March 17, Organised by CCBMP of ICAI

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1 March 17, Organised by CCBMP of ICAI

2 Disclaimer s and Disclosures All trademarks are property of their respective owner s. The presentation is to highlight the risk, precautions to be taken and audit process to be adopted. The presentation is not intended to degrade, denounce any system / software.

3 A request at the start Please ask questions during the session s, It adds to learning curve.. Thanks

4 Approach to whole session Based on Standards on Auditing as issued by ICAI (which we all remember by heart ) We shall keep it as practical as possible. Let us begin

5 Audit under CBS Environment Part I: Understanding the present system. Part II: Practical

6 Part I: Understanding the system

7 Impact of Computerisation At two levels The change in related audit risks, and The change in nature of audit documentation April 2,

8 Change in Audit Risks Compromise on Controls Loss of Trail Behaviourial Issues Frauds

9 From System Audit Perspective April 2,

10 Key Issues Concerns in CBS Backups Migration Login Details Day End Controls System Generated Transactions Security Master Maintenance Linking of Credit Limits

11 Key Issues NPA Classification Income Recognition & Asset Classification by System Deposits ATM Other general Issues Audit Exceptional Reports For Balance Sheet & Profit & Loss For LFAR Procedures For IRAC Compliance Audit For Tax Audit

12 CONCERNS IN CBS Risks Compromise on Controls Loss of Trail Behavioral Issues Attrition Complexity in working

13 THINGS TO KEEP A NOTE CONCEPTS MASTER LEVEL CONFIGURATION %20FOR%20FINACLE%20INFOSYS.pdf

14 THINGS TO KEEP A NOTE Balance With RBI/SBI/ Other Banks Need to check: Balance as on date and Reconciliation

15 Migration The process of Migration is now a days of more use in case of Co-operative banks & RRB s. If migration process has been undertaken in the supervision of controlling office team, to check & comment. Check with the help of a Sample.

16 Migration Check the pre migration and post migration reports of any ledger. BALANCING OF BOOKS is relevant from LFAR POINT If branch has undergone an independent Migration Audit, to check whether all irregularities and recommendations have been duly attended/followed.

17 Migration For Example, if any party is paying interest on a fixed rate, then check whether due to change in BPLR, the rate has not been changed.

18 Login details Verify that all the users are allotted separate login IDs & passwords for operations. The Same should contain different user rights assigned to the users as per his or her rights. System should contain an auto popup for changing passwords of the users after a specified period of time

19 Login details Verify that passwords are changed at regular intervals and the staff of branch does not know Manager s password because whole of the computerized system works on the authorizations and passwords only.

20 Login details Verify that no two or more same user id s exist in the same branch. Live passwords should be linked with attendance. Verify that dummy accounts created using master creation should not exist in the Branch. Verify, whether staff that are transferred/retired still have user id in the system?

21 Login details Review user access reports User attempting exceeding authority level REPORT USER RIGHTS manual VERIFY the rights and see the purpose of right given and cross check with the actual transactions whether any other transactions have been done other than for which it was given.

22 Day end controls Verify that Beginning of the Day and End of the Day register is properly maintained and Time is properly entered and time and date are normal and during office hours only. Various control reports are generated to ensure integrity of the transactions and also to ensure whether transactions are in conformity with the Bank s guidelines/system of authorizations (maker-checker).

23 Day end controls Obtain list of such reports generated by the system. Check whether all the mandatory reports are taken daily including on Sundays and holidays.

24 Day end controls These reports reveal the exceptions and anomalies encountered during the day. Vital amongst these reports are: 1. Exceptional report: It generally contains the following details, though it varies from software to software: Debit /Credit balance change Maturity record deleted Inactive accounts reactivated

25 Day end controls Excess allowed over limit Debits to Income head accounts Overdue bills and bills returned Withdrawal against clearings Deposits accounts debit balance Temporary O/D beyond sanction limit Standing instruction failed in day Change in master : Auditor should check mainly for September, March, 1-2 April.

26 Day end controls 2. List of users 3. Access Log 4. Rejected/Cancelled entries 5. Over-limits/TOD Report 6. GL affected Balances Report 7. Report on large cash transactions /KYC & Anti Money Laundering etc.

27 System Generated Transactions Certain System generated transactions are: Application of Interest. Application of service charges. Updation of parameters globally. Balancing & Reconciliations. Classification of inoperative accounts etc. Classification of Probable NPA s

28 System Generated Transactions - To obtain listing of such runs/system generated transactions, - To check whether print reports of such runs/system generated transactions are taken and scrutinized by the branch for correctness and comment whether discrepancies/inconsistencies encountered are duly noted and disposed of.

29 System Generated Transactions Though these runs are controlled centrally at the Data Centre, yet there are several reasons of failure /incorrect output of such runs, like: Interest rate not mapped correctly: for example, interest rate of housing loan to staff linked to interest rate of vehicle loan to staff. Interest rate field kept as Zero.

30 Securities Master Maintenance Generally, the credit limits are administered through security register maintenance. Value of various securities i.e. stocks, book-debts, plant and machineries and Land & Buildings etc. are updated at the branch and drawing powers are administered accordingly.

31 Securities Master Maintenance Required: To check whether values of various securities are updated promptly and drawing powers are allowed on current value of such securities, based on the report of valuation officer. To check whether periodical reports on securities master are taken and scrutinized for verification of various fields i.e. value of securities, date of inspection, insurance, date of valuation, etc.,

32 Linking of Credit-limits Required: To check whether values of various securities are updated promptly and drawing powers are allowed on current value of such securities, based on the report of valuation officer. To check whether periodical reports on securities master are taken and scrutinized for verification of various fields i.e. value of securities, date of inspection, insurance, date of valuation, etc.,

33 Linking of Credit-limits In CBS environment, in order to know the consolidated outstanding and value of assets of a customer under various credit-limits, all limits are linked to central/common node. NPA classification is borrower wise not facility wise. TDS has to be applied on WHOLE BASIS rather than individual

34 DEPOSITS Linking of accounts to various scheme code/tables/gl Subheads etc. For instance, linking of applicable interest rate table to SB (General), SB (Staff), SB (Pensioners). To obtain print copies of verification sheets and check whether these have been verified by the branch adequately for correctness.

35 DEPOSITS AUTO RENEWAL OF DEPOSITS so NO OVERDUE DEPOSITS after CBS. If there is over due then it is before CBS. CBS also reduces risk in loan accounts against deposits.

36 ATM To check whether adequate control over physical inventories of ATM cards has been exercised. ATM CARDS at branch and PIN at branch are separately stored with different person. Proper Controls over HOT CARDS and CAPTURED CARDS.

37 ATM To check whether ATM Cash has been verified periodically cash should come in branch balance sheet or not. To check whether ATM transactions are reconciled periodically. SWITCH BALANCE and ATM BALANCE should be matched. Difference is marked to PROXY A/C.

38 Thanks Mail: M:

AUDITING UNDER COMPUTARISED ENVIRONMENT CHECKPOINTS & PROCEDURES 17 TH NOVEMBER, 2012 AT WIRC BY CA ARVIND JOSHI

AUDITING UNDER COMPUTARISED ENVIRONMENT CHECKPOINTS & PROCEDURES 17 TH NOVEMBER, 2012 AT WIRC BY CA ARVIND JOSHI Many of us are in Bank Audit since many years. Some of us may be new entrants in this filed.