We may have encountered numerous cases where individuals engage in fraud and forgery to deceive banks and obtain financial benefits. The core principles of lending primarily center on ensuring safety, maximizing profitability, and maintaining liquidity in loans.
The principles of lending revolve mainly around the concepts of safety, profitability and liquidity of advance. The verification of Loan Accounts is divided into three parts, viz.๐ฃ๐ฟ๐ฒ๐น๐ถ๐บ๐ถ๐ป๐ฎ๐ฟ๐ ๐๐ต๐ฒ๐ฐ๐ธ, ๐๐ถ๐๐ฏ๐๐ฟ๐๐ฒ๐บ๐ฒ๐ป๐ ๐ฎ๐ป๐ฑ ๐ฃ๐ผ๐๐ ๐๐ถ๐๐ฏ๐๐ฟ๐๐ฒ๐บ๐ฒ๐ป๐ ๐๐ป๐๐ฝ๐ฒ๐ฐ๐๐ถ๐ผ๐ป.
๐๐ซ๐๐ฅ๐ข๐ฆ๐ข๐ง๐๐ซ๐ฒ ๐๐ก๐๐๐ค:
The careful selection of a borrower stands as the paramount consideration. Numerous cases have occurred where individuals engage in fraud and forgery to deceive banks and access financing. Banks can prevent many of these instances by diligently adhering to the KYC principles in both word and deed.
An auditor should look at the following documents to check the bank’s preliminary process:
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Loan Application in the prescribed application form.
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KYC compliance.
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Assessment of project report, projected turnover, Projected balance sheet and P&L, and flow/funds flow statements.
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List of Sundry creditors and Sundry debtors during the current financial year and estimated balance sheet as of the end of the current financial year, etc.
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Latest Audited Financial papers.
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Board Resolution for availing credit facilities in case of Limited companies.
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Caution advice and defaulter list of RBI/ECGC caution list/CIBIL.
๐๐ข๐ฌ๐๐ฎ๐ซ๐ฌ๐๐ฆ๐๐ง๐ญ:
An auditor must verify that disbursements occur only when all the terms and conditions outlined in the sanction letter have been met and an acceptance letter confirming the same has been obtained. The execution of the loan documents should align with the terms and conditions specified in the sanction letter. Payments for purchased goods or machinery should be made directly to the supplier through a demand draft based on the invoice. All original documents are securely stored in a fire-resistant safe.
๐๐จ๐ฌ๐ญ ๐๐ข๐ฌ๐๐ฎ๐ซ๐ฌ๐๐ฆ๐๐ง๐ญ ๐๐ง๐ฌ๐ฉ๐๐๐ญ๐ข๐จ๐ง:
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The inspection shall ascertain the end use/creation of assets from bank finance.
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The bankโs board of hypothecation/pledge shall be displayed where the stocks/machinery are placed.
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The working capital limits sanctioned are usually valid for one year.
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The documents obtained while releasing the limits shall be properly maintained, revival letters, acknowledgment of debts, etc., to be obtained periodically to keep the documents alive.
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An asset created by bank finance shall be fully insured with a bank clause.
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Verify the drawing power of the accounts is calculated properly and that a margin is maintained as per the sanction letter.
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Verify any adverse comments on the stock audit report or the audited balance sheet.