Internal Control Evaluation and Review of Investment Policy
The auditors should familiarise themselves with the instructions/ directions issued by the RBI regarding transactions in investment securities. The Banks should frame Internal Investment Policy Guidelines and obtain the Board’s approval. The investment policy may be suitably framed / amended to include Primary Dealer (PD) activities also. The auditor should review the investment policy of the bank to ascertain that the policy conforms, in all material respects, to the RBI’s guidelines as well as to any statutory provisions applicable to the bank.
The Banks’ management should ensure that there are adequate internal control and audit procedures for ensuring proper compliance in regard to the conduct of the investment portfolio. The banks should institute a regular system of monitoring compliance with the prudential and other guidelines issued by the Reserve Bank of India. While examining the internal controls over investments the auditor should particularly examine whether the same are in consonance with the guidelines of the RBI. They should also judge their efficacy. By efficacy, it is meant that not only the auditor would check the operating effectiveness of various internal controls but also at the first place check and evaluate the design of such internal controls.
Any deficiencies noted from the audit procedures should be reported by the auditor to the Management/ Those charged with Governance in accordance with SA 265 “Communicating Deficiencies in Internal Control to Those Charged with Governance and Management”.
Some of the typical audit procedures would include:
perusing the investment policy and preparing brief note on key points of compliances.
perusing the minutes of board/board appointed committee for approval of investment policy and obtain the list of modification made in the policy compared to earlier approved policy.
examining whether the investments made by the bank are in accordance with the laid down investment policy and are also in compliance with the RBI guidelines w.r.t. exposure norms.
verification of valuation of investments as per the method and frequency as defined by RBI.
perusing reports on concurrent audit of treasury transactions, system audit report, if any and follow-up action taken by the management thereon.
perusing the half yearly review of portfolio by the Board of Directors of the bank and also reviewing annual inspection report of the RBI carried out under Section 35 of the Banking Regulation Act, 1949.