policy for the year 2014-15 was approved by the Board
in its meeting held on 28.03.2014. Copy of the Board approved policy is enclosed.

The above policy is placed in our Bank’s intranet for information and compliance.

Branches/ Administrative offices have to ensure adherence to the Policy guidelines.

K Udaya Bhaskara Reddy

GENERAL MANAGER ( I & C)
 CONCURRENT AUDIT POLICY 2014-15

INDEX

Sl Particulars Page
No No
1 Preamble 2
2 Regulatory Requirement 2
3 Concurrent Audit Coverage 2
4 Branch Audit and Duties of Concurrent Auditors 2
5 Selection of the Branches and other offices. 4
6 Selection of the audit firms. 4
7 Appointment of Concurrent Auditors, fees and other 6
conditions.
8 Conduct and follow up 9
9 Review of Concurrent Audit System 10
10 Concurrent Audit of Foreign Branches 12
11 Review of the Policy 13
 CONCURRENT AUDIT POLICY 2014-15

CONCURRENT AUDIT POLICY

1. Preamble:

The Bank shall put in place an effective concurrent audit system to

comply with the RBI guidelines as also to supplement the efforts of the
internal audit department to strengthen the internal control system. The
concurrent audit system will be a part of Bank's early-warning system to
detect irregularities and lapses, which helps checking repeated /
recurring violations of the internal and regulatory guidelines, controlling
risks and in preventing fraudulent transactions.

The General Manager/Department Head of Inspection Department will

be the custodian of the Policy.

2. Regulatory requirement:
The RBI requirement regarding coverage of not less than 50% of
deposits as well as not less than 50% of credit and other risk exposure
of the Bank under concurrent audit to be ensured on an on-going basis.
Similarly the RBI requirement that the Department at the Head Office
dealing with Treasury functions is to be subjected to concurrent audit
will also be complied with. The RBI guidelines as indicated under circular
[Link].B.C.16/08-91/021/96 dated August 14, 1996 to be taken
into consideration while implementing the concurrent audit systems in
the Bank.

3. Concurrent Audit Coverage:

The concurrent audit shall cover 70% of deposits and 70% of advances
of the Bank as against RBI’s stipulation for coverage at minimum of 50%
of deposits and 50% of advances. A large number of activities /
operations are being carried out in a centralized manner at various units
set up for that purpose and the scale of transactions / operations
undertaken at these units is large. With a view to ensuring that the
functioning of these units is as per the internal as well as regulatory
guidelines and mitigating the risk associated with large-scale operations,
such non-branch units shall also be subjected to concurrent audit.

[Link] Audit:

The Concurrent Auditors should certify all the reports under Branch

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Statutory Audit System wherever Concurrent Audits are conducted by

external Chartered Accountants. Such Concurrent Auditors should be
advised to provide various Certifications done earlier by Branch
Statutory Auditors, covering NPA provisioning, Insurance coverage, P &
L Account, ALM, CRAR, DICGC, LFAR etc., similarly, Certification
regarding Tax Audit may also be taken from the Concurrent Auditors. It
is pertinent to note that the Concurrent Auditors are carrying out all the
verifications on a continuous basis which the Branch Statutory Auditors
are supposed to do annually for giving these Certificates. Concurrent
auditor should also undertake stock audit function for which they may be
suitably remunerated. Concurrent auditors should not be entrusted with
Stock audit of any of the account of the same branch. The role of
Concurrent Auditors shall be enhanced since Concurrent Auditors will,
henceforth, be appointed from the RBI panel based on the Branch
Gradation System.

4.1 Branch Audit and other duties to be performed by Concurrent

Auditors:
a) Credit Audit is to be conducted by qualified concurrent audit
firms/inspectors of Inspection Centres .

b) Apart from daily checking of transactions, the Concurrent Auditor

has to undertake the following:-
1. Half yearly Revenue audit.

2. Quarterly ATM audit.

3. 100% verification of Bill of Entry, A1,A2 & A3 and other FOREX

operations.

4. Pre-disbursal audit/ post-sanction follow up, whenever required.

5. Verifying compliance to KYC / AML norms.

6. Verification of E-filing of TDS deduction done

c) Pre Release Audit shall be carried out as per the extant guidelines.
In case the pre release audit gives a qualified report for a particular
sanction, pending compliance of certain conditions, verification
progress in compliance of pending terms and conditions will be taken

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up by concurrent auditor till full compliance.

