Frauds/Vigilance
These are:
Observations on major frauds discovered during the year under audit.
System of follow-up of frauds/ vigilance cases. (Reported to RBI in FMR1.)
The auditor is expected to give his observations on major frauds discovered during the year under audit. He is also expected to comment on the efficacy of the system of follow-up on vigilance reports.
Banks normally maintain a record, usually in separate register, of the frauds that have taken place at any branch or other office which have been brought to the notice of the head office/Controlling Authority of the bank. A brief history of each of the frauds discovered is also available to the statutory auditor, through reports by the Management to the Board of directors as also to the RBI. The RBI has issued Master Directions on “Frauds-Classification and Reporting” (RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.No.1/23.04.001/2016 – 17) dated July 1, 2016. The directions / circulars require the banks to report to RBI complete information about frauds and the follow-up action taken thereon.
The auditor should look into the cases of major frauds which have been discovered and recorded including those which have been reported after the year-end. He should report on major frauds discovered and recorded by the bank. He should also examine the quarterly and annual review of frauds done by the bank and ascertain the number of frauds where final action has been taken by the banks and cases disposed of.
In case the auditor observes weaknesses in the internal control system which have resulted in frauds, or where the modus operandi is common, he may give his suggestions for overcoming such weaknesses by taking preventive steps to reduce/minimise incidence of frauds.