BANK BRANCH AUDIT PLANNING

Transcription

1 BANK BRANCH AUDIT PLANNING Banking Industry in India is developing and expanding day by day. The basic work culture in banks in India is fairly different as compared to banks in other countries. The customers (Deposit holders or borrowers) of the banks are being serviced now through Internet, Core Banking Solutions (CBS) etc resulting very less personal interaction with bankers. Because of this changing face of banking industry it is very much necessary to properly plan Bank Branch Audit. Banking Industry is a facebook of Economy of the Country. It speaks about economic growth, its stability and soundness. Fortunately, due to regulations and controls, Indian Banking Industry could sustain when banks in others countries are facing problems due to threats like frauds etc. 1. WHAT IS PLANNING? Planning means Advance Thinking. It is an Attitude. Auditors must develop this attitude and properly plan for Bank Branch Audit allotted to them because of various reasons narrated below. In fact every Chartered Accountant plans the audit assignments but it is necessary to make the plan effective so as to generate and deliver proper and acceptable final result. 2. WHY PLANNING IS NECESSARY? If you try to understand the importance and purpose of planning, you will come to know that planning will help the audit team to carry out the audit assignment more comfortably. Plan is necessary because of following factors. Non Performing Assets (NPA s) and Frauds are required to be checked in limited time available and controls are also to be checked. Data is invisible. Access takes time.

2 Banks are dealing with various products unlike earlier basic functions i.e. Acceptance of Deposits and giving Advances. Various legal and statutory requirements are required to be followed while reporting under Bank Branch Audit. Auditors today are required to consider working paper management risk for reasons like Peer Review. To sum up planning is necessary for various reasons stated above particularly to meet the target in a given time limit. 3. WHAT IS TO BE PLANNED? Timing- Starting Date Detailed Program to be followed on each day during audit Winding up. Man Power Formation of team with proper combination of personnel like senior, junior etc. Working Paper Management To be decided considering continuity of assignment in future as well as Peer Review. Standardize Checklists, Formats of Letters and Reports to facilitate common and uniform understanding within the team. Samples selection method Analytical review procedure. 4. THINGS TO BE CONSIDERED WHILE PLANNING: Well before the Audit Team visit the branch, you must be ready with sufficient and required knowledge of applicable RBI Circulars. You should know in advance about the business mix at a branch allotted to you. You should be very well conversant with the latest guide lines and background materials published by Institute of Chartered Accountants of India (ICAI). After having done the basic things as above, if possible, visit the branch before 31 st March and obtain Audit Reports or any other reports related to business of the branch which will help you to prepare Audit Plan. Always involve everybody in the team right from the beginning in all

3 activities from planning, execution till submission of report. This will help developing good audit team and remote control over plan will be possible. Standardization in the form of checklists and/or bullet points may be of great help while conducting Bank Branch Audit. Preparation of such checklist is nothing but planning for Bank Branch Audit. CONCLUSION: It has become necessity today to consider the risk involved in any audit assignment to give comfort level to everybody involved in the process including Auditors. The end product of Audit is always an Audit Report which is a written document signed by a Chartered Accountant. A written communication/document committing ourselves that carries some responsibilities. Responsibility will always have built-in- risk which requires to be controlled at each point of time. Therefore the required knowledge is necessary to carry the responsibility which in turn requires personal involvement. Since the time and resources are limited for personal involvement, it is necessary to plan Bank Branch Audit. AIM SHOULD BE TO DELIVER ACCURATE, COMPLETE AND TIMELY REPORT.

4 The key in a Bank Branch Audit Planning is - 1) An early start 2) Knowledge of banking business 3) Proper planning with a clear focus and vision knowing what is to be done, how, by whom, when and why and effective monitoring 4) Effective discussions with concerned branch officials 5) Testing of internal controls 6) Clarity on risks faced by the branch 7) Maintaining proper work papers 8) Effective audit sampling 9) Skilful use of MIS reports 10) Use of written representations 11) Obtaining Discussion Certificate from branch head 12) Ensuring compliance with RBI circulars especially regarding NPA identification, classification and provisioning 13) Detailed balance sheet and Profit and Loss scrutiny 14) Clear and specific replies to the questions in the LFAR and Ghosh Gilani Committee reports, mandatory certifications and signing off the tax audit report 15) Ensuring adherence to the deadlines 16) Giving appropriate disclaimers and issuing MOC, and qualifications wherever warranted.

5 Bank Branch Audit Program / Illustrative Checklist Time & Manpower planning Sr. N Name of the person Designation & Estimated time for work Initials of the Person Audit Program Sr. Area of Work No. A B C General - Pre Audit Work 1 Review of Latest available inspection reports of Internal/Concurrent/RBI/Statutory Auditors and compliance thereof 2 Review of Closing Circular issued by Head Office 3 Study of Significant accounting policies of the Bank & computer system 4 Study of Business mix of the Branch & determination of the sample size and percentage of checking in each area 5 Compliance of Mandatory Accounting Standards / Auditing Standards and RBI circulars 6 Intimation in writing whether given to the Branch Manager regarding requirements for audit and documents to be kept ready for audit Physical Verification 1 Physical verification of Cash (in branch and in ATM), Adhesive stamp documents and postage and cross verification of the same with GL 2 balances. Physical verification of Investments. (if lodged at Branch) 3 Physical verification of valuable stationery like cheque books, Demand Drafts, Pay - Orders etc. Verification of Returns and Reconciliation 1 Verification of returns submitted to RBI / HO / ZO ( Monthly/ Quarterly / Half Yearly / Yearly ) 2 Verification of Annual Closing Returns 3 Verification of HO / Branches / Other Banks Reconciliation, Branch Adjustment Account, Suspense account etc. 4 Verification of Statement of Fraud 5 Verification of NOSTRO reconciliation Person responsible at the Branch for that area Done by whom, Date

