Sr. No.

Particulars

1

Bank Branch Statutory Audit – key areas of verification

2

Income Recognition & Asset Classification Norms – At a Glance

3

Asset Classification – At a Glance

4

Draft Engagement Letter to be sent to the Appointing Authority of the Bank

5

Draft Letter of Requirements to be sent to the Branch

6

Draft of Management Representation Letter to be obtained from the Branch Management

7

Illustrative format of certificate  on Ghosh & Jilani committee recommendations

8

Advances checklist for LFAR

9

Glossary to Irregularities

10

Draft Audit Program

11

Master Circulars

1.

Planning

  Preliminary Work:

Ø  Acceptance letter

Ø   NOC from previous auditors

Ø   issue of audit engagement letter as per SA-210

Ø  Familiarity with RBI circulars and Institute guidance note, Accounting policies of the Bank

Ø  letter to the Branch manager for requirements for the purpose of the audit

Ø   review of various circulars issued by HO especially the closing circular

Ø  Study previous year’s audit report, concurrent audit reports, RBI inspection etc

Ø  Risk assessment & Evaluation of Internal controls

Ø  Preparation of audit program and its execution.

• Lay down an overall time schedule.

• Ensure that the Audit staff is satisfactorily trained and there is sufficient skill and competence for specialised areas.

• Keep flexibility in the Audit plan for giving extra focus to weak areas, identified during the course of audit.

• The Audit program should cover all the areas under liabilities, assets, income, expenditure and off Balance sheet items.  However there should be special emphasis on verification of advances, income recognition and provisions to be made.

• Co ordination with the Branch Management

2.

Auditing Standards

With all the Auditing Standards mandatory and Peer Review in place, its imperative that all the Auditing Standards of ICAI are complied with. Though all the auditing standards are mandatory, in the context of bank audits ,following auditing standards are more relevant and branch auditor need to give more emphasis to the same:

• SA 210 – Terms of Audit Engagement
• SA 310 – Knowledge of Business
• SA 400 – Risk Assessment and Internal Control
• SA 320 – Materiality
• SA 530 – Audit sampling
• SA 300 – Audit Planning
• SA 220 – Quality Control for Audit Work
• SA 500 – Audit Evidence
• SA 230 – Audit Documentation
• SA 580 – Representation by Management

3.

Areas to be covered

The broad areas which the branch auditors should verify are:

• Physical verification of cash, security papers, valuable securities etc.

• Deposits.

• Advances.

• Sundry  Assets / Suspense Accounts.

• Sundry Liabilities.

• Inter Branch Reconciliation.

• Fixed Assets.

• Contingent Liabilities.

• Income Heads.

• Expenditure Heads.

Brief guidelines for the above areas are given in the following paragraphs.

4.

Deposit

1. Term

2. Saving

3. Current

4. FCNR / NRE / NRNR

Verify transactions during the year relating to:

• New Accounts opened

• Compliance of KYC norms

• Accounts closed

• Dormant Accounts

• Overdue Term deposits & banks policy for its renewal & interest provision thereon.

• RBI Norms for Non–resident deposits & its operations – with due importance to opening and operation of accounts like NRE, NRNR, FCNR, RFC, etc

• Interest on various types of deposits including savings account on test check basis ; Tax Deducted at Source and year end interest

• Provisions.

Large deposits placed at the end of the year (probable window dressing)

Examine unusual trend in account opening or account closing, dormant accounts that have suddenly been reactivated by heavy cash withdrawals or deposits, over drawings, etc

Examine interest trends as compared to average annual deposits (monthly average figures) 

5.

Advances

Extent of Checking :

Verify:

• All the advances whose balance is lower of 5% of total advance or Rs.2 Cr.

• Advances which are sanctioned during the year and other advances on test check basis depending on the balance outstanding.

• Advances which are adversely commented by previous auditors, RBI inspection team, concurrent auditors, bank’s internal inspection

Type of Advances:

a)    Funded: Cash Credit/Overdraft, Term Loans, Bills Purchased/discounted, Packing credit etc.

b)    Non Funded: Bank guarantees, Letter of Credits, Letter of comforts etc. 

Some of the important areas to be examined /reviewed in respect of advances are:

Ø  Evaluation of Internal Control (illustrative):

• Existence of clearly laid down delegation of authority

• Existence of clearly laid down eligibility criteria for loan

• Existence of post disbursement monitoring.

Ø  Pre sanction stage:

• KYC compliance, prescribed application form
• Review of credit appraisal system before sanction of loan, system of renewal/review of loan.

Ø  Post sanction stage:

• Whether terms of sanction have been complied with in case of new advances
• Whether documents in respect of all the facilities are obtained as per the bank manual and charge has been created in respect of securities available to the bank
• Approval of documents executed by legal department .panel of advocates.
• Whether end use of funds in case of new loans is verified.

