bank branch audit presentation 2

8/2/2019 Bank Branch Audit Presentation 2

1/26

ISSUESINBANKBRANCHAUDIT

STUDY CIRCLE SEMMINARWIRC, RAJKOT BRANCH

CA. BHAVESHPABARI


2/26

AUDITOFBANKBRANCHES

Bank utilize the service ofchartered accountants for differenttypes of audits in an extensivemanner i.e. for Non Statutory

Audit/Inspection Statutory Audit


3/26

TYPESOFAUDIT

NonStatutoryaudits Concurrent Audit Internal Audit Revenue Audit Stock Audit System Audit

Special/Snap AuditStatutoryAudit

The audit in accordance with the provision of statutegoverning it-u/s. 30 of The Banking Regulation Act, 1949.

-u/s. 10 of The Banking Companies Act, 1970/1980.-u/s. 41 of The State Bank of India(Subsidiaries Bank)Act, 1959-u/s. 19 of The Regional Rural Bank Act, 1976.-u/s. 224 of The Companies Act, 1956.-Provides for the audit of the accounts of the bank.


4/26

Appointment&RoleofAuditor

Banks appoints Chartered Accountants to carryout the audit and certification of their books

and returns, out of panel compiled by ICAI andRole of the auditor is to carry out audit andsubmit the report to the central auditor.

What to do on appointment?

- Letter of Engagement (AAS 26)

- Communication with the previous chartered

accountant


5/26

AUDIT PLANNING & PROGRAMING

Before we plan the audit, we must have an idea ofthe following matters/criteria of the Bank Branch Business mix of the Bank Branch Types of the Advances and Nature of Advances Bigger Advance No. of Accounts NPA and Amount of NPA

Software deployed at the Branch

Cont..


6/26

ContOn the basis of above, an audit team is to bedetermined to carry out the audit.

Before we start an audit, it is necessary to gothrough the following reports/Returns

Study of Closing Instruction Circular

Various Audit Reports/Inspection Reports includinglast year statutory audit reports and effect of MOC ifany

Study of Important Circulars / guidelines

Study of Annual Closing Returns including Form Aand Form B On the basis of above, issue a letter of requirement

to the Branch in charge/Manager that needs tocomplete the audit assignment


7/26

AUDIT & ASSURANCE STANDARD

Auditor has to consider the applicability of the Auditand Assurance Standards while audit of the bankbranch.

All the standards are applicable to bank branch auditexcept below:AAS 10 Using the work of another auditorAAS 12 Responsibility of joint auditorAAS 31 Engagement to compile financial

informationAAS 32 Engagement to perform agreed upon

procedures regarding Financial InformationAAS 33 Engagement to Review Financial

Statements


8/26

ACCOUNTING STANDARDS & DISCLOSURES

Reserve Bank of India has issued Master Circular No. RBI/2005-06/32 dated 01.07.2006 regarding the disclosure required tobe made in the Balance sheet. The Circular depicts as below:

Disclosures as per accounting standards- Where RBI has issued guidelines

Accounting Standards ,9,15,17,18,21,22,23,24 & 25- Other Accounting Standards

Banks are require to comply with the disclosure norms stipulatedunder the various accounting standards issued by ICAI

Enhanced DisclosuresThere are certain other disclosures are required to be made asspecified by the RBI and the same is called as enhanced disclosures,the same have been achieved through revision of Balance sheet andProfit & Loss Account of banks and enlarging the scope of disclosuresto be made in Notes on Account


9/26

ANALYSIS & VERIFICATION OF ACCOUNTSFollowing are the key/Check points to analyze the accounts.

Physical Verification- Cash, Adhesive Stamps, Postage and tally with GL- Physical verification of valuable stationery and fixed assets.

Verification of Balances- Opening Balance with last year audited accounts- Closing Balance of GL with subsidiary records- Verification of the Returns and certificates with Balance sheet

and Profit & Loss Account and other records available at the

Bank Branch- Verification of the Exceptional Transaction Report

Cont..


10/26

Cont

Deposits

Obtain the weekly statements, Review the movement in thedeposits and if any, divergent trend, obtain the clarification forthe same.

Review the difference of deposits as on 31.03.2007 and dateof audit.

Review the Target with achievement. Review the Overdue/Matured Term Deposits shown in demanddeposits, whether interest provision have been made or not.

Check the date when interest applied on the deposits. Verification of Staff Accounts

Whether the segregation of In-operative accounts have beenmade or not? Review the Operations in In-operative accounts

Review overdraft in Deposit accounts Verify premature withdrawals of Term Deposits.

