The Role of Audit Department to Increase Smooth Functioning of Dutch Bangla Bank Limited

Letter of Transmittal
Date 05-10-2007

Dr. Md. Jahangir Alam Lecturer department of Business Administration Northern University Bangladesh, Khulna Campus.

Dear Sir,
It is a great pleasure for us to submit the report study on The Role of Audit Department to Increase Smooth Functioning of Dutch Bangla Bank Limited. We are submitting this report as the part of my research study on Bank of Khulna Branch. This report will help the organization to find out related factors with customer satisfaction and loyalty.

This is the first time we have done a co relational study in a complete form and we have tried my best to complete the study in proper way. It is true that it could have been done in better way if there would not be the limitations. We hope you will asses our report considering the limitations of the study. Your kind advice will encourage me to do further research in future.

Yours most obediently

Mostak Ahmed (Group Leader) On Behalf of all group members Department of Business Administration. Northern University Bangladesh, Khulna Campus.

Acknowledgement
At first, we are grateful to Allah for giving us knowledge and courage as well as physical capability to prepare this report. Then we would like to thank our course teacher Dr. Md. Jahangir Alam for providing us necessary documents and lesson that help us a lot to complete our task. Our special thanks go to the following celebrities for guiding us in a systematic way to complete this report.

Chairman
Mr. Abul Hasnat Md. Rashidul Islam Directors Mr. Zaheed Hossain Khan Mr. Shahabuddin Ahmed : Mr. Md. Shahidur Rahman Mr. Md. Yeasin Ali : Ex-officio Director Elected from General Shareholders group

Audit Committee of the Board of Directors

MD.

Mr. Zaheed Hossain Khan Chairman

ii) Mr. Shahabuddin Ahmed Member iii) Mr. Md. Shahidur Rahman Member

.At last, we would like to be grateful to the entire family of NUB specially library department for allowing us collect information from several books. Really we feel better when we think us as a part of NUB.

A Report on
The Role of Audit Department to Increase Smooth Functioning of Dutch Bangla Bank Limited SUBJECT RESEARCH METHOD
Course code: BBA 3222

SUBMITTED TO
Dr. Md. Jahangir Alam Course Instructor Department of Business Administration

SUBMITTED BY
Mostak Ahmed (Group Leader) ID: BBA050260110 Md. Mamun Bin Bakhtiar ID: BBA050101224 Gazi Mahmudur Rahman ID: BBA050260114 Md. Bashir Ahmed ID: BBA040260024 Sassad Hossain ID: BBA040260023

Department of Business Administration SUBMISSION DATE

5TH October, 2007.

NORTHERN UNIVERSITY BANGLADESH

Executive Summary
Dutch Bangla Bank has the commitment to efficient banks operations. This bank believes in its uncompromising to fulfill its customer needs and satisfaction and to become their first choice in banking. Dutch Bangla Bank intends to pave the way for a mew era in banking that upholds and epitomizes its vaunted marques YOUR TRUSTED PARTNER In our report we have focused how continuous auditing operations can help smooth functioning. Our study is all about to show and prove the importance of Auditing department to bring success and establish their commitment to their constituencies. The objective of our study is to improve internal Control & Compliance Division of Bank through creating more effective Audit department than the existing one. The Division with its Audit & Inspection Unit invariably conducts routine inspections of the branches/divisions independently at least once in a year recognizing the risk factors involved and report to the Audit Committee of the Board of Directors directly which provides necessary guidelines so as to ensure compliance of rules & regulations of the Bank as well as the regulatory bodies including Bangladesh Bank. Our studies background is based the materials collected from board of directors report. To prove the role of Auditing department we have shown survey result of 50 people who can be treated as the part of DBBL. To complete our task within a short time we select the KDA, 135 Khulna Branch and survey result passes with Z test that provides a satisfactory result. We have collected information about Auditing Department analyze their performance according to BSA towards improving effective banking. In our

findings section we collect necessary information of 2006 of DBBL and compare it with the performance of 2005. We have cited several charts and interpreted it in summary part of conclusion section. Our result shows, through effective auditing operations bank has earned more than the base year of 2005. The Bank earned a net profit after tax of Taka 362.18 million in 2006 compared to Taka 360.82 million in 2005. Measuring the positive from our point of view we have given some ideas towards improving internal activities through effective Auditing Department .We have given our best effort to overcome all of our limitations and tried a lot to make our task successful.

Table of Content 1. Introduction

1.1. Problem Statement----------------------------------03 1.2. Research Objective----------------------------------03 1.3. Background ----------------------------------03

2. Methodology
2.1. 2.2. 2.3. 2.4. 2.5. Sampling Design Research Design Data Collection Data Analysis Limitations ----------------------------------04 ----------------------------------04 ----------------------------------04 ----------------------------------05 ----------------------------------05

3. Findings 4. Conclusion

----------------------------------06

4.1. Summary and Conclusion -------------------------08 4.2. Recommendations ----------------------------------09

5. Appendix 6. Bibliography

----------------------------------10 ----------------------------------11

1. Introduction

Problem Statement
The role of Audit department within a bank like Dutch Bangla Bank Limited is very much important for smooth functioning. We audited the whole functions of audit department of DBBL to identify how it works to boost up overall performance. Our study is all about to recognize its importance. We will state all question of management about how our research help them to increase their internal activities through continuous auditing and how to build strong position in consumer mind.

Research Objective
The objective of our study is to review the internal audit procedure of the Bank and to ensure that the internal audit can continue their activities without any limitations as well as to review the efficiency and effectiveness of internal audit and to review whether management is complying with recommendations made by the internal audit.

