Bank Audit

CA VIJAY KUMAR GARG Chartered Accountants
STATUTORY BANK BRANCH AUDIT
INDEX
Sr No.
1 2 3 4 5 6 7 8 9 Key provisions of the Banking Regulation Act, 1949 Audit process in Statutory Bank Branch audit Draft Engagement Letter to be sent to the Appointing Authority Draft Letter of Requirements to be sent to the Branch Draft of Written Representation Letter Checklist for Bank branch audit Assets Classification & Provisions Checklist for audit of forex transactions List of master circulars 23 33 73 77 87 15 2 3 12
Particulars
Page No.
Key provisions in the Banking Regulation Act, 1949 related to accounts & audit of Bank Section 29 (1) requires every banking company to prepare a balance sheet and a profit and loss account in the forms set out in the Third Schedule to the Act or as near thereto as the circumstances admit. These financial statements have to be prepared as on the last working day of each financial year (i.e., 31st March) in respect of all business transacted during the year. Form A of the Third Schedule to the Banking Regulation Act, 1949, contains the form of balance sheet and Form B contains the form of profit and loss account.
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Sec 30 (1) The balance-sheet and profit and loss account prepared in accordance with section 29 shall be audited by a person duly qualified under any law for the time being in force to be an auditor of companies. Sec 30 (3) - the auditor is required to state in his report (a) Whether or not the information and explanation required by him have been found to be satisfactory; (b) Whether or not the transactions of the company which have come to his notice have been within the powers of the company; (c) Whether or not the returns received from branch offices of the company have been found adequate for the purposes of his audit; (d) Whether the profit and loss account shows a true balance of profit or loss for the period covered by such account; (e) Any other matter which he considers should be brought to the notice of the shareholders of the company Sec 227(3) (d) -The statutory auditors are required to assert in their report that the profit and loss account and Balance sheet of the banking company have complied with accounting standards referred to in Sec 211(3C) of the Companies Act, 1956
Audit of branches Audit of branches of banking companies is required under section 228 of the Companies Act, 1956. Hence, it is obligatory for a banking company to get the financial statements of each of its branch offices audited except where exemption from audit is obtained in respect of certain branches under the Companies (Branch Audit Exemption) Rules, 1961 and as per the guidelines of the Reserve Bank of India issued from time to time. Reasons for special audit considerations in the audit of banks 1. Particular nature of risks associated with the transactions undertaken by banks; Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872 2
2. The scale of banking operations and the resultant significant exposures which can arise within short periods of time; 3. The extensive dependence on IT to process transactions. 4. The effect of the statutory and regulatory requirements; and 5. The continuing development of new services and banking practices which may not be matched by the concurrent development of accounting principles and auditing practices. The auditor should consider the effect of the above factors in designing his audit approach. Audit process in Statutory Bank Branch audit 1. Acceptance & Engagement 2. Planning 3. Auditing Standards 4. Areas to be covered 5. Auditors Report & Memorandum of Changes 6. Long Form Audit Report (LFAR) 7. Jilani & Ghosh Committee Recommendations 8. Certificates 9. Written Representation Letter (WRL) Acceptance & Engagement

NOC from previous auditors should be taken Acceptance letter to be sent to appointing authority issue of audit engagement letter as per SA-210 letter to the Branch manager for requirements for the purpose of the audit
Planning
Familiarity with RBI circulars and Institute guidance note, Accounting policies of the Bank
review of various circulars issued by HO especially the closing circular Study previous years audit report, concurrent audit reports, RBI inspection etc Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872 3

Risk assessment & Evaluation of Internal controls Preparation of audit program and its execution. Lay down an overall time schedule. Ensure that the Audit staff is satisfactorily trained and there is sufficient skill and competence for specialised areas.
Keep flexibility in the Audit plan for giving extra focus to weak areas, identified during the course of audit.
The Audit program should cover all the areas under liabilities, assets, income, expenditure and off Balance sheet items. However there should be special emphasis on verification of advances, income recognition and provisions to be made.
Co ordination with the Branch Management
Standards on Auditing With all the Auditing Standards mandatory and Peer Review in place, its imperative that all the Auditing Standards of ICAI are complied with. Though all the auditing standards are mandatory, in context of bank audits, following auditing standards are more relevant and branch auditor need to give more emphasis to the same:

SA 210 Terms of Audit Engagement SA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
SA 320 Materiality in Planning and Performing an Audit SA 530 Audit sampling SA 300 Planning an Audit of financial statements SA 220 Quality Control for an Audit of Financial Statements SA 500 Audit Evidence SA 230 Audit Documentation SA 580 Written Representation by Management Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872 4
Areas to be covered The broad areas which the branch auditors should verify are: Physical verification of cash, security papers, valuable securities etc. Deposits.

Verify transactions during the year relating to: New Accounts opened Compliance of KYC norms Accounts closed Dormant Accounts Overdue Term deposits & banks policy for its renewal & interest provision thereon.
RBI Norms for Nonresident deposits & its operations with due importance to opening and operation of accounts like NRE, NRNR, FCNR, RFC, etc
Interest on various types of deposits including savings account on test check basis ; Tax Deducted at Source and year end interest
Provisions. Large deposits placed at the end of the year (probable window dressing) Examine unusual trend in account opening or account closing, dormant accounts that have suddenly been reactivated by heavy cash withdrawals or deposits, over drawings, etc
Examine interest trends as compared to average annual deposits (monthly average figures)
Advances Verify:
All the advances whose balance is lower of 5% of total advance (fund based & non-fund based) or Rs.2 Cr .
Advances which are sanctioned during the year and other advances on test check basis depending on the balance outstanding.
Advances which are adversely commented by previous auditors, RBI inspection team, concurrent auditors, banks internal inspection
Type of Advances: 1. Funded: Cash Credit/Overdraft, Term Loans, Bills Purchased/discounted, Packing credit etc. 2. Non Funded: Bank guarantees, Letter of Credits, Letter of comforts etc. Some of the important areas to be examined /reviewed in respect of advances are:

Evaluation of Internal Control Existence of clearly laid down delegation of authority Existence of clearly laid down eligibility criteria for loan Existence of post disbursement monitoring. Pre sanction stage: KYC compliance, prescribed application form Review of credit appraisal system before sanction of loan, system of renewal/review of loan.
Post sanction stage: Whether terms of sanction have been complied with in case of new advances
Whether documents in respect of all the facilities are obtained as per the bank manual and charge has been created in respect of securities available to the bank
Approval of documents executed by legal department .panel of advocates. Whether end use of funds in case of new loans is verified. Review and Monitoring of advances:
Whether the borrower is regular in submission of the stock & book debt statements and same are scrutinized by an officer and Drawing Power correctly calculated.
Whether insurance policies are on record and assets which are charged as security are adequately insured.
Whether regular inspection/stock verification of the borrowers is done by the Bank/ by a firm of CA as per laid down procedure of the Bank.
Whether frequently overdrawn accounts are properly monitored and reported to the Controlling Office.
Whether the borrower regularly submits its quarterly reviewed results (in case of listed companies) and annual audited financial statements. Whether they are scrutinized by the Officer to verify that actual results match with the projections. If not, whether clarification is sought.
Review the operations in the accounts on test check basis Whether interest and penal interest in case of delayed submission of stock statements, overdrawn accounts etc. is charged.
Verification of statement of advances: Check that classification of advances, income recognition and provisioning is done as per RBI guidelines
Scrutinize the final advances statement with regard to asset classification, security value, classification in secured and unsecured, drawing power, outstanding balance. Income/ Expenditure Verify
Short debit of interest/ commission on advances with special emphasis on penal interest, commitment charges etc.
