Case Study: Loan against gold jewellery is considered safe and secure. Many banks have started financing against the gold jewellery to their customers. They have also empanelled some jewellers of repute to assess the pur

CS Professional · Forensic Audit · PYQS · June 2021
Case Study: Loan against gold jewellery is considered safe and secure. Many banks have started financing against the gold jewellery to their customers. They have also empanelled some jewellers of repute to assess the purity and weight of the gold ornaments so as to judge the quantum of advances to be made to the borrowers. Based on the experiences of other banks, the Prime Mercantile Bank Ltd., also started financing against the gold jewellery. It's Board framed a policy for financing against the gold jewellery which inter-alia contains the eligibility criteria of empanelment of goldsmiths to assess the weight and purity of the gold content in the jewellery, identification of the borrower, maximum amount that can be given to a borrower and repayment period, measures of recovery in case of default of the borrower and other related issues. At one of the small town branch in Rajasthan, a Branch Manager (BM) named A, was posted and he is known in his fraternity bankers, as aggressive marketer and booster of branch business. After A's joining at Rajathan branch the advances portfolio witnessed rapid rise from ₹ 50 lakh as of 31st March, 2018 to ₹ 125 lakh as at 31st December, 2018. The incremental advances figure consists of 90% of loan against jewellery. This success story of A was shared by his Regional Manager among other Branch Managers. After the close of the financial year of 31st March 2019, the inspection department of the bank carried out the branch inspection and noted many irregularities, specifically in the portfolio of loan against jewellery, which includes the mounting NPA, major exposure in jewellery loan in the name of a particular borrower, non-verification/non-existence of the KYC documents of the borrowers, impurity in the gold held as collateral, poor analysis report of the gold by the empanelled Goldsmith, etc. Later it also came into the light that the Branch Manager had a close proximity with the empanelled Goldsmith. This Goldsmith tried to escape as and when approached by the inspecting team to ask some queries. The inspecting team was surprised, how in a small town, the loan against jewellery portfolio increased tremendously in a very short period of time. In the close vicinity of the branch, the crime relating to gold snatching, theft and burglary of the jewellery items increased tremendously as per news published in the local newspapers and crime reporting data of the police to the collector. The Vigilance team of the central office of the bank was also smelling something wrong and was anxious to unearth fraud, if any, and approached you to carry out forensic audit/ investigation. Based on the above facts, answer the following: (b) During the course of the forensic audit, you came to know that there was nexus between the empanelled Goldsmith and the Branch Manager. Further the burglary in that small area was on also on rise. How you will see these facts while carrying out the forensic audit and inspection.

Answer & Explanation:

The forensic auditor should adhere the following points while carrying out the forensic audit and investigation in cases wherein the forensic auditor came to know about the nexus between the empanelled goldsmiths and the branch manager and in cases wherein observed about the rise in burglary cases in small area: Check the names and address of the borrowers, with KYC documents. Whether KYC documents are in order and are not fabricated? Whether the KYC documents bear the stamp and signature of 'Original seen and verified' and bears the signature of the authorized concerned official? Whether In-person verification has been carried out by Banker (In-person verification is a mandatory requirement stipulated by RBI/SEBI. Check whether the loan amount is within the limit of per borrower. Check whether the customers are suo-motto approaching the branch or they are being referred by the empanelled gold smith. Check the savings/ current account of the gold smith in order to verify the deposits made and withdrawn by the gold smith. Gather information from the informal sources, branch officials, general public/ villagers, about the integrity of the branch manager and the gold smith. Check whether there is any possibility of availing loan by the unscrupulous persons on the stolen ornaments and check the KYC documents. There may be the possibility that the KYC documents of genuine persons might have been submitted and loan has been availed, while the beneficiary may be other culprit/persons. There may be a possibility that the gold smith may be engaged in purchasing the stolen ornaments and may be taking loan in the name of genuine persons, but the beneficiaries may be the thieves / culprits. Send letter to each of the borrower at their given addresses as a thank you note for availing finance from the bank branch. If any of the borrowers has actually not availed the loan, he may raise his objections. Also scrutinise the savings account the branch manager to identify the credit entries in cash, if any, other than from authentic sources, whether it is the bribe / commission deposited in the account. Obtain the name list of the family members of the branch manager and to check their account. There may be the possibility that the bribe money earned by the branch manager might have been deposited by him in such accounts. Verify the reports of theft (burglary), snatching, criminal breach of trust or criminal misappropriation of property cases registered in the local police station.

Topics: Forensic Audit Procedures

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