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Revenue leakage in bank audit

karuna Gautam (SSS) (37 Points)

29 January 2014

Can someone tell that how can we detect revenue leakage in Bank audit, briefly.

Thanx in advance.

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Deepak Gupta (CA Student) (15922 Points)
Replied 29 January 2014

Originally posted by : karuna Gautam
	Can someone tell that how can we detect revenue leakage in Bank audit, briefly. Thanx in advance.

Nowadays, the bank branches are computerized. Therefore, the auditor should concentrate more on the parameters set in the system, the logic of programming, etc. He should concentrate more on the master data entered and validated at the branch. In such a scenario, how the parameters are changed and the person who is authorized to change these parameters needs to be understood and the compliance should be verified. Unauthorized change or input of wrong parameters may lead to wrong calculation of income or expenses.

For income leakage, following areas can be looked into by an auditor:-
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> Application of interest on all types of loans. The auditor should see the flagged accounts where interest is not charged.
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> Correct rate of interest as per sanctioned terms. Especially, in case of advance against Fixed Deposit of third party, the interest should be changed additionally.
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> Concessions given to the borrower in the rate of interest on loans should be seen. Whenever rates are revised, the impact thereof on the concessions needs to be seen more carefully.
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> In case of NPA accounts, the interest is to be recognized as income only on realizable basis. It should be realized out of fresh and genuine credits and not from fresh sanction of loans.
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> Penal interest should be verified. The penal interest is on account of delay in submission of stock statements, non-compliance of the terms of sanction, incomplete documentation, non-renewal of facilities after due date, etc.
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> Temporary overdrafts (TOD) in saving bank accounts or current accounts. Similarly, excess drawings in cash credit accounts attract additional interest.
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> Other charges on the following accounts should also be checked-

- Cheque book charges

- Minimum balance charges

- Loan processing charges

- Commitment charges on the advances not utlised

- Cheque return charge
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> Commission and exchange should be checked-

- DD/TT/MT

- Balance certificate charges

- Solvency certificate charges
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> Other income

- Interest on investment, if any.

- Locker rent-recovery of locker rent and position of outstanding locker rent

For all expenses, the auditor should see the sanction by appropriate authority, proper documentation and correctness in accounting.
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> The areas covered could be the following-

- Interest paid on different types of deposits

- Interest paid on borrowings

- Reversal of interests paid or interest on premature deposits

- Establishment expenses

- Rent for premises

- Service tax payments and payment of other taxes

- Professional fees, legal fees, etc.

- General charges account

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Sneha S Waghmare (Student CA Final ) (21 Points)
Replied 29 March 2014

Hi. I would like know more about this. Can revenue leakages of past years be recovered in current financial year? If yes, of how many last years' revenue we can charge to the customer? For e.g. wrong interest on loan was charged to a customer from FY 2011-12, and detected in FY 2013-14, can a bank claim this income? Thanks in advance.

Siddharth Goel (Chartered Accountant) (3026 Points)
Replied 05 July 2018

Hi,

The bank can claim and charge interest less charged in the next cycle or period from the account itself or in the next billing cycle in case of a credit card.

Although, if you feel that the interet or penalty is unjustified and in excess, then you can reach out to the Bank ombudsman and give an application for withdrawal of such charges, penalty or interest.

kashyap shivam (2 Points)
Replied 30 October 2020

HOW TO CALCULATE PENAL INTEREST ON NONSUBMISSION OF STOCK STATEMENT IN CC LOAN?

Ritik Chopra (student) (8123 Points)
Replied 11 March 2021

If stock statements are submitted with delay, banks charge penal interest from the borrower. However in your case, you have mentioned that these statements are submitted on 1st of the next month every time. Normally bank allows 1 week to 10 days time to submit stock statements after a month is over.

Failure to furnish stock statements will attract penal interest @ 2% on outstanding amount for period of non submission of statement.