Ø  Review and Monitoring of advances:

• Whether the borrower is regular in submission of the stock & book debt statements and same are scrutinized by an officer and Drawing Power correctly calculated.
• Whether insurance policies are on record and assets which are charged as security are adequately insured.
• Whether regular inspection/stock verification of the borrowers is done by the Bank/ by a firm of CA as per laid down procedure of the Bank.
• Whether frequently overdrawn accounts are properly monitored and reported to the Controlling Office.
• Whether the borrower regularly submits its quarterly reviewed results (in case of listed companies) and annual audited financial statements. Whether they are scrutinized by the Officer to verify that actual results match with the projections. If not, whether clarification is sought.
• Review the operations in the accounts on test check basis
• Whether interest and penal interest in case of delayed submission of stock statements, overdrawn accounts etc. is charged.

Ø  Verification of statement of advances:

• Check that classification of advances, income recognition and provisioning  is done as per RBI guidelines
• Scrutinize the final advances statement with regard to asset classification, ,security value, classification in secured and unsecured, drawing power, outstanding balance

6.

Profit & Loss Account

Income/ Expenditure: Verify

• Short debit of interest/ commission on advances with special emphasis on penal interest, commitment charges etc.

• Excess/short  credit of interest on deposits

• Miscellaneous income like locker rent, income on forex business etc on test check basis.

  • Proper authority in sanction and disbursement of expenses as also the correctness of the accounting treatment given as to revenue & capital expenditure

  • Verify depreciation in case it is provided at the Branch level

  • Check accrual of income/ expenditure especially for the last month of the financial year

Divergent Trends

Ø Divergent trends in income/ expenditure of the current year may be analysed with the figures of the previous year

Ø Wherever a divergent trend is observed, obtain an explanation along with supporting evidences like monthly average figures, composition of the income/ expenditure, etc

7.

Balance Sheet

Cash & Bank Balances

• Physically verify the Cash Balance as on March 31, 2014 or reconcile the cash balance from the date of verification to March 31, 2014

• Confirm and reconcile the Balances with banks as on March 31, 2014

• Verify that the cash is held in dual custody

• Verify whether cash held by the Branch during the year is within the retention limit fixed by the Head Office

• Verify whether cash held by the Branch is adequately insured.

  Stationery & Stamps

• Physically verify stationery and stamps as on March 31, 2014.

• Verify whether the Branch has adequate internal control for receipt, issue and custody of the stock of stationery & stamps

Investments

• · Physically verify the Investments held by the branch on behalf of Head Office and issue certificate of physical verification of investments to bank’s Investments Department

• ·   Check receipt of interest and its subsequent credit to be given to Head Office       

Fixed Assets

•   Check that accounting of fixed assets is done in accordance with AS-10. Also check accounting of major capital expenditure especially in branches located in leased premises

•   Check Inter–branch transfer memos relating to Fixed Assets and whether they have been correctly classified in the accounts and depreciation correctly provided thereon

Inter Branch Reconciliation (IBR)

• Understand the IBR system and accordingly prepare an audit plan to review the IBR transactions. The large volume of Inter Branch Transactions and the large number of un reconciled entries in the banking system makes the area fraud–prone

• Check up head office inward communication to branch to ascertain date up to which statements relating to inter–branch reconciliation have been sent

Check and report

• Reversal of any large/ old/ unexplained entries, which had remained outstanding in IBR

• Items of revenue nature, cash–in–transit (for example, cash meant for deposit into currency chest) which remains pending for more than a reasonable period

• Double responses to the entries in the Accounts

• Test Check accuracy and correctness of “Daily statements” which are prepared by the branch and sent to IOR Department

IMPORTANT: The system of inter branch reconciliation has under gone change due to implementation Core Banking. Because of the core banking, Inter branch balance is reconciled on line and there is no difference generally in this account Therefore the auditor may suitably change his audit approach considering the change in system adopted by the Bank.

Suspense Accounts, Sundry Deposits, etc

Suspense accounts are adjustment accounts in which certain debit transactions are temporarily posted whose authorisation is pending for approval

Sundry Deposit accounts are adjustment accounts in which certain credit transactions are temporarily posted whose authorisation is pending for approval

As and when the transactions are duly authorised by the concerned officials they are posted to the respective accounts and the Suspense account/ Sundry Deposit account is credited/ debited respectively

• Ask for and analyse their year–wise break–up

• Check the nature of entries parked in such Accounts

• Check any movement in such old balances and whether the same is genuine and has been properly authorised by the competent authority

• Check for any revenue items lying in such accounts and whether proper treatment has been given for the same

• Provision should be recommended against old debit balances which are unexplained or in opinion of the auditors is non recoverable.

8..

