Maker-Checker Control in Gold Loan Custody: How It Helps Reduce Internal Fraud Risk

When gold jewellery is pledged for a loan, the transaction involves more than valuation and disbursement. The collateral must be assessed, documented, stored securely and returned after the loan is fully repaid or settled. Each stage creates records and involves some degree of physical handling.

A maker-checker arrangement can add an independent review layer to selected activities in this journey. One authorised employee initiates or records an activity, while another verifies it before the activity is completed. This division of responsibility is commonly known as the four-eyes principle.

The precise control structure may differ between lenders. RBI’s gold-collateral directions prescribe safeguards relating to assaying, documentation, handling, storage, internal audit and release, but they do not expressly mandate a maker-checker arrangement at every custody stage. Maker-checker should therefore be understood as an internal-control method that a lender may use within its approved policies and operating procedures.

This article explains maker-checker gold loan internal control, its possible application to custody activities, the risks it may address and the safeguards that are directly relevant to borrowers.

What Is Maker-Checker Control?

Maker-checker is a control arrangement under which one person initiates or records an activity and another authorised person reviews it.

• The maker enters, prepares or initiates the activity.
• The checker reviews the relevant information and either approves, rejects or returns it for correction.

The same person should ordinarily not perform both roles in the same controlled transaction. This separation is central to the segregation of duties gold loan operations may use for activities involving physical collateral, system records or payments.

The checker’s role should involve meaningful verification. Merely clicking an approval button without examining the underlying details does not provide an effective independent review.

Is Maker-Checker Preventive or Detective?

Maker-checker is primarily a preventive control because approval is required before the selected activity can be completed.

It may, however, operate alongside detective controls such as:

• Physical stock reconciliation
• Review of system logs
• Exception reporting
• Periodic collateral verification
• Surprise verification
• Internal audit
• Investigation of discrepancies

Preventive controls are intended to stop or interrupt an incorrect activity. Detective controls identify unusual activity or discrepancies during or after the event. A sound custody framework generally requires both.

Is Maker-Checker Mandatory for Every Gold Loan Activity?

Not necessarily.

RBI’s Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025 prescribe several custody and borrower-protection requirements. These include:

• A standardised assaying procedure across the lender’s branches
• Assaying in the borrower’s presence at the time of sanction
• A certificate or e-certificate containing prescribed collateral details
• Handling of pledged collateral only at the lender’s branches and by its employees
• Storage at appropriately secured, employee-manned branches
• Periodic review of storage systems
• Staff training and internal audit
• Surprise verification of pledged collateral
• Verification of collateral against the assay certificate during release

The directions do not state that two employees must separately approve every weighing, sealing, vault or release activity. The use and scope of a two person approval gold custody process may therefore depend on the lender’s risk assessment, internal policy, technology and standard operating procedures.

This distinction matters. Maker-checker is an important control concept, but it should not be represented as a universal RBI-prescribed workflow unless a particular requirement expressly says so.

How Maker-Checker May Work Across the Custody Journey

Where adopted by a lender, maker-checker may be applied to selected stages according to the lender’s internal policy.

1. Assaying, Weighing and Valuation

At the time of sanction, the pledged jewellery is examined to determine its purity and the weight of its gold content. Under RBI’s directions, this initial assaying must take place in the borrower’s presence.

The lender must explain deductions relating to stones, fastenings and other non-gold components. It must also prepare a certificate or e-certificate containing information such as:

• Purity in carats
• Gross weight
• Net weight of the gold content
• Applicable deductions
• Damage, breakage or visible defects
• Image of the pledged collateral
• Value arrived at during sanction

One copy must form part of the loan documentation, while another must be provided to the borrower under acknowledgement.

Under a lender’s maker-checker structure, the maker may record the assessment and valuation details. The checker may review whether the entries, certificate and system record are consistent before the transaction moves forward.

This need not mean that the checker performs an entirely new assay in every case. The depth of verification should follow the lender’s authorised procedure.

2. Packaging and Identification

After assessment, the jewellery may be placed in an identified packet or container in accordance with the lender’s custody procedure.

