BANK BRANCH AUDIT LONG FORM AUDIT REPORT

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1 BANK BRANCH AUDIT LONG FORM AUDIT REPORT in case of Bank Branches & Certification CHAMBER OF TAX CONSULTANTS SATURDAY 1 ST APRIL 2017 VIPUL K. CHOKSI, FCA

2 Agenda LFAR Important Recent Circulars Certificates

3 L F A R PURPOSE LFAR CONSTRAINTS IMPORTANT ASPECTS OF LFAR WORDS USED IN LFAR COVERAGE OF LFAR

4 L F A R: PURPOSE Address Systemic Issues in Bank. Whistle Blower for Irregularities. Excellent Audit Planning Tool.

5 L F A R: CONSTRAINTS Limited Time. (Answers in short span of time) Lengthy Questionnaire. Lack of availability of information. Co-operation from Branch at all levels. On line submission of LFAR

6 IMPORTANT ASPECTS LFAR serves as a check list. Plan your work at the beginning of audit. Go through previous years report, Inspection report, etc. Main Audit Report and LFAR are two separate reports.

7 IMPORTANT ASPECTS Comments in LFAR should be specific and not vague or general. Give instances of short coming. LFAR is of utmost importance to the management as well as the Central Auditors. Finalize Statutory Report and LFAR simultaneously.

8 WORDS USED IN LFAR & APPROACH Limits Fixed / Instruction given by the controlling authorities of the bank. In your opinion? In case examined by you / test checks done? Does the system of bank ensure/indicate? Suggestions? Does the branch generally carry or comply? In the cases examined by you have you come across any instances?

9 COVERAGE OF LFAR 1. ASSETS Cash Balances Bank Balances. Money at call and Short Notice Investments Advances Other Assets 2. LIABILITIES Deposits Other liabilities Contingent Liabilities 3. Profit & loss A/c. 4. General 5. Specilised Branches.

10 AUDIT PROCEDURES Inspection & Observation. Inquiry & Confirmation. Computation. Analytical Procedures.

11 CASH Cash balance which vary significantly from the limit fixed by controlling authorities. Excess balance reported to the controlling authorities. Adequate Insurance Cover. Joint custody. Refer Instructions, Key Movement Register. Periodic checking of cash balance. Ascertain procedure and observe during audit General scrutiny of cash book.

12 BALANCE WITH RBI, SBI AND OTHER BANKS Obtain balance confirmation. Report differences. Observation on differences. Cash transactions remaining unresponded. Revenue items requiring adjustment / write offs. (issue MOC / Qualify report) Old outstanding balances remaining unexplained and age wise analysis.

13 BALANCE WITH RBI, SBI AND OTHER BANKS Item requiring special attention of management. Reconciliation not done / procedure not followed. Material amount unadjusted for a long time. Items affecting financial statements may be reported in the Statutory Report.

14 MONEY AT CALL AND SHORT NOTICE Report even if a single transaction Confirm that the transaction is as per the procedure. Investments: Physical verification on behalf of H.O. Ensure that income earned on such Investments is not accounted by Branch.

15 ADVANCES Examination of all large advances and a test check of other advances Questionnaire in four Broad categories Credit Appraisal Sanctioning / Disbursement Documentation Review / Monitoring / Supervision Whether Annexure to the LFAR for Large advances to be obtained for all the category of Branches?

16 CREDIT APPRAISAL [Clause 5(a)] Opinion is sought on compliance of Procedure / Instruction of controlling authorities Whether loan application in prescribed format. Whether intelligent appraisal done by competent person. Adequate appraisal documentation

17 SANCTIONING / DISBURSEMENT [Clause 5(b)] Credit facilities beyond the delegated authorities. Are such cases promptly reported to higher authorities? Verify control returns. Advances disbursed without compliance of terms of sanction (give details)

18 SANCTIONING / DISBURSEMENT Net worth of the guarantor not furnished. Unit not inspected. End use of the funds not verified. Borrower continuing to have operations with other Banks.

19 DOCUMENTATION [Clause 5(c) (i) to (iii)] Instances of credit facilities released without execution of all the necessary documents? Verify legal status. Government recognized status. Type of Loan. Securities. Instances of deficiencies in documentation, non registration of charge etc., (give details)

20 DOCUMENTATION Some instances of deficiencies Documents left blank. Overwriting in documents, change in hand writing, incomplete documents. Joint documentation in case of consortium advance. Documents inadequately stamped. Documents time bared. Additional reporting requirement on advances against lien of deposits.

21 REVIEW / MONITORING / SUPERVISION [Clause 5(d) (i) to xvi)] Periodic review of advances including balance confirmation / acknowledgement of debts etc. Analysis of such accounts overdue for review. System of receipt of Stock / Book Debt and other statement and scrutiny thereof. System of obtaining Stock Audit Report. Audited accounts as per RBI guidelines from non corporate entities with limit beyond Rs lacs.

