Some of the key points while auditing agriculture advances:
The audit approach for agriculture advances has to be on the similar lines as that of other advances. The following is a summary of few Key aspects in the audit of Agricultural Advances:
a. Sanctioned amount of Agriculture Loans should be as per scale of finance applicable to the land under cultivation and the crop being cultivated. Further, necessary securities should be obtained as per the guidelines framed by the bank.
b. Auditors should verify that the agricultural credit is extended only after obtaining ‘No dues/ No objection certificates’ from the existing credit
agencies in the area of finance.
c. Disbursement of agricultural finance is required to be carried out in various ‘stages’ based on the requirements of farming activity. This needs to be
ensured strictly. In some cases, the expenditure is incurred by farmer from his/her own sources or from non institutional lenders and subsequently
banks are requested to reimburse the same. In such cases, auditors have to carefully verify the facts from the documents/evidences available on record. Under all situations, auditors should verify that the bank holds documents evidencing the utilisation of loans for agricultural activities.
d. For crop loans, primary security is normally the standing crops under cultivation, as such pre and post sanction visits by the officers of bank, who are experts in Agriculture finance and adequate documentation of visit report
is a key control.
e. While verifying the security offered for agricultural loans, it is to be confirmed that the security is legally enforceable. Standing crops and agricultural machinery and implements are secured by a hypothecation charge, while the agricultural land is secured by a mortgage charge. Auditors have to ensure that amongst others, the following has been duly taken on record by the banks:
Copy of the land revenue extracts.
Land Tax Assessment and payment receipt.
Copy of record with sub registrar (wherever applicable)
Original copies of the title deeds
Search of title deeds and Legal opinion from the advocate on the Bank’s approved panel
Valuation of land from a valuer on the Bank’s approved panel.
f. Loans granted to farmers against the security of NSC, KVP or Fixed Deposits of Banks, which has been utilised for agricultural purposes, is
allowed to be classified under the category of finance to agriculture.
However, auditors should carefully verify the loan documents and other supporting documents to ensure that non-agricultural loans are not classified
as Agricultural Finance.
g. Agricultural Advances are required to be serviced through realisation of sale proceeds to crop. Auditors should be skeptical about the nature and timing credits coming in to service the agricultural loans and ensure that they are from genuine sources.