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RBI Revises Concurrent Audit Rules For Banks Amidst Rising Frauds

RBI Revises Concurrent Audit Rules For Banks Amidst Rising Frauds

The Reserve Bank of India (RBI) logo is displayed on a gate outside the central bank’s regional headquarters in New Delhi, India, Monday, July 8, 2019.
The Reserve Bank of India (RBI) logo is displayed on a gate outside the central bank’s regional headquarters in New Delhi, India, Monday, July 8, 2019.

The Reserve Bank of India, on Thursday, issued a revised set of rules for concurrent audits in commercial banks, amidst rising instances of fraud detected at Indian lenders.

Concurrent audits, conducted by internal officials or an external agency, are intended to examine transactions across various banking departments to ensure compliance with rules. Such audits, however, proved to be ineffective in cases such as the Nirav Modi fraud which hit Punjab National Bank.

The RBI has now issued a set of revised instructions that banks must follow to set up concurrent audits.

In a notification issued on Thursday, the regulator said:

  • The head of internal audit of the bank should decide the scope of work of the concurrent auditors with approval from the Audit Committee of the Board of Directors or the Local Management Committee for foreign banks. However, risk sensitive areas identified by banks and all Centralized Processing Centres should be covered under these audits.
  • The head of internal audit in the bank should help select concurrent auditors if the audit is outsourced and should be held responsible for the quality of the audit.
  • The bank may terminate the services of external auditors and frame a policy for accountability of it’s own staff in case of serious acts of omission or commission in the audit.
  • Apart from reviewing the effectiveness of the audit, the Audit Committee of the Board of Directors or the Local Management Committee will decide the maximum tenure of external concurrent auditors and their remuneration. “Generally, tenure of external concurrent auditors with a bank shall not be more than five years on continuous basis,” the RBI said.
  • Banks should develop a reporting system for concurrent auditors and findings should be presented in a structured manner. Minor irregularities pointed out by the concurrent auditors should be rectified on the spot.

The rules, the RBI said, are intended to ensure timely detection of serious errors and irregularities.

Concurrent audit aims at shortening the interval between a transaction and its independent examination. It is, therefore, integral to the establishment of sound internal accounting functions and effective controls and is regarded as part of a bank’s early warning system to ensure timely detection of serious errors and irregularities, which also helps in averting fraudulent transactions and preventive vigilance in banks.
RBI Notification
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