Auditing in CBS/Computerised environment

•   Overall scope of audit does not change but audit procedure is affected. Conduct audit as per SA 401- Evaluation of Internal Control in CIS environment

•   Familiarize with EDP/CBS system, gain the understanding of the flow of transactions and specific control procedures by reviewing sample reports.

•   Review system audit report to understand the system, weakness in the system and suggestions made to improve the system

•   Verify various controls like a) control in respect of access to system, password protection, b) input control in respect of rate of interest, value of  security, drawing power etc.

•   Verify how start of (SOD) and End of Day (EOD) procedure is handled.

•   Verification of system of uploading of transactions during down time.

•   Verify controls during transfer of data from CBS to software used for preparation of financial statements.

•   Verify controls in respect of access to data base, restriction on change in master data and back up controls

•   Verify Exceptional Reports.

9.

Auditors Report & Memorandum of Changes

• Audit Report should be on the letter head of the firm and not on the printed stationery given by the bank and it should be correctly dated.

• The Auditors Report should be a self contained document and should contain no reference of any point made in any other report including the LFAR

• Include Audit Qualifications in the Auditors Report and not in the LFAR

• Quantify the Audit Qualifications for a better appreciation of the point made to the reader

• For suggesting any changes in the financial statements of the branch, quantify the same in the Memorandum of Changes (MOC) and make it a subject matter of qualification and annexe it to the Auditors Report

• Certain items like provisions for employees benefit, provision on NPA etc. is done at Head Office and many Accounting Standards are complied with at Head Office. Auditors Report should contain qualification in respect of the same.

The latest Audit Report format in case of Bank Branches as per revised SA 700 is given as Annexure

10.

Long Form Audit Report

(LFAR)

• Study the LFAR Questionnaire thoroughly

• Plan the LFAR work along with the statutory audit right from day one

• The LFAR questionnaire is a useful tool for planning the statutory audit of a branch

• Complete & submit the Auditors  Report as well as the LFAR simultaneously

• Comments in LFAR should be specific and not vague.

• Give instances of shortcomings/ weaknesses existing in the respective areas of the branch functioning in the LFAR

• The LFAR should be sufficiently detailed and quantified so that they can be expeditiously consolidated by the bank.

11.

Certificates

There are number of certificates required to be issued by the Branch Auditors. Some of these certificates are relating to disclosures for the Bank as a whole. These are:

1. Certification of figures for capital adequacy as per Basel-II norms.

2. Asset Liability management (ALM) 

3. Details of restructured account/interest sacrifice etc.

Branch auditor need to take due care while certifying the figures of these certificates. In respect of data for compliance of Basel II norms and ALM, the branch auditor need to apply appropriate audit checks to ensure that data generated by the system are reliable. Also refer the relevant Master Circular.

Certification of Ghosh and Jilani Committee recommendations is another important certification for which auditor should give suitable disclaimers wherever required.

12.

General

• Materiality should be observed while reporting.

• Send a Letter of your Requirements to the Branch before commencing the audit [Draft Letter enclosed herewith]

• Obtain the latest status of cases involving fraud, vigilance and matters under investigation having effect on the accounts and report it appropriately.

• Obtain a Management Representation Letter (MRL) [Draft MRL enclosed herewith]

Term Loans

Ø  Interest or installment remains overdue for a period of more than 90 days from end of the quarter

Agricultural Advances: In respect of advances granted for agricultural purposes where interest and/ or installment of principal remains overdue for a period of more than two crop seasons for short duration crops and one crop season for long duration crops, the advance should be treated as NPA

Overdue: An amount due to the bank under any credit facility is ‘Overdue’ if it is not paid on the due date fixed by the bank

Cash Credits & Overdrafts

Ø  The account remains continuously “out of order” for a period of more than 90 days i.e. Outstanding balance remains continuously in excess of the sanctioned limit/ drawing power or there are no credits continuously for a period of 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period

Banks may not classify an account merely due to existence of some deficiencies, ––which are of temporary nature such as non–availability of adequate drawing power, balance outstanding exceeding the limit, non–submission of stock statements and non–renewal of the limits on the due date, etc

However, outstanding in an account based on stock statements older than three months would be deemed irregular. Such account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower’s financial position is satisfactory.

Further, an account where the regular/ ad–hoc credit limits have not been reviewed/ renewed within 180 days from the due date/ date of ad–hoc sanction respectively, will be treated as NPA

Bills Purchased & Discounted

The bills purchased/ discounted remains overdue for a period of more than 90 days

Overdue interest should not be charged and taken to income account in respect of overdue bills unless it is realized

Derivative Transactions

Overdue receivables representing positive mark to market value of a derivative contract remaining unpaid for a period of 90 days from specified due date.

Liquidity Facility

Remains outstanding for more than 90 days in respect of Securitisation transaction.

