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How to check under insurance in case of concurrent auditing

ABHINANDAN JAIN (CA Student) (886 Points)

17 October 2011

Pls anyone share ur experience who has checked UnderInsurance of Hypothecated Stock for Borrowal Accounts while doing concurrent Auditing of Banks

I want to know how to check whether Stock Hypothecated by Borrowers to bank is UnderInsured.

Whether i need to compare the value given in Stock Statement with Sum Insured value given in Insurance Policy.

Whether it (Sum Insured figure) should be compared with Sanctioned Limit of that Borrower.

In my opinion, it should be matched or compared with Value of Stock hypothecated which is mentioned in Sanction Letter.

Pls clarify if my opinion is right, but if i'm right then why not above concepts are considered while judging UnderInsurance of Stock

i mean to say that pls support ur replies with enough reason..

Thank u.....

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S.Balasubramanian. (proprietor) (114 Points)
Replied 18 October 2011

*Ascertain the varioius locations with proof of address( viz., VAT regn/factory address with survey no/door no as per valuation report of L&B...)where stocks are declared to be held and actually located for omission/discrepancy of address including in the premises where stocks are transferred -Branches,warehouses,subcontract/job work units/various sites in case of infrastructure projects.

*goods received for job work to be identifiable kept seperately and insured as "goods held under trust'

*Verify all items as per stock statements /actual variety of stock as per PV(Physical verification) are included in the insurance policy .RM.WIP,FG,Stores &Spares,packing material.oils,chemicals.cement/wheat/rice in silos.

*Take the stock statement value for say last six months/one year to ascertain the maximum balance during peak season.Coverage should be for maximum value or the consistently maintained stock inside/outside the premises .

*In case of high stock level only for a short period say before export a short term cover is also possible.

*storage bins should also been covered either as part of stock or fixed assets if it forming part of stock -say crates &bottles.

*suitable exemption may be granted for Iron ,granite etc.,

*Stocks should be covered against Fire &allied perils (including flood /earthquake...)and burglary also.

*In case of subcontract stock check as per agreement who has to insure.