What is Concurrent Audit of Banks?
A concurrent audit is an examination of a bank branch's transactions carried out at or near the time they occur, rather than after the year end. The Reserve Bank requires banks to bring specified branches and business lines within its coverage, and the auditor reports to the bank's management at regular intervals through the year.
Who needs it
- Bank branches that the Reserve Bank's framework or the bank's own policy brings within concurrent audit coverage.
- Large branches and those handling a substantial share of the bank's advances or deposits.
- Specialised branches dealing in foreign exchange, treasury operations or large corporate credit.
- Service branches, currency chests and central processing units, where transaction volumes are high.
- Branches placed under closer monitoring after adverse findings in an inspection or an earlier audit.
Benefits
- Errors and deviations are identified during the year, while they can still be corrected.
- Independent checking of high-risk areas such as advances, foreign exchange and large cash transactions.
- A record of compliance with the bank's own circulars and the Reserve Bank's directions.
- Regular reporting to management and the audit committee, with follow-up on earlier observations.
- Preparation that makes the year-end statutory audit and inspections smoother for the branch.
Key facts
| Item | Position |
|---|---|
| What it is | Ongoing audit of a branch's transactions during the year, not after it |
| Framework | The Reserve Bank's framework on concurrent audit, applied through each bank's board-approved policy |
| Who appoints | The bank, from its approved panel, under its concurrent audit policy |
| Coverage | Selected branches and business lines, weighted towards large and specialised branches |
| Reporting | In the bank's format, commonly monthly, with serious matters reported at once |
| Reports to | The bank's management and audit committee |
When is a concurrent audit required?
A concurrent audit is required when the Reserve Bank's framework or the bank's own board-approved policy brings a branch within its coverage. The framework's intention is that a substantial share of a bank's business should be under concurrent audit at any time, rather than every branch being covered. Selection is therefore weighted: large branches, branches with a significant advances portfolio, specialised branches handling foreign exchange or treasury business, service branches and central processing units are the usual candidates, along with any branch placed under closer watch after an adverse inspection.
Because the selection runs through each bank's own policy, two banks of similar size can have quite different concurrent audit coverage. The question "is my branch covered?" is answered by the bank's policy for the year, not by a single national threshold.
What does the audit actually examine?
The scope letter and the bank's concurrent audit manual govern this, and they are more prescriptive than in most other audit assignments: they often state the percentage of transactions to be checked in each area. The areas below are common to most banks.
- Advances: sanction within delegated powers, documentation and charge creation, disbursement, end use, drawing power and the monitoring of overdue accounts
- Deposits and account opening: KYC records, risk categorisation, and the handling of inoperative and unclaimed accounts
- Anti-money-laundering checks: identification and reporting of large, unusual or structured cash transactions as the bank's policy requires
- Foreign exchange: inward and outward remittance documentation, rate application and the reporting the law requires, in branches authorised to deal
- Treasury operations, in branches that handle them, including deal confirmation and limit monitoring
- Cash, clearing and vault operations, including retention limits and the records of movement
- Income and expenditure: interest, commission and charges applied, and income leakage
- System exception and override reports, which often surface matters no routine check would reach
How a concurrent audit differs from an internal audit
Both report to management rather than to shareholders, which is why they are often confused. The difference is one of timing and purpose.
| Concurrent audit | Internal audit | |
|---|---|---|
| Timing | At or near the time transactions occur | Periodic review after the event |
| Focus | Transaction-level accuracy and compliance | Systems, processes and the controls around them |
| Driver | The Reserve Bank's framework and the bank's policy | Section 138 of the Companies Act for companies; risk-based planning generally |
| Output | Periodic report in the bank's prescribed format | Risk-based report with recommendations to the audit committee |
| Typical question | Was this transaction correct and authorised? | Is the process designed and operating well enough to prevent errors? |
How should a branch prepare?
Almost all routine adverse observations come from records that exist somewhere but were never filed, updated or followed up. A branch that keeps the following current will have a shorter report.
- Account opening files complete, with KYC records and risk categorisation recorded
- Stock statements received and drawing power recalculated each month for working-capital accounts
- Security documents executed, stamped and charges registered, with renewal dates tracked
- Subsidiary, suspense and sundry accounts balanced, with old entries cleared rather than carried
- Daily exception and override reports reviewed and the reason for each override recorded
- A register of earlier observations with the action taken against each one
Example: an observation and its life cycle
The figures below are illustrative. During a monthly visit the auditor finds that a borrower with a ₹1.5 crore cash-credit limit has not submitted stock statements for two months, and that the branch continued to allow the full drawing power. The auditor raises it with the branch at once rather than holding it for the report, because the drawing power can still be restricted. It is then recorded in the monthly report with a grade reflecting its seriousness. The branch replies in the following period, stating that the statements have been obtained and the drawing power recalculated. The auditor verifies the recalculation before treating the observation as closed, and if it is not corrected the item stays open and is escalated under the bank's policy.
Related reading
- Bank statutory audit — the annual audit of the bank's financial statements
- Internal audit services — risk-based review of processes and controls
- Statutory audit, tax audit and internal audit compared
Official sources
- Reserve Bank of India – notifications and circulars — the framework on concurrent audit in banks
- Reserve Bank of India – master circulars — know your customer and anti-money-laundering directions
Documents required
- 01The bank's concurrent audit manual, scope letter and reporting format
- 02Daily transaction reports, exception reports and system-generated override logs
- 03Advance files, sanction and renewal records, and limit and drawing power details
- 04New account opening files with KYC records and risk categorisation
- 05Foreign exchange transaction records, where the branch is authorised to deal
- 06Cash and vault registers, and records of large and unusual cash transactions
- 07Income and expenditure records, including commission, charges and interest applied
- 08Previous concurrent audit reports and the branch's replies to them
Due dates and penalties
| Item | Due date | If missed |
|---|---|---|
| Concurrent audit report | In the bank's format, at the frequency fixed in the appointment letter, commonly monthly | Delayed reporting is itself reported to the bank's audit committee |
| Serious irregularities | Reported immediately on detection, outside the normal reporting cycle | Loss of the opportunity to act while the matter is still live |
| Branch reply and closure | Within the time the bank's policy allows for each grade of observation | Observations remain open and are escalated |
Reporting frequency, the grading of observations and the escalation route are set by each bank's own concurrent audit policy within the Reserve Bank's framework. We follow the format and the calendar in the appointment letter.
Mistakes to avoid
- Treating the audit as a tick-box exercise on a sample, instead of covering the areas the bank's manual requires in full.
- Reporting only new observations and losing track of items left open in earlier periods.
- Checking account opening papers without testing whether KYC records and risk categorisation are complete.
- Passing over system override and exception reports, which is where unusual transactions usually surface.
- Verifying drawing power from the sanction alone, without the stock statements that should support it.
- Raising routine errors in the written report rather than having them corrected at the branch as they arise.
Why PHMG
- Partner-led: a chartered accountant reviews your work, not only a junior team.
- Clear fee and scope in writing before we start.
- Deadlines tracked for you, with reminders well before the due date.
- Your documents and data are handled confidentially.
- Online service across India, with a single point of contact.
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