Professional Documents
Culture Documents
EXECUTIVE SUMMARY
This project is to view the task perform by an auditor while conducting the audit of bank deposit and loans & advances. It explains the role played by different types of auditor, effect of Non-Performing Asset on the asset of a bank. The auditor needs to be familiarizing with the direction of RBI affecting the sanctioning and disbursement of advances. The auditor has to ensure that documents are executed as per the terms of sanction. The auditor examine the procedure for review of advances laid down by the authorities bas been complied with or not. Basel II Recommendations affecting the capital adequacy norms advocated by the year, which perhaps is the beneficial fall-out from the tightening of the prudential norms. The auditing not only provide true and fair value but it also helps us to financial position and internal control system of a bank
INTRODUCTION
It is well known that Banking is such a unique industry that persons from all walks of involved with Banks in any relation whether as an operational banker, trainer, auditor or even a support service person such as a security printer and even a hardware and software supplier make Banking their only sphere of activity for their full life in the constant endeavor to master in their for this Industry. In India various types of audit are normally carried out in banking companies such audit are statutory audit, revenue/income expenditure audit, concurrent audit, computer and system audit etc. the above audit is mainly conducted by the banks own staff or external auditors. However, the rules and the regulation relating to the conduct of various types of audit or inspection differ from a bank to bank except the statutory audit for which the RBI guidelines is applicable for that. In this project I give more important on the concurrent and computer audit and its internal controls in the banks todays scenario. Today audit is form in the various organizations it is basically form for investor because investor investing decision is depend on that particular concept if auditor has expressing his view about particular organization is true and fair that investor has get idea about how much should invest in particular securities or not. In public sector banks multiple firms including central auditors and branch auditors generally conduct the audit. In case of private sector banks and foreign banks, a single firm due to centralsied database conducts the audit. Consequently, the responsibilities of auditors in such banks are much wider.
DEFINITION OF AUDITING:
Various persons such as the owners, shareholders, investors, creditors, lenders, government, banks etc. use the final account of a business concern for different purposes. All these users need to be sure that the final accounts prepared by the management are reliable. An auditor is an independent expert who examines the accounts of a business concern and reports whether the final accounts are reliable or not. Different authorities have defined auditing as follows.
Mautz define the auditing as auditing is concerned with the verification of accounting data, with determining the accuracy and reliability of accounting statements and reports.
Prof. L. R. Dicksee defines auditing, as auditing is an examination of accounting records undertaken with a view to establish whether they correctly and completely reflect the transactions to which they relate.
International auditing guidelines defines the auditing, as auditing is an independent examination of financial information of any entity with a view to expressing an opinion thereon.
Montgomery defines the auditing as auditing is a systematic examination of the books and records of a business or other organization, in order to ascertain or verify, and to report upon the facts regarding the financial operations and results thereof:
1) Ancient origin:
Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Egypt, Greece, Rome, U.K. and India. The Vedas, Ramayana, Mahabharata contain references to accounting and auditing. Arthashsastra by Kautilya gives detailed rules for accounting and auditing of public finances. The Mauryas, the Guptas and the Mughals had developed and accounting and auditing system to control state finances. Thus, basically accounting and auditing had their origin in the need for the government to control the income and expenditure of the state and the army. The original object of auditing was to detect and prevent errors and frauds.
fair rather than true and correct. Thus the emphasis was not on arithmetical accuracy but on fair representation of financial affair.
3) Development of accounting and auditing standards: The international accounting standards committee and the accounting standards board of the institute of chartered accountant of India have developed standard accounting and auditing practices to guide the accountants and auditors in their day-to-day work.
4) Computer technology:
The latest development in auditing pertains to the use of computers in accounting as well as auditing. Really, auditing has come a long way from hearing the accounts in the ancient days to using computers to examine computerized accounts of today.
Audit Committee:
Functions:
The functions of the Audit Committee include the following: 1. Oversight of the Companys financial reporting process and the disclosure of its financial information, to ensure that the financial statements are true and accurate and provide sufficient information. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of their audit fees. 3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. 4. Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to: a) Matters required being included in the Directors Responsibility statement, which forms a part of the Boards report in terms of clause (2AA) of section 217 of the companies Act, 1956. b) Changes, if any, in accounting policies and practices and reasons for the same. c) Major accounting entries involving estimates based on the exercise of judgment by management. d) Disclosure of any related party transactions. e) Qualifications in the draft audit report.