Excess/short credit of interest on deposits Miscellaneous income like locker rent, income on forex business etc on test check basis. Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872 7
Proper authority in sanction and disbursement of expenses as also the correctness of the accounting treatment given as to revenue & capital expenditure
Verify depreciation in case it is provided at the Branch level Check accrual of income/ expenditure especially for the last month of the financial year
Divergent Trends Divergent trends in income/ expenditure of the current year may be analysed with the figures of the previous year
Wherever a divergent trend is observed, obtain an explanation along with supporting evidences like monthly average figures, composition of the income/ expenditure, etc. Cash & Bank Balances
Physically verify the Cash Balance as on March 31, 2012 or reconcile the cash balance from the date of verification to March 31, 2012
Confirm and reconcile the Balances with banks as on March 31, 2012 Verify that the cash is held in dual custody Verify whether cash held by the Branch during the year is within the retention limit fixed by the Head Office
Verify whether cash held by the Branch is adequately insured.
Stationery & Stamps
Physically verify stationery and stamps as on March 31, 2012.
Verify whether the Branch has adequate internal control for receipt, issue and custody of the stock of stationery & stamps. Investments
Physically verify the Investments held by the branch on behalf of Head Office and issue certificate of physical verification of investments to banks Investments Department
Check receipt of interest and its subsequent credit to be given to Head Office Fixed Assets
Check that accounting of fixed assets is done in accordance with AS-10. Also check accounting of major capital expenditure especially in branches located in leased premises
Check Interbranch transfer memos relating to Fixed Assets and whether they have been correctly classified in the accounts and depreciation correctly provided thereon. Inter Branch Reconciliation (IBR)
Understand the IBR system and accordingly prepare an audit plan to review the IBR transactions. The large volume of Inter Branch Transactions and the large number of un reconciled entries in the banking system makes the area fraudprone
Check up head office inward communication to branch to ascertain date up to which statements relating to interbranch reconciliation have been sent
Reversal of any large/ old/ unexplained entries, which had remained outstanding in IBR
Items of revenue nature, cashintransit (for example, cash meant for deposit into currency chest) which remains pending for more than a reasonable period. Suspense Accounts, Sundry Deposits, etc Suspense accounts are adjustment accounts in which certain debit transactions are temporarily posted whose authorisation is pending for approval Sundry Deposit accounts are adjustment accounts in which certain credit transactions are temporarily posted whose authorisation is pending for approval As and when the transactions are duly authorised by the concerned officials they are posted to the respective accounts and the Suspense account/ Sundry Deposit account is credited/ debited respectively Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872 9

Ask for and analyse their yearwise breakup Check the nature of entries parked in such Accounts Check any movement in such old balances and whether the same is genuine and has been properly authorised by the competent authority
Check for any revenue items lying in such accounts and whether proper treatment has been given for the same
Provision should be recommended against old debit balances which are unexplained or in opinion of the auditors is non recoverable. Auditors Report & Memorandum of Changes
Audit Report should be on the letter head of the firm and not on the printed stationery given by the bank and it should be correctly dated.
The Auditors Report should be a self contained document and should contain no reference of any point made in any other report including the LFAR
Include Audit Qualifications in the Auditors Report and not in the LFAR Quantify the Audit Qualifications for a better appreciation of the point made to the reader
For suggesting any changes in the financial statements of the branch, quantify the same in the Memorandum of Changes (MOC) and make it a subject matter of qualification and annexe it to the Auditors Report
Certain items like provisions for employees benefit, provision on NPA etc. is done at Head Office and many Accounting Standards are complied with at Head Office. Auditors Report should contain qualification in respect of the same. Long Form Audit Report (LFAR)

Study the LFAR Questionnaire thoroughly Plan the LFAR work along with the statutory audit right from day one The LFAR questionnaire is a useful tool for planning the statutory audit of a branch
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Complete & submit the Auditors Report as well as the LFAR simultaneously
Comments in LFAR should be specific and not vague. Give instances of shortcomings/ weaknesses existing in the respective areas of the branch functioning in the LFAR
The LFAR should be sufficiently detailed and quantified so that they can be expeditiously consolidated by the bank.
Certificates There are number of certificates required to be issued by the Branch Auditors. Some of these certificates are relating to disclosures for the Bank as a whole. These are: i. Certification of figures for capital adequacy as per Basel-II norms. ii. Asset Liability management (ALM) iii. Details of restructured account/interest sacrifice etc. Branch auditor need to take due care while certifying the figures of these certificates. In respect of data for compliance of Basel II norms and ALM, the branch auditor needs to apply appropriate audit checks to ensure that data generated by the system are reliable. Also refer the relevant Master Circulars.
Draft Engagement Letter to be sent to the Appointing Authority of the Bank Date: To, The Audit/Account Manager _____________ Bank _____________ Mumbai Dear Sir : Sub: Engagement Letter (Statutory audit of ----Branch for F.Y 2011-12) Email:vijaymgarg@yahoo.com 11 Mob.093145-03871, 094140-41872
You have requested that we audit the balance sheets of __________ Branch & __________ Branch of _________ Bank as at March 31, 2012 and the related profit and loss account for the year ended on that date. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements We will conduct our audit in accordance with the auditing standards generally accepted in India and with the requirements of the Banking Regulation Act and the Reserve Bank of India Act and the guidelines issued under the said statutes from time to time. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation However, having regard to the test nature of an audit, persuasive rather than conclusive nature of audit evidence together with inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements of financial statements, resulting from fraud, and to a lesser extent error, if either exists, may remain undetected In addition to our report on the financial statements, we expect to provide you with a separate letter concerning any material weaknesses in accounting and internal control systems which might come to our notice in the form of a Long Form Audit Report The responsibility for preparation of financial statements on a going concern basis is that of management. Management is also responsible for selection and consistent application of appropriate accounting policies, including implementation of applicable accounting standards along with proper Email:vijaymgarg@yahoo.com 12 Mob.093145-03871, 094140-41872
explanation relating to any material departures from those accounting standards. The management is also responsible for making judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the entity at the end of the financial year and of the profit or loss of the entity for that period Responsibility of management also includes maintenance of adequate accounting records and internal controls for safeguarding of the assets of the branch and for the preventing and detecting fraud or other irregularities. As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit. We also wish to invite your attention that our audit process is subject to 'Peer Review' under the Chartered Accountants Act, 1949. The reviewer may examine our working papers during the course of the peer review We look forward to full cooperation with your staff and we trust that they will make available to us whatever records; documentation and other information are requested in connection with our audit Our fees will be billed upon completion of our audit assignment Kindly acknowledge receipt.