Cont


11/26

ContAdvances

From the Weekly Statements, verify the movements in theAdvances.

Verify the difference of advances as on 31.03.2007 and date ofaudit.

Verify the Target with Achievement Verify the Loan Application Register and Sanctioned Register Review the powers of the Branch Manager

Verify the documents of Advances Fund based and Non Fundbased disbursed adopting LIFO method Review the security available against the advances disbursed Scrutinize the Ledger of Advances including BP/BD limits and

Review the disbursement made. Obtain the List of Potential NPA Accounts

Verify the NPA Register and Movement in NPA Accounts Verify the suit filed and decreed accounts & their follow up Verify the invoked Non-Fund based Advances, BG, LC Verify the statement of the Overdue accounts

Cont..


12/26

Cont

Others

Analysis of entries outstanding in the Suspense Accounts, SundryDebtors, Sundry Creditors Checking of Addition/deduction to the fixed assets. Review Locker Register and Locker Rent and provision of the same. Review the Inter branch reconciliation, whether any repetitive

entries? Need reporting?

Verify all the balances are shown under proper heads Verify credit balance of Advance and Debit Balance in Deposits arenot netted off and shown properly

Verify the Interest accrued but not due in case of deposits andadvances are not included in respective heads but shown separately

Verify the Inward/Outward collection and outstanding entries if any

Compare all the figures with previous years figures Verify the TDS deducted paid in time/Form 15G, 15H obtained andsubmitted to the I.T. department in time.

Verify that Service Tax payment have been made by the branch intime.

Verify the lease Deed and AMC in force.

Review other internal controls and checks


13/26

VERIFICATION OF THE ADVANCES While verification of the advances, we must have knowledge of the following

aspects: Provision of The Banking Regulation Act override the one in any other law. Restriction on certain advances by the RBI and/or HO of the Bank. RBI has issued a Master Circular No. RBI/2006-07/17 dated 01.07.2006

viz. Loans & Advances Statutory & Other restrictions. Some importantaspects of the circulars are:

Bank can not finance against its own shares Generally Bank can not finance directly or indirectly to the directors

of its own bank No advance shall be granted to the relatives of the directors

without prior approval of the Board of the Bank. Restriction to grant of financial assistance to industries producing

/consuming Ozone Depleting Substance No loan granted against partly paid shares No loans to be granted to proprietorship/partnership concern

against the primary security of shares/debentures No loans granted against the FDR of the Other Banks Bank can not grant advance against certificate of deposit Bank can not grant finance to construct building meant purely for

govt. or semi govt. Bank should not advance against bullion/Primary Gold/Silver There are other restrictions to the advances mentioned in the

above sited circulars.


14/26

Verification of Documents for Advances

Verification of the documents bifurcated in three parts:

A. CREDIT APPRAISALCredit appraisal is the verification of the pre sanctioneddocuments of the advances disbursed. Following are thelist of some of documents which required review while

verification of the advances:- Contribution of the promoter (Project Report)

- Justification of the Projections, existing or new

venture

- Branch Visit Report (Pre-Sanction Visit Report)- CR of other Banks and No Dues

- Powers to borrow of the borrower.

- Valuation Reports of the Property/Properties.

- Title Clear Reports of the mortgaged property


15/26

Cont

B.BRANCH DOCUMENTATION

Before we start a verification of the documents,we have following aspects in our knowledge.TYPES OF ADVANCESThere are following types of advances given by

the bank against the different securities.Fund Based Advances Overdraft against securities Working Capital Finance/Packing Credit Term Loan/WCTL Bills Purchase/Bill Discount/Factoring

Non Fund Based Advances Bank Guarantee

- Letter of Credit


16/26

Cont

TYPES OF SECURITIES

There are different types of securities against which theabove said advances are generally granted by the banks Prime Security

Collateral Security

Prime Security is the security under the charge of thebank for which bank has given the finance tocreate/build/construct/purchase the same.

Collateral security is the additional security under thecharge of the bank on which charge is created to coverthe risk / minimize the risk /reduce the risk of advancewhere the bank is having no actual possessionof/mortgage over the prime security.


17/26

Cont

TYPES OF SECURITIES Security may be of the following: Land/Real Estate Stocks/Shares

Debentures Goods Life Policies

Book Debt Fixed Deposits Supply Bills Guarantee etc.


