Sunday, September 9, 2018

Traditional Audit Failure....in Banking...Adoption of New is Required -SERIES 1


The recession of 2008 has failed to teach the lesson of corporate governance and the high level of ethics required in the banking industry.  The recent cases in Indian Banking system give immense justification of the same. The roots of frauds have shaken the faith from every tom dick and harry of the banking industry. Valuation of companies are just a fake game and no professional like Chartered Accountants or cost accountants can help to reduce the same despite of several souvenirs released by various professional bodies across the globe and not restricted to India alone. 

 No professional governing bodies can stop political or another type of external influence on the banking industry official. Neither any type of audit can help in this type of influenced based decision making. The Indian, as well as the global auditing system, has failed due to the traditional modes of audit and more due to the influence of humans more in the critical decision-making process. Cooking of papers are fees based approach run by professional bodies and consultants and escape plans are designed in advance for the corporate before even they go for default.  Traditional audit approach and several levels of audits are just failed detection with these growing numbers of fraud cases.

Recently Indian economy has been celebrating the implementation of NCLT as they will resolve and take action s against the defaulters, well the smile is short lived since in every democratic country all decisions are influenced by the political mindset and hence many loopholes which have been plugged now can be re-opened later. NCLT approach itself one fine day will be made lenient so that again fresh NPA could be created and the loopholes in the industry could be exploited.

Credit rating is changing at a faster pace as dynamics of the industry is changing with the advancement of technology. Hence central banks need to keep an eye on the same.

I have heard many such events where a high level of a presentation by Industry heads have raised voice about ethics and corporate governance and strategies for controlling and managing the rising NPA issue but all have failed miserably. The reason behind the failure is the hunger for making windfall money at the cost of the society. The global banking system might be waiting for another round of collapse from the same leveraged corporate valuation and fancy strategies of making valuation to be astronomical.

Valuation of the corporate for bank funding is influenced by political backup and banking official merged capacities.  Human influence is a major factor in the failure of all these policies. Cooked valuations cannot be replicated through ethics and corporate governance principles. The constant failure of the banking industry across the globe raises the voice very clearly that human behavior cannot be changed even after 3 days session organized by various professional bodies.

The biggest threat of these banking – corporate frauds is that the needy corporate like the SME don’t get loans for expansion when they need the funding. This leads to the shifting of business opportunities to other countries.  Indian banking industries have been a live example of this type of instances in a recent couple of years. It’s a high time that advanced technologies need to be adopted in the banking industry.

AI, Big data analytics adoption followed with Block-chain would help a lot to detect the gaps in corporate governance and unethical practices before they create a contagion collapse. Cost Audit and Concurrent Audit and various another type of filtration process are traditional keeping the mounting gap of corporate ethics. In this segment, AI and Big data will help to detect the corporate valuation gaps and over-leveraged books of accounts preparation. Big data analytics needs to be linked with every historical data either at the external level or internal level of the company so that the lender can get a clear picture of the leveraged details if any present. This will beneficial for those who are genuine in real terms and are very obedient in the financial management. This process will give credit to good corporate and will enhance every angle of the corporate governance. Blockchain would add value to the prudent decision making where negligible human interference would further enhance the corporate ethics and corporate governance. The biggest achievement through AI, Block Chain and Big data would be that political influence on the banking industry would come down significantly. Analytics will govern the banking industry and not any political influence.

AI and Block-chain can be used to detect cooked financial papers and detect early warning before any default happens. Corporate Governance and ethics can only be improved through efficient implementation of advanced technology.

The new mode of the audit is adoption, implementation, and understanding of AI, Big data and Block –Chain in the banking industry. The traditional audit mechanism has failed miserably and hence there is no time to waste for late adoption of new advanced technology based audit system.

It has been found many times that Banking officials want to maintain a high level of corporate governance and ethics but external influence creates distortion. In this place I find AI, Big data and Block-chain would be the biggest gift to these officials.

 When a loan file come up the system of credit rating needs to replaced with Humans. They need AI and Big data to derive from the rating and feasibility of proving to fund to the same. The parameters for the credit rating and understanding the feasibility of providing loan and detecting how much the books of accounts are cooked needs to enhance by the central banks of every country. This will lead to a better outcome for providing loans to the corporate. Central Banks needs to uplift the bar of corporate governance and ethics and integrate the same in AI and Blockchain so that credit rating improves with changing dynamics of the industry.

 Big Data would help to identify the various dynamic changes of a business or industry and figuring out the upcoming changes so that the pattern of ratings to could be identified.  The only thing the banking industry will need is people to understand these types of outcomes. AI would be many influencers where the pattern could be well reflected into an outcome.

 Advanced technologies should create a sense of alarm within the hearts of willful defaulters and political influencer since social media is linked with every footstep. In my next series, I will throw light on how NCLT needs to get into merger and acquisition decision-making process.

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