6 Sr. No. D E Area of Work Verification of Balances 1 Checking of opening balances in GL with previous year audited Balance Sheet and Profit & Loss Account 2 Cross Verification of Trial Balance, Profit & Loss Account and Balance Sheet figures as on 31 st March with GL figures Balance Sheet 1 Advances 100 % coverage of advances in respect of which outstanding amount is in excess of 5% of the aggregate advances of the branch or Rs. 2 crores whichever is less a. Credit Appraisal b. Sanctioning and Disbursement c. Documentation - Pre-sanction & Post Sanction d. Monitoring/ Review/ Supervision by the Branch 1. Submission of financial statements 2. Submission of I.T. Returns 3. Timely submission of stock statements 4. 4.Calculation of Drawing Power 5. Inspection of Godowns 6. Operations in the account - overdue/ sticky accounts / diversion of funds/ cheques duly honoured/ limit not exceeded frequently 7. Renewal of documents due 8. Penal interest for default 9. Insurance coverage 10. Registration and Mortgage of property 11. Verification of data in CBS with special reference to BASEL II requirements of LTV ratio in case of housing loans etc. 2 Analysis of entries outstanding in suspense Account, Sundry Debtors, Sundry Creditors 3 1. Verification of assets classified as NPA. 2. Verification of Upgraded Accounts earlier classified as NPA 4 Review of suit filed accounts / Decreed accounts & their follow - Person responsible at the Branch for that area Don e by whom Date

7 up 5 Checking of additions, deductions, transfer of fixed assets with relevant supporting 6 Verify that all balances are shown under proper heads

8 Sr. N o F Area of Work 7 Verify that credit balances in OD, CC, inoperative current accounts are not netted off with advances and are shown separately under demand deposits Verify that Interest accrued but not due on loans is not included in 8 Deposits 1. After the Balance Sheet date & till the date of audit whether there have been any unusual large movements in the aggregate deposits held at the year 2. Verification of Staff Accounts 3. Check that guidelines issued by RBI for inoperative & dormant accounts are strictly followed 4. Verify that overdue, matured time deposits are shown in demand deposits 5. Verify that interest accrued but not due is not included in deposits but 9 Analysis of entries outstanding in Bills Payable/ Sundry Deposits etc. 10 Obtain list of contingent liabilities not acknowledged as debts by the branch Check for correct Profit & Loss Account 1 Verification of provision of interest on standard, substandard, doubtful & loss assets and appropriate accounting 2 Checking of proper classification of revenue and expenditure items 3 Ratio Analysis and comparison with previous year figures 4 Verify whether there is any divergent trend in major items of income & expenditure and analysis of reasons 5 Test checking of interest on deposits and advances 6 Test checking of commission and discount on bills etc. 7 Verification of accounts of major heads of income & expenditure 8 Verification of provisions for prepaid and outstanding income & expenditure 9 Verification of locker rent received and due and provision thereof Person responsible at the Branch for that area Done by whom Date

9 Sr. N o. G H I Area of Work Person responsible at the Branch for that area 10 Verification of provision for depreciation on fixed assets 11 Checking of prior period expenses and income and provisioning thereof 12 Checking of provisions for ECGC/ DICGC claims LFAR 1 Checking of items as per LFAR checklist 2 Preparation of annexures to LFAR 3 Preparation of LFAR Special emphasis on restructured accounts / 4 NPAs Tax Audit Report 1 Check the followings in detail- 1. Payments made to clubs 2. Details of revenue expenditure capitalised 3. Whether TDS has been remitted before the due date 4. Particulars of Income and Expenditure of earlier years debited / credited to Profit & Loss Account which are of material nature 5. Verify whether any repayment of deposits have been made in violation of section 269 T of the Income Tax Act Checking of Tax Audit Schedules 3 Preparation of Tax Audit Report Verification of Checklist of Jilani Committee Recommendations Done by whom Date J Verification of Checklist of Ghosh Committee Recommendations K Collection of following certificates and statements from Branch 1 Physical verification of cash 2 Physical verification of Adhesive Stamp Documents, Postage, Security etc. 3 Physical verification of Investments

10 4 Physical verification of Fixed Assets carried out by Branch 5 NPA Statement, Profit & Loss Account, Balance Sheet, Trial Balance certified by Branch Manager 6 Management Representation Letter 7 Certificate from Branch Manager for attendance of Audit

11 Sr. No. L Area of Work Issue of Certificates 1 Certificate for Review of Loan Portfolio 2 Certificate relating to recoveries in claim paid accounts under small loan Guarantee Scheme 1971 and Small Loan (SSI) Guarantee Scheme, Certificate in respect of subsidy utilised under the scheme Prime Minister's Rojgar Yojana (PMRY) and correctness of claim made 4 Certificate regarding the implementation of Jilani & Ghosh Committee recommendations 5 Certificate regarding possession of investment documents on behalf of Head Office Person responsible at the Branch for that area Done by whom Date 6 Certificate for DICGC Claim 7 Movement of NPAs 8 Certificate of BASEL-II, if any M N Finalisation Preparation of Draft of the following Audit Report 2. LFAR & Annexures 3. Tax Audit Report 4. Jilani Committee Recommendations 5. Ghosh Committee Recommendations 6. Memorandum of Changes 2 Discussion of Draft Report with Branch Manager 3 Preparation of Final Report 4 Submission of Final Report along with Copies of Signed Balance Sheet, Profit & Loss Account and certificates. Review of work done by Audit Team 1 Senior 2 Junior 3 Articled Clerks 4 Employee