Government guaranteed advances

State Government guaranteed advance would attract asset classification and provisioning norms, if interest and/ or principal or any other amount due to the bank remains overdue for more than 90 days

Credit facilities backed by guarantee of Central Government though overdue may be treated as NPA only when the government repudiates its guarantee when invoked. However, income shall not be recognised if the interest or installment has remained overdue or the account has remained continuously out of order or the bills or any other facility has remained overdue for a period of more than 90 days

Standard Assets

• Does not disclose any problem and which does not carry any more than normal risks attached to business

General Provision on standard assets is as under:

• Direct advances to Agricultural and SME  sector 0.25%

• Commercial Real Estate (CRE)Sector 1%

• Others   .40%

• Restructured Assets and Housing Loans 2 %

• Such an asset is not a NPA

Sub–Standard Assets

• Classified as NPA for a period less than or equal to 12 months

• Classification of an asset should not be upgraded merely as a result of rescheduling, unless there is satisfactory compliance of the required conditions at least for one year

• A general provision of 15% of total outstanding.

• An unsecured exposure i.e. an exposure where the realizable value of security is not more than 10% ab-initio of the outstanding exposure, an additional provision of 10% i.e. total of 25% of the outstanding balance. ( Refer para 5.4 of the master circular)

In respect of accounts where there are potential threats of recovery on account of erosion in the value of security or non–availability of security and existence of other factors such as frauds committed by borrowers, it will not be prudent for banks to first classify them as sub–standard and then as doubtful after expiry of twelve months from the date the account has become NPA. Such accounts should be straightaway classified as doubtful asset  (when realizable value of security is less than 50% of the total value of security) or loss asset (when realizable value of security is less than 10% of the value of security), as appropriate, irrespective of the period for which it has remained as NPA

Doubtful Assets

• Remained NPA for a period exceeding 12 months

• 100% to the extent to which the advances are not covered by the realisable value of the security to which the bank has a valid recourse

• Over and above the aforesaid, depending upon the period for which the asset has remained doubtful, provision on the secured portion to be made on the following basis:

  • Upto 1 year 25%

  • 1 to 3 years 40%

  • Over 3 years 100%

·    It has all the weaknesses inherent in that of a sub– standard asset with the added characteristic that the weaknesses make the collection/ liquidation in full, highly questionable and improbable, on the basis of current known facts, conditions and values

Loss Assets

• Loss asset is one where loss has been identified by bank, external or internal auditors or RBI inspectors, but amount has not been written off (wholly or partly)

• 100% of the outstanding should be provided for/ written off

·    If the assessed realisable value of the security is less than 10 per cent of the outstanding amount, the existence of security should be ignored and the asset should be straightaway classified as loss asset

Memorandum of Changes (summary)

No.

Increase

Decrease

a.       In respect of Income

b.       In respect of expenditure

c.       In respect of Assets

d.       In respect of Liabilities

e.       In respect of Gross NPAs

f.         In respect of  Provision on NPAs[2]

g.       In respect of Classification of Advances

h.       In respect of Risk Weighted Assets

i.          Other items (if any)

Date:

Place:

For and behalf of
Chartered Accountants

………………………………..

(Name and Designation)
(Membership Number)

Name of Borrower

Name of Branch

Region

IRAC Status

Sanctioning Authority

Facility

Limit

Amount o/s. as at the year end

Irregularity No.

1

2

3

4

5

6

7

8

9

1

Credit Appraisal

1.1

Loan application not on record at Branch

1.2

The appraisal form was not filled up correctly and thereby the appraisal and assessment was not done properly

1.3

Loan application is not in the form prescribed by Head Office

1.4

The Bank did not receive certain necessary documents and Annexures required with the application form

1.5

Basic documents such as Memorandum & Articles of Association, Partnership deed, etc., which are a pre–requisite to determine the status of the borrower, not obtained

1.6

Certain adverse features of the borrower not incorporated in the appraisal note forwarded to the management

1.7

Industry/ group exposure and past experience of the Bank is not dealt in the appraisal note sent to the management for sanction

1.8

The level for inventory/ book–debts/ creditors for finding out the working capital is not properly assessed

1.9

Techno–economic feasibility report, which is required to know the technical aspects of the borrower’s business, is not obtained from Technical Cell

1.10

Credit report on principal borrowers and confidential report from their banks are not insisted from the borrowers

1.11

The opinion reports of the associate and/ or sister concerns of the borrower are not scrutinised

1.12

The opinion reports of the associate and/ or sister concerns of the borrower are not called for

1.13

The opinion reports of the associate and/ or sister concerns of the borrower are not updated

1.14

The opinion reports of the associate and/ or sister concerns of the borrower are not satisfactory

1.15

The procedure/ instructions of head office regarding preparation of proposals for grant not followed

1.16

The procedure/ instructions of head office regarding preparation of proposals for renewal of advances not followed

