CA Institute calls for special audit of scrapped currency deposits

With the Reserve Bank of India yet to reconcile with the physical cash balances of specified bank notes, six months after the government's demonetisation drive, the CA Institute has urged a focused ''special audit'' of deposits that flowed into the  banking system during the demonetisation period.

The fact that the RBI has not been able to fully assess the quantum of deposits of the demonetized Rs1,000 and Rs500 notes and realise any black money, if at all, has been admitted by RBI itself.

In a 15-page response to questions from the Standing Committee on Finance, headed by Congress MP Veerappa Moily, in April, the central bank has said that the accounting of the specified bank notes (SBNs) at the currency chests needed to be reconciled with the physical cash balances to eliminate accounting errors and possible double counting.

''Till this process is completed, any estimate may not indicate the actual numbers of SBNs that have been returned. RBI is taking all steps to complete the process expeditiously so as to release firm figures of SBNs received at an early date,'' the note said.

The CA Institute has now urged the finance ministry and the Reserve Bank of India to allow its members to undertake focused ''special audit'' of deposit flows into the banking system during the demonetisation period, which started on 8 November and ended on 31 December last year.

There is a need to assess the demonetisation impact at each of the bank branches vis-à-vis the RBI circulars on this issue and gauge the extent of compliance, Nilesh Vikamsey, president, Institute of Chartered Accountants of India (ICAI), told BusinessLine in an interview on Wednesday. ''Whether the compliance with RBI circulars or government intent has happened or not in each branch is something that needs to be assessed and a focused special audit of demonetisation is the need of the hour,'' Vikamsey said.

The CA Institute also plans to take this suggestion on ''special audit'' to the Central Board of Direct Taxes (CBDT), he added.

Banks had reported over 91 lakh cases where deposits of demonetised currency have exceeded Rs2 lakh in each case.

''We have members all over the country including small towns. If a specific scope is made out, we can help the RBI…help the government and regulators in whatever they want to identify and verify,'' said Vikamsey.

Vikamsey also pointed to four public sector banks (PSBs) approaching the CA Institute to develop software that could be used for centralised appointment of branch auditors in a bank. ''The whole idea is to improve the auditor appointment process and ensure that there are scientific criteria and no adhocism or arbitrariness,'' he said.

The RBI had directed banks to have a centralised appointment of branch auditors through software.

The PSBs could either have their own software or bank upon a third party (the CA Institute) to develop the software, the RBI had allowed. The new process of appointment of branch auditors for public sector banks will take effect from 2017-18.

''We are happy that we have moved at least one level. Ideally, we would have liked RBI to set up the software and give it to them. They (RBI) have given freedom to the banks to have their own software. Be that as it may, we have actually progressed one step.

''We actually wanted an independent agency to develop the software so that there is no iota of any bias anywhere,'' the report quoted Vikamsey as saying.

The CA Institute has been opposed to the government's decision to give freedom to the public sector banks to appoint their own auditors.