Bank branch audit



Bank Branch Audit An Integrated Work Paper ModelUpdated : 2019Views expressed are those of the author. This is an indicative template. Users are advised to exercise discretion in the use of this model work paper templateThis entire document may be printed at the end of the audit and working papers be organised and cross referenced in the respective sections for user and reviewer convenienceBANK BRANCH AUDIT INTEGRATED WORK PAPER FILE Bank Name Branch Year 2018-19Date of CommencementDate of Completion Partner In ChargeFile referenceNumber of Staff deployed Advances Value Address of the Branch Name of the Manager Phone Number Circle Office Contact TABLE OF CONTENTS TOC \o "1-3" \h \z \u PART A PAGEREF _Toc4232052 \h Error! Bookmark not defined.1.Appointment PAGEREF _Toc4232053 \h 72.Key Reports and Certificates PAGEREF _Toc4232054 \h 73.Audit Instructions and Team PAGEREF _Toc4232055 \h 84.Details of Bank Officials PAGEREF _Toc4232056 \h 85.Details of Central Statutory Auditors PAGEREF _Toc4232057 \h 96.Report, Returns and Certificates PAGEREF _Toc4232058 \h 97.Final Notes for Attention of Partner PAGEREF _Toc4232059 \h 148.Guidance Documentation PAGEREF _Toc4232060 \h 179.Key Risks PAGEREF _Toc4232061 \h 2110.Branch Overview PAGEREF _Toc4232062 \h 2211.Physical Verification PAGEREF _Toc4232063 \h 2912.Audit Strategy PAGEREF _Toc4232064 \h 3113.Advances and Income PAGEREF _Toc4232065 \h 3414.NPA Review and MoC PAGEREF _Toc4232066 \h 4415.Verification of Deposits PAGEREF _Toc4232067 \h 4516.Profit and Loss Account – Analytical review procedures PAGEREF _Toc4232068 \h 4617.Income Related Procedures PAGEREF _Toc4232069 \h 4618.Forex Transactions PAGEREF _Toc4232070 \h 4819.Other Audit areas PAGEREF _Toc4232071 \h 5020.Fraud Risk Review PAGEREF _Toc4232072 \h 5521.Maintenance of Working Papers PAGEREF _Toc4232073 \h 6022.References PAGEREF _Toc4232074 \h 60Part A – Basics Acceptance Engagement Scope Key Deliverables A Quick Checklist S NoTaskDone ByReviewed byAppointment letter from bank No objection from retiring auditorLetter to previous auditorRepresentation Letter Branch Auditors ReportMemorandum of Changes Certified financial statements& SchedulesLong Form Audit Report Certificates as per index attachedTax Audit report Sec 44AB of Income tax Act Audit team and time spent Bank Officials met and discussed Central Statutory Auditors &discussionsScope Limitations, if any Significant audit notes RBI circulars Bank CircularsStandard Operating Procedure Manual Guidance Note of ICAIAudit reports of the previous yearConcurrent, Revenue Audit & Inspection reports Stock audits of borrower accounts Frauds reported in previous & present yearsSuspense Accounts Adverse information in public domain Physical verification of cash and stationery Audit working papers – Advances Audit working papers – Interest Income Audit working papers – Deposits Audit working papers – Interest ExpensesAudit working papers – Other Income Audit working papers – Guarantees Audit working papers – Suspense accounts Audit working papers – Tax audit Independent Valuation detailsForex transactions Large advances checklist as audited Special review of Loan accounts Any other Working papers AppointmentBranch Assigned for Audit We have been appointed as the Statutory Auditors of the ……………………… Branch of ……………………………………….. ……………………………… Bank for the year 2018-19Audit Acceptance Letter The audit acceptance letter has been provided to the CO and a copy is kept for our records. Related documentation including Declaration of fidelity and secrecy, Declaration of full time practice and Declaration of Indebtedness and other documents have also been attached to this section. Refer Appendix 1 for acceptance letter Engagement LetterAn engagement letter has been issued and kept in Appendix 2Letter of communication with previous auditorCommunication to the previous auditor M/s ………………………….. has been sent on ………………………. Vide courier ref& e mail ……………………… dated ……………………… and response has / has not been received. Further the previous auditor has / has not been contacted over phone / e mail. Refer Appendix 3 for Communication sent and response received. Refer Appendix 3 Representation letterManagement Representation letter has been obtained as per the format prescribed and kept in Appendix 4Key Reports and CertificatesThe following key reports / certificates are required to be issued by us Branch Auditors report Memorandum of Changes if anyCertified / Attested financial statements including SchedulesLong Form Audit Report Certificates as per index attached in the next segmentTax Audit report under Section 44AB of the Income tax Act Audit Instructions and TeamThe Branch audit instructions as received from the Head / Circle office in a CD / hard copy have been duly cognised for in the preparation of this integrated work paper document. This is kept in Appendix 5The audit was commenced on ……………. and completed on …………………. By the following teamName Designation Days FromToPartnerQualified Paid Assistant Audit AssistantArticleship traineeDetails of Bank OfficialsThe branch is classified as ELB / Large / Metro / Urban / Semi urban / Rural / Specialised / Retail Trade hub / Others ……………………….(specify ) ( note : ARMB / Treasury etc to be specified )The details of Bank Staff from whom data / records / information and explanations were solicited / obtained for the purpose of this audit are as underDesignationNameGradeBranch Manager Loans OfficerDeposit OfficerOther Officers Details of Central Statutory AuditorsThe Central Statutory Auditors attached to the branch and details of communication with them is as under CSA Name CSA Address Phone number Partner in charge Dates of communication and reasons for being in touch with the CSA Matters, if any discussed with the CSA and Conclusion of such matters Report, Returns and CertificatesWe are required to certify and complete the following individual reports / returns and certificates ( modify as necessary based on banks standard instructions ). The number of copies of each submission, applicability and / or completion status is also as under Schedules initialed for Identification PurposesIn case of any schedules not audited by us ( eg. Sep 30 A/L, P/L etc) these may be signed with a seal as “Initialled for Identification purposes only”S NoIndex ( Illustrative ) No of copiesCompletion StatusRETURNS??1BS - 1 Liabilities??2BS - 2 Assets??3BS - 3 Expenditure for the half year ended 31-03-18??4BS - 4 Income for the half year ended 31-03-18??5Final A & L as on 31-03-18??6Final P & L for the year 31-03-18??7BS 7 – STATEMENT OF CLAIMS MADE AGAINST THE BANK NOT ACKNOWLEDGED AS DEBT??8BS 8 – DETAILS OF RESTRUCTUTRED A/C (EXCLUDING CDR)??9BS 9 – DETAILS OF COUNTRYWISE, RISK CATEGORY WISE EXPOSURE??????BSupplementary to BS Schedules??10SUPP. B – BREAK UP OF LCS, GUARANTEES, ETC.??11SUPP. C – CLASSIFICATION OF ADVANCES??12Supp D - Break iup of sundry receivables and sundry depsoits??13SUPP. E1 & E2 – EXPOSURE TO SENSITIVE SECTOR??14Supp F - information relating to DSB 1 and additional information??15SUPP. G – CASH & BANK BALANCE FOR SELECT NON-FRIDAYS??16Supp H - Residual maturity pattern of forex advances / deposits??17SUPP. K - PARTICULARS OF EXPENDITURE AND INCOME RELATING TO PREVIOUS YEARS??18SUPP. M – BREAK UP OF PAYMENTS TO AND PROVISIONS FOR EMPLOYEES??CLA General and LA Suit Filed as at 31-03-18??19Loan Analysis Summary??20Recoveries made in Select Borrowal accounts from 01-04-17 to 31-03-18??21Control Sheet for NPA, Income Recognition, Movement of NPA and Interest reversal of NPA??22BS - 3 Expenditure for the half year ended 30-09-18??23BS - 4 Income for the half year ended 30-09-18??24Supp M - 30-09-18??25SFVM inventory statement ??Any others as may be specified S NoIndexNo of copiesCompletion Status?CERTIFICATES??26Branch Audit Report??27Annexure A to E ( Memorandum of Changes ) forming part of the Audit report ??28Questionnaire in addition to Branch Audit report??29Special Deposit Scheme 1975??30Compulsory Deposit scheme 1974??31PMRY scheme ??32Form of Certificate on sharing of recoveries in claim settled accounts under SLGS 1971/SLGS(SSI) 1981??33Interest Subvention claim ??34Interest relief on Rupee Export credit ??35Compliance of Accounting Standard 11 as per Annual Closing Circular??36Technology upgradation fund scheme ??37Capital subsidy scheme for processing machinery??????38Long Form Audit report??????39Tax audit report??40SLR / CRR41Ghosh Committee Report42Jhilani Committee Report43Statement of Capital Adequacy 44Statement of Risk Weight Assets45Certificate of passing previous year MOC46Certificate of Compliance with Income recognition, Asset Classsification and provisioning norms47Provision for sacrifice under NPV method for restructured advances48Provision held on upgraded restructured advances for two years49Sector wise, security wise and asset classification wise statement50Certificate of Lending to Sensitive Sector51Certificate of Cash Margin heldPart B – Finalisation Final Audit Notes Scope Limitations Representation Letter Final Copies of Signed / Audited DocumentsFinal Notes for Attention of PartnerScope Limitations, if anyThe following scope limitations have been appropriately dealt with in the Audit report of the branch / LFAR and suitably highlighted as matters of emphasis . The Branch management has not been able to furnish the following details / records / explanations in connection with the audit Information requested and not providedAmountImpact on audit, if anyManagement CommentsThe following unit visits requested by us could not be undertaken due to the following reasons Information requested and not providedAmountImpact on audit, if anyManagement CommentsNon availability of Reports Reports Available Not Available Branch Audit reportInternal Audit report Concurrent audit reports RBI Inspection Others Significant Audit NotesThe following matters have been observed during the audit. These matters have been classified as Qualification in audit report MoC Prepared Discussion pending for attention of partnerTaken to LFAR Ignored due to immaterialityAny other Matters for ConsiderationImpact Final ResolutionSigned Copies of Financial Statements The final set of financial statements, reports , certificates etc as provided by us is kept in Appendix 6Part C – Audit Planning Guidance Documentation Guidance DocumentationRBI Master CircularRBI issues master circulars every year on July 1 of the year. This was discontinued on Jul 2015. Subsequent modifications have been made as standalone circulars. The specific circulars for the components to be audited need to be reviewed . Check under the segment called Notifications in .inSpecific attention is drawn to the circular dated Feb 12, 2018 on Stressed Assets Closing Circular issued by the bank All major banks provide a CD containing the Closing circular and Audit instructions which would include a description of the key risks, components, lists of returns and certificates and the target dates. This data needs to be reviewed before the commencement of the audit Audit reports of the previous yearSigned copies of the financial statements and Audit reports of the previous year need to be obtained from the branch . If this is not available, the same needs to be highlighted to the Regional Office as well as indicated in the LFAR and to be considered as a Scope Limitation and document in the previous segment Various Audits / review reports / inspections conducted by the bank / RBICopies of above mentioned reports of the previous year need to be obtained from the branch. If this is not available, the same needs to be highlighted to the Regional Office as well as indicated in the LFAR and to be considered as a Scope Limitation and document in the previous segment Guidance Note on Bank AuditsThe ICAI has published a detailed guidance note on Bank Audits. Specific segments of this guidance note may be referred for the components under audit. This is available on The Auditing and Assurance Standards Board of the Institute of Chartered Accountants of India has issued the Guidance Note on Audit of Banks. For the benefit of members, complete text of the Guidance Note and the contents of accompanying CD can be downloaded at:Please note that the soft copy of accompanying CD as uploaded on website contains only the list of Master and other relevant Circulars of RBI. However, the CD that will come with the book will contain the complete text of Master Circulars as well as other relevant Circulars.To download ZIP file of text of Guidance Note and contents of accompanying CD, please click on the below link:Auditing Review and Other StandardsThe work has been planned and performed in accordance with the following Auditing, Review and Other Standards as prescribed by the Institute of Chartered Accountants of India to the extent applicable for the engagement SA referenceDescriptionSA 200OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH STANDARDS ON AUDITING.SA210AGREEING THE TERMS OF AUDIT ENGAGEMENTS.SA220QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS.SA230AUDIT DOCUMENTATION.SA240THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS.SA250CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS.SA260COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE.SA265COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT.SA299RESPONSIBILITY OF JOINT AUDITORS.SA300PLANNING AN AUDIT OF FINANCIAL STATEMENTS.SA315IDENTIFYING AND ASSESSING THE RISK OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT.SA320MATERIALITY IN PLANNING AND PERFORMING AN AUDIT.SA330THE AUDITOR’S RESPONSES TO ASSESSED RISKS.SA402AUDIT CONSIDERATIONS RELATING TO AN ENTITY USING A SERVICE