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Hello everyone! Since the Bank Audit season is around the corner, I thought it to be appropriate to come up with another article regarding Audit of Banks having Finacle as their CBS platform. This article is specifically focused upon things to be checked at the end of financial year, and how Finacle can be used to extract relevant information.

For understanding of basic Finale menu options, please refer to my previous article from the following link: /articles/Audit-of-banks-with-the-help-of-finacle-19479.asp#.Uy7vM_mSy58

It is well known that at the time of Bank Branch Audit, we have to submit our regular Tax Audit report under Income Tax Act, as well as a special report called LFAR (Long Form Audit Report). However, while conducting Audit, it should not be forgotten that Companies Act too applies on most of the Banks. I have attempted to sum up how details for various audit reports can be obtained from Finacle. I hope readers will find it useful.

1. ACSP (Account Selection Print)

- It is one of the most crucial menus, which was not discussed in previous article. ACSP is same as menu option ACS, but it provides an additional facility to take a soft copy of report generated.

- Although Finacle generates Balance Sheet and P&L account of any given date, most of the banks have additional software (such as D2K or CLORETS) to generate financial statements. However, these financial statements will obviously not have the account numbers of every account head which can be checked from ACLI menu.

- By following method, we can generate a list of all office accounts as on a particular date with their account no. and balances.

ACSP > A/c Ownership- “O” > F4 > Scheme type – press F2 and select “office accounts” or a similar option > Shift + F4 > F4 > F4 > F10.

(The same procedure can be used to generate list of all Saving, Current, CC-OD, or Term Loan Accounts)

Now you should have a list of all assets, liabilities, provisions, suspense accounts, income-expense accounts etc. in your PR menu, with their current balance! You can scrutinize entries in all these accounts by ACLI menu. You can even compare this list from previous month’s list to check major changes. Auditor should look for balance in Suspense A/c or Special Debit A/c or any other suspicious account and demand explanation about the same from the management.

The breakup of long outstanding entries in certain accounts, such as Proxy A/c, can also be obtained from menu MSGOIRP. This list will also have details of Balance with RBI/SBI, reconciliation of which can be verified. This list can be of tremendous help for scrutinizing financial statements.

Auditor can check expense accounts and verify if expenses debited are subject to TDS. If proper TDS is not deducted, the same can be reported in Form 3CD.

Apart from that, Auditor can verify debit entries in fixed asset accounts and check if branch has obtained proper authority to purchase such assets.

- ACSP also has an option to generate list of accounts opened during a given time period. A list of such accounts under various schemes (SBA, CC, TL) can be generated and KYC documents, Interest Rate entered in the system etc. can be verified on random selection basis.

- ACSP can also generate list of Dormant Accounts (enter “D” in A/c Status > F4), accounts which are frozen (enter “D” or “C” or “T” for Debit Freeze, Credit Freeze or Total Freeze respectively in Freeze Code > F4) any many more criteria based reports.

2. AINTRPT (Interest Report for Accounts)

- AINTRPT generates the calculation of interest charged in a particular account till date!

- To generate the report,

SOL ID- XXXX > Report to- M > Scheme Type- LAA > From A/c ID & To A/c ID- Enter same ID only > Dr./Cr. Int-D > To date- dd/mm/yyyy > MRT file – intDetRep.mrt > F4

- This should generate a report in PR menu which will give you the exact balance of account during the period, number days and rate at which interest is calculated as well as the actual amount of interest charged to that particular account.

- Now if during the course of Audit you observe an account on which interest rate is not applied as per Sanction Letter or latest circulars (It can be verified from menu INTTI), you can generate this report and calculate the amount of interest which should have been charged. This report simplifies the calculation for Short Recovery.

3. LAODR (Loan Overdue Reminder)

- It is a generally prevailing (mis)conception that an account is classified as an NPA if 3 consecutive monthly installments are not received. However, RBI master circular on Asset Classification states that “A Non Performing Asset (NPA) is a loan or an advance where interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan.” The term “overdue” is defined as follows: “Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.”