1.17

The procedure/ instructions of head office regarding preparation of proposals for enhancement of limits, etc. not followed

1.18

No exposure limits are fixed for forward contract for foreign exchange sales/ purchase transactions

2

Sanctioning and disbursement

2.1

Credit facility sanctioned beyond the delegated authority or limit of the branch

2.2

Certain proposals were sanctioned pending approval of higher authorities wherever required

2.3

 Ad–hoc limits were granted for which sanctions were pending since long

2.4

Facilities were disbursed before completion of documentation

2.5

Facilities were disbursed without following sanction terms

2.6

Facilities were disbursed without any sanction

2.7

Sanction letter was missing in the branch

2.8

Guarantor as required in the sanction letter was not obtained

2.9

Required promoters stake not invested before disbursement of loan

2.10

Sanctions were made without proper appraisal

2.11

Security charge not created before disbursement as required by sanction letter/renewed letter

2.12

Full disbursement of the facility not made

2.13

Sanction terms were not complied with or were not recorded

2.14

Disbursement Made without proper sanction

2.15

Term loan was disbursed by creating the cash credit or savings account of the borrower

3

Documentation

3.1

330   The security against which the advance was sanction was not available/ was not on record

3.2

Mortgage for the property given as security is not created

3.3

Mortgage for the property given as security created, was inadequate, as compared to terms of sanction

3.4

Second charge as required, on assets is not created in favour of the bank

3.5

Documents of Second charge on assets is not on the record

3.6

Documents pertaining to registration of charges with ROC or any other concerned authority requiring charging of assets is not obtained

3.7

Copies evidencing lodgment of the original conveyance/ sale deeds with the Sub–Registrars for registration not on record

3.8

Authority letter/ Power of Attorney to the Bank to collect the original documents from the Sub–Registrar not on record

3.9

Documents pertaining to consortium advances not yet executed/ not available with bank

3.10

Documents signed by persons not duly authorised to sign or who have signed in other capacity accepted by the bank

3.11

Signatures of the executants were not found on all the pages of the documents

3.12

Some of the documents on record were blank, without signatures of Branch Manager, witnesses, or guarantors, etc

3.13

Revival letters in respect of documents to be reviewed from the borrowers not received

3.14

Guarantors have expired

3.15

Guarantors not on record

3.16

Guarantors not renewed

3.17

Guarantors not assigned

3.18

Worth of the Guarantors not available

3.19

Stamping not as per the amended Stamps Act

3.20

Documents have become mutilated, soiled, time barred or not obtained

3.21

Opinion report by the field officer for the borrowers not found on record

3.23

“Nil Encumbrance Certificate/s” or “No Dues Certificate/s” or “No lien Letters” not obtained for the mortgage/s

3.24

Advances for vehicle loans, Registration certificate, transfer certificate, etc. not obtained

3.25

Work completion certificate, sale deeds, share certificates in societies, etc. not on record for housing loans

3.26

Documents are not duly attested/ signed by concerned officials/not renewed

3.27

The agreements for hypothecation do not contain details regarding goods hypothecated

3.28

Copy of Bills/ receipts, on the basis of which the amount was disbursed not found on record. For e.g. Vehicle Loans, Plant & Machinery

3.29

Charge on main &/ or collateral securities not created in terms of sanction letter

3.30

Original security papers/ sale deed/ lease deed/title deed/ agreement of sale not available on record

3.31

TDR are not discharged or renewed

3.32

Control returns not sent to the H.O.

3.33

The branch has not taken any action for not compliance with terms of agreement

3.34

No documents executed for enhancement of limit/document not on record

3.35

ECGC Post shipment policy not obtained

3.36

Credit facility released without execution of all necessary documents

3.37

Common Seal not affixed on Letter of Comfort

3.38

Confirm orders for export credit not found on record for facilities released

4

Review/ Monitoring/ Supervision

4.1

The account is frequently overdrawn

4.2

The account is continuously overdrawn

4.3

The account is overdrawn and the branches have not taken sufficient steps to regularise the accounts promptly

4.4

The balance outstanding have exceeded the drawing power

4.5

Balance confirmation and acknowledgment of debt not obtained

4.6

The stock, book–debts statements not received regularly/ promptly

4.7

The FFI/ financial statements/audited statements/FFR 1 & 2/ other operational data, etc., not received regularly/ promptly

4.8

The stock, book–debts statements, etc., not scrutinised and no suitable action is taken

4.9

The FFI/ financial statements/ audited statements/FFR 1 & 2/ other operational data, etc., not received regularly/ promptly/ not scrutinised and no suitable action is taken

4.10

Non–moving stock is not deducted to arrive at the drawing power

4.11

The age–wise break–up of debtors is not found on record. The borrowers are allowed to draw money on entire outstanding debt, which must rather be for the recent debts as prescribed for particular industries and as per margin prescribed in the sanction letter