ORGANISATION.SA450EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT.SA500AUDIT EVIDENCE.SA501AUDIT EVIDENCE—SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS.SA505EXTERNAL CONFIRMATIONS.SA510INITIAL AUDIT ENGAGEMENTS—OPENING BALANCES.SA520ANALYTICAL PROCEDURES.SA530AUDIT SAMPLING.SA540AUDITING ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE ACCOUNTING ESTIMATES, AND RELATED DISCLOSURES.SA550RELATED PARTIES.SA560SUBSEQUENT EVENTS.SA570GOING CONCERN.SA580WRITTEN REPRESENTATIONS.SA600USING THE WORK OF ANOTHER AUDITOR.SA610USING THE WORK OF INTERNAL AUDITORS.SA620USING THE WORK OF AN AUDITOR’S EXPERT.SA700FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS.SA705MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT.SA706EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR’S REPORT.SA710COMPARATIVE INFORMATION— CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS.SA720THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS.SA800SPECIAL CONSIDERATIONS—AUDITS OF FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH SPECIAL PURPOSE FRAMEWORKS.SA805SPECIAL CONSIDERATIONS—AUDITS OF SINGLE FINANCIAL STATEMENTS AND SPECIFIC ELEMENTS, ACCOUNTS OR ITEMS OF A FINANCIAL STATEMENT.SA810ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS.SRE2400ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS.SRE2410REVIEW OF INTERIM FINANCIAL INFORMATION PERFORMED BY THE INDEPENDENT AUDITOR OF THE ENTITY.SAE3400THE EXAMINATION OF PROSPECTIVE FINANCIAL INFORMATION.SAE3402ASSURANCE REPORTS ON CONTROLS AT A SERVICE ORGANISATION.SRS4400ENGAGEMENTS TO PERFORM AGREED-UPON PROCEDURES REGARDING FINANCIAL INFORMATION.SRS4410ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION.Accounting Standards Accounting Standards as may be relevant to banks to be considered Part D – Branch and Risk UnderstandingInternal Control FrameworkAudit Risk and Focus Areas Understanding of the BranchKey RisksThe key risks in Bank Branch Audits are as under . All our audit procedures should be directed at minimizing these audit risks Material Misstatement of Income, Expenses, Assets or Liabilities.Unrecorded liabilities and Contingent liabilitiesAsset Classsification and NPA provisions not adequate for impaired assets Asset Classification and Income Recognition especially for restructured assetsKYC / AML norm compliance related issues Internal control failures over banking operations including potential / undetected frauds Wrong certification Transactions not authorized or adequately authorized Transactions not in compliance with Bank / RBI guidelines Misapplication of advances not for intended end useAccount level frauds and impact on Audit Opinion Non identification of NPA accounts Branch OverviewProducts dealt by the bank branch Fund based Asset productsFee based Asset ProductsLiability ProductsCash credit Bank GuaranteesSavings Accounts Overdraft Letters of credit Current Accounts Home loans Money transfers Recurring DepositsPersonal loans Letters of Undertaking Term DepositsVehicle Loans Letter of Comfort Any otherJewel loans Any otherBusiness Loans Term loans Loans against financial assets Any otherKey dataDescription 2018-192017-18Rs . lakhsRs . lakhsTotal Assets Total liabilities Total Advances Total Deposits Income Expenditure Profit / Loss Target Vs AccomplishmentDescription 2018-192017-18Target Rs . lakhsActual Rs . Lakhs Total Advances Total Deposits Rating of the Branch Advances Overview - top 10 advance categories of the branchS No Category of advances 2018-192018-192017-182017-18Rs . lakhsNo of acctsRs . lakhsNo of accts1Cash Credit 2Overdraft3Term loans 4Crop loans As attached5Housing loans 6Jewel loans 7Personal loans 8..10Other advances Total Advances Large Advance ProfilingList of advances greater than Rs 2 Crores or individually accounting for 5% of the total advances whichever is lower to be covered for detailed checking are as under S No Account reference / name 2018-192018-192017-182017-18Rs . lakhsNo of acctsRs . lakhsNo of accts123456Customer wise advancesBased on our discussions with the branch manager, these advances belong to the same party and are considered for checking on a collective basis as slippage in one account could result in NPA status for all accounts S No Customer NameFacilities 2018-19Rs . lakhs112321233123Advance profiling by valueS No Slab - Rs Lakhs outstanding 2018-192017-18Rs . lakhsNo of accts1< Rs 1 lakh 2Rs 1 – 5 lakhs 3Rs 5 – 10 lakhs 4Rs 10 - 50 lakhs 5Rs 50 lakhs – Rs 1 Crore6Rs 1 to 2 Crores7Rs 2 to 5 Crores8Rs 5 to 10 Crores9> Rs 10 CroresDeposit profilingS No Category of deposit accounts2018-192018-192017-182017-18Rs . lakhsNo of acctsRs . lakhsNo of accts123456Others Total DepositsRestructured advancesThe following are the advances restructured by the branch and to be reviewed for compliance with restructuring terms and conditions as per revised sanctions. Repeated restructured accounts will also be reviewed S No Account reference / Name During 2018-192017-182018-19Rs . lakhsRs. LakhsRs . lakhs12345Interest rate and other charges on major advances ( specify range )Advances TypeInterest %Charges %Charges %Charges %Interest rate on depositsDeposit typeDays Interest % Top Deposit Holders Name Acct Number Amount Any frauds reported in the present yearNote on frauds reported at the branch . If the manager has stated that no frauds have been occurred during the period, please note the date and time of such conversation and obtain a sign off in the representation letter Any frauds reported in the previous yearIn respect of frauds in the previous year, note down the actions taken and adequacy of provisions for fraud related losses in the financials for such cases Items in suspense accounts Review items in suspense accounts ( Debit and credit ) pending for a significant period of time. More than 6 months may need provisions. Less than six months also needs to be investigated for potential losses, fraud risks Information in the public domainWe have scanned the public domain for information pertaining to the Bank and we report as under , The relevant news clippings / video clips have been presented to the partner for review Asset Classification as of date of auditS No Category 2018-192018-192017-182017-18Rs . lakhsNo of acctsRs . lakhsNo of accts1Standard 2Substandard 3Doubtful 4Loss Total advances NPA MovementAccount refPre Audit NPA 2018-19Opening NPAAdd : Additions Add : Additions MoCNilLess : Repayments Add : Legal Costs etc Closing NPA Details of NPA Accounts Account refNPA – 2017-18NPA 2018-19Year end – post year end transactions Significant movements in year end balances are as under . Significant changes after year end will also have to be reviewed to check for possible window dressing of account balances . This would be done by review of cash , clearing and transfer vouchers of the branch Account refDate of audit March 31, 2018April 7, 2018(date of audit report )Physical