The Reserve Bank of India (RBI) has cautioned banks about control and management of internal accounts.
“One area that has come into sharper focus in the last couple of years is the control and management of internal accounts. We found certain banks having lakhs of such accounts with apparently no valid reason,” said deputy governor J Swaminathan at the Conference of Statutory Auditors and Chief Financial Officers of Commercial Banks and All India Financial Institutions, in Mumbai.
“Some of these accounts were also used as a conduit for certain fraudulent transactions and ever-greening of loan accounts. Internal accounts are high risk in nature on account of its potential for misuse,” said Swaminathan.
“I therefore request the CFOs to have them rationalised completely, bring them down to the essential minimum and exercise greater control through periodical reconciliation and a proper reporting to ACB,” Swaminathan said.
Swaminathan urged CFOs to invest in technology and data analytics which would empower them to provide more accurate and real-time financial insights.
“This not only aids in strategic decision-making but also enhances the ability to respond swiftly to any issues identified during audits or supervisory reviews,” said Swaminathan.
Further Swaminathan said the primary responsibility for preparing accurate financial statements rests with the management of banks, with Chief Financial Officers playing a pivotal role.
“However, the role of auditors is equally critical. All stakeholders, including regulators, investors, and most importantly, depositors, rely on the assurance provided by auditors that financial statements reflect a true and fair view of the bank’s position and performance, free of material misstatements. This role becomes even more crucial in the banking sector, where trust is paramount,” the deputy governor said.
Recognising the significant role auditors play, the RBI has undertaken several initiatives to enhance the effectiveness of the auditing process. These include structured meeting mechanisms between supervisory teams and auditors, introducing exception reporting, streamlining processes for the appointment of auditors, and other measures designed to safeguard the independence of auditors, Swaminathan said.
“To facilitate better understanding, RBI has also put in place a system of sharing with the Institute of Chartered Accountants of India, the typical reasons for divergence between audited positions and RBI observations. Further, auditors have been given greater discretion to determine business coverage factoring in bank specific business and financial risks,” Swaminathan said.