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« Auditing »
 Standard on Internal Audit (SIA) 18, Related Parties
 Standard on Internal Audit (SIA) 17, Consideration of Laws and Regulations in an Internal Audit
 Standard on Internal Audit (SIA) 16, Using the Work of an Expert
 Standard on Internal Audit (SIA) 14, Internal Audit in an Information Technology Environment
 Standard on Internal Audit (SIA) 13, Enterprise Risk Management
 Standard on Internal Audit (SIA) 12, Internal Control Evaluation
 Standard on Internal Audit (SIA) 11, Consideration of Fraud in an Internal Audit
  Standard on Internal Audit (SIA) 9, Communication with Management
  Standard on Internal Audit (SIA) 8, Terms of Internal Audit Engagement
 Standard on Internal Audit (SIA) 7, Quality Assurance in Internal Audit
 Standard on Internal Audit (SIA) 6, Analytical Procedures

RBI smells rat, orders special audit of Bank
March, 08th 2010

The Reserve Bank of India (RBI) has ordered a special audit of the accounts of Bank of Rajasthan (BoR) following investigations into irregular dealings by the private sector bank.

The regulator has appointed Deloitte Haskins & Sells to audit the banks lending policy among other things while the parent accounting and consulting firm Deloitte Touche Tohmatsu has been hired to audit the information security system of the bank.

Special audits are rare and directed by RBI only under exceptional circumstances.

A week ago, BoR made news after RBI imposed a Rs 25-lakh fine on the bank following a string of violations. RBI pulled up the bank following violations in property transactions, anti-money laundering norms, irregularities in the conduct of accounts of a corporate group and failure to provide certain documents sought by RBI.

The banks poor corporate governance standards have prompted RBI to conduct special audit. One of the concerns is the presence of S K Tayal, a relative of promoter PK Tayal, on the banks credit committee and board of directors.

BoR, unlike other commercial banks, which have various credit committees depending on loan size, has a single committee for approving loans. In most banks the local office may have the power to sanction loans up to Rs 25 crore, while loans of Rs 25-50 crore are approved by the credit committee at the head office and loans above Rs 50 crore go to management committee.

In BoR, the RBI, according to sources in the central bank, fears that the directors play a significant role in the entire credit delivery mechanism.

Deloitte Heskins & Sells has been asked to carry out an audit of the internal delegation of sanctioning powers followed by the bank.

Last year, the central bank appointed G Padmanabhan, a former State Bank of India official, as the MD and CEO of BoR after it sensed certain irregularities in the bank. When contacted by ET, Mr Padmanabhan confirmed that RBI has mandated a special audit after BoR made certain disclosures while announcing its third quarter financial results. The disclosures relate to inadequate provisioning for bad loans and superannuation benefits, and the dispute over the rent the bank should pay for the Mumbai property where the BoR head office is located.

Deloitte Heskins & Sells will review whether the bank has made adequate provisioning for bad loans and whether it has followed all asset classification norms laid down by RBI. The other area that the auditors will review is the superannuation benefits given to a section of the banks employees.

While 90% of the banks 4,000 employees receive salary in line with the bi-partite agreement signed between the Indian Banks Association and the member banks, around 10% employees in the mid to senior level have a different salary and pension structure. The bank has not fully provided for the superannuation benefits of these 10% employees.

Deloitte Touche Tohmatsus main mandate is to find out whether BoRs IT systems are in line with the best practices followed by other banks in 
terms of information security. It will also suggest whether there is a need to modernise and upgrade BoRs present system.

RBI has felt the need for such an audit following BoRs decision to give a huge intra-day overdraft to the Lucknow-based Sahara group. The overdraft facility extended by BoR was well beyond all permissible limits. Besides, a systems audit may be partly driven by the revelation that some of the banks records got deleted.

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