VerificationCash Complete the physical verification of cash and ensure that the same is tallied denomination wise and agree to GL as at the closing date ATM cash should also be covered Document the physical verification in a cash count format Any excess / shortage / difference must be reported in the Statutory Audit report itself If verification is conducted before or after March 31, 2018, roll forward or roll back testing needs to be done Obtain a cash certificate from the branch management Gold Complete the physical verification of jewels pledged for gold loans Document the physical verification in a count format Reconcile to the records maintained for such loans Obtain a certificate from the branch management Any excess / shortage / difference must be reported in the Statutory Audit report itself No bullion stock should be held by the branch Check if any branches deal with gold coins sale and check controls in relation to the same Investments Generally branches will not hold investments Physical verification of Investments Reconcile to the register maintained in CBS Obtain certificate from bank manager for the same)In case of investments held at branch , the same needs to be reported to the Central office of the bank Stationery Obtain book stocks of pre numbered stationeryPhysical verification Reconciliation Review for any adverse movements Review internal controls regarding receipts, issues and custody Part E – Performing the Audit Audit StrategyPrevious Years Audit Reports Concurrent, Revenue Audits, InspectionsAudit StrategyOverall Approach Based on our high level review of the branch data, loans and deposits CBS files and based on discussions with the Branch manager the following is proposed as the audit strategy. - The audit strategy will envisage a top down approach which involves understanding the Balance Sheet and P & L and a drill down to perform compliance and substantive procedures at a component / transaction levelTop Down Approach to auditUnderstanding of the internal control framework Utilisation of Other Audit reports – Revenue, Inspection and Concurrent audit reports Review of previous years audit reports Identification of high risk areas which are also material Focus on Advances , Income , provisions and KYC for deposits Focus on revenue leakages and non fund based productsFocus on foreign exchange transactions if any, by authorized branches Unit visits to confirm existence, End use of advancesCompliance with Auditing Standards, including SA in reference to Documentation Internal Control Framework Discuss with the manager on the following elements of the Internal Control Framework and ensure that these are in place Detailed Operating Procedure manuals Delegation of powers and Authorisation of transactions ( Maker – Checker controls )Segregation of duties and Independent Checks and balances Controlled Maintenance of records and documentsElaborate system of Accountability for assets of the bank Extensive computerization and procedure standardization Basic IT General Controls compliance , including passwords , access restrictions etc Review Notes of Concurrent, RBA, Inspection Reports and Stock audit reports of borrower accounts Reports Conducted / Report date Previous year audit reportInternal Audit under Companies Act 2013Risk based Internal Audit Revenue Audit Inspection Concurrent Audit Stock Audit Vigilance Audit Systems AuditRBI inspection S No / reportAccount reference / nature of issue / date of report / Page number AmountPresent Status – Rectified, LFAR, MoC, UnadjustedImpact, if any on audit strategyPart F – The AuditAdvances and Income Advances and IncomeIdentifying NPAIt is important to appreciate that NPA’s are not caused only on account of payment defaults but advance impairment can also be caused on account of reasons such as Non renewal of limits CC / OD Account not in order or in operative except for some sporadic transactions Non submission of stock statements Inappropriate sanctions Inappropriate end use ( diversion of funds )Non compliance with terms of sanctionOverall Audit ApproachThe approach for Audit of advances envisages the following important phases Understanding the large types of advancesUnderstanding the large value accounts where deficiencies will have a material impact Internal Controls – follow the questions in the LFAR and check samples against checklists so that each advance type can be checked with reference to its unique requirementsAdherence to IRAC norms Review of NPA and provisions for the same in accordance with RBI guidelinesPlanning for Audit of Advances ( from the GN on Bank Audit of ICAI )Obtain largest accounts of the branch.Obtain the list of Specially Mentioned Accounts or irregular accounts, These are published by the bank as daily exception reports . These are accounts which are most likely to slip to NPA Obtain the list of restructured accounts: as these require separate additional provisioningList of RBI commented accounts, if any List of borrowers referred and cases admitted or filed under the Insolvency and Bankruptcy Code 2016Document the extent of reliance placed on third party experts such as valuers who have conducted the valuation of property , assets etc. If you have reasons to believe that these are not reliable, request the bank to obtain another valuation of the assets offered as security to the bank. Document all cases of such reliance separately Summary of advances of the branch ( as per Balance Comparison report)Advance CategoryCurrent yearPrevious YearReview of Top Advances Top accounts > = Rs 2 Crs / 5% advance ) should be checked 100% to cover all accounts. This is a requirement in the LFAR alsoEnsure that the review All loan balances > Rs 2 Crs All disbursements during the year > Rs 2 Crs Near to Rs 2 Crore balances where repayments have happened in the last few weeks The bank needs to provide the particulars of the top accounts in the prescribed format kept at the end of the LFARThe broad principles in relation to Appraisal, Sanctioning, Documentation and post disbursement review shall be adhered to Any deficiencies in the above accounts need to be viewed seriously and reported in the LFAR. In case the audit opinion is likely to be impacted, attention should be drawn to Matters of Emphasis paragraphs etc of the Auditors reportRestructured Advances Obtain a list of restructured advances Review the sanction of the restructuring Restructured advances to be reviewed with reference to revised terms of sanction properly approved by the relevant sanctioning authorityEnsure compliance for the terms of restructuring ( any non compliance will be regarded as a slippage )Obtain a general understanding of the type of advance which has been restructured – project / non project advances, prior to or after Commencement of Commercial production etc as per the RBI master circular which deals in