For XYZ & Associates Chartered Accountants FRN:
Partner M.N
Draft Letter of Requirements to be sent to the Branch
Date: The Branch Manager _____________ Bank _____________ Branch Mumbai
Dear Sir: Sub.: Statutory Audit of your branch for the year 2011-12
As you are aware, we have been appointed as the Statutory Auditor to report on the accounts of your --------Branch for the year 2011-12 In order to enable us to finalise the audit programme and furnish our report on the audit of the accounts for the year 2011-2012 of your branch, may we request you to keep the following information/ clarification ready and make the same available to our audit team at the earliest: 1. Latest Reports The following latest reports on the accounts of your Bank, and compliance by the Bank on the observations contained therein may be kept ready for our perusal:

Latest RBI Inspection Report; Internal/ Concurrent Audit Reports; Head Office Inspection Reports; Internal Inspection Reports; Revenue Audit Report (if any); Income and Expenditure Control Report (if any); Report on any other Inspection/ Audit that may have been conducted during the course of the year relevant to the financial year 2011-12
2. Circulars in Connection with Accounts Please let us have a copy of the Head Office circulars/ instructions in connection with the closing of your accounts for the year, to the extent not communicated to us or incorporated in our letter of appointment 3. Accounting Policies Kindly confirm whether, as compared to the earlier year, there are any changes in the accounting policies during the year under audit. If so, please let us have a list and a copy of the accounting policy/ies amended Email:vijaymgarg@yahoo.com 15 Mob.093145-03871, 094140-41872
by the bank during the year covered by the current audit and compute the financial effect thereof to enable us to verify the same 4. Deposits a) Please let us have the Interest rate structure, applicable for the current year, for all the types of deposits accepted by the branch b) Kindly confirm having transferred Overdue/ Matured Term Deposits to Current Account Deposit. If not, details/ particulars of credit balances comprising Overdue/ Matured Term Deposits as at the yearend which continue to be shown as Term Deposit, particularly where the branch does not have any instructions/ communication for renewal of such deposits from the account holder and amount of provision of interest made on such overdue/ matured term deposits, should be separately marked out and be kept ready for our reference 5. Advances a) Kindly confirm whether in respect of the advances against tangible securities, the branch holds evidence of existence and latest market value of the relevant securities as at the yearend b) Kindly inform the yearend status of the accounts, particularly those which have been adversely commented upon in the latest reports of RBI/ Internal Auditors/ Concurrent Auditors/ Statutory Auditors, etc on the branch as also accounts in respect of which provisions have been made/ recommended as at the previous yearend Information in relation to such advances accounts where provision computed/ recommended may please be prepared indicating: i Name of the borrower Email:vijaymgarg@yahoo.com 16 Mob.093145-03871, 094140-41872
ii Type of facility iii * Total amount outstanding as at the yearend (both for principal and interest) specifying the date upto which interest has been levied and recovered iv Particulars of securities and value on the basis of latest report/ statement v Nature of default and action taken vi Brief history and present status of the advance vii * Provision already made/ recommended viii NPA since when (please specify the date) * Corresponding figures for the previous yearend may please be given c) Kindly confirm whether the borrowers account have been categorised according to the norms applicable for the year into Standard, Sub standard, Doubtful or Loss assets, with special emphasis on Non Performing Assets (NPA) and whether such classification has also been made applicable by the branch to advances with balances of less than Rs.25,000 each Kindly confirm whether you have examined the accounts and applied the norms borrowerwise and not accountwise for categorising the accounts. Please let us have the particulars of provisions computed/ recommended in respect of the above during the financial year under audit d) A list of all advances accounts which have been identified as bad/ doubtful accounts and where pending formal sanction of the higher authorities, the relevant amount have not been reclassified/ re Email:vijaymgarg@yahoo.com 17 Mob.093145-03871, 094140-41872
categorised in the book of the Branch for provision/ write off. This covers all account identified by the Branch or internal/ external auditor or by RBI inspectors but the amount has not been written off wholly or partly In case the Bank has recommended action against the borrowers or for initiating legal or other coercive action for recovery of dues, a list of such borrowers accounts may be furnished to us e) Please let us have a list of borrowers accounts where classification made as at the end of the previous year has been changed to a better classification, stating reasons for the same f) Kindly also confirm whether any income has been adjusted/ recorded to revenue, contrary to the norms of income recognition notified by the Reserve Bank of India and/ or Head Office circulars issued in this regards; and particularly where the chances of recovery/ realisablity of the income are remote Kindly also confirm whether any income has been recorded on Non Performing Accounts other than on actual realisation 7. Outstanding in Suspense/ Sundry Account Kindly let us have a yearwise/ entrywise break up of amounts outstanding in Suspense/ Sundry accounts as on March 31, 2012. Kindly explain the nature of the amounts in brief. Supporting evidences relating to the existence of such amounts in the aforesaid accounts may be kept ready at the branch for verification. Reasons for nonadjustment of items included in these may be made known 8. Interbranch/ Office Accounts/ Head Office Account
a) Please let us have a statement of entries (headwise) which originated prior to the yearend at other branches, but were responded during the period after March 31, 2011 at the branch b) Datewise details of debits in various subheads relating to Inter branch transactions and reasons for outstanding amounts particularly those, which are over 30 days as at the Balance Sheet date 9. Contingent Liabilities a) Kindly confirm whether other than for advances, there are any matters involving the Bank in any claims in litigation, arbitration or other disputes in which there may be some financial implications, including for staff claim, municipal taxes, local levies etc If so, these may be listed for our verification, and you may confirm whether you have included these as contingent liabilities b) Kindly confirm whether guarantees are being disclosed net of margins, or otherwise as at the yearend, and whether the expired guarantee where the claim year has also expired, continue to be disclosed in the Branch return. Please confirm specifically 10. Interest Provision a) Kindly confirm whether interest provision has been made on deposits etc in accordance with the latest instruction of the RBI/ interest rate structure of the bank. A copy of such instructions/ rate structure may be made available for our scrutiny b) Kindly confirm whether any amount recorded as income upto the year end, which remains unrecovered or not realisable, has been reversed from any of the income heads or has been debited to any
expenditure head during the financial year. If so, please let us have details to enable us to verify the same c) Kindly confirm the accounting treatment as regards reversal, if any of interest/ other income recorded up to the previous yearend; and the amount reversed during the year under audit i.e. income of earlier years derecognised during the year 11. Foreign Currency Outstanding Transactions a) Kindly confirm whether amount outstanding as at the yearend have been converted as at the yearend rates prescribed by FEDAI. An authenticated copy of the FEDAI rates applied may be given for our records b) Kindly confirm the amount of inward value of foreign currency parcels, if any, which originated prior to the yearend from other banks, but could not be recorded as these were in transit and for which entries were made after the year end 12. Investment/ Stationery For Investment held by the branch: a) These may be produced for physical verification and/ or evidence of holding the same be made available b) Stock of unused security paper stationery/ numbered forms like B/Rs, SGL forms, etc may please be produced for physical verification c) It may be confirmed whether income accrued/ collected has been accounted as per the laid down procedure d) It may be confirmed whether Investment Valuation has been done as per the extant RBI guidelines Email:vijaymgarg@yahoo.com 20 Mob.093145-03871, 094140-41872
13. Long Form Audit Report Branch response to the Questionnaire In connection with the Long Form Audit Report, please let us have complete information as regards each item in the questionnaire, to enable us to verify the same for the purpose of our audit 14. Tax Audit in terms of Section 44AB of the Incometax Act, 1961 Please let us have the information required for the tax audit under section 44AB of the Incometax Act, 1961 to enable us to verify the same for the purpose of our report thereon 15. Other Certification Please furnish us the duly authenticated information as regards other matters, which as per the letter of appointment require certification.