Reviewing, with the management, the quarterly financial statements before submission to the Board for approval.
Discussion with internal auditors with respect to the coverage and frequency of internal audits as per the annual audit plan, nature of significant findings and follow up thereof.
Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregulatory or a failure of internal control systems of a material nature and reporting the matter to the board.
Reviewing with the management, the quarterly financial statements before submission to the board for approval.
Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems.
Reviewing the adequacy of internal audit function including the structure of the internal audit department, staffing and seniority of the official heading the department, availability and deployment of resources to complete their responsibilities and the performance of the out-sourced audit activity.
Obtaining an update on the Risks Management Framework and the manner in which risks are being addressed.
Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.
b) Confidentiality:
The auditor should keep the information obtained during audit, confidential. He should not disclose such information to any third party. He should, it is said, keep his eyes and ears open but his mouth shut.
d) Working papers:
The auditor should maintain working papers of important matters to prove that audit was conducted with due care according to the basic principles.
e) Planning:
The auditor should plan his audit work. He should prepare an audit programmed to complete the audit efficiently and in time.
f)
Audit evidence:
The report of the auditor should be based on evidence obtained in the course of audit. The evidence may be obtained through vouching of transactions, verification of assets and liabilities, ratio analysis etc.
g)
h)
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ADVANATAGES OF AUDITING:
1. Assurance of true and fair accounts:
Audit provides an assurance to the various users of final accounts such as owners, management, creditors, lenders, investors, governments etc. that the accounts are true and fair.
2.
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LIMITATIONS OF AUDITING:
An auditor cannot check each and every transaction he has to check only the selected areas and transaction on a sample basis.
Audit evidence is not conclusive in nature thus confirmation by a debtor is not conclusive evidence that the amount will be collected. It is said evidence is persuasive rather than conclusive in nature.
An auditor cannot be expected to discover deeply laid frauds usually involve acts designed to conceal them such as forgery, deliberate failure to record transactions, false explanations and so on and hence are difficult to detect.
Audit cannot assure the user of account about the future profitability, prospects or the efficiency of the management.
An auditor has to rely upon experts auditor may have to rely on experts in related field such as lawyers, engineers, values etc. for estimating contingent liabilities, valuation of fixed assets etc.
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SCOPE OF AUDIT:
Bank is the only industry that deals in money while other industries need to convert their products and services to money by undergoing the set working capital cycle. This unique feature of a Bank determines the thrust of audit, which has no parallel. it must be remembered that this industry has come of its own especially in India with a history that pre-dates the British occupation. Despite the continuously evolving strong internal controls and strengthening audit coverage, it is not uncommon to note Bank frauds especially since they sadly affect the life long savings of the common man. Frauds, therefore, have also been the driving force in the evolution of the bank audit and its scope as we see at present. Another powerful determinant is the advent of technology. Never has any machine affected the banking industry operations as the computers, which hitherto confined to the back office now are spearheading the banking industry and often critically affecting the life of the Bank itself. These two and many other forces such as regulatory forces come together to define the general scope of the bank audit, which undoubtedly is unique for the industry. An auditor thus is required to pay attention to the following aspects: a) Whether accurate and correct record of the liabilities and assets of the bank/branch is shown in the books. b) Whether the books and records are being maintained in accordance with instructions received from the Head Office from time to time c) Whether assets shown in the books physically exist and their condition is satisfactory. d) Whether the documents obtained by the branch from its borrowers are complete and enforceable. e) Whether proper record of instructions from the Head Office for the advances (sanction letter) is kept and the extent to which they have been complied with. f) Whether returns to the Head Office and the statutory returns are correctly complied and submitted regularly.
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It is the primary objective of this project to raise the quality of talents of the bank Auditor to ensure minimum acceptable standards. In addition, there are certain qualities mentioned here which are of practical nature and will assure your reputation of a good Bank auditor by both the Head Office as well as the branch/departments. This is a difficult balancing act to win over the very persons whose actions one may have critically commented upon in your report.
1.
The Bank Inspector/ auditor should possess high standard of integrity and competence and should be one who can be relied upon to conduct a through scrutiny of the branch. There are many leeways given to the Bank auditor by which he can place reliance on the internal control as noted by him to be practiced in the Branch. Here is where the competence, higher will be the quality of audit.
2.