detail on manner and mode of treatment of restructured advancesAll terms of revised sanction are complied with ( including but not limited to revision in commercial production, interest rate revision, rescheduling of repayments, additional security cover, promoters contribution enhancements, escrow requirements etc ). In case of non compliance, appropriate reclassifications have been considered Advances Verification – Cash Credit and overdraft accountsFor CC and OD accounts selected, check for the following :Financial Statements and solvency / capability of borrower / limit Unaudited financial statements have been furnished for balances < Rs XX lakh Audited financial statements have been furnished for balances > Rs XX lakh Audited financial statements have been furnished for corporate borrowersIncome tax returns have been furnishedCredit Appraisal has been done on merits of business / profession and not based on collaterals offeredLimit fixation and approvalProposal for assessment of Working capital needs is available Sanction as per limits of branchInterest / Charges is as per the policy of the bankIf immovable property has been offered as securityEC for continuous period is available and is clear Title Deeds have been deposited with the bankIf immovable property , EM regn > Rs 25 lakhsLegal opinion is available and indicates clean title deedsValuation report is present and is commensurate Valuation report is less than three years old Insurance policy available, adequate and comprehensiveSecurity of stock and book debts / other collateralsDemand Promisory note has been furnishedHypothecation agreement for stocks and DrsGuarantee Agt has been executed properlyROC regn of charge for cos for hyp of stock and book debts - Form 8ROC regn of charge for cos for hyp of immov property ROC search report once in XX years Others Monitoring Actions Submission of stock statements on a monthly basis Maintenance of drawing limit based on Working capital statementsQuarterly book debts Certified by CAStock audit once a year by CA for > Rs 1 crGodown visit by banker - monthly or qtrlyRepayments / TOD / One off creditsDebit and Credit summation to be reviewed to ensure continuous operation Review of accounts featuring in Irregular report as per CBSOne off credits to be investigatedDrawing in excess of sanctioned limit on a continuous basis Consistent excess over drawing power as per sanction CBS Updation Loan details recorded correctly in CBSInterest is updated correctly as per base documents Test of repayments doneTest of interest accrual doneTest of accuracy of processing charges Advances Verification – Housing loansObtain the sample of housing loans as selected by you If samples are not provided report to the partner under Scope Limitation segment Loan application is available Loan application is signed and properly executedSanction letter is available Loan proposal indicating projections etcTitle deeds lodged with bankAssessment of repayment capability - Sal cert / it returns / pl acct etc Margin at XX% ( Land cost + constrn cost )EC availableLegal opinionApproved Building plan - CMDAInsurance policyPledge deedAll documents refer to the same survey numberEM creation by deposit of title deeds EM registered for Rs 25 lakhs Direct payment to vendor of land / contractor If client own construction, stage payment subj to original bills cert by civil engg for work doneInspection of property by bankFinal valuation cert for completed propertiesValuation report is less than three years - available from expertLoan details recorded correctly in CBSTest of repayments doneTest of interest accrual doneAdvances Verification – Term loansObtain the sample of Term loans as selected by you If samples are not provided report to the partner under Scope Limitation segment Loan application is available Loan application is signed and properly executedSanction letter is available Loan proposal indicating projections etc as well as financial / audited financial statements Title deeds lodged with bankAssessment of repayment capabilityLTV ratio is maintained If release against Proforma , then final invoice has been receivedIf final invoice has not been received and time has elapsed, physical verification needs to be doneIn final invoice and proforma check for parameters such as TIN number, supplier particulars etcObtain installation certificate , if loan is for machinery If for any other purpose, check proof of end use Latest audited financials as per norms In case of restructuring, check for the same Loan details recorded correctly in CBSTest of repayments doneTest of interest accrual doneAdvances Verification – Educational loansObtain the sample of loans as selected by you If samples are not provided report to the partner under Scope Limitation segment Loan application is available Loan appln is signed and properly executedSanction letter is available Loan for Grad / PG Loan - Inland – ForeginPlus 2 pass proofAsst of repayment of parent For loan to minor , parent should sign the application and all documents for self and on behalf of Where minor > 18 yrs after disbursement, AOD and LOU counter signed by parentParent IT returnParent Salary certificate / PL acct profit Ceiling based on courseNot given for capitation feeMargin maintained at X%Less than max ceiling, Rs 25K no secRs 25 - 50K - surety apart from parent> Rs 100 K – collateralEM creation by deposit of title deeds EM registered for . Rs 25 lakhs All documents refer to the same survery numberValuation report is less than three years - available from expertApproved planInspection of property by bank, if collaterial Interest to be serviced before completion of course for loans to employed PersonsValuation report is less than three years - available from expertLoan details recorded correctly in CBSTest of repayments doneTest of interest accrual doneAdvances Verification – Vehicle loansObtain the sample of loans as selected by you If samples are not provided report to the partner under Scope Limitation segment Loan application is available Loan appln is signed and properly executedSanction letter is available DPNHypothecation agreementLoan proposal indicating projections etcFinancials of the borrower prior to loan dateIT returns for period before loan sanc. DateRC book - certified true copyRC endorsed in favour of bank - Hypothecation endorsementLoan is sanctioned net of margin for 'Cost and Accessories" not for chargesDisbursement amount , tenure and tenor as per sanctionDuplicate keys Original invoice Direct payment to dealer for vehicleGuarantor signature Comprehensive insurance - live now and bank clause in fav of Ind BankFor second hand vehicle - valn report from approved valuerHigher margin requirement for second hand vehicleLoan details recorded correctly in CBSTest of repayments doneTest of interest accrual doneAdvances Verification – Jewel LoansObtain