RURAL BANK OF CABADBARAN, INC.

INTERNAL AUDIT DEPARTMENT

INTERNAL AUDIT REPORT

REAL AND OTHER PROPERTIES OWNED OR ACQUIRED

Members:
GIANNE CIELO V. MONDANO
HONEY JANE M. CAINGCOY
KRIZZIA MAE LIPIO
JANE HART DAGTING
HARVEY KLENT DE VEYRA
RAZEL JERLIANGAO

February 2015

REAL AND OTHER PROPERTIES OWNED OR ACQUIRED AUDIT

EXECUTIVE SUMMARY
This audit addresses internal controls over the Real and Other Properties owned
or acquired (ROPA) as stated in the mandate imposed by Rural Bank of Cabadbaran,
Inc. We conducted the internal audit in line with our Auditing Program. Our audit
disclosed significant issues for which corrective actions are needed. The matters raised
in this report are only those, which have come to our attention arising from our audit that
we believe they need to be brought to your attention. These significant issues are
discussed in this executive summary and the body of this report. Other issues identified
for which we have given recommendations to improve internal controls and enhance
accountability are also discussed in this report.
The team conducted audit activities that will evaluate and test the efficiency of
these controls such as interview with the head accountant and bookkeeper,
observations of personnel and validation, reviewing and verification of documents. The
audit team also assessed samples of subsidiary record which contains the list of real
properties owned or acquired to verify that the information required as the controls
stated. The audit team found that there are effective and efficient regulatory processes
and procedures in support of achieving the internal controls mandate being imposed.
The audit evidence gathered is sufficient to provide management with reasonable
assurance of the results derived from this audit.

PURPOSE

The ROPA Internal audit we performed focused on the internal controls stated on
the Manual of Operations and Procedures provided by the management. The audit was
conducted to evaluate and ensure that the internal controls were complied with by the
relevant departments. Internal control audit objectives relate to ROPA management
plans, methods, and procedures used to meet its mission, goals and objectives.

SCOPE OF THE AUDIT

This internal audit covered audit activities conducted in the Rural Bank of
Cabadbaran, Inc. The audit period for which information was collected and reviewed
was from December 22, 2014 through January 27, 2015. Significant data was reviewed
to provide knowledge and background regarding current systems and processes.
The audit was conducted to the following areas: Policies and Procedures;
Documents relevant to the ROPA listing (subsidiary ledgers, memorandum papers);
Personnel Responsibilities; and Board of Directors Authority and Approval. Discussions
were held with management and staff members. Audit work was conducted on the basis
of questionnaire, enquiry, observation, confirmation and verification of supporting
documentation and identified processes.
Specific audit activities performed to evaluate and test each area of the scope to
satisfy the audit opinion are the following: Determination of the Internal Controls under
ROPA; Evaluation and testing of the controls during the audit; Inquiry to the head
accountant regarding the document process workflows; Sampling of relevant
documents to provide sufficient and adequate evidence.

AUDIT OBSERVATIONS

The audit was conducted in accordance with the Internal Controls as stated in
the provided Manual of Operations and Procedures set out by the bank. The Audit Team
followed the submitted audit program. The following are the internal controls with the
corresponding audit teams observation:

A detailed subsidiary record for each item should be maintained showing

the following minimum information:

a.

From acquired

b.

Date acquired

c.

Acquisition cost

d.

Description of property

e.

Location of property
Through the audit activities conducted, the audit team developed the findings and

observations that there were few foreclosed real assets that lack the information
(location of the property) on the sample subsidiary record. Based on the obtained ROPA
Listing documents dated October 31, 2014, we have observed that there are some
items without its corresponding location of the assets.

There should be an organizational unit responsible for the administration

and disposition of

all such assets and, also for the performance of the

following functions:
a.

Maintain proper accounting for all income and all expenses for
each asset held;

b.

Make periodic reports to the board of directors as to new

acquisitions, sale and status of outstanding assets;

c.

Conduct periodic appraisals of asset values to update records

with current or market prices;

d.

Maintain adequate insurance coverage of assets.

There is lacking in communication between the Board of Directors with the

management and personnel in terms of disposal and acquisitions arises.

A physical inventory of all items held should be conducted at least once a

year by the internal auditor or control officer.
As mandated in internal controls being imposed by the management for the

ROPA, there should be a physical count of all items at least a year. However, during
the interview conducted, the head accountant mentioned that the internal auditor
failed to do so for this period.

The board of directors or its committee should review all acquisitions and
dispositions of these assets monthly.