The Bank auditors have to deal with senior staff and should have a good idea of what the job entails. The rules and instructions and circulars are present but what are most effective in all cases are the practicality of the action and the achievement of the transaction.
3.
If the Bank auditor has to guide the Bank officials about their work, he has to himself be conversant with the Manual of Instruction and Circulars. The Bank auditor is seen as an expert who represents the Head office and cannot merely the one of ticking.
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Guide the branch officials in many of the matters. The role of Bank auditor s thus a very responsible one.
4.
The Bank auditor is the human face of the Head Office with whom the Branch officials can interact. This interaction makes the circulars easier to digest and the Bank Officials are enthused in their work resulting in higher productivity. This unlisted work of the Bank auditor is critical.
5.
Professional Independence:
This is the integral quality of any auditor. If he can be influenced, his whole audit is effected and unsuccessful. Transfers of auditees: Where the auditees have come from or going to the Personnel Department, he is likely to be influenced. It is true that he has to give declaration under Section 27 of the Companies Act of not being a borrower or guarantor to the Bank
6. Constructive Approach:
This quality is an absolute requirement of a Bank auditor even though it is recommended for all audits. He has to ensure rectification of the irregularities as soon as possible. The primary objective is not to pull up people committing mistakes but to rectify and prevent recurrence.
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TYPES OF AUDITS:
It is well known that no any day of the year, there will be at least one auditor working in the bank branch. The following are the popular types of audits conducted in a bank branch. The titles may be modified in some banks especially for Internal Audit and system Audit but the content remains the same.
I. Statutory Audit:
This is an annual audit determined by statute and done normally at the end of the financial year while some of the larger branches are similarly audited half yearly. A banks statutory audit is essentially a balance sheet audit including the Long Audit Report though there is no scope restriction of the statutory auditor to perform certain actins of other auditors as part of his duty or if some findings lead him into the domain of the auditors such as Revenue, inspector and even concurrent. The statutory auditor performs the following functions. Verifies the classification of items of the Balance Sheet to assure their correct placement Basel II accord, which has influenced the prudential norms, has included the statutory auditor as an active member to assure the proper execution of the prevailing prudential norms. The direct result of an accurate classification is the appropriateness of income recognition and thus the effect on the profitability of the Bank.
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One way to cover is to ensure that the documents obtained from the borrowers are the correct category and filled in fully. Other way to cover this is by analysis of the account to ensure that the unit is operational by observation of the credit and debits into the account.
A. Revenue Aspects:
1. Interest earned and service charges earned by the Bank 2. Interest Paid 3. All charges paid like cancellation charges, compensation under Court Directive etc.
B. Expenditure:
1. Salary payments 2. Branch expenses like printing and stationary, temporary employees etc. 3. Rent of premises etc.
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D.
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Statutory Audit
Internal Audit
Revenue Audit
Concurrent Audit
System Audit
Examination of Profit & Loss accounts Document Examination of Advances Prudential norms verification
H.O. Guidance compliance for lending Interest and service charge collection accuracy by the Bank Interest paid on deposits All charges paid by the Bank
Accuracy of periodic returns Housekeeping Staff function Unit inspection Protection of server (Physical and Logical) Note
Indicates specific coverage as per that type of audit specified in the respective column.
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Indicates partial coverage as per practice for the audit specified in the relevant column.
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Asset Classification
I. Performing Asset:
Performing asset is one which generates periodical income and payments, as and when due or within the minimum lag of two quarters. This is being cut down to one quarter from April 2004.
II.
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years. Any Amount To be received remains overdue for a period more than 90 days.
Categories of NPA
1. Sub-standard Assets:
A sub-standard asset was one, which was classified as NPA for a period not exceeding two years. With effect from 31 March 2001, a sub-standard asset is one, which has remained NPA for a period less than or equal to 18 months and from 2005 it is further reduced to 12 months.
2. Doubtful Assets:
A doubtful asset was one, which remained NPA for a period exceeding two years. With effect from 31 March 2001, an asset is to be classified as doubtful, if it remained NPA for a period exceeding 18 months. With effect from March31, 2005, an asset would be classified s doubtful if it remained in the substandard category for 12 months.
3. Loss Assets:
Assets which are classified as bad and non-recoverable by the concerned bank or by Statutory Auditors or by RBI Inspectors but the amount have not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, they
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will continue to appear in the Balance Sheet but under the heading Loss Asset although there may be some salvage or recovery value.