the sample of loans as selected by you If samples are not provided report to the partner under Scope Limitation segment Loan agreement is available and properly executedJewel packet verified for weight and purityLetter of pledge is availableRate of interest updated properly Loan details recorded correctly in CBSTest of repayments doneTest of interest accrual doneAdvances Verification – Loans against Own DepositsObtain the sample of loans as selected by you If samples are not provided report to the partner under Scope Limitation segment Letter of pledge is available Nature of security - RD / FDLien is marked in system against the FDDeposit receipt is available with bank and dischargedLoan closed after due date of depositLoan details recorded correctly in CBSTest of repayments doneTest of interest accrual doneAdvances Verification – Loans against financial assetsObtain the sample of loans as selected by you If samples are not provided report to the partner under Scope Limitation segment Loan application is available Loan appln is signed and properly executedLoan amount original sanctioned is within powersSecurities in the name of the borrowerIn case security not in the name of the borrower , consent letter is availableShares - demat and pledged noting in dematLIC - Assignment in favour of bank and regd Govt instruments tfd as "Sec to Ind Bank " - NSC / KVPLoan is within margin limits of surr. ValueLoan is within margin limits of mkt. Value for sharesLoan is within margin limits of face value for govt notified instmtsShares erosion in market value LIC erosion in surr. Value due to unpaid premium has been cognised for Loan details recorded correctly in CBSTest of repayments doneTest of interest accrual doneBank Guarantees Obtain a list of all guarantees issued and pending during the year Request letter from party Sanction within overall approved sanction limits of the borrower Guarantee executed in prescribed formatDocumentation is complete Approval by a higher authority Margin money as stipulated has been maintained BG confirmed by the beneficiary Income received and accounted as per norms Collateral security collected as per terms of sanction Reversal of guarantee on the expiry date Reconciliation with BGL Trial Balance List of guarantees invoked by the counterparty and paid by the bank to be recorded as a liability and not as contingent NPA Reviewand MoCNPA Overview and movement Account refNPA 2018-19Opening NPAAdd : Additions Add : Additions MoCLess : Repayments Add : Legal Costs etc Not permitted Closing NPA NPA reviewThe NPA file was obtained from CBS as at date of audit The Specially Marked Accounts files were obtained The irregular files were obtained The files were cross referenced to the loan balance and CCOD file Clean loans – top value were test checked to ensure that there are no impairmentsLoans featuring in any of the above reports – NPA / SMA and IRR were considered for the review The accounts were reviewed individually with the Branch manager to determine the extent of slippage, possibility of recovery and the need for reclassificationAdditionally, accounts identified as potential NPA based on documentation / security lapses were also considered for the review and rectification before the Balance Sheet date Restructured accounts listing was obtained and reviewed in detail Details of MoC’sS NoNature of IssueDebit AccountCredit AccountAmount Remarks Rectification of Income recognitionReclassification of NPA’s ( fresh )Change in the status of Old NPA’sAccount reclassifications within P&L: and A&LReclassification of Loans and Advances where done differently by the branch Assets put to use and not capitalizedNPA Movement statement Obtain the NPA movement statement from the branch Check opening NPA with reference to the previous year audited financial statementsCheck additions Check deletions Closing balance should tie to the closing NPA reportAll cases of deletions should be verified for payment by the borrower or for restructuring Verification of DepositsObtain the list of deposit samples to be verified If samples are not provided report to the partner under Scope Limitation segment Date of depositIf SB acct holder, give SB refApplication form and completePhotographID proof and age proofAddress ProofIntroducerPan copy Pan related documentation Rate as per normCBS updation done correctly Interest Computation is accurateDeposit file has been reviewed for interest rates on a substantive basis (sanity checks)Profit and Loss Account – Analytical review proceduresDescription 2018-192017-182017-182017-18AmountRs . lakhsAmountRs . Lakhs % ChangeNosNos% Change Total Advances Total Deposits Interest on advances Interest on deposits Other Incomes Profit / Loss NPA Amount Ratios Interest to advances Interest to depositsIncome Related ProceduresThese procedures are in addition to the procedures performed at time of audit of loan filesObtain the break up of fund based ( loans , CC, OD ) and Fee based ( Guarantees, LC etc )Fund based Obtain the schedule of charges and interest rates for different categories of liability products Prepare a schedule of total income of the bank The checking of interest of large loan accounts will be completed in the above audit proceduresTabulate the value checked against the total incomeExtend verification if the value of interest verified if necessary Fee based Discuss with the manager and obtain an understanding of the various fee based products Obtain the schedule of charges and interest rates for different categories of fee based liability products Check the guarantees register and verify accuracy of computation of income Obtain a list of all packing credit and other facilities and verify accuracy of computation of incomeExtend verification if the value of interest verified if necessary Part G – The AuditForex Transactions Forex TransactionsCHECK LIST FOR AUDITORS FOR ALL OUTWARD SWIFT MESSAGES PERTAINING TO LC/SBLC/LOU/LOC – Courtesy : CA T R ChandrasekaranBRANCH : ____________________________ MONTH : __________________________Sr.No.PARTICULARSYES/NO. If NO details thereof.1Whether corresponding Contra Entries for LC/SBLC/LOU/LOC have been passed in FX 24 or not 2Whether the issuance of LC/SBLC/LOU/LOC is within the sanctioned limit for the customer or not ?3Whether the amount mentioned in the Swift messages matches with those mentioned in customer’s application for LC/SBLC/LOU/LOC or not ?4Whether commission in accordance with Central Office Circular has been recovered for the issuance of LC/SBLC/LOU/LOC ? If not, details thereof.5In case of amendment whether appropriate contra entries have been passed ?6In respect of amendments for enhancing any value whether appropriate contra entries have been passed or not and whether proper commission/charges have been recovered from the customer or not ?7Whether Branch Manager’s sanction has been recorded or not before issuance of all the LC/SBLC/LOU/LOC. 8Whether the branch has incorporated two working days prior notice condition in the swift messages pertaining to LC/SBLC/LOU/LOC in reimbursement clause or not ?9Whether all terms and conditions of sanction, for issuance of such LC/SBLC/LOU/LOC have been complied with or not ?10Whether the LC/SBLC/LOU/LOC has been issued through a bank which is our bank’s correspondent Bank or not ? (Please verify from the foreign correspondent’s Bank’s List )11In respect of LCs/SBLC/LOU/LOC having a tolerance clause in respect of amount/quantity. Whether contra entries for maximum possible liability of the bank has been passed or not ?12Whether in respect of LCs/SBLCs/LOU/LOC as mentioned under Para 11 above, commission, margin as per sanction terms and conditions on the entire liability value has been recovered or not ?Part H – The AuditAreas other than Advances and Forex Other Audit areasDescription of ProcedureWork Paper RefA.ASSETS:?Cash?