The maker may prepare the packet and enter its reference details. A checker may verify matters such as:

• Loan-account reference
• Borrower details
• Packet or seal number
• Number or description of pledged items
• Link with the assay certificate
• Condition of the packet or seal

The purpose is to maintain a reliable connection between the physical collateral and the corresponding loan record.

Packaging and sealing methods can vary across lenders. They should not be presented as standard RBI-prescribed procedures unless expressly required by the applicable directions or the lender’s disclosed process.

3. Vault Entry and Storage

RBI requires pledged gold to be handled only in the lender’s branches and only by its employees. Collateral must ordinarily be stored at employee-manned branches with safe-deposit vaults suitable for gold or silver.

Under a maker-checker arrangement, one employee may record the packet’s movement into storage while another verifies the packet reference and custody entry. Access rights may also be separated so that one employee cannot independently alter the record and remove the collateral.

A two person approval gold custody arrangement can reduce concentration of control, but its effectiveness depends on several supporting safeguards:

• Restricted physical access
• Reliable packet identification
• System-based access controls
• Accurate custody registers
• CCTV coverage, where deployed
• Periodic reconciliation
• Surprise verification
• Independent internal audit

Maker-checker alone does not make a vault secure.

4. Loan Disbursement

Custody and disbursement are related but distinct processes. A lender may require one employee to initiate the loan transaction and another to review the approved amount, customer details and supporting records before disbursement.

RBI’s directions generally require loan disbursement into the borrower’s bank account. In a bank transfer, the disbursement must ordinarily be made to the borrower’s account rather than an unrelated third-party account, subject to specified exceptions.

A separate checker can help identify inconsistencies before funds are transferred. However, the precise approval structure remains subject to the lender’s policy and system configuration.

5. Release of Gold After Repayment

RBI requires pledged collateral to be released after full repayment or settlement within the prescribed regulatory timeline. At the time of release, the collateral must be verified against the details in the assay certificate to the borrower’s satisfaction.

Where maker-checker applies, one employee may initiate the release after confirming the loan status. A second employee may verify the release authority, packet details and supporting records before physical handover.

Borrower identity, legal-heir documentation where applicable, repayment status and the collateral description are all relevant to a controlled release. The borrower should also be given an opportunity to check the returned collateral against the certificate.

Risks That Maker-Checker May Help Address

The purpose of internal fraud prevention gold loan controls is to make unauthorised activity more difficult, more visible or easier to trace. Maker-checker may support this objective in several risk situations.

Gold Substitution

Substitution risk arises if pledged jewellery is replaced or altered after it enters custody.

Independent verification of packet details, seal references and custody movements may make unilateral substitution more difficult. Reconciliation and surprise verification can provide additional detection mechanisms.

Maker-checker cannot eliminate substitution risk where employees collude or where physical and system controls are poorly designed.

Incorrect Weight or Purity Records

An inaccurate entry may affect the recorded collateral value and loan documentation.

A checker may compare assessment details, applicable deductions and the assay certificate with the system record before the transaction progresses. Borrower presence during the initial assay and the provision of a detailed certificate add further transparency.

Unauthorised Disbursement

A transaction may be initiated with incomplete, inaccurate or unauthorised information.

Requiring a separate approval can prevent a single user from both creating and approving the same disbursement. System-enforced access controls are generally more reliable than an approval recorded only through a manual signature.

Incorrect Vault Movement

A mismatch between the packet and custody register can make subsequent tracking difficult.

Independent verification of packet identifiers, timestamps and movement records may help identify an error before the packet enters or leaves storage.

Premature or Unauthorised Release

Pledged gold should not be returned without confirming the loan status and the recipient’s authority to receive it.

A separate review of repayment status, borrower identity and collateral details may reduce the risk of an incorrect handover. Verification against the assay certificate remains an important borrower-facing safeguard.

Why Segregation of Duties Matters

The core purpose of segregation of duties gold loan controls is to prevent one employee from controlling an entire sensitive process without review.

A person who can assess collateral, alter its records, access the vault and authorise its release would hold several incompatible responsibilities. Dividing these responsibilities reduces the opportunity for unilateral misuse.

