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RBI Restructuring Account Cases | Mock Forensic Audit 

Restructuring of Stressed Accounts | Resolution of Stressed Assets | RBI

​RBI/2018-19/203
DBR.No.BP.BC.45/21.04.048/2018-19

​

It is mandatory to get Forensic Audit of Accounts/Stressed Assets cases where PSU Banks (State Bank of India, Bank of Baroda etc.) are restructuring stressed assets accounts. This forensic audit is usually conducted by the IBA (Indian Banking Association) empanelled Forensic Auditors / IBA Forensic; where these banks appoint these auditors to conduct a forensic audit as per the set scope to identify existence of any fraud, diversion of funds, siphoning off funds, related party transactions etc. 2 Major pre-requisities for an eligible / fit account for restructuring is :-

• Mandatory Satisfactory Forensic Audit of Borrower Account -  For a tentative period under review ("PUR")/ Period of audit coverage ranging from 3-5 Years. Usually Banks propose a  period of 4 Years (3 Years before NPA / Review/Renewal Data and 1 year after that date). The results or the conclusion of the forensic audit has to be usually be without any case of diversion of funds or any fraud element coming out. This assignment is usually given to the IBA Empanelled Forensic Auditors
  
• ​Fresh TEV Study for Restructured Project /TIE Report -  Techno Economic Viability (TEV) study of a project encompasses the evaluation of a project for evaluating the technical and financial information about the project, with relevant data about its technological feasibility and economic viability, into one or a few criteria on the basis of which the project is recommended for selection, modification or rejection. Techno-Economic Viability (TEV) Study evaluation is to assist lenders to take a view on the acceptability of the degree of risk involved in a project. It takes into account an analysis of technological risk, market risk, regulatory risk, financial risk, etc. A critical evaluation of these parameters is essential for a meaningful TEV study.
  
  Generalized Scope under Forensic Audit by Banks/ Restructured Accounts​
• Ascertaining money trail and end use of funds granted by lenders.
  
• Tracing the source of contribution by promoters by analyzing of equity/ debt/ infused by promoters/partners.
  
• Verifying revenue from operations including checking sale order, invoices and controls in the billing process. The focus should be on inflated turnover / fictitious sales and/or Sales on Return (SOR) basis where profit has been booked and sales returned in the subsequent accounting period leading to writing off of stocks/debtors and reversal of booked profits. The sustainability of sales in future years should be co-related with Technical and Economic Viability (TEV) study.
  
• Commenting on transactions of substantial amount, which seem not to be normal trade transactions at arms length.
  
• Concentrating transactions- sole customer, sole supplier, Major transactions with related parties/group companies. Analysis of relationship in two-way deals with the same party or Indirect payments made by customers of the borrower to the vendors of borrower.
  
• Movements in unsecured loans during the specified period.
  
• In depth analysis of findings of Special Audit if any.
  
• Details of substantial debts raised in sister/associate/group companies either through corporate guarantee of borrower or against security of promoters or promoter’s family assets.
  
• Verifying receivables- Receivables should also be verified thoroughly as there have been cases where the units have shown in forensic audit reciprocal receivables against each other especially in case of related parties.
  
• Finding details of assets of unit/ its promoter/ partners to ensure recovery of loans and advances granted by banks as there would be cases where some assets are not reported in financials of the unit/promoters /partners.
  
• Examining, discreetly chain of title pertaining to unit/promoters/partners to ensure genuineness of the dealings as there could be cases of bogus/family/other settlement transactions.
  
• Assessing the project implementation capabilities of both new customer as well as existing customer, based on past records of implementation and projects under implementation. Reasonability of cost estimates should also be examined.
  
  The above list is not exhaustive and Heads of business units should exercise their judgement on the need and area of forensic audit.
  
  

Mock Forensic Audit

Restructuring of Stressed Accounts | Resolution of Stressed Assets | RBI

​RBI/2018-19/203
DBR.No.BP.BC.45/21.04.048/2018-19

​

It is mandatory to get Forensic Audit of Accounts/Stressed Assets cases where PSU Banks (State Bank of India, Bank of Baroda etc.) are restructuring stressed assets accounts. This forensic audit is usually conducted by the IBA (Indian Banking Association) empanelled Forensic Auditors / IBA Forensic; where these banks appoint these auditors to conduct a forensic audit as per the set scope to identify existence of any fraud, diversion of funds, siphoning off funds, related party transactions etc. 2 Major pre-requisities for an eligible / fit account for restructuring is :-

• Mandatory Satisfactory Forensic Audit of Borrower Account -  For a tentative period under review ("PUR")/ Period of audit coverage ranging from 3-5 Years. Usually Banks propose a  period of 4 Years (3 Years before NPA / Review/Renewal Data and 1 year after that date). The results or the conclusion of the forensic audit has to be usually be without any case of diversion of funds or any fraud element coming out. This assignment is usually given to the IBA Empanelled Forensic Auditors
  
• ​Fresh TEV Study for Restructured Project /TIE Report -  Techno Economic Viability (TEV) study of a project encompasses the evaluation of a project for evaluating the technical and financial information about the project, with relevant data about its technological feasibility and economic viability, into one or a few criteria on the basis of which the project is recommended for selection, modification or rejection. Techno-Economic Viability (TEV) Study evaluation is to assist lenders to take a view on the acceptability of the degree of risk involved in a project. It takes into account an analysis of technological risk, market risk, regulatory risk, financial risk, etc. A critical evaluation of these parameters is essential for a meaningful TEV study.
  
  Generalized Scope under Forensic Audit by Banks/ Restructured Accounts​
• Ascertaining money trail and end use of funds granted by lenders.
  
• Tracing the source of contribution by promoters by analyzing of equity/ debt/ infused by promoters/partners.
  
• Verifying revenue from operations including checking sale order, invoices and controls in the billing process. The focus should be on inflated turnover / fictitious sales and/or Sales on Return (SOR) basis where profit has been booked and sales returned in the subsequent accounting period leading to writing off of stocks/debtors and reversal of booked profits. The sustainability of sales in future years should be co-related with Technical and Economic Viability (TEV) study.
  
• Commenting on transactions of substantial amount, which seem not to be normal trade transactions at arms length.
  
• Concentrating transactions- sole customer, sole supplier, Major transactions with related parties/group companies. Analysis of relationship in two-way deals with the same party or Indirect payments made by customers of the borrower to the vendors of borrower.
  
• Movements in unsecured loans during the specified period.
  
• In depth analysis of findings of Special Audit if any.
  
• Details of substantial debts raised in sister/associate/group companies either through corporate guarantee of borrower or against security of promoters or promoter’s family assets.
  
• Verifying receivables- Receivables should also be verified thoroughly as there have been cases where the units have shown in forensic audit reciprocal receivables against each other especially in case of related parties.
  
• Finding details of assets of unit/ its promoter/ partners to ensure recovery of loans and advances granted by banks as there would be cases where some assets are not reported in financials of the unit/promoters /partners.
  
• Examining, discreetly chain of title pertaining to unit/promoters/partners to ensure genuineness of the dealings as there could be cases of bogus/family/other settlement transactions.
  
• Assessing the project implementation capabilities of both new customer as well as existing customer, based on past records of implementation and projects under implementation. Reasonability of cost estimates should also be examined.
  
  The above list is not exhaustive and Heads of business units should exercise their judgement on the need and area of forensic audit.
  
  

Major empanelments for forensic audits