Provisions
General Provision 0.40% of Balance Outstanding General provision of 10% of Balance outstanding without considering DICGC or ECGC Guarantees 100% of Unsecured portion after considering the realizable value of security which should be realistic. In addition to the above provision on the secured portion should be made as under: Up to 1 year 20%, 1year to 3 years 30%, More than 3 year 50%
Loss Assets
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Obtain the balance book for loans, cash credit and overdraft. This gives you the exhaustive list of accounts outstanding as on the date of your inspection or the date of classification. By use of this balance book, you can ensure that you can cover all the accounts and you do not skip accidentally the classification of any account. The totals of the report of classification should match with the totals of the concerned departments thereby ensuring that all the accounts are considered.
Analysis of the account should be done since income recognition is the underlying criteria. Therefore obtain the copy of the branch of the account statements to verify the classification made by the Bank. Ensure the following points during your scrutiny of the account.
Both interest and installments, wherever applicable should be taken into account for assessing the NPA status of an account. If a particular facility of a borrower becomes NPA. Then all the facilities granted to the borrower should be treated as NPA.
Advances backed by Central/State Governments should not be treated as NPA. Advances against banks fixed deposits, NSCs, IVPs, KVPs, and life Policies eligible for surrender, should not be treated as NPAs.
In the case of agricultural advances, NPA status should be decided upon after considering the recovery of interest dues for two harvest seasons.
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Net-worth of borrower/guarantor and availability of security is no consideration for treating an account as NPA or otherwise, as the concept is based on record of recovery of interest/installments.
Staff loans should not be treated as NPAs, except in exceptionally problematic cases.
If any advance has been granted to any minor a letter of assurance from the father or the guardian, should have been obtained stating that the money borrowed would be utilized solely for the benefits of the minor. The father or the guardian should have executed the documents.
ii.
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In the case advances granted to partnership firm the following points are to be observed. To verify the partnership deed and to acquaint with the powers of individual partners to operate the accounts and borrow funds. To see that the partner as per the manual of instructions has duly signed all documents executed by the firm issued by the bank concerned.
iii.
B. SECURED ADVANCE: i. Advance against goods key loan, open cash credit:
To check the individual balances in each loan ledger with the trail balance book.
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To verify the head office sanction and renewal for each advance. To verify the stock statement and ascertain that the loan availed is within the DP limit is sanctioned not any excess amount advanced and see that head office approval has been obtained for such excess.
To pursue the fire insurance policies and ascertain that the policies are
alive as at 31st march. Also see the stocks charged and their location are correctly described therein. To see that the later or deed of hypothecation has been executed in favor of bank. The inspect the godown and verify the physical stock-in-hand with the stock statement and see also the condition of stock. To see that the name of bank on the board of godown. Test checks the interests charged and verify the rate of interest with the help of head office circulation. In the case of key loans, see that the key are in the bank custody and satisfy as to the safety of the godown location, fire hazard etc. In clean overdraft, insurance policy endorsed in favour of the Bank under instructions from the borrower Mandate to debit borrowers account to pay premium.
ii.
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To ascertain the value of jewels from the finesse mentioned in appraiser certificate.
To see that the loan advanced does not exceed the maximum that can be
advanced taking into account the rate per gram fixed by the head office the weight and margin.
iii.
To see that the deposit receipts or pass book or cash certificates have been
duly discharged in favor of the bank at the time of pledge. Blank payment challans duly signed by borrower should have been obtained. Banks lien should have been marked on the deposit receipt as well as in the respective deposit ledger folio. To see that no advance has been granted against duplicate receipt etc. without proper verification. In case of borrowings against deposits in the name of minors the branch should have noted the date of birth of the minor also see that the loan has been granted for the benefit of the minor. Test check the interest charged.
iv.
Vehicles advances:
To verify the copies of the registration certificate test check the original certificate and ascertain endorsement in favor of the bank. To see that vehicle has been comprehensively insured and verify the banker clause in the policy.
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To verify the duplicate key of the vehicle has been lodged with the bank. To check the interest charged.
v.
vi.
vii.
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To verify head office sanction. To scrutinize the share certificates and ascertain that they stand in the name of borrower. To see that the bank has obtained undated blank share transfer from duly signed by the borrower. To verify notices of lien should have been sent to the company and their acknowledgement should be obtained. To ascertain the market value of shares as on the date of verification and see sufficient margin is maintained. To verify the copy of dividend mandates and also a dividend warrant. Test check the interest charged.
