Cooperative banks must tone up audit system, says Nabard

Written by Sanjay Jog | Mumbai | Updated: Mar 15 2009, 04:51am hrs
Even after the Satyam episode has revealed faults in the inspection and audit system, state-run National Bank for Agriculture and Rural Development (Nabard) has asked state cooperative banks (SCBs) and district central cooperative banks (DCCBs) to tone up the internal inspection and audit system in a bid to detect frauds, malpractices and irregularities and also to strengthen the credibility of the inspection system.

Nabard, in its missive to all SCBs and DCCBs on March 9, observed that internal inspection machinery in these banks has failed to highlight and pinpoint the existence of improper credit appraisal, disbursement without observing the terms of sanctions and the failure to exercise proper post-disbursement supervision. It has also suppressed information relating to unauthorised excess drawals. Nabard said the failure of the internal inspection machinery can mainly be attributed to the incompetence of the internal inspection personnel and the casual manner in which the work is carried out.

Nabard sources told FE on Thursday, Internal inspection reports rarely make any adverse comments on the failure of controlling or the head offices. It is observed that very few cases of frauds and malpractices come to light through internal inspection. The audit reports indicate, however, that there is room for improvement in the quality of inspection. Besides, the follow up of the inspection is not carried out seriously.

According to Nabard, internal audits of the branches should be carried out at least once a year and should come as surprise checks. The coverage of such inspection should also be made more comprehensive to include a thorough examination of the internal control system. Various periodical control returns, submitted to the controlling officers should also be properly examined. Besides internal audit and short inspections, there should be a regular system of revenue audit of the larger branches. The reasons of income unearthed during such audits should be examined in depth and action proper should be taken against the officials responsible for the lapses.

Nabard has also pitched for the introduction of a system of exclusive scrutiny of credit portfolio, with focus on larger advances to individuals and units having high levels of exposure at regular intervals. Similarly, the accounts transferred from other branches along with the officials should be subject to proper scrutiny during the internal inspection.

Moreover, Nabard has suggested that all scheduled and other SCBs and DCCBs, with deposits over Rs 50 crore, should introduce the system of concurrent audit, which will be regarded as part of a banks early warning system to ensure the timely detection of irregularities and lapses in preventing fraud transactions at branches.