Effective segregation may include separating:

• Collateral assessment from transaction approval
• Data entry from system authorisation
• Physical custody from record maintenance
• Disbursement initiation from payment approval
• Release processing from final handover authorisation
• Branch operations from independent audit

The appropriate separation depends on branch staffing, transaction volumes, technology and the lender’s risk framework. Where complete separation is operationally difficult, additional controls may be needed.

Audit Trail and Documentation

A maker-checker arrangement is useful only if the lender can establish who performed each activity and what was reviewed.

An internal audit trail may capture:

• Maker and checker user IDs
• Date and time of each action
• Loan and packet reference
• Activity initiated
• Details reviewed
• Approval, rejection or return status
• Changes made after rejection
• Exceptions or overrides
• Physical register or document reference

Digital controls can prevent the same user ID from initiating and approving the same transaction. They may also flag unusual approvals, repeated overrides or activity outside authorised working patterns.

Manual records remain vulnerable to incomplete entries, retrospective signing and illegible documentation. Where manual controls are used, reconciliation and independent review become particularly important.

Borrower Documentation Is Equally Important

Internal system logs should not be confused with the documents provided to borrowers.

Under RBI’s directions, the borrower must receive an assay certificate or e-certificate containing the prescribed collateral details. The loan agreement must also cover relevant matters such as the collateral description, its value, applicable charges, auction procedure and the timeline for release after repayment or settlement.

These records give the borrower a reference against which the collateral and transaction can later be checked.

Limits of Maker-Checker Control

Maker-checker reduces the dependence on one individual, but it cannot guarantee that fraud or error will never occur.

The control may fail where:

• The maker and checker collude
• The checker approves without reviewing the details
• User credentials are shared
• System access is not promptly withdrawn
• Overrides are permitted without independent supervision
• Physical collateral is not reconciled with system records
• Audit findings are not addressed
• Staff members are inadequately trained
• Duties are separated on paper but not in actual practice

For this reason, maker-checker should operate within a wider control environment that includes secure storage, access restrictions, staff training, periodic reconciliation, surveillance where appropriate, surprise verification, exception monitoring and independent audit.

What Gold Loan Borrowers Should Understand

Borrowers may not always be able to observe a lender’s internal maker-checker workflow. Several borrower-facing safeguards are easier to verify.

At the time of pledging gold, borrowers should receive a certificate or e-certificate recording the prescribed details of the jewellery. The stated gross weight, net gold weight, purity, deductions, visible defects and image should be reviewed carefully.

Relevant loan documents should also be retained until the collateral has been returned and checked. At release, the jewellery should be verified against the certificate to the borrower’s satisfaction.

Questions may be raised with the lender where:

• The certificate is incomplete
• Recorded details do not match the pledged jewellery
• Unexplained deductions appear in the assessment
• The packet or jewellery appears damaged
• The returned collateral does not correspond with the certificate
• Release remains delayed after full repayment or settlement

Maker-checker may strengthen the lender’s internal process, but the borrower’s certificate, loan records and release verification provide more direct visibility into the custody journey.

Conclusion

Maker-checker can add a valuable review layer to gold-loan custody by separating the initiation and approval of selected activities. When supported by appropriate access controls, audit trails and physical verification, maker-checker gold loan internal control may reduce the opportunity for a single employee to carry out an unauthorised transaction alone.

Its role should nevertheless be understood correctly. RBI’s gold-collateral directions require standardised assaying, borrower-facing documentation, secure handling and storage, internal audit, surprise verification and controlled release. They do not expressly prescribe dual employee approval at every custody stage.

A well-designed two person approval gold custody process can complement these requirements, but it cannot eliminate collusion, weak supervision or system override. Strong custody depends on the complete control environment and on borrowers receiving clear records against which their pledged and returned jewellery can be verified.

Disclaimer : The information in this blog is for general purposes only and may change without notice. It does not constitute legal, tax, or financial advice. Readers should seek professional guidance and make decisions at their own discretion. IIFL Finance is not liable for any reliance on this content. Read more