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iv.
AUDIT OF DEPOSITS:
Deposit accounts are designed to encourage saving. Under the category of deposits, we not only have the term deposits but also the savings and current accounts. Deposits are the main liabilities of the bank, which give it the required fund flow of the schemes of lending. It is also main source of expenditure of the bank in the form of interest. Revenue calculation of this department assumes equal importance as excess expenditure affects the profits.
i. Current deposits:
To verify the balancing books with individual ledger. To see that no current account is overdrawn at any time without head office authority. Test check the new accounts opened during the year with regard to introduction, partnership deed, memorandum and articles of association in case of limited companies and necessary resolution.
To see that total balancing books tallies with general ledger balance.
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IN
Does the parameter file give audit trail of who has changes the
rate from what value Does the software provide the user without intervention of the IT
department from HO, the full history of the rate changes at least for the period under audit
Test check few accounts opened less than one month, two
months, three months, five months Test check few accounts which are old opened almost at the
time of start of the Branch Test check the accounts with zero balances to ensure that the
accounts are NOT those accounts which have been closed but remained opened in the system due to total withdrawal of funds and the accounts closure formality demanded by software not initiated.
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v.
Recurring deposits:
Check the balance is balancing book with individual ledger. To see that the total in balancing books tallies with the general ledger. Test checks the interest payable. To see that penal interest has been debited for late payment. To see that the repayment of recurring deposit exceeding Rs. 20000/- has not been made in cash. Test checks the interest as per accrued interest charts.
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To verify that every guarantee indicates the last date by which claim under the guarantee should be made by the beneficiary after whom the bank would cease to be liable.
To see that commission has been collected as per head office instruments. To verify that the guarantees are appropriately stamped before obtained it. In case of the company verify the resolution should be passed in favor of guarantee. To verify whether cash margins have been collected as per the sanction. To verify whether the expired guarantee have been called back, cancelled and the entries reversed.
Give a list of hirers who have not paid the rent for lockers. iii. Verification of furniture and fixture and stationery:
To conduct a physical verification of furniture and fitting and tally with the register. To verify the stationery on hand particularly the unused fixed deposit receipts, draft books, chequebook, travelers cheque etc. Test check that no leaf has been taken out of the receipts book.
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To verify the salary payment with register. Test checks the interest payment on deposits saving bank accounts. Test checks the interest receipts on advances except in the case of borrowers with limit exceeding Rs. 5000/- in which case all the accounts have to be verified.
To verify whether the interest is charged in accordance with RBI guidelines and head office sanction. To verify other expenses and compare with that of the last year. In case of any substantial difference please verify and ascertain the reason. To verify all expenses and income on accrual basis i.e. locker rent has to be accounted for the entire period whether received or no, guarantee commission, discount and other charges.
vi.
vii.
General:
To make surprise verification of cash preferably opening balance of cash before commencing regular audit work. To verify the general ledger balancing book with the general ledger.
To verify the balance sheet and profit and loss account with the general
ledger balancing book.
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largely directed by the Reserve Banks KYC norms should be adhered to and the auditor is placed in the immediate supervisor position to stem the problem before it escalates into anything more serious. As India goes more and more on-line, we will get to see more cases of identity theft, which is one of the largest crimes in USA in the turn of the century. KYC norm compliance will go a long way to abort attempts of such identity crimes.
While new account opening remains a main area of audit concern, it is also important to note amendments of existing accounts in the areas of change of signatories and operating instructions etc. The Bank is never privy to the internal frictions and yesterdays brothers also part ways but the Bank should not be embroiled in their controversy. Attempts to remove a partner or change of operating instructions from joint to single to withdraw the balance by one partner in an unauthorized manner are some of the risks that accrue by amendments to existing accounts and the auditor too should cover these. Such cases are rater easy to track in computerized environments. Another dimension to the deposits department is the application of the interest. A frequent change under inadequately designed software compounds the problem of revenue leakage. Sometimes the Banks are not able to respond to even the differential rates in new time slots since adjusting rates to the existing time slots is easier. NEW
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SUMMARIZED OBJECTIVE
Physical Identity Identity and Proof of Age Identity, Proof and Residence Proof Age Proof and Residence Proof Address Proof
Rent receipt in case premised is rented and maintenance bill Address Proof
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Overdraft etc Additions (+) Debts considered good in respect of which bank is fully secured Debts considered good in respect of which bank holds no Debts secured other security than good personal Debtors personal activity considered by the
liability of one or more parties in addition to the personal debtors Debts considered* Doubtful or bad not provided for Total security of the
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Particulars in the following form Page reference Account Name of borrower Balance outstanding Reasons for reclassification Name of Branch Name of Region *This is especially useful for: This checklist is of special use to the
Note: Please note that grand total of additions of all the items should tally with grand total of deductions and net effect should be NIL.
