Adoption of Audit Technology in the Micro Finance Industry

25 June 2018



Microfinance as an area of business is in itself very different from the normal financial sector. The very fact that it is aimed at Financial Inclusion for the otherwise deprived makes it a very complex business having to deal with the most un organised sector of customers. This also brings in the factor of geographical penetration as the customers ideally need to be met at their vicinity, which generally are villages or interior locations in the urban areas.


Role of Audit in Microfinance


Audit as in the case of any other enterprise is very important for the microfinance Industry as well.  But, in addition to the Assurance and Consulting role, the Internal Audit team plays the role of Customer Verification, Fraud Assessment, Fraud Prevention and Risk monitoring for a Microfinance Enterprise. This makes the Internal Audit team a pivotal entity within the organisation. With limited or no availability of credit bureau scores, score-card based credit assessments and automated policy decisions, Audit is probably the only fall back mechanism for ensuring required controls over the possible risks involved in all of these layers.


Technology Adoption


Leading players in the Industry especially in countries like India are at the forefront of technology adoption for sourcing/onboarding the members and the member groups and collection of the EMIs from the members. This enables them to bring in the much needed speed and efficiency in their operations especially as the activity is geographically spread.


Technology adoption in Internal Audit


While the Business and Operations are high on technology adoption, the same would not hold good for Audit. This indeed is a point for serious consideration. While the business is running at a pace and sophistication which is in line with the general market scenario, Audit as is the case elsewhere, is far behind. This does pose  lot of challenges, in an otherwise 'high on risk' business. This is more so, as the role of the Internal Audit team is extremely important for a Microfinance Organisation as mentioned earlier.


Current Scenario in Audit


Brick and Motor being the inevitable model for member reach, most Microfinance Enterprises have large number of Branches. This, with the paramount importance required for audit, makes it necessary for the enterprise to have large number of Auditors in comparison to any other industry.


How does this affect for the Internal Audit department?


It makes is very difficult for the Internal Audit team, especially when it is a large Audit team.


How difficult?


Well! Let's consider a Microfinance Enterprise with 200 Branches, the ideal number of auditors there would be 35-40. The challenges could be many, some are listed below:


For the Auditors:


  1. These Auditors would be continuously travelling on Audits and would be requiring to create Excel reports while on the move.
  2. Managing the conflicts with the auditees w.r.t their findings.
  3. Inability to substantiate the Observations raised.
  4. Tracking closure of previous issues.



For the Central Audit Team:


  1. Following up with each of the 35 Auditors for their completed reports.
  2. Each Auditor would be producing close to 25 Excel reports if the Branches and Groups/Centres are audited. Compilation of these reports in itself is a challenge.
  3. Standardisation of the Auditors' observations to arrive at meaningful information.
  4. Arriving at a rating for the individual branch and to maintain a ranking of Branches
  5. Creation of Management Information Systems from these reports.
  6. Maintenance of the information for a large time period, to be able to generate trends and analysis.
  7. Managing conflicts with the Auditees.
  8. Monitoring the Observations/Issues/Non-compliances to closure.


For the Audit Head:


  1. Comprehending the Audit report produced by each individual Auditor.
  2. Ability to take decisions quickly with the manual process not allowing fast churn of MIS
  3. Lack of/Limited availability of analytics enabling quick and data backed decision making, allowing him to do justice to the Assurance role.


For the Auditee:


  1. Non availability of a single source of all Audit issues that need to be tracked and closed.
  2. Inability to sign off an Audit report partially, leading to conflicts.
  3. Inability to substantiate the closures.


For the Management:


  1. Delay in information reaching the decision makers. (Time taken for comprehension, compilation and presentation of MIS)
  2. Limited availability dynamism in data and MIS.
  3. Time taken for closure of issues as monitoring is difficult.
  4. Issues remaining un-monitored as the process is manual.
  5. Inability to validate closures reported by different Branches/Locations


The above listed points lead to the below major areas of concern for the Enterprise at large



Can technology be of help?


Technology can indeed be of great help to solve all of these challenges faced either by the Auditor, Audit team, Audit head, Auditee or the Enterprise at large. It can bring in the much needed pace, authenticity and ability to track actions of different stakeholders across the Internal Audit spectrum.




A fully Digital Solution like that of Audit360 can alleviate all of the above challenges. It can also present other advantages which help the enterprise to have a tight control on the processes. It can help bring in efficiencies in multiple dimensions including but not limited to Time, Efficiency, Authenticity and Control. 


Let us look at that in detail:




Audit Execution: There are standardized comments available for the auditors to choose from. Also necessary information for every Check-point is available at a tap. The Audit can be performed in any order there is  no restriction to stick to any order while disposing the check-points.


Submission: One of the key features offered by Audit360, is real-time submission of Audit Reports, while the Auditor is 'on-line'. The report submitted, goes immediately into associated work-flows.


Review: The review by a supervisor becomes extremely easy as there are standardized comments available and there is no need to decipher descriptive remarks given by the Auditors. Standardization and inference of the essence for a large number of Audits at once becomes very easy.


MIS and Reporting: This effort at the Central Audit desk stops completely as it is taken over by Audit360. There is no need for report writing, collation or MIS creation as all of these are automated.