4.12

Wide discrepancies observed in the stock statements and stock figures in the annual audited financial statements

4.13

No penal interest has been charged for delay in submission of various statements as per the terms of agreement depending upon the type of loan/ credit availed by the borrower

4.14

Many branches have not adhered to the prescribed frequency of physical verification of securities given against loans & advances

4.15

Drawing power limits are not revised as per market value of shares for advances against security of shares

4.16

End–use of funds not ensured/ not known funds utilised for purpose other than for which granted

4.17

The projections submitted by the borrower stay far beyond the actual performance. Further, no explanation for the same is taken from the borrower

4.18

Major sale proceeds of the borrower not routed through the Bank

4.19

Audited statements of non–corporate borrowers having limit beyond Rs.10 lacs not received

4.20

Renewal proposals of advances not received on time and in many cases the limits are not renewed

4.21

Application of wrong rate of interest, processing charges, commission, other charges, etc. resulting in income leakage/ excess booking of interest of the Bank

4.22

Insurance cover for stock/ property is inadequate/ not on record/ not renewed/ not endorsed in favour of the Bank

4.23

Inspection/ physical verification of security charged, not been carried out

4.24

Expired bills/ foreign currency sight bills which are outstanding, have not been crystallized

4.25

EBW statements on write–off of overdue export bills of ECM not found on record

4.26

Confirmation as to genuineness of export transactions not obtained from Bank’s foreign offices/ correspondents/ customs department

4.27

Import credit, bill of entry evidencing import of goods not found

4.28

Documents are not obtained for bills discounted under Letter of Credit

4.29

Advances, which are eligible for whole turnover packing credit guarantee cover of ECGC, are not brought under its cover

4.30

Though government guaranteed accounts are irregular since long, the issue of invocation of guarantee does not seem to have been considered

4.31

Prescribed margins not maintained as per sanctions

4.32

Allocated limits, full terms of sanctions, stock statements, inspection reports, margin, etc. not available at monitoring branches

4.33

For allocated limits, inordinate delays were noticed in responding to transfer by the allocator branch

4.34

Regular meetings not held with other consortium members to review the performance of borrowers and to assess the current state of affairs/not been held as per norms

4.35

Individual members of the consortium are not advised about the quarterly operating limits/ D. P. allocated to each one of them

4.36

Minutes of the consortium meetings not found on record/not been held as per norms

4.37

Inspection report from the consortium members not obtained

4.38

The capital of the borrower has eroded/ networth is negative/ decreasing. Close monitoring needs to be done

4.39

The drawing power is calculated wrongly and/or hence the borrower is allowed to enjoy excess credit than actually eligible

4.40

Signboard of the bank is not displayed in godown, where the pledged/ hypothecated stock is stored

4.41

Limit not fully utilised by the borrower/No commitment charge is levied for the limit not fully utilised by the borrower

4.42

Loan against TDR/ STDR, which is matured, is neither renewed nor credited to loan account

4.43

The Stock and Debtors Audit Report not found on record. No audit has been done for accounts of the borrower

4.44

The valuation report in respect of tangible security from government approved valuer have not been obtained

4.45

Guarantees, Opinion Reports Financial statements, IT assessment orders and etc. of the guarantor are not found on record

4.46

Opinion report on guarantor is not obtained

4.47

For Small Government Sponsored loan accounts, security cover could not be ascertained since neither any record was available at branch nor physical verification conducted by the branch

4.48

Pre–sanctions and/or post–sanctions inspection reports were not on record

4.49

The account was overdue for repayment and/or no credit was received from the borrower for a long time

4.50

The borrower is absconding or deceased and legal formalities are incomplete and there is wilful default from the borrower. Either establishment was closed or security was disposed off or no action taken by the branch

4.51

Subsidy claim process was incomplete or subsidy was yet to be received or needs follow–up

4.52

Security disposed off/ Entity closed by borrower and no action taken by the branch

4.53

Irregularity not advised to controllers

4.54

Letter of subordination of deposits not taken

4.55

Secured and unsecured portion not segregated properly in advance return of the branch

4.56

Renewal of limits was done before the receipt of financial statements

4.57

Heavy cash withdrawal for which consent of corporate Guarantor is not taken

4.58

Proper valuation of stock not done/ needs critical scrutiny

4.59

Security obtained is inadequate/lower as compared to amount of outstanding/ no collateral security

4.60

The party was dealing with other bank also tough it was not permitted

4.61

Sticky accounts require close follow–up by the management

5

Bad and doubtful advances

5.1

The IRAC norms for classification of advances were not followed and the same is implemented through Memorandum of Changes by auditors during audit