22 REVIEW / MONITORING / SUPERVISION [Clause 5(d) (i) to xvi)] Physical verification of securities as per procedure laid down? Deficiencies in value of securities, frequent / unauthorized drawings, inadequate insurance etc. Clauses relating to lease finance activities and credit card dues. Clauses relating to Prudential Norms. Clause relating to lodging of claims for DICGC and ECGC and status of pending claims

23 REVIEW / MONITORING / SUPERVISION [Clause 5(d) (i) to xvi)] Compliance by Branch with Recovery Policy / in respect of Compromise / Settlements / Write off. Details of such cases where waiver / write off >50 lacs. Major deficiencies in credit review / monitoring / supervision. Details of outstanding amounts of guarantees invoked and funded by the Branch at the year may be obtained from the management and reported in the following format (clause 5 (e).

24 OTHER ASSETS Stationery and Stamps. [Clause 6(a)] Comment on existence and compliance with. Internal control system over valued stationery with regard to issue and custody. Instances of missing or lost items of stationery to be given.

25 OTHER ASSETS Suspense Accounts / Sundry Assets [Clause 6(b)]. Critically Scrutinize these accounts. Details and clarification in respect of old unadjusted entries be obtained. Balances which in your opinion are not recoverable. eg:advance against travelling. Legal expenses

26 OTHER ASSETS Suspense Accounts / Sundry Assets [Clause 6(b)] Unusual items in these accounts be reported eg: Cash in transit Difference in balancing. Difference in cash.

27 DEPOSITS Compliance with guidelines in respect of inoperative accounts. Instances if not complied with the guidelines. Seek clarification for unusual movements after balance sheet date. Quantification of Overdue / Matured term deposits at the year end.

28 BILLS PAYABLE / SUNDRY DEPOSITS / CONTINGENT LIABILITIES Details of old items to be reported. Unusual items and pre-matured withdrawals or debits to be reported along with their nature and amounts. List of major items of contingent liabilities other than Guarantees, LCs, Endorsements, Acceptances etc.,

29 PROFIT AND LOSS ACCOUNTS Existence of system to compute discrepancies in interest / discount income as well as interest expenditure & timely adjustment thereof. Discrepancies if material to be reported (MOC to be issued) Existence of system Discrepancies to be checked by branch Findings of Concurrent Audit/Revenue Audit.

30 PROFIT AND LOSS ACCOUNTS Compliance with Income Recognition Norms System of estimation and provision of Interest on overdue / matured term deposits. Divergent trends in major items of P & L A/c if not satisfactorily explained.

31 GENERAL Proper maintenance of manual Books of Accounts. In respect of Computerized Branches number of areas prescribed. Whether hard copies of accounts are printed regularly. Banks policy Compliance of the policy Internal Control & Security measures. Backups and Disaster Recovery Plans Suggestions for the improvement in the system

32 GENERAL Proper maintenance of manual Books of Accounts. Reconciliation of control and subsidiary records. Inter Branch Accounts, (Very Important area) Understand the system Daily Communication to HO/Designated cell statement of debit / credit transaction. Agreement between balance in HO Account Branch Accounts. Old outstanding debits in the Head Office Account.

33 GENERAL Expeditious compliance to communication from HO / Designated cell (Report unresponded entries) Items of Double response in HO Account. Old / Large outstanding transaction at debits as at year end. Audit and Inspection Particulars of frauds discovered during the year together with your suggestions to minimize the same.

34 GENERAL Window dressing to be reported eg. Large deposit at year end. Under utilised facilities converted in Deposits. Unsecured loans shown as secured. Maintenance of Fixed Assets Records. Documents of title in relation to branch Any other matter Non compliance with Ghosh and Jilani Committee recommendations.

35 SPECIALISED BRANCHES Foreign Exchange Transactions. Recovery of NPAs. Clearing house Operations. Large Corporate branches (Advances in Excess of 100 crores).

36 Depositor Education and Awareness Fund Scheme, The scheme notified on May 24, Amount to the credit of a Bank by way of Savings, Fixed, Recurring, Current, Other Deposits remaining un-claimed for more than 10 years shall be credited to the fund within 3 months from the expiry of period of 10 years. On the date of transfer the amount to be fund the bank should get details verified by the Concurrent Auditors. Depositor shall be entitled to claim the deposit or operate account after expiry of 10 years. Necessary returns to be filed by Bank with RBI from time to time.

37 Provisioning requirements for exposures to entities with unhedged Foreign Currency Exposures Circular reference DBOD.No.BP.BC.85/ / dated January 15, 2014 and DBOD.No.BP.BC.116/ / dated June 3, Incremental provisioning and capital requirements for bank exposures to entities with unhedged foreign currency exposure Foreign currency exposure is the gross sum of all items on the balance sheet that have impact on profit and loss account due to movement in foreign exchange rates Financial and natural hedge to be considered Borrowers to give their unhedged exposure duly certified by a Chartered Accountant

38 OTHER CERTIFICATES Ghosh & Jilani Committee Recommendations Certificates relating to various subsidies

39 Thank you!

BANK BRANCH AUDIT. Presented by: CA. Rajesh Malhotra

BANK BRANCH AUDIT. Presented by: CA. Rajesh Malhotra BANK BRANCH AUDIT Presented by: rmalhotrafca@rediffmail.com 1 OBJECTIVE OF AUDIT Whether the financial statement are free from material misstatement. Whether the financial statement are prepared in accordance