How blockchain technology enhances the accuracy and transparency of bank branch audits?
Today, the entire banking process is automated and computerized, and the way audits are conducted has also undergone a sea change. Nowadays, most of the important functions and processes are centralized, and there is limited verification to be done at branches. Audits at branches include physically checking records, documents relating to operations (advances and liabilities), verification of branch-related expenses, the existence of assets, and other similar areas. Many banks have implemented a web application for posting and online submission of branch audit reports, long-form audit reports, tax audit reports, and various certificates. The reports/certificates in these cases have to be digitally signed.
Bank fraud is on the rise, especially in public-sector banks. In a recent public sector bank fraud, the bank official issued several fake Letters Of Undertakings without any collateral. The employees bypassed the system to avoid detection. An important point to ponder is how the technology used by the bank allowed its employees to bypass the internal system and carry out transactions.
So, how can using blockchain technology in bank branch audits prevent such fraudulent activities? The main reason for fraud is the result of numerous systemic failures to detect simple human malfeasance. Blockchain potentially provides a solution for banks as it helps maintain an immutable log of transactions and also facilitates real-time execution of transactions. A key feature that can help prevent and detect fraud is the smart contract. A smart contract, also known as a blockchain contract or digital contract, in the case of banking, is a self-executing agreement stored on a blockchain. In the bank fraud discussed above, the issuance of fake LoUs would not have been possible on blockchain because of the smart contract.
In another case of an airline, there were large, unexplained payouts to professionals and consultants and loans to subsidiaries and subsequently writing off the loans by making provisions in the balance sheet. If blockchain had been used for financial transactions, smart contracts could have helped prevent fraudulent transactions from being processed in the first place. Blockchain would have created a more transparent and secure record of all transactions. Any attempt to divert funds would have left a clear trail on the blockchain, making it easier for auditors to detect the fraud.
In a bank fraud case of a shipyard company, it was found that the company allegedly secured loans through false documents and manipulated financial statements.
Using blockchain could have prevented this fraud. All transactions on a blockchain are recorded immutably, meaning they cannot be altered or deleted. This transparency would make it harder to hide fraudulent transactions or divert funds like the Shipyard company allegedly did. Blockchain uses cryptography to secure transactions, making them resistant to tampering. This could make it more difficult for unauthorized actors to forge documents or manipulate financial data. Smart contracts, self-executing programs on a blockchain, can be designed to automate certain aspects of loan approval processes. These contracts could incorporate checks for suspicious activity or require additional verification steps before releasing funds.
1. Blockchain empowers auditors to conduct real-time audits and provides an audit trail for each transaction, substantially reducing the risk of fraud.
2. Blockchain's efficiency reduces both time and costs and provides a dependable verification source.
3. Immutability and irreversibility characterize blockchain transactions.
4. Sample-based substantive testing redundancy is eliminated, as blockchain scrutinizes the entire transaction population.
5. Blockchain facilitates a near real-time audit environment.
6. Transactions settle with remarkable speed, reducing the risk of overlooked transactions.
DaaS Pro Technologies aims to provide software for chartered accountants to increase audit accuracy and eliminate the risk of data manipulation with blockchain-powered audit trails, revolutionizing bank audits with secure and transparent blockchain technology, and reducing the administrative burden for CAs by automating data collection and reconciliation.