5. Selection of the Branches and other offices for Concurrent

Audit:

ACE/ZACE may identify the branches and other units / offices for
concurrent audit from time to time. Audit Committee of Board should be
kept informed of the developments / progress on half yearly basis.
However, while selecting the branches for concurrent audit, the risk
profile of the branches also needs to be considered. It is important for
the bank that the branches with high risk are subjected to concurrent
audit irrespective of their business size. Specialized branches viz., Agri,
SME, Mid Corporate, Infrastructure, Large Corporate, CPU, retail assets,
portfolio management, forex, back office etc may also be covered under
the Concurrent Audit, in case already not covered under Concurrent
Audit. The concurrent audit assignments may be undertaken internally
by Bank's officers and also outsourced to external audit firms.

a) The concurrent audit shall cover 70% of deposits and 70% of

advances of the Bank
b) All specialized branches viz., Agri, SME, Corporate, Retail Assets,
Microsate, Portfolio Management, Treasury, Forex, Back Office etc
shall also be covered under the Concurrent Audit.
c) While selecting the branches for concurrent Audit, the risk profile
of the branches needs to be considered. The branches with high
risk are to be subjected to concurrent audit irrespective of their
business size.
d) Audit Committee of Executives / Zonal Audit Committee of
Executives may also identify the branches and other units /
offices for concurrent audit from time to time. Audit Committee of
Board should be kept informed of the developments / progress on
half yearly basis.

6. Selection of the audit firms for conducting concurrent audit:

The following basic criteria should be kept in mind while selecting a firm
for concurrent audit assignments: -

a) It should be a partnership firm of Chartered Accountants. We may

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consider Sole proprietorship firms also in case of non-availability of

Partnership firms.

b) The firm should be selected from the RBI panel as per gradation
suggested for Branch Statutory Auditor appointment.

c) Audit firms engaged by banks for audit work should have qualified
Information System Auditor (CISA/DISA) with necessary exposure
to systems audit since all banks are fully computerized and IS
audit should form an integral part of audit of banks in the
circumstance. Exceptions may be allowed in case of non-
availability of CISA/DISA qualified persons.

d) Weightage to be given to the firms where the partners themselves

were ex-bankers or the firm has got tie-up with ex-bankers with
requisite experience and exposure.

e) It is to be ensured that the audit firm or any sister / associate

concern / network firm is not conducting the statutory audit of the
Bank or any of its branches.

f) Weightage to be given to a firm having exposure in conducting

concurrent audit of the Bank branches for a few public sector /
major private sector banks.

g) The firm should have necessary office set up and adequate

personnel to ensure proper deployment and timely completion of
the assignments.

h) The firm should execute undertaking of fidelity and secrecy on its

letterhead in the format prescribed by the Bank.

i) The assignment should be carried out in a professional manner

and in case of any misconduct & negligence the Bank is free to
report the matter to ICAI / RBI under the guidelines from time to
time. This will be in addition to the disengagement from the
assignment.

j) The firm should not sub-contract the audit work assigned to any
outside firm or other persons even though such persons are
qualified chartered accountants.

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k) A declaration to be furnished by the firm that credit facilities

availed by the firm or partners or firms in which they are partners
or directors including any facility availed by a third party for which
the firm or its partners are guarantor/s have not turned or are
existing as non- performing assets as per the prudential norms of
RBI. In case the declaration is found incorrect, the assignment
would get terminated besides the firm being liable for any action
under ICAI / RBI guidelines.

l) Any other terms and conditions of the assignment would be

decided by the Bank on a case-to-case basis.