5.2

Instalments were not received from the borrowers

5.3

Interest was not received from the borrowers

5.4

Legal action for recovery of advances was not taken although authorised by the Board/ Controlling Authority

5.5

Discontinuance of application of interest not followed although authorised by the Board/ Controlling Authority

5.6

Government guarantees have expired and fresh guarantees not obtained/not renewed

5.7

Terms of the BIFR scheme not complied

5.8

Payment from government not received although guarantees were unconditional, irrevocable and payable on demand

5.9

Delays in the settlement/ repayment in respect of sanctioned proposals

5.10

The repayment accepted in case of compromise cases inadequate vis–à–vis value of security

5.11

Compromise proposals pending at various levels where local government/ outside agencies are involved as guarantors

5.12

Copy of Search Report not on record

5.13

Decree awarded but no further steps taken for recovery

5.14

DI&CGC claims submitted/ rejected/ pending data not available

5.15

Irregular/ sticky advance not reported to the controlling authority promptly

5.16

Compromise/ OTS proposal is recommended and is under negotiation since long but not finalised. Suit is filed in the court/ DRT and pending to be finalized

5.17

ECGC claim not submitted/ lodged for recovery

Name of the Bank & Branch

Region/Zone in which the Branch is located

Date of Commencement

                            Target Date of Completion

Audit Team - Partner/s In charge

Seniors Name

Man Days

Initials

 Remark

Juniors Name

Man Days

Initials

Remark

Branch Manager

Others (Specify) name and Contact Details Tel, Email ID

Normal Timing of Branch

General

1.Engagement letter to the appointing authority and letter of requirement to the Branch.

2 Reporting to the Branch

3.Review of previous years audit report/ LFAR, current year internal audit report/ Revenue Audit Report/ Concurrent Audit Report/ RBI inspection Report and any other report and their compliance

4. Physical verification of cash, stationery, security papers & valuable securities.

5 Physical verification of Investments (obtain certificate from bank manager for the same)

6.  Understand the system in CBS Branch

    a) verify controls
b) start of day and end of day procedure
c) Verify exceptional report

7 Compliance of Bank circulars, Accounting policy as well as Mandatory Accounting standards/Auditing standards & RBI circulars.

8. Checking of various returns.

Checking of Balance Sheet Items

1.   Checking of the advances:

i)     Detailed checking of Forms classifying the advances

1. Critical review of all large advances

2. Classification of advances

3. Latest valuation of security given against advances

4. Provisions on NPA as per RBI guidelines

ii)    Loan Accounts –

         i) Review of all large advances with balance of  lower of 5 % or Rs.2 crore of total advance

ii) Review of loans sanctioned during the year. Also verify all the credit card dues which are overdue.

iii) Review of other advances on test check basis.

    iv) Review of adversely commented by Concurrent auditors, RBI/internal inspectors

        v) Review of suit filed and decreed accounts and provision and progress thereof and Classification

        vi) Review of Accounts Upgraded During the year from NPA to PA. Review of all accounts frequently exceeding limits/ DP.

NOTE:    1) Following aspects of the advances to be verified

Pre sanction:  System of credit Appraisal and  review/renewal

Post sanction: Compliance of terms of sanction, documentation, end use of funds

Monitoring: Stock & Book statements, drawing power, insurance, inspection of stock/security, operations in the account etc.

2) All the accounts verified in category (i) to (v) should be documented

2. Verify controls in respect of the following important items of assets.

(i) Dual custody of cash

(ii) Cash Physical verification records are maintained

(iii)  ATM cash as per books and  actual balance tallied at year end.

(iv) Custody and issue of cheques books/pay orders/ATM cards etc

3  Checking of balance books with ledgers (only in case of manual branches or manual records like for locker, PPF etc)

4. Checking of additions/deduction/transfers of fixed assets. Compliance of Accounting Standards AS-6, AS-10-, AS -26 , AS 28 all AS related to Fixed Asset

4a. Checking of Fixed Assets Schedule for furniture & fixtures and other assets

5.  Reconciliation of accounts with other banks, head office and inter branch adjustment accounts
Note: Study the balance transfer is done as per HO instructions and  verify that HO queries on same are timely and correctly replied.

6.  Detailed checking of Suspense accounts – credit as well as debit schedules. i.e. Nominal ledger Provisioning can be called for Old debits

7. Details of Bills Rediscounted/ Refinance obtained from IDBI, SIDBI, etc

8. Shares/Bonds/Securities held in safe custody on Banks Investment account

Balance Sheet Finalisation

1.   Verifying  Balance Sheet figures with General Ledger

2.   Casting of Balance Sheet and cross–checking with Balance Sheet schedules

3.   Scrutiny of Balance sheet, particularly –

i)   that all the balances are shown in proper heads, to broadly compare previous year signed Balance Sheet and Profit & Loss Account and do variance analysis.

ii)   check in case of advances:

a) that interest accrued but not due on loans is not included in advances and shown separately under other current assets.

b) that credit balances in O/D, C/C in–operative current accounts account's should not be netted off with advances and the same should be shown under demand deposits

iii)  Check in case of deposits:

   a)  Verification of Anti Money Laundering guidelines and Compliance with KYC norms on test check basis

b)   that overdue deposits, matured time deposits, cash certifi­cates and certificates of deposits are shown in Demand deposits

c)   Interest accrued but not due should not be included in deposits but, should be shown under other liability

 d) Operation and conduct of Demat accounts.