Background
To describe our research study, we have taken help from several sources and collect the needed materials from audit report of DBBL, Directors reports of DBBL towards improving the overall performances. We have also visited the web site of DBBL. Our

study is all about how they satisfy their constituencies and how auditing help them continuously improving their performance and controlling their accounting activities.

2. Methodology Sampling Design

We select the Khulna Branch of DBBL for our research study. We have also taken the view of some shareholders and customers as well as employees about how they get benefit from internal audit in a systematic sampling. The numbers of our viewers was more than fifty. Our confidence level here is 95% and remaining 5% was our significance level. The address of Khulna Branch is as follows 135 Khulna Branch Sena Kalyan Bhaban, 1 KDA Avenue, Khulna

Research design
To conduct our research activities within 5 days, at first we organized a group meeting and divided works among leader and group members. In first two days we collected our necessary materials from several data collection sources. Then we started our real hard work. It took 1 day to complete the prefatory items, introduction and methodology. After that we completed the remaining work of preparing findings, conclusions, appendix and bibliography within 1 day splitting works among us. Then we made rough paper of report and read it carefully to find mistakes. Then on the 5th day we prepare the final draft.

Data Collection
We have collected data from several sources and collect the needed materials from audit report of DBBL, Directors reports of DBBL towards improving the overall performances. We have also visited the web site of DBBL. We have also taken the view of some shareholders and customers as well as employees about how they get benefit from internal audit in a systematic sampling. We survey and asked some questions to the board of auditors about their impact of work on improving the overall efficiency to satisfy customers.

Data Analysis
Data which required to complete the report are analyzed under Z test following six steps. In our statistical test we select Z test as the data were above fifty. Our significance level was 5%. We calculated the value of Z that provides a satisfactory result lying between 1.96 to +1.96. In interpret, we accept the null hypothesis. When we visited the audit report as well as director report, we examine them under the BSA.

Limitations
All research studies have its limitations as we have faced. Our first limitation is time limitations that is it is difficult to make a standard report within five days. As we are student, the DBBL did not provide some data that would help us to increase the overall attractiveness of the report. We conducted survey and asked some internal questions to

executives of DBBL but the did not answer them properly. As we are not experienced, we hope and believe that our best effort can recover our research limitations.

3. Findings
In this section of the report we will cite only our findings that help and guide us to prepare this report in a systematic manner. We have compared the DBBL development in 2006 comparing 2005.

Now we have analyzed the financial statement of DBBL of 2006. These charts are as follows

4. Conclusions Summary and Conclusions

Income, expenses and financial results-2006 Net profit in 2006 was Taka 362.18 million compared to Taka 367.82 million in 2005. Though interest income increased by 51.05% and non interest income increased by 31.90%, net interest income increased by only 14.87% due to higher cost of fund that resulted from highly volatile money market in 1st half of 2006 and higher deposit cost coupled with lower investment in 2nd half of 2006 that reduced interest margin because higher interest cost could not be fully passed on to the borrowers.

This coupled with higher operating cost for increased investment in IT, human resources and branch/distribution network reduced growth in operating profit to 15.00% (48.57% in 2005). Profit after tax grew modestly for making higher specific provision to clean up the

balance sheet and to improve the asset quality. Return on equity was 24.07% in 2006 compared to 31.01% in 2005.

Higher investments in branch and IT network and human resources though reduced profit margin in 2006 however, these will increase resource capacity, increase branch and distribution network, improve efficiency in operations, augment resource flow to expand customer base and to provide much better and faster customer services. As a result, in the long term it will bring substantial and sustainable benefits for the Bank.

Recommendation
From our research study we offer some ideas to DBBL for increasing their work efficiency. These are as follows 1 Establishing a culture of adequate internal control system to ensure that sufficient risk management system is in place to manage core risks of the Bank and that financial reports disclosed by the Bank are reliable for its users. 2 Developing an adequate Information Technology (IT) and MIS System and establishing sufficient control system in IT operations to protect against any inherent risk. 3 Ensuring true and fair presentation of financial statements in compliance with Bangladesh Accounting Standards / Bangladesh Financial Reporting Standards and applicable regulatory requirements. 4 To review the internal audit procedure of the Bank and to ensure that the internal audit can continue their activities without any limitations. To review the efficiency and

effectiveness of internal audit and to review whether management is complying with recommendations made by the internal audit. 5 To recommend appointment of external and special auditors, review audit work and reports submitted by external and special auditors and to ensure compliance and regularization of recommendations made by the external and special auditors. 6 Reporting to the Board of Directors on mistakes, fraud and forgeries and other irregularities to ensure compliance and regularization. 7 Ensure compliance with all applicable legal and regulatory rules and regulations and the directives made by the Board of Directors of the Bank.

5.Appendix

The Bank earned a net profit after tax of Taka 362.18 million in 2006 compared to Taka 360.82 million in 2005. In our statistical test we select Z test. The formula is as follows
Z= ( x -

H0)/(

p/n)

Some abbreviations

BSA- Bangladesh Standard on Auditing. CRR- Cash Reserve Requirement. SLR- Statutory Liquidity Requirement. ICCR- Internal Control & Compliance Risk. IT- Information Technology

Bibliography
1. Ali. M. Y,(2006, December,31), The Desk of Managing Director,( Published) 2. (2006) Audit Report (Published) 3. (2006) Directors Report (Published) 4. (2006) Financial Report (Published) 5. Www. Dutch Bangla Bank Ltd..com