16. Bank Reconciliation & Confirmations Please let us have the duly reconciled statements for all Nostro as well as Local bank accounts. A copy of the yearend balance confirmation statements should also be called for and kept ready for our review 17. Books of accounts and records Kindly keep ready all the records like vouchers, documents, Fixed Assets Register, etc for our verification We shall appreciate your kind cooperation in the matter Thanking you,
Yours truly, For XYZ & Associates Chartered Accountants FRN:
Partner M.N
Draft of Written Representation Letter to be obtained from the Branch Management
Date: M/s XYZ & Associates Chartered Accountants Mumbai Dear Sirs, Sub.: Audit for the year ended March 31, 2012
This representation letter is provided in connection with your audit of the financial statements of _____________ branch of _______________ BANK for the year ended March 31, 2012 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view of the financial position of ___________ branch of _______________ BANK as of March 31, 2012 and of the results of operations for the year then ended. We acknowledge our responsibility for preparation of financial statements in accordance with the requirements of the Reserve Bank of India and recognised accounting policies and practices, including the Accounting and Auditing Standards issued by the Institute of Chartered Accountants of India We confirm, to the best of our knowledge and belief, the following representations: 1 ACCOUNTING POLICIES The accounting policies which are material or critical in determining the results of operations for the year or financial position are set out in the financial statements and are consistent with those adopted in the financial statements for the previous year. The financial statements are prepared on accrual basis except as stated otherwise in the financial statements There are no changes in the accounting policies followed by the branch during the current year 2 ASSETS The branch has a satisfactory title to all assets and there are no liens or encumbrances on the branch's assets. The branch has not received any legal notices from the landlords asking them to vacate the premises that the branch is currently occupying as a lessee 3 FIXED ASSETS
The Fixed Assets held by Branches have been properly accounted and have been physically verified at the year end. No discrepancies are noticed on such verification. Depreciation on these assets have been adequately provided as per the policy of the Bank. 4 CAPITAL COMMITMENTS At the balance sheet date, there were no outstanding commitments for capital expenditure 5 OTHER CURRENT ASSETS In the opinion of the management, other current assets have a value on realization in the ordinary course of the branchs business which is at least equal to the amount at which they are stated in the balance sheet 6 CASH BANK BALANCES The Cash balance as on March 31, 2012 is Rs._____________ 7 LIABILITIES The branch has recorded all known liabilities in the financial statements. 8 CONTINGENT LIABILITIES 8.1 The branch has disclosed in notes to the financial statements all;

guarantees that we have given to third parties Letters of Credits (Local/ Import) Letters of Comfort (Local/ Import) Deferred Payment Credits/ Guarantees (Local/ Import) Email:vijaymgarg@yahoo.com 24 Mob.093145-03871, 094140-41872
and all other contingent liabilities
8.2 Other than for advances, there are no matters involving the branch in any claims in litigation, arbitration or other disputes in which there may be some financial implications, including for staff claim, branch rentals, municipal taxes, local levies etc except for those which have been appropriately included under contingent liabilities 8.3 Guarantees are disclosed net of margins as at the yearend, and expired guarantee where the claim year has also expired has been correctly removed from the branch return 8.4 Contingent liabilities disclosed in the notes to the financial statements do not include any contingencies, which are likely to result in a loss and which, therefore, require adjustment of assets or liabilities 8.5 No cases/ legal disputes are pending against the branch/ lodged by the branch, for which no liability has accrued/ is likely to accrue in the future 9 PROVISIONS FOR CLAIMS Provision has been made in the accounts for all known losses and claims of material amounts 10 There have been no events subsequent to the balance sheet date that require adjustment of, or disclosure in, the financial statements or notes thereto 11 PROFIT & LOSS ACCOUNT Except as disclosed in the financial statements, the results for the year were not materially affected by: (a) transactions of a nature not usually undertaken by the branch
(b) Circumstances of an exceptional or nonrecurring nature (c) Charges or credits relating to prior years (d) Changes in accounting policies 12 We have made available to you all the following latest reports on the accounts of our branch, and compliance by the branch on the observations contained therein: 1. Previous years Branch Audit Report; 2. Internal Inspection Reports; 3. Report on any other Inspection Audit that has been conducted during the course of the year relevant to the financial year 2011-12. 4. Concurrent audit report 5. RBI inspection report Apart from the above, the branch has not received any notice, show cause, inspection advice, etc from Government of India, Reserve Bank of India or any other monitoring or regulatory authority of India that could have a material effect on the financial statements of the branch during the year 13 BALANCING OF BOOKS The books of the accounts are computerized and hence the subsidiary records are automatically balanced with the relevant control records 14 OVERDUE/ MATURED TERM DEPOSITS All Overdue/ Matured Term Deposits are held as Matured Term Deposits
15 ADVANCES 15.1 In respect of all the advances against tangible securities, the branch holds evidence of existence and market value of the relevant securities as at the year end 15.2 All the borrowers account have been categorised according to the prevalent RBI norms applicable for the year, into Standard, Substandard, Doubtful or Loss assets, with special emphasis on NonPerforming Assets (NPA) 15.3 We have examined the accounts and applied the norms borrowerwise and not accountwise for categorising the accounts 15.4 The classification of advances made as at the end of the previous year has not been changed to a better classification 15.5 No income has been adjusted/ recorded to revenue, contrary to the norms of income recognition notified by the Reserve Bank of India; and particularly where the chances of recovery/ realisability of the income are remote 15.6 No income has been recorded on NonPerforming Accounts other than on actual realisation
16 OUTSTANDING IN SUSPENSE/ SUNDRY ACCOUNT The yearwise/ entrywise break up of amounts outstanding in Sundry deposits/ Sundry assets as on March 31, 2012 has already been submitted to you along with explanation of the nature of the amounts in brief and supporting evidences relating to the existence of such amounts in the aforesaid accounts
17 INTEREST PROVISIONS 17.1 Interest provision has been made on deposits, etc in accordance with the extant instructions of the Head Office 17.2 Any amount recorded as income upto the yearend, which remains unrecovered or not realisable, has been reversed from the respective income heads or has been debited to corresponding expenditure head during the year 17.3 The accounting treatment as regards reversal, if any of interest/ other income recorded upto the previous year end; and the amount reversed during the year under audit i.e. income of earlier years derecognised during the year has been made in accordance with the prevalent RBI norms of Income Recognition 17.4 The interest provision for Head Office Interest shall be made at the Head Office 18 STATIONERY Stock of unused stationery like security papers, cheque books, demand draft book, etc have been produced for your physical verification and are in order
19 LONG FORM AUDIT REPORTBRANCH RESPONSE TO THE QUESTIONNAIRE In connection with the Long Form Audit Report, complete information as regards each item in the questionnaire has been made available to you in order to enable you to verify the same for the purpose of your audit 20 OTHER CERTIFICATION
Duly authenticated, information as regards other matters which, as per the banks letter of appointment, require certification have been made available to you 21 GENERAL There is no enquiry going on or concluded during the year by Central Bureau of Investigation (CBI) or any other Vigilance or Investigating Agency on the branch or on its employees and no cases of Frauds or of Misappropriation of Assets of the branch have come to the notice of the Management during the year other than for amounts for which provisions have already been made in the books of accounts 22 The provision for nonperforming assets, depreciation, provision for income tax, provision for bonus, gratuity, etc is made at the Head Office. Therefore the same has not been provided in the branch accounts 23 There have been no irregularities involving management or employees who have a significant role in the system of internal control that could have a material effect on the financial statements 24 At the end of the year, the branch has translated its holdings of Foreign Deposit Accounts at notional rate specified by RBI and the difference between the notional rate and the actual rate as at the year end will be accounted for at the Head Office. 25 The financial statements are free of material misstatements, including omissions 26 The branch has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of non compliance. There has been no noncompliance with requirements of regulating
