Digitally Transformed Audit To Enable Banks To Thrive In Competitive Landscape

“With globalisation and increasing complexity of the financial system, audit as a public good has become vital for a sound, stable and vibrant financial system.” These were the words of Reserve Bank of India’s (RBI) Governor Shaktikanta Das at the National Academy of Audit and Accounts (NAAA) in a recent event. And banks sit at the core of a stable financial system. The banking system is going through a drastic transformation in recent years. From rising technological interventions to the rapid addition of consumer base; from the emergence of digital native fintech players to newer banking products, the banking system must adopt these new ways in aggressive timeframe. Matching the changes, regulatory compliance is also getting more complex. Against this backdrop, the age-old methods of auditing can’t cope with this evolving landscape.

RBI has been aligning the regulatory and supervisory framework with global best practices, taking important strides in areas of corporate governance, cyber security and compliance functions of banks. The apex bank has also taken significant steps in developing a robust securitisation and secondary loan market in India. Additional avenues for liquidity management to the Regional Rural Banks (RRBs) is another step by the central bank for keeping grassroot level lending system vibrant. As different financial segments evolve, a lot of processes including submission of statutory returns and supervisory disclosure by banks have witnessed further automation.

Who moved my cheese!    

Traditional audit methods heavily rely on intensive human interventions. Challenges typically faced by financial institutions in auditing processes are many. Usually, banks, NBFCs, cooperative banks, and other such financial institutions have to complete the audit process in a stipulated time period. Therefore, planning multiple audit types for multiple locations based on their risk category is always a challenge. This plan includes long travel to the branches apart from ensuring availability of executives concerned. As we know, auditing involves the collection and verification of a lot of data based on audit evidence. Therefore, this process is both tedious and time-consuming. After the preparation of the audit report, informing of non-compliances to each branch for remedial measures and getting it done is another herculean task. So, managing multiple parties to the closure of non-compliance, the audit process needs a lot of planning with the engagement of multiple stakeholders. Such intensive people interfaces lead to inefficiencies. Cost and time are the other two critical elements that organisations have to bear in the traditional auditing method. Moreover, the human element also plays a role in terms of the error in entering data, collection of audit evidence, and interpretation of auditing standards. There are many instances where flaws in auditing processes have led to the imposition of heavy penalties on many financial institutions in India. Even the recent NBFC crisis in some way connected to the audit flaws. While those financial institutions which are a slow adopters of technology struggle to cope with compliance-related complexities, agile fintech, and early adopters are gaining their market shares. Of course, working from home, travel restrictions, concerns over employees and auditors’ health safety have come as an additional challenge during the COVID-19 pandemic since last two years.

Technology can propel to stay ahead of the curve: Technology is bringing in a lot of transformation in the whole auditing process. It not only makes the whole process seamless, but also saves a lot of cost and time for financial institutions. Further, applications of digital technologies such as artificial intelligence, data analytics, and cloud computing among others are enabling the audit process to draw a lot of insightful inferences.  

Data management is the most significant outcome of using digital technology-powered audit solutions. These solutions enable the maintenance of a single database on which varied users can work simultaneously from multiple locations. This leads to better time savings through integrated document management. Moreover, data can be pulled out from several systems – be it core banking platform or loan systems- instantly as per the criteria fixed by the auditor on real time basis. Thus, preparation of audit report can be done quickly.    

A single-point dashboard integrating all the functions provides a holistic view of the audit process. Moreover, audit questionnaires, audit planning like appointment & schedule, audit executions through checklists are fully automated. Audit solutions also have schedulers that send out alerts, notifications and escalators, which help in follow up of various audit functions. This helps in its timely completion. 

Another significant benefit of a digitally transformed audit is that it allows financial institutions much greater visibility around business and risks. Leveraging data analytics, auditors are able to gain better insights from the data. Therefore, it helps banks, & NBFCs to avert financial disasters by raising red flags beforehand.  

In this perspective, financial institutions should leverage the power of technology by deploying efficient digital audit solutions. A lead technology partner with expertise and experience in implementing such SaaS and on-premise solutions should be selected for getting desired outcomes. Domain knowledge on banking sector is another key criterion for partnering with a regtech services provider.  

In this digital era, financial accounting and audit have witnessed major transformations. Therefore, financial institutions cannot afford to lag in the adoption of technology. Leveraging digital technologies such as cloud computing, AI and data analytics can not only make the audit process hassle-free, it will bring in a lot of operational efficiencies. In an intensively competitive environment, staying agile with managing the compliance risk will go a long way to stay ahead of the curve. And technology-powered audit solutions can help financial institutions in achieving this desired objective. 

Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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