Concurrent, System (IT) & Internal Auditors in addition to the RBI auditors.
I.
1. (new) 2. (new) 3. (new) 4. (new) 5. (new)
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operator has exercise the option routines for printing only those accounts with balances? 6. (new) In case of multiple accounts being opened like Savings and Fixed deposits, is one set of papers missing from either of the files then is it either marked with a pointer to the other file (e.g. Photos with SB 345/09) or is a photocopy of the papers placed in this file?
Obtain the exception reports from the bound file or a soft copy from the computer log and scan it for changes made to the masters of deposit accounts, which will normally detail the old value and the new value.
Are the letters from the account holder on record instructing the change in the master account? Are the changes such that do not drastically change any aspect of the account that is a camouflaged attempt to create a new account within the old account? (e.g. Change of title, unsupported operating instructions, name removal without death certificate or no objection from person whose name is being removed)
II.
10. Is the number of signatures equal to the number of joint holders? 11. Is the requisite number of photos submitted? 12. Is the account opening form filled by the applicant or by the Bank official? 13. Is the account introduced properly? 14. Does the Bank know the introducer for a period exceeding six months?
(Unless it is a Bank branch recently opened for a period less than a year. Also, in case of passport copy submission introduction need not be insisted upon for individuals. For incorporated companies, introductions are waived
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since the copy of Registration certificate issued by Registrar of Companies will suffice)
15. Are all the supporting papers for KYC norms submitted?
15.1 Are all the submitted photocopies (Xeroxes) authenticated by the Bank officer on the reverse as having seen the original?
15.2 15.3
In case of income tax return copy being submitted as a proof of PAN number is it authenticated as a copy by a practicing Chartered Accountant Is a copy of the proof of address submitted and is it the approved type i.e. copy of a passport or election card or electricity bill or phone bill (preferably landline)?
15.4 15.5
Is the address on the submitted proof the same as that given in the account opening application form for each of the account holders? If the address of the proof of residence is permanent and the temporary address of the same city of Bank Branch location is to be used, like a hostel in case of a student, is the additional proof by way of admission letter or identity card taken?
15.6
In case of current or Cash Credit accounts is the location of the business also supported by proof of operation in the same name? If business is located at a place owned by another organization, then is the rent receipt of permission to operate in case of a sister concern also submitted?
15.7
Are the joint holders either related or part of an organization like a firm, company, Trust club etc. in which case, the application needs to be supported by requisite resolution copy duly authenticated by an office bearer of the same organization.
15.8
When the applicant is an incorporated company, are the signatures of operators of the account authenticated by a copy of resolution issued by the company under its seal? (Rubber stamp is also accepted as a seal)
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15.9
Is the proof of date of birth submitted in case of accounts opened in the names of minors?
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If the account is opened in a single name of an individual, is a nomination taken and if nomination is waived by the applicant, is it so written and signed by the applicant on the application form?
17.
Compare the operating instructions entered in the computer with that on the application form and recommend immediate rectification if difference is noted.
18. 19.
If it is change of partners in a firm is another account opened instead of just change of signatories? Does a firm or company open the new account while the existing regular accounts (current) are frozen by the Government authorities like the Income Tax Department or Sales Tax Department?
20.
In case of current accounts, is the declaration taken from the applicant that he/they does not have any other account and if they do, is full name and address is taken of those Banks?
21.
In such case as mentioned in point above, has the Bank therefore sent letters to those Banks seeking information if any borrowing is done and if that Bank does not have any objection if this new account is opened? Is proper follow up done until the receipt of no objection letters from these Banks?
22.
Are letters of thanks sent to the account holder at the address written in the application form as well as the introducer in case the introducer has not accompanied the applicant to the Bank branch at the time of submission of application for account opening?