authorities that could have a material effect on the financial statements in the event of noncompliance 27 We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the financial statements 28 The other particulars required have already been given to you and particulars and other representations made to you from time to time are true and correct in all respects 29 TAX AUDIT FOR THE YEAR ENDED March 31, 2012 TAX AUDIT IN TERMS OF SECTION 44AB OF THE INCOMETAX ACT, 1961 The information required for the tax audit under section 44AB of the Incometax Act, 1961 has been made available to you in order to enable you to verify the same for the purpose of your report thereon. In respect of the Tax Audit under section 44 AB of Income Tax Act, 1961 of _____________ branch of _______________ BANK for the year ended March 31, 2012, we certify the following: PART A 29.1 Our Permanent Account No. is ______________ 29.2 The address as per the jurisdiction of the assessee falls under section 124 of the Income Tax Act, 1961 is ______________________ 29.3 The status as defined under the Income Tax Act, 1961 is Company
PART B 29.4 There is no change in nature of business in current year as compared to preceding previous year 29.5 The books of accounts maintained by us have been correctly disclosed in clause 9(b) of Form 3CD 29.6 Our Profit & Loss account does not include profits and gains assessable on presumptive basis under section 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, 172 of the IncomeTax Act, 1961 29.7 The method of accounting followed is as per clause 11(a) which has been consistently followed in the immediately preceding previous year. There was no change in the method of accounting employed visvis the method employed in the immediately preceding previous year 29.8 Sum received from employee towards contributions to any provident fund or super annuation fund or any other fund mentioned in section 2(24)(x) which is paid/ not paid within due dates to concerned authorities under section 36(1)(va) are mentioned in Clause 16 (b) of our Form 3CD and the same are correct 29.8 In Clause 17 of Form 3CD, there are no other amounts of such items debited to Profit & Loss Account 29.9 No payments are made to persons specified under section 40A(2)(b) 29.10 There is no amount of profit chargeable to tax u/s. 41 as disclosed under clause 20 of Form 3CD 29.11 Except for the items shown under clause 21 (ii) (B), no tax, duty or other sum as referred to u/s. 43B has been provided as at the year end
29.12 No expenditure/ income of an earlier year has been debited/ credited to the Profit & Loss Account except to the extent disclosed under clause 22 (b) of Form 3CD 29.13 No loans or deposits of Rs.20,000 or more have been repaid in cash other than those specified in the statement of particulars as given in the respective clause of Form 3CD. The details of loans or deposits of Rs.20,000 or more given in the said statement of particulars is true and correct 29.14 Sectionwise details of deduction admissible under chapter VI A No other deductions other than those mentioned in clause 26 of Form 3CD is available to the branch 29.15 Details of delay in payment of tax deducted at source to the credit of the Central Government are given in the statement of particulars. Apart from that, there are no other delay in payment of Tax Deducted at Source 29.16 The other particulars required have already been given to you and particulars and other representations made to you from time to time are true and correct in all respects Thanking you Yours faithfully For & on behalf of ___________ branch of _______________ BANK
Authorised Signatory
CHECKLIST FOR STATUTORY AUDIT OF BANK BRANCH General Sr No. 1 2 3 4 5 6 Name of Bank Branch Address & Tel. No Name of Branch Manager & contact Details Date of establishment of Branch Contact details of concurrent auditor Previous Statutory Auditor (Name, address, Email & mobile) 7 8 9 10 11 12 13 Period of Audit Partner in charge at Audit Audit team Date of Pre-audit visit to branch No. of man days Final Audit report date MRL date 1. 2. 1st April 2011 to 31st March 2012 Particulars Details
Branch Business Profile (Rs in Lacs) Sr No Particulars Deposits 1 2 3 4 5 6 7 8 *Savings deposit *Current deposit *Fixed Deposit *Recurring Deposit *NRE A/c Deposit FCNR Deposit Interest paid Profit *Types of deposits are different from bank to bank depend on schemes of bank therefore sample shall be selected accordingly based on sub-category of deposits under each head mentioned above. Advances Sr no 1 2 3 4 5 6 7 Particulars Fund Based Overdrafts Cash Credit Home Loans Vehicle Loans Mortgage Loans Other Term loan Working Capital Demand Loans Email:vijaymgarg@yahoo.com 34 Mob.093145-03871, 094140-41872 As on 01/04/2011 As on 31/03/2012 Variation As on 01/04/2011 As on 31/03/2012 Variation
8 9 10 11
Bills Purchased Bills Discounted Packing Credit Foreign Currency loans
Non-fund based advances

Sr No Facility Amount on 01/04/2 011 Number s as on 01/04/2 011 Opened during the year Amt 1 Guarante es 2 Letter of Credit 3 Letter of comfort 4 Coacceptan ce of Bills 5 Buyers Credit % of sample selected Nos Closed during the year Amt Nos Amount on 01/04/2 011 Number s as on 01/04/2 011
Deposits Accounts Particulars As on 01/04/2011 Additions during the month Closed during the month As on 31/03/2012
Saving Bank 1 2 Current 1 2 NRE NRO % of sample selected
Sr no Area 1 Engagement
Sub-area of Checking 1. Communication with previous auditor (Clause (8) of Part I of the First Schedule to the CA Act 1949) 2. Engagement (SA 210) 3. Written representations (SA 580)
Checked by
Remarks
Review of last years file
1. Business process 2. General observations 3. Critical issues of : Long Form Audit Report Inspection Report Income Audit report Information Systems Audit Statutory Audit Report
Review of reports
Make note of important issues and stand taken by bank during the relevant period for the observation made from the following: I. Internal audit report II. Income & Expenditure report III. RBI inspection report IV. Concurrent Audit Report V. Head Office Audit Report VI. System Audit Report VII. Branch control returns to higher authorities concerning overdrawing, adhoc sanctions etc VIII. Stock audit reports
IX. Vigilance Report 4 Review of EDP system a) Understand the accounting software b) Understand code assigned for various nature of transaction and check that it is followed by the Branch during the period under Audit. c) Verify E D P checks for the following: i. Timely recording of transactions ii. Matching the balances with the control ledger and general ledger. iii. Transaction in foreign currency should be recorded as per the guidelines issued by RBI / FEDAI d) List out the control register generated by the system e) Check how often it is balanced. Identify the person responsible for balancing. f) See that subsidiary register generated by the system are balance by the system and recorded properly in the books of account. Also note the period by which the subsidiary register is balanced. 5 Review of internal control STRUCTURE OF BRANCH a) Obtain the Network of the Bank/Branch along with list of offices. b) Identify the Head and audit co-ordinator at each branch (Along with address and contact No etc.) c) Obtain organisation structure along with Nature of responsibility and authority Email:vijaymgarg@yahoo.com 37 Mob.093145-03871, 094140-41872
given to each Manager / officer with sanction limit. i. A brief job-profile of key officers, if available, should be obtained from the bank ii. Team member should see that key officers and manager have functioned according to authorities granted by the management 6 7 8 Various Areas to be covered for Vouching & Verification Opening Balance Tracing Cash Balance VERIFICATION OF CASH: 1) Notes: Count the total notes in hand 2) Coins: Count the total coins in hand. Weigh if necessary. 3) Receipts Cash Book: Test check total for the last two days. 4) Payment Cash Book: Test Check total for the last day. See voucher for any big payment. 5) Check the totals of cost counted with : I. Cash Book II. General ledger Balance. III. Cash Balance Book 6) Foreign Currency Notes to be verified by actual inspection. See that these currencies are translated at FEDAI rate at year-end. 7) Keep on record a statement of cash Email:vijaymgarg@yahoo.com 38 Mob.093145-03871, 094140-41872
Verification. 8) Check any petty Cash Imprest kept at the Branch. 9) What is the check on Cash? Double lock, arrangements for custody etc. ( Is it in the joint custody of two or more person 10)See that no private cash is lying in the safe. 11) See that cash is being checked daily by Cashier. Periodically this should be checked by an authorized officer. This would be duly evidenced in the Registers. If not done report. 12) Review the procedures for duplicate keys and see whether it is adequate. 13) Examine the normal requirements of Branch Cash balance. Ensure that Branch observes the retention limit. 14) Any excess whether reported to the controlling Authority and sanction obtained for the same. 15) See that branch hold adequate & valid insurance cover for cash. VERIFICATION OF CASH WITH RESERVE BANK OF INDIA: 1) See the Balance confide motion Certificate. 2) Check reconciliation of the last day. 3) Ensure that cash kept at the Treasury chest has been accounted for as payment
to R. B. I. 4) Ensure that there are no old reconciliation items. VERIFICATION OF CASH IN TRANSIT: Check with relevant advices available at branch. 9 Bank Balance VERIFICATION OF BALANCES WITH OTHER BANKS: 1) See the balance confirmation certificates. 2) Test Check Reconciliation entries for the last day. 3) Ensure that there are on old reconciliation items. VERIFICATION OF BALANCE WITH RBI / SBI. 1) See the balance confirmation statement at the year-end. 2) See the reconciliation statement and report as under: a) Cash transaction remaining unresponded by Bank. b) Revenue item requiring write off / Adjustment c) Old unexplained entries for over one year. 10 Advances (See Annexure-I for details) Checking of Physical Documents of all Large Advances (depending upon the no. of advances made) and some of the selected borrowers from the remaining (test check selection recommended) and verify their Email:vijaymgarg@yahoo.com 40 Mob.093145-03871, 094140-41872
