The internal or concurrent auditor may not sit in judgment of the decision taken by the authorised official; yet, the auditor will have to see that the transactions or decisions are within the policy parameters laid down by the Board/ Investment Committee (IC); that they do not violate the instructions of the IRDA (Insurance Regulatory and Development Authority) and the Insurance Act, 1938; and that they are within the delegated authority and in compliance with the terms and conditions for exercise of delegated authority.
Thus directs the Institute of Chartered Accountants of India in Technical Guide on Internal/ Concurrent Audit of Investment Functions of Insurance Companies (www.icai.org).
If the auditor finds any deviation in the operation of the investment department from the Board- or IC-approved policies, such deviations with their observation shall be brought to the notice of the Audit Committee of the Company.
The auditor shall also report the serious observations instantly to the management to take immediate steps to prevent the recurrence of the incidents.
The publication offers detailed guidance for the different aspects of insurance investment audit. For instance, as regards sanction of loans, the Institute requires the auditor to check whether the company has a uniform policy to charge upfront fees/ processing charges.
As for the post-sanction stage, the auditor has to verify if the borrower is meeting the interest and principal obligations in time, and if any visit/ review of physical and financial progress has been done on a periodical basis and report submitted to IC in standard format. Also, whether escrow and TRA (trust and retention account) agreement or equivalent arrangement is in place for tracking the cash-flows of the borrower company