23. 24.
Is the correct applicable rate of interest entered in the computer ? Is the acknowledgement taken from the account holder wherever Deposit receipt is handed over or ATM card etc.?
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25.
Are all accounts are opened with Cash deposit or transfer from within the Bank/branch since accounts should not be opened with external transfer instruments?
26.
Are large cash deposits made and issued by single instrument or vice versa i.e. large value instrument deposited and cash withdrawn in case of new account? (Such cases need to be studied for possibility of fraud or money laundering)
27.
Do the Bank officers monitor new savings accounts and Current accounts for the first six months?
28.
In case of high value and high frequency of transactions in savings accounts has the Bank branch interviewed the account holder to ensure that business operations are not transacted though the savings account in individual name?
29.
When savings accounts are permitted to be opened by a Trust, has the trust submitted enough evidence that it is a public charitable trust?
30.
After the amendment of the Small Savings Act, are the HUFs permitted to open only current accounts and not savings accounts?
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BASEL I:
This is should be interest to very auditor to monitor the progress of the Banks in the fields of Information Technology, which is essential to drive the pillars of Capital Requirement, Supervisory Review and Market Discipline recommended by the BASEL II committee.
Only under a clear understanding of these aspects will the auditor lend a constructive approach in the period of change. Development and fine-tuning of risk mechanism of the Banks on a scientific basis should already be under development. Banks are therefore expected to shore up their Information Technology base for a faster detailed collation of data for real time analysis to
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apply risk matrix and initiate risk mitigation actions. All this will have to eventually be evaluated by the auditor with the internal auditor providing feedback to the management and the concurrent and statutory auditor-ensuring adherence to prevailing law by success of the mix of all these actions.
The business of a bank is to lend deposits to its customers. The interest earned form the loan is then used to pay for the deposits. While your deposits and interest are safe, the bank faces the risk of losing money on the loans they have given. Succinctly put, while a banks assets (loans and investments) are risky and prone to losses, its liabilities (deposits) are certain. Bank failures are mainly caused by losses on its assets in the form of default by borrowers (credit risk) and frauds, systems and process failures (operational risks).
The failure of the German Bank Herstatt in 1974 forced the central banks of the G-10 countries (Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, Sweden, Switzerland, The United Kingdom and the United States) to delve deeper into the issue of under-capitalized banks and non-standardized banking regulations. These countries, along with the Luxembourg, formed the Basel Committee on Banking Supervision under the aegis of the Bank of International Settlements (BIS) in 1974.Formed in 1930, the BIS is one of the oldest international financial institutions. It is actively involved in securing and maintaining international central banks cooperation.
In July 1988, the Basel Committee came out with a set of recommendations aimed at introducing minimum levels of capital for internationally active banks. This first series of recommendations by Basel Committee are popularly known as Basel I norms. These norms required the banks to maintain capital of at least 8
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percent of their risk-weighted loan exposure. The Basel Committee also laid down standard definitions for different types of capital. Capital was categorized, as Tier I is mainly the permanent capital like equity and Tier II capital is the supplementary capital like subordinate debt.
In India, the banks were required by the Reserve Bank of India to maintain a higher capital-to-risk-weighted-assets ratio (CRAR) of 9 percent. That almost all Indian and internationally active banks are sufficiently capitalized now is a testimonial to the success of the norms.
BASEL II:
Despite the achievements, the norms were becoming increasingly ineffective to address the fundamental changes in the banking sector over the past decade as increasing use of financial innovations such as securitization and credit-risk derivatives allowed the banks to manipulate their balance sheet figures in such a way that capital requirements were lowered without significant reduction in actual risks. There was a need to revise the Basel I norms
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To set right these aspects, the Basel Committee came up with a new set of guidelines in June 2004, popularly known as the Basel II norms. These new norms are far more complex and comprehensive compared to the Basel I norms. It is based on the three pillars of Capital Requirement, Supervisory Review and Market Discipline.
Credit Risk
Market Risk
Though the Basel II recommendations enhance the business of the bank by better management of its risk, it has such pitfalls as pro- cyclical nature of the recommendations, loans portfolio polarization, potential hurdle for the emerging securitization market and increased capital requirement. But it is certain that these norms are going to have a tremendous effect on our loves by changing the way banks do business.