completeness and correctness. While the verification of the documents the following points have to be considered: Ensure that the stock statements are obtained monthly and drawing-power limit are determined every month. Ensure the Insurance Policy document supported for sanctioning the advance is not expired as on the audit date. In case of Collateral Security being given, ensure that valuation report is obtained once in three years. Compare the value of security (as per the recent valuation report) with the balance outstanding, and consider provisioning if any deficit is found. In case of Equitable Mortage being made, ensure that the encumbrance certificate is received and appropriate amount of stamp duty has been paid. In case of Hypothecation, ensure that the documents depict the hypothecation made with the seal of the Bank in the title deeds. Check regarding the stamping of the agreement, availability of one set of keys (in case of Vehicle Loans), etc. Ensure that the Statements of Assets
and Liabilities of Borrowers as well as the Guarantors are obtained, duly filled and signed by the respective parties at the end of the every year. In case of large advance of more than 10 Lacs, confirm that the audited financial statements are obtained every year. In case of Overdrawn CC or OD Accounts, ensure necessary permission is obtained from the competent authority. Different kinds of loans and advances are listed below: i. Term Loans (mainly given for the following) 1. Purchase of Vehicles. 2. Purchase of Machinery / Equipments. 3. Purchase of gala and premises. 4. Housing loan to staff. 5. Loan against consumer goods. ii. Demand Loans 1. Advance against FDRs / NSDs / Shares. 2. Cash Credit against FDRs / Shares / Stock / Book debts. iii. Foreign Transactions 1. 2. Pre & post Shipment advances to Exporters Advance against duty drawback / Bill discounting etc. Email:vijaymgarg@yahoo.com 42 Mob.093145-03871, 094140-41872
iv. Other Advances: The Various types of Advances given by the Bank are as under: 1. 2. 3. 4. 5. 6. 11 Fixed Assets Bridge finance Advance against shares & securities Agriculture loan DIR Advance to small Borrower Loan against Consumer goods Advance against hypothecation of Bookdebts / Stocks etc. I) PREMISES AND FURNITURE AND FIXTURES: 1) a) Check whether premises are owned or leased. If leased, check the rent payable and particulars of lease. b) If owned verify the title deeds and the registration thereof. And check the fixed Assets Register. c) See that premises are properly and fully insured 2) Ensure that the correct rate of depreciation is charged and the calculation is correct. 3) New purchases and sales - See Head office sanction and vouch in the usual manner. a) Advance paid for capital Expenditure is debited to Suspense A/C. initially and payments made unto the relevant date 31st March of every year are capitalized. If any items of assets have been actually received and put to use but no payments
have been paid and they are not booked, a note must be taken for consideration by partner - in - charge. It would be necessary to ensure that consistency is maintained in recording of Capital Expenditure. b) For new branches the Capital Expenditure is initially booked in suspense A/C of other existing branches which buy the capital assets for the use of the relevant new Branch. Once the new branch is opened it has to record the capital expenditure in its own books. It must be ensure that this is done 4) See physical verification report. 12 Other Assets 1) Check the list of stationery with the Register kept by the branch including stocks of blank security forms like term Deposit, Receipts, Drafts, pay orders, Cash Orders, Check books, travelers, cheques, gift cheques etc. 2) Inter office Adjustment : Reconciliation of H.O. A/C should be checked and entries remaining unresponded for a longer time should be reported
SUSPENSE ACCOUNTS: For suspense balance, an age-wise break-up showing nature of the debit/credit should be
obtained. The Suspense Account details of the branches should be scrutinised and notes taken of important long outstanding items. Monitor the progress in clearing old suspense items. Where hard care entries persist, consider need for write off/write back. INTER BRANCH RECONCILIATION: Inter-branch reconciliation is done in two stages - branches within a local center and for other branches. Two accounts are queries or pending unreconciled items are promptly attended. Obtain age composition of unreconciled inter - branch items. Ensure that appropriate and timely action is taken to trace causes of outstanding entries. Monitor progress achieved in adjustments. 13 Deposits A. Savings Accounts / Recurring Deposits etc. B. Current Accounts and Contingency Accounts. C. Fixed Deposit Accounts (of various types). The Audit Programme to be carried out for the Deposit and other accounts would broadly be as under:1) Renew of statements of accounts: What are the laid down control procedures when statements of account are sent to customers How are complaints from any customers about mistakes in the same dealt with. If any file is kept for complaints, examine it.
2) Compare the totals of the Trial Balances with the respective control account balances in the General Ledger. 3) Review the Internal control on unused forms of F.D Rs. unused check books etc. Seriality control and other control to be seen. 4) Ensure that Security Deposits from staff are kept in separate Saving Bank Accounts. 5) Scrutinise the nature of a few contingency Accounts. 6) Check Interest calculations on a test basis. 7) Check provision for interest accrued on a test basis. 8) See that Internal Control procedures are regularly implemented, by the concerned officer. Telegraphic transfer\ Demand drafts: 1) All the Tts \DDs issued by the branch should be immediately confirmed by the advices to the concerned branch 2) D/D outstanding for a longer period should be intimated regularly and should be transfer to H.O. 14 Other Liabilities 1) Securities suspense Account break-up, follow-up, action, subsequent payment / clearance and reasons for each outstanding verified and noted.
15
Profit & Loss a/c
AUDIT OF PROFIT AND LOSS ACCOUNT : COMPARISON OF ACTUAL FIGURES OF THE BRANCHS PERFORMANCE WITH BUDGET AND COMMENT ON SIGNIFICANT VARIATIONS 1) Check vouchers for one month with Day Book (for profit and Loss Account) and see that these are signed by the Authorised officer. 2) Check charge ledger for items of Profit and Loss Account- See if there are unusual debited and credits Test check a few vouchers- Examine the officers powers for sanctioning expenditure. 3) See if the system for charging expenses to various accounts is uniform - Read circular for classifying various expenses to respective heads and see that instructions are followed. 4) Compare the periodical income and expenditure totals with corresponding previous periods and investigate into the cause of wide fluctuations. 5) Agreements for rent etc. to be verified. 6) Test check Establishment Registers. I) II) Monthly payments with signature. Increments / Bonus with circulars / Sanctioned free head office. III) If rent is to be recovered from Branch Manager / Account, check
the deductions. IV) For new staff see appropriate sanction. 7) Verify due provision has been made in the accounts for expenses incurred. 16 Other Assets AUDIT OF STAFF CUSTODY TRANSACTIONS: Under this head, the shares, bends, Government papers, parcels, packages, etc. are kept by the customers with the bank for safe custody against a nominal charges. The contents of such packages are entered in the safe custody Register customer wise against which a receipt is issued to the customer in the articles received, whenever the articles are delivered back safe custody Register is issued to the customer in acknowledgement of the articles received whenever the articles are delivered back to the customer. A mention thereof made in the safe custody Register. Test check a few items. a) Safe Custody register, the package etc. received from the customer. b) For items covered in test check-where the sealed parcels / envelops, etc. are received from the customers, see that the customers seal is intact. The seal, in such case should not be broken to verify the contents of the packages. But where the seal is put by the safe Custody Register by breaking open the
seal in a few cases. c) See that the collection of charges from the customers for keeping the securities in safe custody with the bank is made regularly and is fully accounted for in the books. Following types of transactions are also monitored by the branch: i) Audit of PPF transactions ii) Audit of other government business iii) Audit of Interest Tax returns I) FINAL REVIEW OF BRANCH BALANCE SHEET & SIGNING IT II) PREPARATION OF OBSERVATION REPORT III) ENSURE ALL STATEMENTS ARE PROPERLY FILLED IN: 1) Long form Audit Report 2) Annexure - II Provision for Doubtful debts 3) Annexure - III Memorandum charges 4) Tax Audit format 5) CDS (ITP) Certificate 6) Seeuy Scheme Certificate 7) Audit Report 8) Any other information. SECURITIES AGAINST ADVANCES: The valuation for classification of advance as secured and unsecured will be the depreciated value as per latest audited accounts or the market value, if any ascertained by the officers of the bank for
report to the Zonal office. In the absence of both, the depreciated value based on depreciation prescribed in I. T. Act be worked out as the valuation of security for classification of advance. CLAIMS: Please ensure that claims to DICGC / ECGC/ Insurance cos. are promptly sent wherever required. The amounts received from DICGC for such claims can be identified in Sunday Deposit A/C. REHABILITATION SCHEMES: Examine in detail the outcome of the rehabilitation programme applied to the sick units for suggestion if any. The present portion of this Scheme also should be ascertained for report in LFAR IN-OPERATIVE ACCOUNTS: Debit entries in the in operative deposit ledgers should be examined to se that the payments represented by these debits are properly and correctly made. List out doubtful cases.