7. Appointment of Concurrent Auditors, their fees and other

conditions:

a) The appointment of the concurrent auditors for various concurrent

audit assignments needs to be done from the RBI panel as per the
gradation based on the size of the Branch with the approval of
delegated authority in Audit Department. Suitable firms would be
identified for each assignment and would be approved taking into
account their experience and exposure, similar activity carried out
for the Bank or other banks, availability of adequate trained
resources, location of the audit unit etc. The monthly fees payable
to the auditors will be approved by Board.

b) The tenure of the concurrent audit would be initially for one year
and would be extended for a further period of two years (overall
three years), based on the performance of the auditor in the first
year.

c) After completion of specific period, the firms may be considered

for audit assignment in other locations or areas. Cooling period of
two years would be observed for a firm to become eligible for
appointment in the same audit unit. This will be purely at the
discretion of the Bank and no rights whatsoever accrue to the firm
for such appointment.

d) At any one point of time, not more than one audit assignment
would be awarded to any single firm. An audit assignment that

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needs to be carried out across the branches / units at different

locations would be considered as a single assignment for this
purpose.

e) The concurrent auditor should adhere to the audit coverage strictly

as per the scope as may be decided by the Bank from time to
time.

f) The concurrent auditors should not undertake any other activities /

assignment on behalf of the branch or unit without obtaining the
concurrence of the audit department in writing.

g) No out of pocket expenses or traveling allowance / halting

allowance would be paid to the concurrent audit firms for carrying
out the assignment. However, the service tax, education cess etc.
would be paid as applicable from time to time in addition to the
basic fees. The concurrent auditors may be reimbursed actual out
of pocket expenses incurred in connection with travel involved for
conducting stock audits. The payment to the concurrent auditors
would be subject to deduction of tax at source at appropriate
rates.

h) All the necessary certificates that need to be given as a part of the

concurrent audit assignment (Bills of Entry verification, A1/A2
Forms etc.) would be given by the audit firm under its letterhead
without any additional certification fee.

i) There is a need to transform the present concurrent audit system

to Risk based concurrent audit. Therefore, the concurrent auditors
would give rating or grade either numerical or phrased one for the
audit entity. This rating should be based on his observations about
branch functioning.
The format used for risk based concurrent audit has been designed
on the lines of RBIA . Various check lists under Business and
Control parameters are incorporated in the format and assessed
for their risks. Overall risk rating is assessed through a risk matrix
taking into account the business and control risks.

j) A detailed checklist and other operating guidelines will be provided

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to the concurrent auditors. Necessary training / consultation

required would be provided to them for enhancing the quality of
the audit. They would be made aware of the guidelines and
circulars issued subsequent to commencement of assignment and
having impact on the concurrent audit, to keep them abreast of
the changes in the operational and regulatory guidelines.

k) Necessary arrangement should be made for providing space,

workstation and access to systems (viewing rights only) to the
concurrent auditors for ensuring smooth conduct of audit
assignment. This would be the responsibility of the controller of
the audit unit / Branch Head.

l) The Bank will prescribe structured formats for the audit reports
and also stipulate the time limits for submission of the reports.
Letter of caution will be given to Concurrent auditors for late
submission of reports. Timely submission of reports is one of the
areas assessed in the half yearly performance review of the
auditors. Their services may be discontinued if there is continuous
non compliance.

m) The audit formats would be reviewed on an annual basis. The

firms should strictly adhere to the format and the time limit. Bank
may prescribe different periodicity for different reports within the
same audit unit.

n) Audit assignments and subsequent renewals shall be given to

Concurrent Auditors during the month of July every year.

o) Removal/Delisting of Concurrent Auditors:

Concurrent Auditors, who have colluded with borrowers for

pecuniary benefit and who failed to report major irregularities and
frauds of more than Rs. One Crore, will be included in the IBA’s
Caution List (Under Third Party Entity (TPE) and auditors whose
names are included in the IBA Caution List from time to time will
also be removed from the Concurrent audit as per extant
guidelines.

Concurrent Auditors will be Delisted /removed by placing a note to

General Manager (I&C) in the following instances:

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Frauds of financial loss less than Rs.1 cr not detected / not

reported.

Poor ratings in the Half yearly performance by the respective

Inspection Centres;

Not complying with our requirements viz., refusing to attend

assignments like Pre-release audit and Credit Audit, etc.

Not conducting audit for the minimum required number of

days; Poor quality of reports etc. and;

Who have resigned in the middle of their assignment period.

