The following are the procedure should be followed/ work has to be done in relate to Stock Audit in banks:

1. Prepare a table for the Cash credit, Packing credit, Foreign bills purchased for the period specified: The table format is

Year/ Months Closing balance for the month/year end Maximum Outstanding balance for the month/year end Interest debited to the C.C/P.C/F.B for the month/year end.

2. Prepare a Stock Statement for Cash Credit in the given period and arrive a Drawing power: The table format is

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)Month/

yearName of the party

Account

number

Stock Debtors Creditors Paid-up stock

(usually 75% of Stock-

Creditors)

Paid up debtors (usually 50% of

Debtors-Creditors)

Drawing power

Column (7+8)

Limit

Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Note:- Usually margin may be defined in sanction order 25%, some cases it may differ for

stock, debtors; in such cases we have to alter the statement accordingly.3. Cross check the Drawing powers in system (books of accounts) with the Stock statement

as prepared above, and fill the limit column in stock statement from system. In case of variation in Drawing powers as per system and stock statement highlight it accordingly.

4. Prepare a Stock Statement for Packing Credit in the given period and arrive a Drawing power:

The table adopted for C.C is same for P.C also After preparation of stock statement, cross verify the Drawing power with system

and note any variation’s if found.5. Verify the Receivables statement differentiate it from local sales and export sales.6. Analyze Age wise details of Debtors, such <30 days, 30-60 days, 60-90 days, >90 days.7. Prepare a Account Turnover Report for the party to whom the stock audit is to be made:

The table format is Year/Month Total all the credit side of the C.C Account during the month/year (excluding cash

deposit, transfer from any financial institution, cheque returns and other similar items)

8. Take a list of major customer for the borrower (party)

9. Verify insurance premium paid for the stocks, and check the policy is in effective.10. Check the Bank Hypothecation clause in policy document for the stock’s which the banks

has sanctioned Cash credit.11. Verify the ECGC premium paid for all the period during which stock audit has to be

conducted, and check on what value the premium was calculated.12. Verify the Debtors/ Stock sheet submitted by the party to a bank is certified by the

Chartered Accountant (as required by the bank, such as monthly, quarterly, half yearly).13. Check in system, whether there are no huge cash withdrawals on C.C or P.C during the

period.

Checklist for Stock Audit/Unit InspectionBasic Information(1)           Name of the borrower(2)           Location

OfficeGodown

(3)           Nature of Business(4)           Particulars of credit limits 

Loan A/c No Facility

Sanctioned Limits D.P Balance O/S Overdue/excess

           

 (5)           Particulars of security:

(A)                             Primary:(B)                             Secondary

(6)           Insurance Particulars:

Policy No

Assets covered/ Location

Amount Insured

Date of expiry of Policy

Whether Bank clause exists in the policy

         

(7)           Name of the audit staff conducting the Inspection:(8)           Name of the Branch official representing the Bank:Checklist(1) Hypothecation of Plant & Machineryi. Whether Plant & Machinery is maintained properly and found in working condition  ii. Were there any instances of breakdown causing interruptions in the working of the unit

in the recent past? 

iii. Whether fire protection measures are satisfactory?  iv. Whether security arrangements at the godown/ Factory are satisfactory?  v. Whether Bank’s hypothecation Board has been affixed on the machinery hypothecated?  

(2) Stock Hypothecationi. Descripttion of the stocks  ii. Whether stock register is maintained and is up to date?  iii. Whether the quality and sale ability of the stocks are good?  iv. Have they been stored properly?  v. Whether there is direct access to the godown?  vi. What is the value of

Obsolete stockSlow- moving stockDamaged/Rejected stocksUnpaid stock

 

vi. Whether the Bank Hypothecation Board has been displayed?  vii. Whether the stocks represent those reflected in the stock statements sent to the Banks?  viii. Whether stocks belonging to sister concerns, received for job- work etc are properly

segregated? 

ix. Whether the movement of stock in and out of the godown is properly accounted and monitored?

 

x. Whether any differences exist between actual stocks and the stock books?  xi. Is the level of inventory held found to be too high?  xii What is the Work in progress and level of completion?  xii. Whether the goods which require any specialized preservation, are properly preserved?  xii. Whether the stock is protected from fire hazards and is well guarded?  

(3) Hypothecation of book- debts

i. Whether book-debts accounts/registers are maintained properly and kept up to date?  

ii. Whether book debts bifurcation age wise available?  iii Whether the debt represents sales and service transactions only?  iv Whether all realizations from debtors are routed through the borrower’s account?  

(4) Conduct of Account

i. Whether sales and purchases are routed through the account?  ii. Whether operations in the account are satisfactory?  iii Whether stock/QIS statements are received regularly by the Bank?  iv. Whether the Balance outstanding is within the drawing power?