RBI widens Bank Auditors’ responsibility

BE/RBINOTE/62/2019

The Regulator Reserve Bank of India, has widened the responsibilities of Bank Auditors.

• Now the RBI wants more intensive examination of large value accounts, the nature of securities given and financial accounts of borrowers.
• RBI believes that this will provide more insight in determining the Non-performing assets (NPAs or sticky loans) and other sensitive areas of concern like Frauds.
• The new framework also states that the statutory auditors while verifying the records should ensure whether an NPA has been properly identified by the bank or not, Auditors should ensure that they do not adhere to the objective tests and guidelines laid down in general, Auditors should ensure that they display a great degree of care and independence in scrutinizing banks’ exposure to big borrowers.
• These instructions, among others will be included by all private and foreign banks in the annexure to the letter of appointment issued to the auditors.
• It is felt that Auditors form the first line of check and that some of the banks’ losses can be reduced and brought down, by being more vigilant as per the Regulator’s thinking.

Early Warning Signals:

• Earlier RBI had announced that there would be quarterly meetings between bank auditors and Central Bank in determining early warning signals.
• While giving a declaration about the absence of their relatives in indebtedness in a borrower’s account, Auditors are expected to go a step ahead of the laid down guidelines and ensure that in addition to section 141(3)(d) of the Companies Act (which relates to indebtedness and disqualification of auditors), the spouse, dependent children and wholly or mainly dependent parents, brothers, sisters or any of them of any of the partners/directors or proprietors of the firm/company in which they are interested are not indebted to the bank.
• Quantification of anything specified in the audit report is absolutely essential and should be ensured by the auditors.
• Immediately on completion of the audit, the serious irregularities should be reported to the top management as also the senior supervisory Manager of RBI in the Department of Supervision immediately.
• In case of non-observance of any such irregularity a NIL report should be submitted.
• If matters involving the senior management personnel of the bank are observed during the course of audit the same should be reported immediately to the bank’s board of directors and RBI.
• Central Fraud monitoring Cell of RBI should be advised of frauds of Rs. 1 crore and above immediately without any loss of time.
• Also, while recruiting the auditors the banks should ensure that any deliverate failure on compliance to the instructions by the auditors would render the auditors for action.
• Auditors should also certify whether red flagged accounts are being monitored and investigated by the banks and also confirm whether the status of such accounts have changed to fraud or otherwise.