RBI Circular on forensic auditing

On 16th September’2009, Reserve Bank of India issued a circular to the Chairmen and the CEO’s of the banks. RBI has expressed serious concerns about the deteriorating quality of the assets. While discussing certain cases of frauds of exceptionally large amounts, the Board for Financial Supervision (BFS) has expressed grave concern that fraudsters with the involvement of bank officials could engineer system wide break down of controls across months while putting through fraudulent transactions.

Fraud investigation is a serious issue globally. With its notification RBI/2009-10/159 DBS. CO. FrMC. BC. No. 7 /23.04.001/2009-10. RBI is trying to align itself with the global best practices.It is the most welcome move.

RBI recommends that, from the operational point of view, banks may take certain measures to ensure effective quick investigation, monitoring and follow up of frauds. One of the significant recommendation of Reserve Bank of India is to improve the quality of the fraud investigations.

RBI further mentions that fraud investigation requires competence in ‘forensic audit’ and also technical / transactional expertise. In this regard, banks may take immediate steps to identify staff with proper aptitude and provide necessary training to them in forensic audit so that only such skilled staff are deployed for investigation of large value frauds.

It is noteworthy here to mention about “Indiaforensic”. Forensic accounting and auditing started in India with the inception of Indiaforensic in the year 2005. In past four years Indiaforensic have endeavoured in building the community of forensic accountants. Today, Indiaforensic is brand spreaded in 5 countries, 69 corporate brands and 600 members. In past three years Indiaforensic has conducted numerous programs on forensic accounting and auditing in the cities like Mumbai, Pune, Bangalore and Hyderabad. In addition Indiaforensic was involved in developing resources for the fraud control units of the banks.

It is essential to look into the survey conducted by Indiaforensic in the month of July’2008. In this survey it was observed that more than 90% of the employees involved in the fraud investigation perform the investigations by virtue of their occupation and not due to the scientific training they have obtained.

Fraud control units in India

Some call it fraud control unit and some term it risk containment unit. These units have unique significance. In last ten years the frauds have increased due to number of reasons. Some of them being easy access of information to the fraudsters, ineffective and outdated regulatory clauses, increased dependence on the outsiders for generating the business have changed the nature of business.

Even the information security experts thinking negative are trying to attack the banks.This has actually lead to the need of fraud control units in the banking sector in India. Fraud control units are a necessary part of keeping the banking system safe because there is a lot of room for fraud to occur. Fraud control units are typically made up of anti-fraud employees who are hired specifically to monitor the banking system for potential fraud and other threats that may negatively impact a banking institution.

Employees of the fraud control units help the ban

ks to fight the financial frauds and ultimately to improve the operational efficiency. By preventing the frauds they stop the revenue losses for the banks.In the year 2004, Banks were advised to constitute a special comittee of the board of directors for monitoring and follow up of the high value frauds. [rokdownload menuitem=”84″ downloaditem=”62″ direct_download=”false”]Refer Notification[/rokdownload]

Statistics on bank frauds in India

In spite of the incorporation of the fraud control units the banks have shown the increased trend in the frauds in past five years. Number of fraud cases have grown up significantly in the past few years as well as the amount involved in the frauds. Reserve Bank of India has issued various notifications on the trends of frauds. The above chart is an indication of the growing problem of frauds in the banking sector.


Certified Bank Forensic Accounting
This is the unique program offered by Indiaforensic. This program is probably the only one which is dedicated towards the banking frauds.


A Certified Bank Forensic Accountant (CBFA) is generally a banker or a banking professional who has undergone scientific training to become an expert in the detection, prevention, investigation, and deterrence of frauds in the banking domain. Though becoming a CBFA was not necessary in order to gain employment in the banking fraud domain, gaining the credential helps not only to boost a person’s likelihood of becoming employed in the banking domain but also help to reduce the impact of frauds for which Reserve Bank have now expressed concerns.

RBI further states in this notification that the detection of serious irregularities with systemic and system-wide implications, as also post facto “Fraud Investigation”, gathering of information / data / evidences and creation of credible records that are useful for internal management action or legal prosecution against the ‘wrong doers’ require typical skills. Micro-analysis of the CBFA syllabus shows that the syllabus is clearly aligned with the expectations of the Reserve Bank of India. It is interesting to mention here that certification program was commenced by Indiaforensic in the year 2006. Today, Indiaforensic has more than 600 members across the country.

Improving efficiency of the fraud control function

The notification from Reserve Bank of India further states that the skills for range from expertise in analysis of transaction through audit trail to competence in “forensic audit” supported by specialization in IT based data abstraction, data filtering and data sanitization. While banks may have certain manpower with such skills / competence / expertise, their systematic and organized utilization to detect serious irregularities and frauds has apparently not been ensured in many banks. In some banks, the above skills / competence / expertise are scarce or nearly absent.


If the banks have to fix the shortage of the skills or competence in the fraud control or anti-fraud function it is necessary that the banks follow the three step approach

  • Understand the skills available with the anti-fraud team
  • Fill in the gaps with training programs and education to the employees
  • Test the skills of the employees post training

This three way approach will help the banks to set up dedicated and well organized “Special Surveillance and Investigation Function”, which would, on continuous basis, exercise surveillance over potentially fraud prone areas and investigate into large value frauds with the help of skilled manpower for internal punitive action against the staff and external legal prosecution of the fraudsters.

In case of inquiries or feedback please contact

Rashmi Panse- Nazirkar at rashmi.panse@indiaforensic.com