18/26

Cont

MODE OF CHARGING

1.MortgageA. Simple Mortgage [sec 58(b) of the Transfer ofProperty Act]

Simple mortgage is the mortgage of the immovable

property without delivering possession of the property,sale of such mortgage requires prior approval of thecourt.

B. Mortgage by way of Conditional Sale [Sec58(c)]

This mortgage is nothing but conditional sale of theimmovable property with certain terms and condition,sale become void if certain condition not fulfilled asmentioned in the deed of mortgage.


19/26

Cont..C. Usufructuary Mortgage [sec 58(d)]In this type of mortgage actual possession of the

immovable property is transferred to the financer. Thepossession of the property released after all the dues offinancer get cleared.

D. Equitable Mortgage [Sec 58(f)]

Equitable mortgage is nothing but the Deposits of theTitle Deeds with the financer, such mortgage onlyeffected in the town notified by the state govt.Title Deeds means documents or deeds or legalinstrument which proves the right of a person in a

particular property.

E. Anomalous Mortgage [Sec 58(g)]Mortgage Created not covered by above types ofmortgage, means it is generally combination of the

above two or three mortgages.


20/26

Cont..2. Pledge

Pledge means bailment of goods for the purpose ofproviding security for the payment of debt orperformance ofpromiseThere must be a actual delivery of goods.

3. HypothecationHypothecation means a charge against movableproperty for an amount of debt where neitherpossession nor ownership is passed to the creditors.Goods remain in the possession of the borrower, only

equitable charge is created over movables.4. Assignment5. Lien, and6. Set-off


21/26

ContWith this Knowledge Read the Sanction Letter carefully, what type of charge

is mentioned in the same and Review the documentsthat the same is obtained is in consonance with thestipulations of the sanction or not?

For Guarantee, Letter of Guarantee For Hypothecation, Hypothecation Deed For, Assignment, Lien and Set-off, Deed of General

Letter of Lien and Letter of Set-off. For Pledge, Deed of Pledge For Mortgage, Generally memorandum of deposits of

title deeds In Case of Bank Guarantee, Counter Guarantee Letter of Partnership/Proprietorship/Resolution Insurance/ECGC/Forward Contracts Any other undertaking mentioned in the Sanction Letter


22/26

ContC. REVIEW OF THE ACCOUNTS

- Audited Accounts- Achievements with Targets

- Account with other banks

- Turnover with Bank and in Books- Adhoc facilities granted, request letter from the

borrower and justification

- M.O. Reports i.e. Branch Visit Reports- Other Audit Remarks

- Letter of Acknowledgement of Debt.


23/26

Important RBI CircularsBank have ceased to issue a pass book to the savingsaccount holders (Individual), Bank are advised toinvariably offer the pass book facility to all its savingsbank account holders (Individual) without anycharges.

RBI/2006-07/139 dated 04.10.2006

TDS required to be deducted from the payment ofinterest paid/payable under senior citizen savingsaccount scheme 2004 or to obtain Form No. 15H.

RBI/2006-07/171 dated 10.11.2006Bank Shall Obtain the Certificate from the approved

architect that construction of the property is as perthe approved plan & affidavit from the borrower inthis regard shall also be obtained in case of housingloans.

RBI/2006-07/182 dated 17.11.2006


24/26

ContIf locker not operated for more than one and three years, bankshould immediately contact the locker hirer and advise them to

operate the locker or surrender the locker though rent paidregularly by the locker hirer.

RBI/2006-07/198 dated 04.12.2006In case of senior citizen savings scheme 2004, if nominees areNRI and/or PIOs, in case of death of senior citizen, the

nominees can neither continues the account nor repatriate theproceeds of the accounts.

RBI/2006-07/217 dated 22.12.2006Bank should do away with the stapling of any note packets.Bank should sort notes into re-issuable and non-issuable, soilednotes in unstapled condition may be tendered at RBI inwardremittance through currency chest. Bank should forthwith stopwriting of any kind on watermark window of Bank notes

RBI/2006-07/241 dated 31.01.2007


25/26

Cont

Bank should obtain minimum two

independent valuation reports for theproperties valued at Rs. 50.00 crores orabove.

RBI/2006-07/224 dated 04.01.2007Bank should not grant fresh loan or renewexisting loans in excess of Rs. 20.00 lakhagainst NR(E)RA and FCNR(B) Deposits,

either to depositors or to third party.

RBI/2006-07/244 dated 31.01.2007


26/26

Thank You

Worry is theInterest you payon trouble (Loan)before it comes

(disbursed)