- It means if even a single rupee is not paid to the bank within 90 days from the date of demand of such rupee, the advance account should be classified as an NPA.

- Menu LAODR generates the list of overdue accounts as on the given date. We also get to choose the age of overdue accounts! This means, if we are only interested in accounts overdue for a period beyond 90 days, this menu lets us have exactly the same.

- Now many Banks have other software (Such as ACSROM) to classify advances. It should be checked whether all such accounts which are overdue beyond 90 days in LAODR, are classified as NPAs by the branch. If not, the Auditor should get figure of NPA rectified. Accordingly, provisioning and profit also get changed. MOCs can be given if Asset Classification is not proper.

- However care should be observed as this report generates the list of each and every overdue account including Loan Against Bank’s Own Deposit (LABOD), Loans against NSC/KVP and Agriculture Loans. Such loans have different classification norms.

- If Bank has classified any Term Loan as an NPA, which does not appear in the list of overdue accounts beyond 90 days in the report generated by this menu; explanation can be sought for the same as well.

- This menu can also be useful to Concurrent Auditors as they can get a list of overdue accounts beyond 60 days and inform management about such Potential NPAs, and help in overall credit monitoring.

- For report generation, following criteria are to be given:

LAODR > Report To-M > As on date –dd/mm/yyyy > Overdue greater than- 60/90 > F4 >Background-B > Print-N >F10.

- LAODR focuses on Term Loans. For overdue in CC/OD accounts, menu option TODRP can be used.

4. LAOPI (Loan Overdue Position Inquiry)

- Once we have got the list of overdue accounts from LAODR, we can generate a report showing how much principle and interest is demanded by the system in that particular account and how much is settled by the borrower till date.

- This report can be generated for one account at a time, however it works pretty fast. You just have to enter:

Account No. From/To- > F4 > Ctrl + E > F4 > Background/Foreground-B > Print Req-N> F10

The report will be available in PR menu. The account is said to be overdue from the date on which principle/interest collected amount is less than principle/interest demanded amount given in the report.

5. ISIA (Inventory Status Inquiry)

- LFAR requires Auditor to comment upon the internal control over security forms such as Cheque Books, FDRs, Drafts, and Banker’s Cheque etc.

- The current status of such security forms can be seen from this menu and the same has to be verified with actual quantity available on hand. Discrepancy, if any, should be promptly reported.

- To generate the list from system:

ISIA > Function-I > Sol ID- XXXX > F4.

(Inventory Class should be selected from list by pressing F2)

6. LADGEN (Loan Demand Generation Process)

- A simple menu option which generates “Interest Failure Detailed Report” and “Demand Creation Failure Report”

- To generate the report:

LADGEN > Report To: M > F4.

- Auditor needs to if interest/demand failure report consists of any account which is not classified as NPA.

- If interest/demand is not charged/generated in any account which is not an NPA, clarification should be asked from the management.

Now after this much discussion, I’d like to enumerate points of LFAR questionnaire for which Finacle can be used to generate/verify information. It doesn’t contain each and every point of LFAR, but only those for which we can find information from Finacle. It is intended to help not only Statutory Auditors of the branch, but also the Concurrent Auditors who can keep a check upon these issues throughout the year.

Particulars of corresponding points of LFAR

Finacle Menus/commands

that can be used.

ASSETS

CASH

a)

Does the Branch generally carry cash balances, which vary significantly from the limits fixed by the controlling authorities of the Bank?  Whether excess balances have been reported to the controlling authorities of the Bank?

ACLI. Cash in Hand account can be scrutinized from this menu.

Balances with Reserve Bank of India, State Bank of India and Other Banks

a)

Whether balance confirmation certificates obtained in respect of outstanding balances as at the year-end and whether the aforesaid balances have been reconciled?  The nature and extent of differences should be reported.

Balance with RBI/SBI can be checked from ACLI. Accordingly reconciliation can be verified.