17
Documentation
ADVANCES: Verify documents and securities for advances granted during the year. 1) See that documents mentioned in the sanction letter are obtained duly signed by the borrowers, guarantors or as the case may be. 2) Securities as stipulated are obtained along with the related documents. For Example: a) Time deposit receipts given as primary and collateral securities are discharged by all the holders of all the receipts. b) Pledge letters are signed by the holders of the time deposit receipts. c) Machinerys hypothecated are listed out for identification both for the hypothecation agreement and for periodical inspection. d) For vehicles, certificate of registration copies should be verified to ensure that the vehicles are in the names of the borrowers and hypothecation remark is recorded in R.C. book. Blank transferee form duly signed by the borrowers also should be on record of the bank. e) For premises, mortgage deeds registered with the sub registered should be verified. In the absence of the mortgage deeds. Deposit of title deeds are stipulated, in this cases it should be verified whether
search report exists to show clear title of the borrowers to the premises, the title deeds are registered and their deposit is recorded in the prescribed manner also power of attorney duly noted by the notary public is obtained with reference to the title deeds. In case of co-operative societies it should be verified that the consent of the society for mortgaging the premises is obtained and the relative share certificate of the society issued in the name of the borrower are deposited in the bank. f) For shares, Debentures etc, the valuation at market rate on the close of accounts are worked out to ensure that the security value less prescribed margin is adequate. g) Returns of the hypothecated stocks/book debts are regularly reviewed as per Drawing Power Registered and the drawing power revised accordingly to regulate the quantum of advance. h) Insurance policies for all types of securities mentioned above are kept current and the bank's name appears in the policies as a beneficiary. 3) In respect of advances sanctioned for term loans, it should be ensured that the advance is utilised for the purpose for which it is guaranteed. This is done by arranging direct payments by the bank to
the suppliers or by obtaining from the borrowers the invoices receipts to show the Utilisation of advance. 4) For clean advances the sanction to be verified for terms and their time bound recovery. 5) In respect of advances picked up from the listing of health code nos. 5 to 8 the documents should be verified to ensure their validity and their securities should be verified for soundness and value. Thereafter correspondence relating to follow up should be pre used to find out the reasons for the slow/ bad recoveries. Listing should be made up of all such cases where recoveries are not forthcoming for long periods. The detail in this listing should indicate the amount outstanding. Overdue amount interest outstanding date of last recovery reasons for slow/bad recoveries value of security and outstanding balance not recovered by the security value. 6) List of suit filed cases with value should be obtained to see that the amounts for which suits are filed are not less than those appearing in the accounts. 7) Each case where decree has been obtained should be examined to find out whether execution of decree by attachment of the properties will fetch the
full outstanding value including interest. Doubtful recoveries should be listed. BILLS DISCOUNTED/PURCHASED 1) For purchase of sight documentary bills and cheques. See that discount and commission at the prescribed rate are recovered at the time of purchase in case where the amount is collected beyond seven days, overdue interest is recoverable which should be test checked for correction. 2) For usance bills discounted for correction of interest due and commission etc. 3) Where such cheques, bills are returned unpaid. Interest should be recovered from the date of discount / purchase to the date receipts of money from the borrower .In addition, cheques / bills of the related parties should not be accepted in future. 4) Examine that the value outstanding in this account does not exceed the sanctioned limits. 5) Bill wise listing of outstanding balance should be reviewed to identify any dues doubtful of recovery LETTERS OF CREDIT: 1) See that L/C is opened only for approved customer and in favour of overseas Manufacturing / suppliers/ shippers. 2) Verify that the customer holds valid
importer code and has a valid exchange control copy of import license or the item to be imported is covered under OGL (Open General License) 3) See that the payment for import is made only by permitted methods of payments as per exchange control manual 4) See that the payment is to be made only against delivery of shipping documents. The terms and conditions are properly reproduced on letter of credit and the method is correctly indicated. 5) See that the aggregate drawing under revolving letters of credit opened by the bank are limited to the balance available in the import license. IMPORT BILLS / IMPORT LOANS: 1. That import documents receive from the correspondent are scrutinised to see that they are strictly in conformity with the terms of the credit: 2. That where marine insurance risk has been covered by the import, the policy is kept in force till the bill is retired; 3. That the usance bills are presented to the drawees for acceptance without delay and that such acceptance does not result in postponing the payment beyond a period of 6 months from the date of shipment or such period as the Exchange Control has authorized.
4. That in the case of import bills received under letters of credit, the importers liability on the foreign currency bill is crystallized into rupee liability as laid down in FEDAI guidelines; 5. That the debit to the Nostro Account by the correspondent is duly responded by credit to mirror account and the contra debit is to the appropriate account ; 6. That interest is collected in accordance with FEDAI Rules from the date of debit to the Nostro Account 7. That the letter of credit liability is reversed on retirement of bill PRE-SHIPMENT FINANCE: 1) That packing credit facility is allowed against lodgment of irrevocable letters of credit or firm export orders/ sale contracts duly signed by the buyers / sellers or their authorised representatives and where cable advice are accepted the exporters are required to produce letters of credit or firm orders/ contracts in confirmation of such cables within a reasonable time (the production of letters of credit or firm orders / contracts may be waived in the case of certain commodities as permitted by the Reserve Bank). 2) That in the case of packing credits granted on the basis of letters of credit,
the branch ascertains the status of the concerned foreign banks and where firm contracts / orders are accepted status reports on the foreign buyers are procured from overseas banks/ correspondents the Export Credit Guarantee Corporation of India Ltd. (ECGC) etc. 3) That the quantum of packing credit granted does not normally exceed the F.O.B. value of the goods to be exported or their domestic value, whichever is less, except in cases where relaxed 4) That disbursements of packing credit are linked to actual purchases of raw materials or goods, that the amount is paid direct to the suppliers, where possible, and that the stipulated margin is maintained. 5) That advances are granted in the form of loans (except in cases where running accounts have been specifically permitted by the Reserve Bank) and adjusted by negotiation of the relative export bills, claims on Government Departments for cash assistance, duty draw-back, etc. and that limits for purchasing / discounting exports bills are already sanctioned to the exporters. 6) That no charges other that those approved by FEDAI are debited to the
packing credit account. 7) That the branch has a system of periodical inspection of the security with a view to ensuring that bank finance at concessional rates is not diverted to other purposes or otherwise misused. 8) That where the export does not Materialize for whatsoever reason the advance is taken out of the category of packing credits and is charged normal rate of interest as also penal rate not exceeding 2% over the rate, form the date of the advance. 9) That separates accounts in respect of each borrower and appropriate records including contract-wise and customerwise packing credit loan ledgers are maintained at the branch. POST SHIPMENT FINANCE: 1) That where export bills presented are drawn under letters of credit, the credit has been opened by a first class bank 2) That where bills are not drawn under letter of credit they are covered by the credit insurance / guarantee policies of ECGC and are purchased or discounted under limits sanctioned by the Head Office unless the bill come under the discretionary power of the Branch Manager. 3) That the export documents are submitted
to the bank for negotiation / collection with the stipulated period of 21 days from the date of the shipment. 4) That the usance bill are being properly stamped before leaving India and are for periods permissible under FEDAI Rules and Exchange Control Regulations. 5) That there is a proper procedure to ensure that all the export document are in order i.e. bill or lading / airways bill does not suffer from any disability, GR/PP etc. form has been fully and properly completed documents do not reveal any material interest discrepancies etc. 6) That in respect of bill remaining unpaid after due date the foreign currency amount is reversed from the exports bills purchased portfolio as provided in FEDAI guidelines. 7) That the interest charged on export bills purchased / discounted does not exceed the rate stipulated by the Reserve Bank. 8) That various formalities prescribed under the exchange control Regulations such as submission of copies of GR/PP etc. forms appropriate stage obtaining its permission where realization of Registers in the manner laid down in the exchange control Manual submission of periodical statements to the Reserve Bank (ECD) in the prescribed forms showing overdue
