This is a composite, illustrative scenario, not an account of a named client. A monthly bank guarantee commission of roughly ₹18,000 had continued to be debited to the bank charges expense line for eight months after the construction contract the guarantee secured had been formally closed out and the performance obligation discharged. Nobody had asked the bank to cancel the guarantee or release the underlying margin money once the contract ended, so both the guarantee and its commission simply kept running on autopilot.
Why a small recurring line went unnoticed for eight months
Bank charges as a category typically draw little scrutiny — individually small amounts, a predictable monthly pattern, and no single entry large enough to trip a materiality threshold on its own. The commission looked exactly like every other month's commission before the contract closed, because the rate and the guarantee amount hadn't changed; the only thing that had changed was that the guarantee no longer secured anything. That kind of change is invisible from the expense ledger alone — it only shows up by cross-checking the guarantee against the contract status.
What the cross-check actually did
- 01Pulled the full list of outstanding bank guarantees from the bank confirmationTwelve guarantees outstanding at year end, each tagged to a specific contract or tender in the client's own guarantee register.
- 02Matched each guarantee against the current status of its underlying contractEleven matched live or recently closed contracts appropriately. One was tagged to a construction contract that the company's own project-closure records showed had been completed and formally closed eight months earlier.
- 03Quantified the commission paid since closure and the margin money still blocked with the bankEight months of commission, plus a fixed deposit held as margin money against the guarantee that could have been released and put to use elsewhere.
- 04Asked why nobody had initiated the cancellationThe guarantee had been arranged by the project team, which had since moved on to other projects; closing out a bank guarantee was nobody's explicit responsibility once a project ended, and no checklist in the company's project-closure process included it.
| Item | Amount / effect |
|---|---|
| Commission paid post-closure | Roughly ₹1.44 lakh over eight months |
| Margin money fixed deposit blocked | Tied up and unavailable for use elsewhere during the period |
| Contract secured | None — contract closed eight months prior |
What went into the file
- The bank guarantee listing matched against contract closure status, with the one exception documented alongside the eleven that matched correctly.
- The commission and blocked margin money quantified as an avoidable cost of the gap.
- A control recommendation to add bank guarantee cancellation as an explicit step in the project-closure checklist, so the responsibility doesn't fall between the project team moving on and finance assuming someone else handled it.
Common practice, not a requirement
Testing bank guarantees is usually framed as checking whether an outstanding guarantee is properly disclosed. Checking the other direction — whether every outstanding guarantee still secures something live — catches a different and more common gap: one that quietly costs money every month rather than creating a disclosure risk.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Bank, cash & treasuryBank guarantee verification in a statutory auditWhy BGs are off-balance-sheet contingent liabilities, confirming with the bank, tracking expiry, and verifying the margin money behind each one.
- Bank, cash & treasuryThe bank guarantee nobody had disclosed as a contingent liabilityThe bank's confirmation letter listed a guarantee outstanding. The client's draft notes to accounts didn't mention it at all.
- Bank, cash & treasuryBank reconciliation audit procedure for statutory auditWhat a BRS must reconcile, the red flags that separate a timing difference from a cover-up, and how many months you actually need to review.
Free tools, no signup
Each one reads a file entirely in your browser — or, for two of them, just answers a few questions — and nothing is ever uploaded.
- Purchase register checkDuplicate payments, round-sum amounts, weekend-dated invoices, incomplete records.
- GSTR-2B reconcilerMatches your purchase register against GSTR-2B — missing invoices either side, amount mismatches.
- Bank reconciliation checkerMatches your cash book against a bank statement — what's outstanding on each side.
- Fixed asset register checkDuplicate asset codes, missing location or useful life, negative net book value.
- Payroll red-flag scannerBank accounts shared across employees, and records missing an ID, PAN or salary.
- CARO applicability checkerAnswer a few questions about the company and see which CARO 2020 clauses likely apply.
- MSME payment delay checkerMSME-flagged invoices paid — or still unpaid — beyond the 45-day Section 22 limit.
- Related-party transaction screenerTransactions above a threshold you set with no approval reference, grouped by counterparty.
- Depreciation useful life checkerCompares a useful life in use against the Schedule II, Part C indicative figure.
- Materiality calculatorOverall and performance materiality against PBT, revenue, assets or equity, with reasoning shown.
- Sample size calculatorStatistical sample size for a test of controls or a substantive test of detail.