Advances

a)

Credit Appraisal

In your opinion, has the branch generally complied with the procedures/instructions of the controlling authorities of the bank regarding loan applications, preparation of proposals for grant/renewal of advances, enhancement of limits, etc. including adequate appraisal documentation in respect thereof?

Renewal of advances or Enhancement in limit can be seen for a particular account by ACLI > Ctrl + E > Option- E > F4 > Event- S > F4.

b) ii.

In the cases examined by you, have you come across instances of credit facilities released by the branch without execution of all the necessary documents?

Most documentation has to be checked physically; however interest rate can be checked from INTTI menu.

d)

i.

Review/Monitoring/Supervision

Is the procedure laid down by the controlling authorities of the Bank, for periodic review of advances including periodic balance confirmation/acknowledgement of debts, followed by the Branch? Provide analysis of the accounts overdue for review/renewal

-  Between 6 months and 1 year, and

-Over 1 year

Accounts pending from review : ACDREV

LAD due : LADRPT

d)

ix.

Has the branch identified and classified advances into standard/sub-standard/ doubtful/ loss assets in line with the norm prescribed by the RBI?

NPARPT, LAODR, LAOPI, TODRP menus as discussed can help.

e)

Guarantees invoked, paid but not adjusted.

Guarantees invoked can be checked from GI > Guarantee Status- N > F4.

e)

ii.

Details of the outstanding amounts of letters of credit and co-acceptances funded by the branch at the end of the year may be obtained from the management and reported in the following format.

DCQRY menu generates list of LCs outstanding.

Other Assets

a)

i.

Stationery and Stamps

Does the system of the Bank ensure adequate internal control over issue and custody of stationery comprising security items (Term deposits Receipts, Drafts, Pay Orders, Cheque Books, Traveler’s Cheques, Gift Cheques, etc.)? Whether the system is being followed by the branch?

ISIA menu can be used as discussed above.

b)

i.

Suspense Accounts/Sundry Assets

Does the system of the bank ensure expeditious clearance of items debited to Suspense Account? Details of old outstanding entries may be obtained from the branch and the reasons for delay in adjusting the entries may be ascertained.  Does your scrutiny of the accounts under various sub-heads reveal balances?  Which in your opinion are not recoverable and would require a provision/write off?  If so, give details.

Balance in Suspense/ Sundry accounts can be verified from ACLI/ACSP. The breakup of old outstanding entries can be obtained from MSGOIRP menu.

LIABILITIES

Deposits

ii.

After the balance sheet date and till the date of Audit, whether there have been any unusual large movements (whether increase or decrease) in aggregate deposits held at the year-end?  If so, obtain the clarifications from the management and give your comments thereon.

Balance Sheet of each day can be generated from GR menu to verify changes in the amount of Total Deposits.

Contingent Liabilities

iii.

List of major items of the contingent liabilities (other than constituents’ liabilities such as guarantees, letters of credit, acceptances, endorsements, etc.) not acknowledged by the Branch?

Auditor should ensure that guarantees expired are cancelled by the branch. This can be checked from GILR.

Profit And Loss Account

iv.

Does the bank have a system of estimating and providing interest accrued on overdue/matured term deposits?

Account No. for overdue deposits can be obtained from

ACSP as discussed. Balance and Interest can be checked from ACLI.

Miscellaneous

i.

Does the examination of the accounts indicate possible Window Dressing?

Balances of Advance and Deposits can be checked from daily balance sheets generated from GR menu. FTI menu can be used to locate high value transactions.

Again, this is not an exhaustive list of Finacle menu options. However, I do feel it will make Auditors well equipped for Audit of Banks with Finacle.

For any queries and suggestions, comment below-let me know.

(Disclosure/Disclaimer: These views are not professional advice and shall not be considered to be as such. The menu codes/ software name are property of Software Developer/License Holder. The information in this and my previous article is not for any commercial purpose. It is merely in the nature of guidance.)


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Category Audit, Other Articles by - Pranav Vijay Pandya 



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