RBI had in April 2003 itself accepted in principle to adopt the new capital accord Basel II. The RBI has announced, in its Annual Policy statement in May 2004 that banks in India should examine in depth the options available under Basel II and draw a road-map
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by end December 20004 for migration to Basel II and review the progress made thereof at quarterly intervals.
REGULATORY INITIATIVES
Ensuring that the banks have suitable risk management framework oriented towards their requirements dictated by the size and complexity of business, risk philosophy, market perceptions and the expected level of capital. Introduction of Risk Based Supervision (RBS) in 23 banks on a pilot basis.
Encouraging banks to formalize their Capital Adequacy Assessment Programme (CAAP) in alignment with business plan and performance budgeting system. This, together with adoption of Risk Based Supervision would aid in factoring the Pillar II requirements under Basel II.
Enhancing the area of disclosures (Pillar III), so as to have greater transparency of the financial position and risk profile of banks. Improving the level of corporate governance standards in banks.
Banks are required to adopt standardized approach for credit risk and basic indicator approach for operational risk with effect from March 31, 2007. But banks wanting to adopt advanced approaches have seen asked to make objective self-assessment of their fulfillment of the minimum criteria prescribed under Basel II.
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Banks may be allowed to migrate to Internal Rating Based (IRB) approach after adequate skills both in banks and at supervisory levels are developed. Under standardized approach, banks would use ratings assigned by credit rating agencies identified by RBI.
The new framework also recognizes the responsibility of bank management in developing an Internal Capital Adequacy Assessment Process (ICAPP) that is commensurate with banks risk profile and control environment. The apex bank, therefore asked banks to focus on formalizing and operational sing their ICAAP, which will serve as a useful benchmark while undertaking the parallel run with effect from April 1, 2006. The main benefit of Basel II will flow from the greater awareness of risk that it will instill in the banks. It also has in built incentives for improved risk analysis, risk management systems, allocation of capital and pricing of risk that enable banks to improve the quality of their asset portfolio. The new norms require a lot of disclosures of risks and the risk management practices by banks. Data sharing among banks is also a very crucial under the new norms. Compliance with Basel II will require increased capital commitments from all banks, as well as increased transparency and reporting to both regulators and the market place. Due to formal risk measurement processes, loans will be granted to only good borrowers. The more risky borrowers will have difficulty in finding banks that are willing to lend to them. This should result in reduced Non Performing Assets for the banking sector as a whole resulting in better solvency of the Indian banking system.
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ANALYSIS ON SURVEY
Which Bank provides better services i.e. interest rate in deposit? Private Public Corporate
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90 80 70 60 50 40 30 20 10 0 Errors Frauds
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35 30 25 20 15 10 5 0
Pe rso na l An yo the r
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Ho me
80 70 60 50 40 30 20 10 0 Y es No
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70 60 50 40 30 20 10 0 Y es No
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ANNEXURE
What is Auditing? Auditing in simple terms is to check and correct the statement of accounts, which gives you accurate and true statement.
What are the essential qualities pf an Auditor? The auditor should be experienced, Conversant with Instructions and Circulars, clear, integrate information, adequate training, professional qualifications.
How many meeting does auditor have to attend? Once in a year. Different in different banks.
How many Audits does an Auditor have to check? They have to check the main department; some of them have to check of their consult branches.
CONCLUSION
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In recent years, banks have placed an increased emphasis on proper review, monitoring and supervision of advances. As the basic operations are carried out a branch level, audit of an advances, deposits and interest related thereto constitutes a significant proportion of the branch auditors work. The auditor should be well acquainted with the laws governing banking institution particularly those, which affect the various items of the financial statements. The auditor should familiar himself with the computer system of the bank and should evaluate the efficacy of various internal controls over the computer system. The auditor should report whether the bank has laid down a loan policy specifying the prudential exposure norms and industry-wise exposures. It would be fitting to conclude that Auditing is an art as well as a Science in as much as one need to apply the principles to the actual realities in an innovative manner. While the regulatory prescriptions and banks own policy guidelines from the boundaries within which the banks investment operations are required and expected to be carried out, it is the auditing process that culls out and highlights the bubbles and weakness in the procedures adopted by the banks operating personnel and forewarn the management about the likely risks which have the potential to undermine the Corporate Objectives of the bank. One can say that audit process is like the pebble of sand that enters the pearl oyster without whose irritation the oyster will not be able to produce the pearl.
Bibliography
1. www.yahoo.com
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