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Bank Branch Audit - at a Glance

Raghavendra Bhat 
on 21 August 2010

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The rapid advancement in information technology has revolutionised the Indian banking sector—perhaps one of the largest in the world as far as its extensive branch network is concerned. Not a day passes without a new ATM being opened or a new financial product being introduced. The impact of information technology has to be borne in mind while carrying out the branch audits. It is imperative to adopt the right approach and techniques to ensure that the audit is completed with best quality and within the shortest time possible.

Acceptance of the Appointment

Before accepting the appointment as branch auditor, ensure that your firm does not suffer from any of the disqualifications like:

l Change in the constitution of the firm since your application to the ICAI.

l Being indebted to the bank for a sum exceeding Rs 1000/-.

l Holding any security of the bank carrying voting rights.

In case of a change in the constitution of the firm since the date of application to ICAI, you need to inform the bank regarding the change and wait for their confirmation before accepting the appointmentEnsure that the acceptance letter is sent in the specified format along with the required declaration of secrecy and fidelity to the concerned authority within the specified time. Communicate with the previous auditor as a matter of good ethical practice.

Plan for the Audit

Prepare a file for each branch to be audited containing photocopies of the appointment letter, circulars and instructions received, formats of various certificates, audit report, LFAR and tax audit report. Ensure that each audit team has copies of the latest ICAI guidance note on bank audit, recent RBI master circular and an audit programme. Prepare a letter of authority for each team setting out the names, qualification and specimen signature of the team members. Send a questionnaire to the branch calling for specific details well in advance, which will help, in timely completion of audit. (A sample questionnaire is set out below)

LFAR

1. What is the cash retention limit of the branch?

2. What is the insurance cover held by the branch for cash on hand and cash in transit?

3. Does the branch have an account with RBI, SBI and other banks? If yes, confirmation of balance from the respective banks.

4. Does the branch have any investment?
 
5. List of accounts of large borrowers having
limit/ balance outstanding in excess of
5% of the branch advances or Rs. 2 crore
whichever is less.
 
6. List of large advances where stock audit has
not been done during the year.
 
7. List of large advances where documentation
is still pending.
 
8. List of advances where renewal has not
been completed.
 
9. List of advances where stock statements
have not been received regularly.
 
10. List of cases where the valuation report is
more than three years old.
11. List of non-corporate entities with advances
in excess of Rs. 10 lakhs.
 
12. List of major suits filed and other accounts
classified as doubtful.
 
13. List of BIFR and other accounts being
considered for revival, rehabilitation or
settlement.
 
14. Have all credit card dues been recovered
promptly?
 
15. DICGC / ECGC Claims
a) Claims at the beginning of the year
b) Claims lodged during the year, if any
c) Claims settled
d) Claims rejected
 
16. Details of outstanding amounts of
guarantees invoked and funded by the
branch at the end of the year.
 
17. Details of outstanding amounts of letters
of credit and co-acceptances funded by the
branch at the end of the year.
 
18. Details of outstanding entries in IBIT, if any.
 
19. Details of outstanding entries in sundry
Assets and suspense account.
 
20. Details of outstanding entries in sundry deposits.
 
21. Quantum of overdue/ matured term
deposits at the end of the year.
 
22. List of major items of contingent liabilities
(other than constituents’ liabilities such as
guarantees, letters of credit, acceptances,
endorsements, etc) not acknowledged by
the branch.
 
23. A statement showing the variation in the
accounts of interest paid, interest received
and other major income and expense heads
between the current and previous years.
(Please request the branch management to
give comments / reasons for any abnormal
variation).
 
24. Particulars of fraud, if any, discovered during
the year.
 
PMRY
 
1. Number of loans granted during the year
under PMRY.
2. Amount advanced.
3. Subsidy claim amount
TAX AUDIT
 
1. Capital expenditure debited to Profit and
Loss account, if any.
 
2. Payment made to clubs towards fees and
for services.
 
3. Total amount of TDS deducted during the
year:
a) on salary
b) on Interest on Term Deposits
c) on Interest on NRO Deposits
d) On contract payments
e) on Rent
f ) on professional fees
g) on other payments (specify)
 
4. Has any amount been recovered during the
year out of bad debts, written-off in earlier
year?
 
Audit Programme
 
Ensure that a comprehensive audit
programme is chalked out. The size of the
branch, the volume of transactions, the level
of computerisation and the classification of the
branch must be taken into to account while
drawing up the audit programme. The size and
skill sets of the audit team can be determined
based on the above parameters.
The audit programme should ensure that
a compliance test of the internal controls to
identify areas of weaknesses is carried out.
Based on the results of the compliance testing,
one may have to prepare a programme for
substantive testing.
The following areas require full checking
irrespective of the level of internal controls:
 
Verification of Balance Sheet and Profit and
Loss account with the main and subsidiary
ledgers
 
Verification of all closing returns with the
ledgers and registers
Verification of all large advances granted
during the year with specific reference to
terms of sanction and documents
 
Verification of all large NPA advances and
the provisioning thereof
 
Balancing of books
 
Inter branch items and clearing differences
 
PMRY loans granted during the year

thats only for the Time being..........




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Raghavendra Bhat 

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