8. Conduct and follow up of concurrent audits and functional

role of verticals:

a) Each branch / audit unit should identify nodal officer/s as a single

point contact for coordinating the concurrent audit work. The audit
units should ensure rectification of the deficiencies without any
loss of time so as to achieve the very purpose of concurrent audit.

b) The bank should provide the concurrent auditor with requisite

initial induction to the branch activities and further support the
auditor with the MIS generated from the CBS system.

c) Head-Audit to put in place necessary systems to initiate follow up

on the concurrent audit reports with the respective branches /
units under intimation to the controllers of the functions. However
the Controllers will be responsible for further follow up with the
branches / units to ensure compliance.

d) A formal wrap-up discussion with the branches and non-branch

segments along with the concurrent auditors will be held once in
six months for the more important branches in each Zone. Initially
the focus would be on those branches having significant corporate
exposure including critical non-branch segments.

e) At present significant findings on concurrent audit reports are

reported to Audit Committee of Executives and thereafter to Audit
Committee of Board on quarterly basis.

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f) In line with RBI’s directive it is now proposed to formally close the

audit reports once a quarter.

g) The pending issues of the previous reports need to be mentioned

as a persisting irregularity / deficiency in the subsequent reports

h) While carrying out internal audits, the quality of compliance with

the concurrent audit report would be covered and commented
upon by the Internal Auditors.

Functional Role:
a) CO Inspection Department
[Link]-ordinating the concurrent audit of HRM, Expenditure /
Stationery / Reconciliation, Credit Card (Departments of CO) and
Treasury Branch, Chennai where monitoring and follow up thereof
shall be carried out by the respective departments.

ii. Placing the concurrent audit report of Treasury Branch and the
review notes on major observations in Concurrent Audit reports,
including adherence of KYC/AML guidelines by branches to Audit
Committee of the Board (ACE), every quarter.

iii. Empanelment of External auditors for concurrent audit following

due process and

iv. Concurrent audit assignment of branches as per the approved fee

structure.

b) Inspection Centre
i. Organising / Conducting pre-disbursal audit through concurrent
auditors for the CA branches
ii. Evaluation of performance of concurrent auditors on the quality
of their reporting on half-yearly basis
iii. Scrutiny of adherence to KYC norms from concurrent audit
reports, follow up through Zonal [Link]
9. Review of the Concurrent Audit System:
The concurrent audit system should be subjected to annual review as
prescribed under RBI guidelines. Such review would be carried out
by June end every year. Similarly, policy to be modified in tune with

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regulatory requirements issued from time to time.

a. Submission Channel :

All Concurrent Audit reports are to be submitted to Branch / Office

which is under Concurrent Audit, respective Zonal office and
Inspection Centres. Copies of reports of Treasury Branch, all OSBs,
CO departments under concurrent audit and dealing room audit
reports are to be sent to CO: Inspection Department.

b. Follow up action :

The follow up of the Concurrent Audit report of branches is to be

done by the Zonal offices concerned and monitored by respective
ICs. The salient features of the Concurrent Audit reports are to be
placed in ZACE and directions of the committee are to be followed
up for compliance / closure.

Any specific persisting irregularity appearing in three consecutive

monthly audit reports should be reported separately for immediate
action / rectification.

Audit department should ensure that the deficiencies pointed out

in the concurrent audit are closed within three months. Significant
observations of the concurrent audit reports would be placed
before the Audit Committee of Executives on a quarterly basis.
Any serious observation requiring attention of Audit Committee of
Board needs to be placed before them at the first available
opportunity. Inspection Centres have to prepare the quarterly
Review of Concurrent Audit Reports of branches Zone wise and
submit to CO : Inspection Department for placing before Audit
Committee of Board.

c. Closure of Concurrent Audit Report

In line with RBI’s directive it is now proposed to formally close the
audit reports within three months. ZACE should close the
concurrent Audit Reports only on rectification of all major
irregularities. Closure of reports is to be recorded in the ZACE
meetings. In exceptional cases of prolonged/chronic pending
issues, if any, where the rectification is not possible due to reasons
beyond control of BM/ZM, the same should be recorded in the
minutes, before taking a conscious decision for closure of report in
ZACE citing valid reasons. The same should be followed up