-?????? Obtain a schedule of denomination of cash?-?????? Physically verify the existence of cash and tally with the (and tally with the) above schedule?-?????? Tally physical balance with Cash Scroll and the General Ledger as on the date of verification?-?????? Ascertain the retention limit of cash fixed by the head office. In case the balance exceeds the Retention Limit the same may be reported in the following format:?Cash Balance in excess of Rs.?Date: Amount Rs.?-?????? Verify the insurance cover taken on transit cash.?-?????? Verify whether cash is maintained in effective joint custody of two or more persons?-?????? Ensure that are responsible official verifies physical cash on a daily basis.?-?????? Check whether the cash balance has been verified periodically by the Branch Manager in addition to the Head cashier.?Balances with other Banks?-?????? Verify whether the branch has any balances with other banks.?-?????? Obtain confirmatory letter from the bank or branch wherever applicable.?-?????? Ensure whether BRS is prepared periodically.?-?????? Verify BRS on a test check basis.?-?????? Check for unresponded credits/debits found in the BRS and report the same.?Investments?-?????? Obtain the schedule of investment held by the branch.?-?????? Check for appropriate authorization issued by H.O/ Controlling Authority?-?????? Conduct physical verification of investments and tally with the above schedule?Advance?-?????? Ensure that monitoring of slippage of accounts from standard to sub- standard/doubtful is done and reported promptly to the Controlling Authority.?-?????? Ensure that recovery measures are promptly taken.?-?????? ??Other Assets?Stationery/Stamps?-?????? Obtain schedule of Stationery Stocks?-?????? Ensure that the physical balance tallies with the above schedule.?-?????? Suspense Accounts/Sundry Assets.?-?????? Obtain an schedule/return of suspense account and verify the items for long outstanding items.?-?????? Report unusual/long outstanding items.?-?????? Verify transfer to H.O during the year?-?????? Does the scrutiny of accounts under various sub-heads reveal balances, which in your opinion are not recoverable and would require provision/ write off.?B. LIABILITY:?Bills payable, Sundry deposits etc.,???-?????? Does the scrutiny of account sunder various sub-heads reveal odd balances??-?????? Report the number of items and aggregate of amount of old outstanding item spending for 3 or more years?-?????? Check amount received against suite filled accounts?-?????? Check unidentified deposits e g. Excess cash found in the branch etc.,?C. PROFIT AND LOSS ACCOUNT?-?????? Ensure that the branch has followed the income recognition norms stipulated by RBI?-?????? Test check calculations of interest on deposits for excess/short credit of material amount if so give details thereof.?-?????? Study preceding 2 years half year returns for divergent trends in major items of income and expenditure and report those which are not satisfactorily explained by the branch?-?????? Indicate the effect of changes if any in accounting policies on the items of income and expenditure.?D. GENERAL?House keeping?-?????? Ensure whether the branch is regular in furnishing a house keeping return to the Controlling Authority.?-?????? Verify whether the branch maintains the books and records properly in accordance with the H.O guidelines.?-?????? Ensure that the balances are duly linked and properly authenticated by responsible official /authorised signatories??-?????? Report the lapses in balancing procedures?-?????? Report differences in crystallised balances lying unattended?-?????? Ensure that the control and subsidiary records have been reconciled at the year-end or at the prescribed intervals?-?????? Inter Branch Accounts?-?????? Are there any double responses or wrong responses in H.O A/c.?-?????? Indicate the outstanding entries in the inter branch accounts together with a statement of reasons for their remaining outstanding and the steps taken by the management in respect thereof.?-?????? Are there any frauds discovered during the year under audit and report if any.?-?????? Does the examination of the accounts indicate possible window dressing??-?????? Are there any matter ,which you as branch auditors would like to bring to the notice of the management or the central statutory auditor.?-?????? Tax Audit U/s 44AB ofI.TAct,1961?-?????? Audit Report to be made in form3CA?-?????? Obtain verify and certify particulars required in form3CD?-?????? Other Certifications?-?????? 1. PMRY, SEEUY and SEPUP scheme certification?Ensure that correct claim/subsidy is calculated?-?????? 2.DICGCscheme?Verify whether the information furnished is correct according to the books/records maintained by the Branch.?-?????? Verify whether the recoveries effected in the Claims Received A/c have been proportionately remitted to the corporation.?-?????? 