Page 281 - CA Final PARAM Digital Book.

• The operation (in each advance account) should be reviewed at least once every year.

QNO Audit Procedure for revenue leakages Old Course – (N23M)
470.020 TITANIUM CNO -- Unique

CA X is conducting concurrent audit of a branch of MNB Bank (a nationalised bank) in industrial hub of
Pune. It is a CBS branch, and its advances are to the tune of about ₹ 500 crores. The branch has borrowers
/ customers with cash credit, term loans, and export credit facilities, including pre - shipment and post
shipment credits. Some customers in the branch are importers who regularly get letters of credit issued to
foreign suppliers. During tenure of Mr. X as concurrent auditor, fresh credit facilities under aforesaid
segments are being sanctioned every month to new customers. The branch is also considering requests of
its existing customers for enhancements / fresh requirements in line with established norms. As a result
of the above, the staff of the advances department in the branch is always on its toes. The previous
regular inspection of the branch (not pertaining to CA X’s tenure) had pointed out huge revenue leakage
in advances of the branch, raising alarm bells in the Zonal Office and Inspection Department. Keeping in
view the above situation, CA X is taking steps to ensure that there is no revenue leakage in advances of
the branch and recoveries are made on the spot in case such leakages are detected. Discuss any five areas
in this regard where concurrent auditor’s audit procedures should be focused.
Answer The major areas to plug revenue leakage where concurrent auditor should focus audit procedures
include: -
(i) Verifying rates of interest as per terms of sanction in sanction letter vis-à-vis those fed in CBS as
well as the calculation of interest through product rate sheets generated by CBS to satisfy that
interest has been charged on all the performing accounts and interest rates charged are in
accordance with the bank’s internal regulations, directives of the RBI and agreements with the
respective borrowers.

(ii) Verification of renewal charges in respect of existing customers enjoying cash credit and export
credit facilities. Similarly, for fresh borrowers, proposal processing charges, including upfront
fees for term loan, needs to be verified in accordance with Bank’s circulars to ensure that all
charges are debited at time of release of facilities to new customers. These charges also need to
be levied proportionately in respect of customers whose credit facilities have been enhanced.

(iii) Verification of penal charges for non-submission of stock statements on due dates in case
borrowers availing cash credit and export credit facilities consisting of pre-shipment credit
facilities.

(iv) Verification of commission /charges in case of letter of credit has been issued to importers in
accordance with the Bank’s circulars.

(v) As the branch has also granted export credit facilities in the nature of post -shipment credit
facilities, verification of commission/charges on export bills purchased is required.

QNO Deposits-Window dressing Old Course- (N22M)
470.200 TITANIUM CNO—BA.500
You are part of engagement team conducting statutory audit of a branch of nationalized bank. During
the course of audit, it has come to your notice that there are large number of cash credit accounts in the
branch. Many of the cash credit accounts are only partially utilized during substantial part of year.
However, in the month of March, the accounts are fully utilized. On further scrutiny, it is observed that
these account holders have made fixed deposits from these utilized amounts at the end of year. These
deposits have been liquidated in first week of April of next financial year. Comment upon how this
situation would be dealt by you as a statutory branch auditor?
Answer In the given case, many of the cash credit accounts in the branch of a nationalized bank are only partially
utilized during substantial part of year. However, in the month of March, the accounts are fully utilized.

On further scrutiny, it is observed that these account holders have made fixed deposits from these
utilized amounts at the end of year. These deposits have been liquidated in first week of April of next
financial year.

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