Chapter 3

Revenue Audit
3.1 Revenue audit is the audit of items governing income and expenditure of
banks. Basically, this type of audit is conducted with a view to verify the accuracy
and relevance of expenditure incurred and income earned by the banks
according to applicable latest circular and notification. Auditor is only required to
concentrate on the areas which affect revenue items of the bank.
3.2 Normal procedure to conduct the revenue audit is as under:
(i) Before commencing the revenue audit, the auditors are required to collect
the list of auto levy (system levy) charges and manual levy of charges.
(ii) Study the relevant circulars pertaining to charges given by the bank. Go
through the format of audit report and annexure attached to the audit
report.
(iii) Prepare a separate file for audit and don’t forget to carry audit
engagement letter given by the appointing authority.
(iv) Prepare the audit programme for all major areas to be covered.
(v) Auditors are advised to keep in mind the period of audit to set up
schedule for audit, so as to ensure adequate and appropriate coverage
and timely completion.
(vi) Go through the previous revenue audit reports and concurrent audit
reports of branch to get the overview of possible nature of leakage.
(vii) Obtain some basic view about branch’s banking software so as to
facilitate easy viewing of customer ledger.
(viii) Ask the branch to make available Advances Sanction Register for Audit
Period.
(ix) With a view to obtain knowledge of accounts, an appropriate sample
should be selected of following accounts:
o Cash Credit Accounts
o Top Saving Accounts
 Revenue Audit

o Top Current Accounts

o Top Term Deposit Accounts
o Overdue advances in audit period
o Premature Fixed Deposit Receipts (FDRs)
o List of NPA Accounts of branch and recoveries made during the
period to be, appropriately, adjusted against interest/ instalment.
Income of Bank
3.3 List of areas to be covered for Income head and procedure for its audit
are as under:
(a) Interest earned on advances
(i) Check whether interest has been charged in accordance with
applicable circulars of the bank.
(ii) Check interest calculation on selective basis.
(iii) Check whether interest has been charged as per adhoc/ special
sanction letter.
(iv) Check that revised interest rates are properly applied in system
from relevant date of applicability.
(b) Penal interest on overdue instalments and on late submission of
Stock Statement/ Quarterly Monitoring Data (QMD)
Generally, penal interest is to be charged 1% subject to maximum of 2%.
Such panel interest is charged in following circumstances:
(i) Instalment is overdue.
(ii) Amount exceeds the drawing power.
(iii) Delay in submission of stock statement.
(iv) Delay in submission of Quarterly Monitoring Data (QMD)/
Financial Statements.
(v) Delay in renewal of working capital limits.
(c) CIBIL charges
Check whether CIBIL charges are properly debited as per circular of
charges.
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Manual on Concurrent Audit of Banks
(d) Processing fees
Processing fees is to be recovered on advances, as per sanction during
audit period, wherever applicable as per circulars of charges, such as.
Term loans, viz., housing loans, personal loans, vehicle loans
Cash Credits and overdrafts
Bank Guarantee/Letter of Credit/ Buyer’s Credit
Other Demand Loans
(e) Cash credit renewal charges
Cash Credit Limit should be renewed every year as per the terms and
conditions of the bank. Verify the renewal register whether every cash
credit account has been debited by cash credit renewal charges/
extension charges.
(f) Inspection charges
Verify that the charges are properly debited in borrower’s ledger as per
circular of charges.
(g) Documentation charges
Documentation charges should be debited in each sanction during the
audit period as per the circular of charges.
(h) Minimum balance charges
• These charges are, generally, debited on saving accounts/ current
accounts and debited by data centre in case of CBS branches.
• Verify some account on random basis that these charges are
properly debited in accounts as per applicable circulars if account
balance falls below minimum.
(i) Ledger folio charges
• These charges are to be charged to current accounts and cash
credit accounts on basis of per ledger folio.
• Generally, these charges are debited by data centre in case of
CBS Branches, so selective accounts should be checked to
determine whether charges are debited as per circulars.

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(j) Cash recovery against NPA Accounts

Confirm that all outstanding charges, interest outstanding are adjusted
against such recoveries, then only principal amount of loan is adjusted.
(k) Locker rent Charges
Generally, locker rent register is maintained by the bank and applicable
charges are debited to saving account of customer. Auditors have to
check out whether charges as per circular have been debited to customer
or not. However, it is to be noted that locker rent charges is not part of
revenue leakage.
(l) DD commission, IBC/ OBC commission, cheque book charges, stop
payment charges
• Obtain Pay order, DD register, IBC/OBC register from the branch
and verify on selective basis that charges are properly debited to
customer’s account.
• Obtain cheque book register and verify that series of cheque
books are properly entered in register. When cheque book is
issued to customer check series fed into the system so that
cheque book charges are debited to customer’s ledger.
• Stop payment charges are debited on basis of per instrument
basis (no of instrument* rate per instrument).
(m) Income From Investment
• Verify whether any investments have been made by the branch.
• Obtain investment register from branch and verify whether interest
and dividend are timely collected and accounted by the bank as
per applicable rates.
(n) Commitment charges for the facilities not utilised/ short utilised
Many banks have started levying penal interest for short utilisation/ non-
utilisation of cash credit/ term loan facility. Revenue auditors are required
to check the bank policy on levying such charges and accordingly, verify
the same with the statement of accounts.

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Manual on Concurrent Audit of Banks
Expenses of Bank
3.4 Following are the major heads to be verified by the auditor related to
expenses of bank:
(a) Interest paid on deposit accounts
Generally, banks give credit of interest to customer’s account on half
yearly/ quarterly basis by giving command of Interest Credit in case of
CBS Operation. Auditor has to check on selective basis whether interest
has been credited on due time and at appropriate rate as per the
applicable circulars.
(b) Interest on term deposits
• Whether the rates fed in the system are as per policy of the bank.
• In case of premature repayment of deposit, applicable penalty and
reduced rate of interest has been charged.
• If a term deposit matures and proceeds are unpaid, the amount
left unclaimed with the bank shall attract rate of interest as
applicable to saving account.
(c) General branch expenses
General branch expenses are as per delegated power on respective
accounts.
(d) Legal/ valuation charges
Legal/ valuation charges on non-performing accounts are as per schedule
of charges.

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