The audit team obtained Extra-Judicial Foreclosure Documents during the audit, we
inspected whether the board of directors review the acquisitions and dispositions of
assets monthly. We observed that this internal control has been complied with by the
RBCI.

No asset should be disposed of without prior authority from the board of

directors or its committee.
The audit team evaluated the obtained Extra-Judicial Foreclosure Documents

and found out that the banks Board of Directors has their assigned representative.
He/she has been given the task to sign the said documents in behalf of the BOD.
This internal control has been complied with by the RBCI.

Instruments showing ownership of assets should be held under joint

custody and segregated from loans collateral instruments.

The audit team has determined that the instruments showing ownership of the
assets such as joint custody and loan collateral instruments in the vault of the bank.
There is a restriction rules in viewing the vault (Cashier and Filing Clerk access only), so
we obtained information by consulting and inquiring the head accountant of the bank.
AUDIT RECOMMENDATIONS

The audit team would like to recommend that the period of reviewing for the
information in the ledgers should be enhanced. There should also be more open
communication between the Board of Directors relating to the disposal and acquisitions
of assets to keep everybody in the loop. We recommend also that all policies and
procedures should be stricter and be monitored because that may affect other
departments as well as the procedures for reviewing and updating policies and
procedures be established. And lastly, we recommend that the disposal of the ROPA
assets should be coordinated with the accounting department.

Coordination would

include reviews of the agreements in meetings that pertains asset disposals as was
done by board of directors.

SUMMARY OF AUDIT FINDINGS

Requirement

Audit Activity

References

Done

Remarks

Used

Managemen

Assessment

t Comment

Internal Controls :

1. Obtain detailed

ROPA Listing

Few Items

Partial

1. A detailed subsidiary

subsidiary record of the

Subsidiary

Jan. 9,

does not

Compliance

record for each item should

real properties owned or

Ledger.

2015

contain

be maintained showing the

acquired.

information

following minimum

2. Checking whether

about the

information:

each property in the

location of

a. From acquired

subsidiary record showed

the

b. Date acquired

specific information that

property.

c. Acquisition cost

the control requires.

d. Description of property
e. Location of property
2. There should be an

1. Inquire the bookkeeper

organizational unit

about the personnel

Jan. 14,

responsible for the

responsible for the

2015

administration and

respective functions as

disposition of

stated on the control.

all such

assets and, also for the

performance of the following
functions:

Bookkeeper

Compliance

a. Maintain proper
accounting for all income
and all expenses for each
asset held;
b. Make periodic reports to
the board of directors as to
new acquisitions, sale and
status of outstanding
assets;
c. Conduct periodic
appraisals of asset values to
update records with current
or market prices;
d. Maintain adequate
insurance coverage of
assets.
3. A physical inventory of all

1. Inquire from the Head

Head

items held should be

Accountant whether

Accountant

conducted at least once a

physical count of the

year by the internal auditor

properties was made at

conduct

or control officer.

least one year.

physical

Internal

Non-

Jan. 16,

auditor

compliance

2015

failed to

inventory
for the

current
period.
4. The board of directors or

1. Obtain monthly

Extra Judicial

its committee should review

records about all

Foreclosure

Jan. 16,

all acquisitions and

acquisitions and

Documents

2015

dispositions of these assets

dispositions from head

monthly.

accountant.

Compliance

2. Obtain proof
documents with
signatures that can verify
the monthly review by the
5. No asset should be

board of directors.
1. Inquiry whether the

Head

disposed of without prior

disposition of the assets

Accountant

authority from the board of

was properly authorized

directors or its committee.

by the board of directors

ate with

or its committee by

the Board

checking if the signatures

of

of the board of directors

Directors.

We were

Not

Jan. 17,

not able to

determined

2015

communic

or its committee exist.

6. Instruments showing

1. Determine whether the

Head

ownership of assets should

instruments showing

Accountant

be held under joint custody

ownership of the assets

We were

Not

Jan. 17,

not allowed

determined

2015

to access

and segregated from loans

are segregated from

the vault

collateral instruments.

loans collateral

that

instruments by inspecting

contains

the designated vault of

the

the said documents.

documents
.

CONCLUSIONS AND OPINION

The audit team concludes that the internal controls mandated by the management Rural Bank of Cabadbaran, Inc.
are in place and effective. This was demonstrated by strong strategic planning that is aligned with Manual of Operations
as provided by the management. Although there are small shortcomings, it could be solved by the cooperation and
coordination of the management and as well the staffs. The significant issues raised by this audit report are seen in a mild
light and can be attributed to a lack of sufficient control measures. Comments by management would be noted and the
steps taken to improve the deficiencies should be considered.