Issue Tracking: Time spent on following up with end users in terms of closing the compliance issues raised by the Auditors is also reduced by 80% as the reminders and notifications are automated by the system.


In all the Audit 360 provides 3 major benefits compared to excel based Audits on time.


  1. The Audit reporting TAT increases 30 times!
  2. Time spent by the central audit team is reduced by 75%
  3. Time spent in reviewing the Audit report comes down by 50%




Audit Execution: The efficiency of Auditors goes up considerably as they spent less time on operational aspects like Report Writing and creation of the same information using an excel sheet. All they need to do with Audit360 is to provide required information in Audit360, and the report is prepared by the system.


Post Audit: The conflicts that can arise with the Auditees on issues is reduced with Authentication that is provided by the Digital Evidence.


An efficient set of Auditors is next to nothing when it comes to the wish list of the Microfinance Enterprise. The ability to Audit maximum units; whether it is Branch, Centres, Groups or Customers brings down the risk considerably.




Evidence capturing: The Auditor is able to capture Image, Video or Audio Evidence using the Mobile Application which helps him substantiate his findings/observations.


Geo Tagging: Since the Microfinance Audits are distributed, Geo-tagging of the Auditor' s location while submission of the report allows the enterprise to be sure that the Audit was conducted as the required place. This feature works even in off-line.


Issue Resolution: The Auditee also can substantiate closure of issues at his end, with attachment of any nature. This allows him to comply with the required control requirement and to get the resolution approved, with ease.


The Enterprise is immensely benefitted here. With Audit360, Audit reports, Compliance Issue recording and resolution are not mere exchange of words; but these become substantiated and verifiable facts, which hitherto was impossible without physical presence at the Audit location.




Audit Execution: Much needed control on whether the Audit is happening at the date and location as required is ensured by Audit360.


Scoring and Rating: Scoring and rating on the system happens through inbuilt scoring mechanism. Any possible Subjectivity gets addressed by this feature.


Issue closures: The delay in issues getting identified is reduced by more audits happening as the Auditors become more efficient. Such issues come to the fore immediately as the reporting is real-time. The closure also becomes faster as there is an automatic reminder that the system generates on open issues to all concerned users. The closure can also be verified remotely as the evidences are available in the system for scrutiny by any one Authorised.


Increased control gives the enterprise Assurance that is expected from Internal Audit vertical that there are no Un identified risks, there are no Identified issues that are not being tracked or that there are no risks lying open over issues which may have been closed, but not verified.


Is that all?


No! These are just direct solutions to challenges faced by the Industry. Audit360 offers all this and much more. Lets take a look at what else is in offer.



Flexibility: Ability to create multiple Audits with distinct characteristics. Ability to choose from available work-flows, set scoring and rating patterns. In fact many of the features in the product are optional and configurable from the front-end itself.  


Scalability: this is one of the key value propositions offered by Audit360., especially the Solution being hosted in the Cloud. Audit360 is built to grow with the Enterprise  according to the scaling up of the business.


Security: Security is at the core of the product. Audit360 meets OWASP top 10 guidelines in both web as well as the mobile app layer.


Simplicity: This is one of the area where a lot of effort has gone in. Audit360 is very simple and requires minimal training to the Audit team. The Design, Modules as well as the Work-flows reflect this simplicity. 



And more


In addition to Audits, Audit360 also allows processes like field monitoring and customer verifications. What all is possible, how and what is the relevance for the Microfinance Industry.


  1. Customer Verifications: One important area where the pre and post verification of the customers can be set up using the solution. This is very important for the Industry as establishing the existence of the entity to whom the advance is provided is the starting step in ensuring that there are no frauds in the system.
  2. Loan Utilisation Checks: Microfinance being focussed in creation of livelihood. It is important for the enterprise to know if that is done with the amount advanced. The repayment can be guaranteed only by this fact. It is important therefore for this fact to be audited as the information can give the enterprise an outlook towards the quality of the portfolio, well in advance.
  3. Field Monitoring: With the distributed presence and the large field team, and effective monitoring system is required to ensure that the field team is working as per the requirements. All that is relevant to the enterprise happens in the field and hence the monitoring of the field activities is extremely necessary. While there are hierarchy based monitoring framework in most organisations, this is not well recorded or the gaps are not properly fixed. A Solution like Audit360 could prove very effective in this scenario.
  4. File Audits: A mere process adherence check on the files sourced for a continuous period can give very valuable inputs on the quality of sourcing as well as trends what is and what is not going well across geographies running down to the last level.




Audit360 helps in early identification of Risks, Fixing them in time, tracking every risk instance to closure leading to benefits which are inclusive of, but not limited to those mentioned below.


  1. Financial benefits arising from multiple angles such as loss prevention from frauds, avoidance of sanctions and higher efficiency of he audit team.
  2. Reputational risks being mitigated, due to increased compliance and low level of open risks.
  3. Regulatory risks being lower due to higher adherence to regulatory requirements.


While Internal Audit itself may ne seen as a cost centre and Technology adoption , an additional financial burden, considering the benefits articulated above it is indeed imperative for a microfinance enterprise to consider digitalisation and when it comes to Digitalisation of Internal Audit, there is no better choice than Audit360.