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vigorously till closure and monthly progress report should be

placed in the ZACE in the format given hereunder:
Sl No Pending major Specific Expected date
irregularities reasons for of rectification
pendency

d. Reviews to be placed:
The following reviews on concurrent audit have to be placed:

i)The results of audit of treasury and investment transactions,

which are separately subjected to a concurrent audit by internal
auditors/external auditors, should be placed before the CMD of the
Bank every month. Concurrent audit report of Treasury Branch
should cover dealing room operations and the report to be
forwarded to C.O. Inspection Dept under copies to CO:
International Division. CO Inspection Dept will place quarterly
review note to ACB.

ii) Half yearly review of performance of Concurrent auditors and

interaction with them will be done at respective Inspection
centres, as on 30th April and 31st October. The exercise will be
completed within one month i.e before 31st May and 30th
November. The compiled report of review and interaction is to be
submitted by the Inspection centres to CO: Inspection Department
within 15 days from date of completion.

iii)The review of performance of concurrent auditors is to be done

with particular reference to the quality of their reports assessed by
verifying their working papers which will be available with the
concurrent auditors. The interaction with concurrent auditors is to
be done according to the structured format provided by the
Inspection Department.

Periodical structured meetings involving Zonal Managers,

Inspection Centres and Concurrent auditors are to be held to
improve the quality of reporting, performance of auditors and to
have the feedback/ suggestions from the auditors to improve the
audit system.

10. Concurrent Audit of Foreign Branches:

Foreign Branches are also subjected to Concurrent Audit.

Approval for assignment of Concurrent auditors for foreign
branches vests with Chairman & Managing Director.

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11. Review of the Policy :

The policy shall be reviewed based on further regulatory guidelines

and operational experience. Chairman & Managing Director is
empowered to approve changes /modifications/ amendments/
relaxations/ exemptions , if any required to be made in the Policy.
Such approvals are to be reported to the Board.

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DO’S AND DON’TS FOR CONCURRENT AUDITORS (CA FIRMS)

Do’s:

1. Pre concurrent audit study of the branch/ department should be done getting
all relevant information and off site surveillance reports of the auditee as
stated in the engagement letter.

2. Prepare proper audit plan based on 1 above, covering all the areas of the
scope, keeping in the view the time lines

3. Have a structured introductory meeting with the auditee and seek all the
information required in advance with proper time schedule. Introduce the audit
team to the auditee officials.

4. Audit team should accompanied by senior and experienced members as

required.

5. Auditors to display team spirit and avoid misunderstandings/ arguments in the

presence of auditees.

6. Discuss his findings with branch officials on daily basis and try to rectify the
defects then and there itself.

7. Give auditees a chance to express their opinion while discussing the issues.
Getting proper explanation in a co-operative atmosphere will save precious
time.

8. In case of difference of opinion with auditee, the auditor should first discuss
with the leader of his team. Further discussion on a higher level may be made,
if required.

9. In case, auditor comes across any information which causes him to suspect
any element of fraud, gross negligence, gross incompetence or similar
unfavourable actions or tendencies, he should report the matter immediately.

10. Auditor should keep utmost secrecy of the information/ audit observations/
issues etc. relating to the auditee.

11. Be courteous, cooperative and professional.

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Don'ts:

1. Auditor should not have any professional or commercial relationship either

direct or indirect with borrowers/ beneficiaries of the branch / department
which they are auditing and also will not have in future as far as possible for a
minimum period of three years.

2. Auditor should not take advantage of his association as concurrent auditor

with the branch/ department of the bank and canvas for any client/ business
with the bank either directly or indirectly.

3. Auditor should not represent on behalf of any client/ customer of the bank for a
minimum period of as far as possible three years after the completion of term
of the audit.

4. Auditor should not share/ pass on/ discuss any audit related observations/
issues/ findings with any one other than concerned in the bank.

5. Auditor need not act overly reserved or unfriendly in order to maintain his
independence as an auditing officer. A forbidding attitude on his part may well
cause others to adopt the same attitude towards him. This can adversely affect
the work entrusted to the inspecting officer.

6. Auditor should not get involved in heated argument with auditee.

7. Auditor should not give orders to auditee and seek requirements from the
officer assigned to assist him on a particular job. The concerned officer would
issue the necessary orders to their employees if he accepts inspector’s
suggestions and recommendations.

8. Auditor should not delay the submission of audit report

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