Documentation
The auditor is expected to comment on the following aspects of documentation in respect of advances:
System of ensuring that documents are executed as per the terms of sanction.
Nature of documentation defects observed during audit and suggestions to avoid such defects.
System of documentation in respect of joint/consortium advances.
Renewal of documents.
Generally, the system of a bank prescribes the specific documents to be executed in respect of various types of credit facilities, including special documentation required in cases of consortium advances, advances to companies, statutory corporations and government undertakings, etc. It may be noted that in case of consortium advances, original documents are held by the lead bank, however, copies of such documents are available with each of the participating banks. Banks also usually have a system of renewal of documents and of periodically obtaining confirmation of balances to ensure that the documents do not become time-barred.
The auditor should review the system of obtaining the loan documents, including renewal thereof. He should examine whether the system provides for obtaining all such loan documents which are required to protect the interests of the bank.
Where the branch auditors’ reports indicate cases of credit facilities accorded without proper documentation, the auditor should state this fact in his report, giving illustrations.
The auditor is also required to comment on the nature of documentation defects observed during the audit and to make suggestions to avoid such defects. The auditor can obtain the relevant information substantially from the branch audit reports and from records maintained at the head office / regional or zonal offices of the bank.