4. Checking,

• Liability under Bank Guarantee/ L.C.

• Reconciliation of General Ledger and Subsidiary Ledger

5.   Inter Office Reconciliation Accounts

•  Verify Inter Branch Items In Transit (IBIT) account for old
  entries

•  Compare on test Check basis, the balance and the entries in IOR Accounts with the copies of the daily statements submitted to the IOR department/s

•  Critically verify the daily enquiry memos received from the respective IOR department/s for any old and odd items and action taken by the branch for the same

• Old un-reconciled entries are being provided in books / reported to HO for provision. 

Checking of Profit and Loss Items

1.Test checking of interest on deposits, (particularly, Interest checking should be done on Test basis for the period subsequent to the period of revenue/concurrent audit). Ensure that interest provision on overdue F.D. has been made as per latest RBI guidelines.

2. Test checking of interest/ commission/processing charges/commitment charges  on various advances, bills, L.C., Guarantees etc

3.Test checking of discount/commission on bills discounted and others

4.Critical scrutiny of the Expenses/Income accounts and checking of important vouchers / authority levels are being followed properly.

5.Provision For Expenses, Accrued interest on deposits and advances. (Particularly check whether or not interest has been provided/ charged on all types of deposits/ advanc­es

6.   Checking of interest in NOSTRO Accounts debit balances

7.Verification of recovery on account of Locker Rent, Staff Accommodation etc with details of arrears, if any

8.   Commission income on account of Government Business i.e. collection as well as remittance of Income Tax, Sales Tax, Excise Duty, etc Verify that  RBI accounts are reconciled from time to time.

9.   Details of Prior Period items of Income as well as expenses and complete details of provisions to be made, if any and same is disclosed separately

10. Rebate on Bills discounted. Check system of bank for broken period rebate at year end and verify that  the same is correctly, uniformly followed in all such transactions.

11. Checking of Depreciation on Fixed Assets

12. Booking of Interest Income on account of partial recovery in NPA’s

Profit k Loss Account Finalisation

1. Verification of P/L with Profit And Loss Ledgers

2.Casting of Profit and Loss Booklets and cross checking with Profit and Loss Account schedules

3.Profit & Loss Account Scrutiny

4.Ratio Analysis and comparative analysis with Previous years Figures

5. verify that the branch has followed accrual concept properly and accordingly expenses are provided in books.

Others

1.   Checking of statement of frauds

2.Checking of statement of claims against the Bank not acknowledged as debt

3. Checking of Foreign Currency forward exchange contracts showing sales and purchase separately. Review of NRE and FCNR accounts, if any

4.Checking of Guarantees given on behalf of Constituents

5.Checking of Acceptance, endorsements and other obligations i.e. L/C and Bills accepted by the Bank on behalf of custom­ers

(Particularly check in case of clause 4 and 5 above, whether the above Guarantees and L/C issued are within the powers of the authorised person and proper procedures have been fol­lowed for issuing the same. Review the position of the above as at the year–end)

6.Other contingent liability, if any

7. Checking of and preparation of Interest Subsidy

8. Checking of write off proposal and DICGC claims, sharing of recovery, etc

9. Checking of Annual returns on Protested Bills/ Recalled Debt Accounts (PB/ RD)

10.Checking of LFAR schedules and preparation of LFAR. (Detailed planning for preparation of LFAR be done at the time of commencement of audit and detailed guidance be sought from the chapter on LFAR in this guidance note)

11.Checking of Tax Audit schedules and preparation of Tax Audit Report

12. Checking of service tax collected and paid,

Final Audit and Reporting

1.   Preparation of Audit Report

2.   Preparation of Memorandum of changes for changes to be made in classification of Advances and in any item of Asset/Liability and profit and loss account with other remarks and/ or information which requires further attention at Regional/Zonal Office level

3.   Obtain detailed notes on above accounts

4.   Preparation of Tax Audit Report.

5.   Preparation of Long Form Audit Report.

To Collect the following Certificates

1.   Physical verification of the fixed assets carried out on March 31, 2014 / During the year

2.   Physical verification of the cash as on March 31, 2014

3.   Physical verification of cash periodically by officers of Bank

4.   Certificate from the Branch for the Persons attended the audit