3 Ensure that the certificates required are within the scope of audit ?e g. Certification that the debts are fully secured.?Part H – The AuditFraud Risk Review of Loan Accounts Fraud Risk ReviewFor the top 10 - 20 Accounts of the Branch, review Advance accounts with reference to the below mentioned parameters and report any unusual or suspicious trends In case of very large accounts of the branch which may be systemically important to the branch due to the large value of exposure , check for the following Address / phone number / Mail id Last AGM date Last financial statements as filed Director names ( perform further search on other companies where they are directors)Obtain the last three years of financial statements and auditors reports as well as charges which have been created Perform a Review of the account as well as the financial statements for any important aspects set out in the below matrix. In case there is a predominance of any of the below mentioned indicators in any loan accounts and these are continued to be classified as Standard Accounts, then appropriate inquiries need to be made by the auditor Warning IndicatorsNon submission of reports to the bank on time and evasive repliesMovement of an account from one bank to another Request received from the borrower to postpone the inspection of the godown for flimsy reasons.Adverse industry regulations Adverse industry performance Emerging trends threatening the industry ( example - aggregators )Decline in share price if listed entityMaterial discrepancies in the annual reportSignificant inconsistencies within the annual report (between various sections)Poor disclosure of materially adverse information and no qualification by the statutory auditorsIncrease in borrowings, despite huge cash and cash equivalents in the borrower's balance sheetDecline in share price if listed entityFrequent change in accounting period and/or accounting policiesClaims not acknowledged as debt highSubstantial increase in unbilled revenue year after year.Inflated Balance Sheets evidenced by significant year over year change as compared to past data Qualifications and Significant Matters of emphasis in the audit report Any Key Audit Matters in the Audit ReportAny significant matters reported in the Auditors Report on Internal Financial Controls over Financial ReportingCARO qualifications by the auditor / No CARO at all ? Non maintenance / proper updation of books of accountsFrequent changes in auditors ( average tenure would ideally be 5 years after the Companies Act 2013 )AGM not held , Financial Statements not approvedFinancial Statements not prepared / not audited and filed with Income Tax and Companies Act before the relevant due datesFinancial statements not approved by the BoD / Delays Significant disclosures under the head of Pending litigation in the Auditors report Any instances of misplaced / accounting and other records destroyedAudits not performed although they are mandated by law Non compliances with General laws and regulations as evident from the audit reportDefault in undisputed payment to the statutory bodies as declared in the Annual report.Raid by Income tax /sales tax/ central excise duty officialsNon registration under relevant laws such as GST although the thresholds have been exceededForeign bills remaining outstanding with the bank for a long time and tendency for bills to remain overdue.Delay observed in payment of outstanding dues.Frequent invocation of BGs and devolvement of LCs.Under insured or over insured inventory.Funds coming from other banks to liquidate the outstanding loan amount unless in normal course.In merchanting trade, import leg not revealed to the bank.Funding of the interest by sanctioning additional facilities.Critical issues highlighted in the stock audit report.Frequent request for general purpose loans.Frequent ad hoc sanctions.Significant movements in inventory, disproportionately differing vis-a-vis change in the turnover.Significant movements in receivables, disproportionately differing vis-à-vis change in the turnover and/or increase in ageing of the receivablesDisproportionate change in other current assetsSignificant increase in working capital borrowing as percentage of turnoverIncrease in Fixed Assets, without corresponding increase in long term sources (when project is implemented).Bouncing of high value chequesSignificant pile up of slow moving / non moving inventoryDelayed or missed employee payroll paymentsPayment defaults in other banks by the borrower Payment defaults by group concerns to other banks by the borrower Onerous Clause in issue of BG / LC / Standby LC Increased need for LC / Guarantees / supplier advances as compared to past indicating a decline in the credit worthiness of the borrower Bill of entry reference not updated for Outward remittances made for import transactions within a reasonable timeFrequent Roll over of Packing creditDispute on title of collateral securities.Exclusive collateral charged to a number of lenders without NOC of existing charge holders.Concealment of certain vital documents like master agreement, insurance coverage.Liabilities appearing in ROC search report, not reported by the borrower in its annual reportSame collaterial charged to a number of lendersHeavy cash withdrawal in loan accounts.Invoices devoid of TAN and other details.LCs issued for local trade I related party transactions without underlying trade transactionNon production of original bills for verification upon request.No internal auditor appointed although the Company is covered under Section 138 of the Companies Act Any matters reported as required under Section 143(12) of the Companies Act for Fraud Reporting Any significant matters reported under Sec 138 Vigil Mechanism Significant control issues reported in Internal Audit reportFinancing the unit far away from the branchNot routing of sales proceeds through consortium / member bank/ lenders to the company.High value RTGS payment to unrelated parties.Frequent change in the scope of the project to be undertaken by the borrowerCosting of the project which is in wide variance with standard cost of installation of the projectSignificant Aging of balances in Capital advances / Work in ProgressAssets not purchased / installed as per Plan submitted to bank for credit appraisalSignificant reduction in scale of operationsReduction in stake of promoters / directorsResignation of the key personnel and frequent changes in the managementSignificant reduction in manpower Resignations of independent directors Independent directors / KMP not appointed although required by lawSignificant reduction in the stake of promoter /director or increase in the encumbered shares of promoter/director.Large number of transactions with inter-connected companies and large outstanding from such companiesSubstantial related party transactionsFloating front / associate companies by investing borrowed moneyPart H – The AuditMaintenance of Work Papers and Reference Maintenance of Working PapersAsset Liability ManagementJilani committee and Ghosh committeeCapital adequacy ratioPMRY / SEEUYSLR / CRR – 12 odd datesCompliance with RBI Norms on IRACDICGC / ECGCInterest subvention schemesTUF schemesCertification of Provision for Restructured AccountsCertificate of Sensitive Sector and CREOther CertificatesTax audit report Audit program SamplesAny other relevant informationReferencesBranch Audit guidance document as received from the HO / CO Bank Authority levels for sanction limits for loans and advances IRAC norms relevant for this auditRBI master circular – July 1, 2016Other RBI Circulars relevant for the purpose of this auditFeb 12, 2018 Circular of RBI Guidance Note on Bank Branch audit as issued by the ICAIRevised SA700, 705 and 706 for reporting ................
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