export bills, etc. are duly observed. GUARANTEES 1. Verify the Guarantee bond as executed by the guarantor on the requisite stamp paper when documents are renewed fresh guarantee bond should be executed 2. The authority should relive the guarantor from his responsibility and release guarantee papers only on revocation of the guarantee. 3. Are there any cases where bank has been called upon to make payment under the guarantees issued by it on behalf of its constituents? If so, please give details of all these cases both where actual it has already been made by the bank or where it has not been made so far for any reason (Name of the party on whose behalf guarantee is given, name of beneficiary, nature of guarantee amount claimed from bank reason for the claim particulars of security if any possibility of the bank having to meet the obligation provision necessary in your option in regard to the same (if any) etc. 4. Examine the guarantee register and obtain a certificate from the Branch Manager as to the persons authorised to sign guarantees on behalf of the Bank and that all guarantees issued have been
entered in the guarantee register. 5. Call for the statement of margins recovered for guarantees and checks the guarantees issued / released during the year for correctness of commission recovered. The rates of commission are different for full margin and partial margin. 6. Also test check counter guarantees obtained for guarantees issued with partial margin. 7. In the case of guarantees issued to Govt. departments see that on expiry the guarantee documents are obtained back by the bank peruse the files for follow guarantees are not kept open / extended without recovery of commission. 8. Examine thoroughly cases where payments had to be made by the Bank on guarantees and such payments remise to be recovered from the party. Verify Advances granted / disbursed during the year on the following lines: Examine the loan application on appropriate form prescribed by the central office. Examine the Approved proposal, terms and conditions of Sanction. Margin requirements, Security stipulated and note the deviation. Verify Credit committee / H.O approval Email:vijaymgarg@yahoo.com 61 Mob.093145-03871, 094140-41872
note. See that the Advance granted / enhanced are within power delegated to the Branch/ Bank. Note the exceptions. Verity the value of Securities held by the Bank. See that the constitution of borrower is not changed. Ensure that the documents required by the Bank are properly executed by the party. Document to be seen are of the following nature: For different categories of Advance / Loan / Cash Credits and Overdrafts, different combination of loan documents is prescribed. Documents may depending on the borrower e. g. Individual, H. U. F. Partnership, company etc a) Demand Promissory Note executed by the borrower. b) Letter of Continuity. c) Particulars of Securities provided. d) Instructions regarding payment / Re-payments. e) Letter of hypothecation. f) Letter of Waiver. Certification of ROC charges u/s 125 of the Companies Act, registering charges in Banks favour. g) Letter of lien. h) Copy of Memorandum of Association & Email:vijaymgarg@yahoo.com 62 Mob.093145-03871, 094140-41872
Articles of A association i) Resolution of Board of Direction in case of limited company. (This is not an exhaustive list and the Audit staff should also check the other relevant documents as required for granting advances by the bank.) Other General Aspects to be seen is as under: a) See that Bank has Complied with C.O procedure regarding preparation of proposal for grant / renewal etc. See if the limit is exceeded, the same has been reported to higher authority. b) See whether interest is charged and collection regularly for all performing Accounts. For NPA's the income should be booked only on receipt basis. c) See that validity of documents is not barred by time. (Generally three years is the time barring period. The period may be reckoned from the date of latest balance confirmation available) d) See that the balance is within both the sanction limit and drawing power at all times. Otherwise, the account will be treated overdraft. If overdraft position remains continuously for any two quarters, such account will be treated as NPA. e) Test check in some cases that details
mentioned in the Security Ledger is noted down on the Advance sheets. Also see that all documents / securities mentioned in Register are physically available. f) See whether bank is conducting physical Verification Security How often the security value is re-assessed by the bank. See that M.V of Security is property arrived by the Bank. g) All the accounts which exceed the sanctioned limit or drawing power or are against unapproved securities or the insurance cover is inadequate or are otherwise irregular should be noted and reported. h) See that periodic statements are in line with RBI/H.O requirements. i) See that the Stock / Book debts, MSOD statements etc. are obtained by the branch periodically .The Limits of the borrower has to be revised based on the figures submitted in above periodic statement. j) In case of Advance/limits of Rs are 10/Lacs and above is granted to noncorporate entities, See that RBI guidelines regarding compulsory audit is complied with. k) Verify the calculation of DICGC / ECGC claim lodged by the bank.
Special points on verification of Bills purchased and discounted. 1) Verify all documents of title which are assigned to Bank 2) Verify the percentage of margin kept by the bank. The margin kept by the bank should be predetermined and should not be changed from borrower to borrower. 3) See that immediate steps are taken to recover the amounts if Bank could not collect the bills on due dates. 4) See that the discount received on bill purchased is amortised over the period of bill 5) All irregular accounts should be reported. 6) Where the bills are accompanied with, the documents and the same are to be parted with; the bills to be considered a clean bill. These types of bills are shown as unsecured (When bills are accompanied with documents of title, they are called documentary bills. 7) The Bills purchased and discounted being part of advances; it should be classified along with schedule of advances. BILLS FOR COLLECTION: 1. See that documents accompanying bills should be received and are duly entered in the register. 2. The parties account should be credited
only after proper collection of bills or an advice to that effect is received from the branch. 3. In case where bill is sent for collection by one branch to another branch, at the time of consolidation, see that the receiving branch reverse the entry regarding such inter branch bills. Verify the Balance of the final statement of Bills discounted with relevant ledgers and Balance Books. Count the Bills on the date of visit. Verify the clearance of the bills outstanding on 31st March but cleared in the current year before the date of the audit by checking the Register. See whether Bills are cleared on due dates. If Bills are dishonoured frequently by any party the reasons should be investigated. Revise carefully all overdue Bills and get explanations from the officers in charge for such overdue Bills. Consider whether any Bills are doubtful of recovery. If so, see that they are classified property and provision is made accordingly. 18 NonPerforming Advances CLASSIFICATION OF ASSETS (See table below) The assets are classified in the following
broad groups: 1) Standard Assets 2) Sub-Standard Assets 3) Doubtful Assets 4) Loss Assets I) Standard Assets: Standard asset is one which does not disclose any problems and does not carry more than normal risk attached to the business. II) Sub-Standard Assets: Sub-Standard asset is one with has been classified as NPA for a period upto twelve months. In other words, such an asset has well defined credit weaknesses that jeopardise the liquidation of a debt and is characterised by the distinct possibility that the bank will sustain some loss if deficiencies III) Doubtful Assets: A doubtful asset is one which has remained NPA for a period exceeding twelve months. IV) Loss Assets: A loss asset is one where loss has been identified by the bank on internal or external audit or the Reserve Bank of India inspection but the amount has been written off, wholly or party. In other words, such an asset is considered uncollectible.
Income Recognition For NPA accounts income should be recognised on realisation basis. When an account becomes non-performing, unrealised interest of the previous period should be reversed or provided. 19 Restructuring of accounts Restructuring divided in following four categories; I. Industrial Units. II. Industrial Units under CDR Mechanism III. SMEs IV. All other advances. Check that account is restructured as per RBI circulars and Head office guidelines. Ensure that reschedule of payments, recovery etc. 20 Inter branch reconciliation 21 Contingent liabilities 22 Currency test Age wise Analysis the long pending entries and actions taken by the branch.
Proper accounting of Currency Chest transactions, its prompt reporting to the RBI.
23
Provisions
Provision for Expenses. Provision for Taxation. Provision for Audit fees
24
Housing Keeping:
Check that the maintenance and balancing of accounts ledgers and registers including clean cash is proper.
Check reconciliation of entries outstanding in the inter branch suspense account (IBSA) and inter bank accounts, Suspense account Sundry Creditors Account, DPWA account, Payment made on account of other branches (POAB) account etc. Ensure early adjustment of large value entries.
Carry out a percentage check of calculations of interest, discount, commission and exchange.
Check whether debits in income account have been permitted by the competent authorities.
Check the transactions of staff accounts.In case of difference in clearing there is a tendency to book it in an intermediary suspense account (DNR A/C) instead of locating the difference. Examine the day book to verify as to how the differences in clearing have been adjusted. Such instances should be reported to Head Office in case the difference persists.
Detection and prevention of revenue leakages through close examination of Email:vijaymgarg@yahoo.com 69 Mob.093145-03871, 094140-41872
income and expenditure heads. 5 Check cheques returned/bills returned register and look into reasons for return of those instruments. 25 KYC and Anti-Money Laundering Checking of inward and outward remittances (DDs,MTs and TTs). To check that all relevant circulars of RBI/HO/IBA and other statutes such as PMLA-2002 etc. are available at Branch and Front-staff is aware of them. To check whether list of bodies registered under FCRA-1976 to accept foreign contributions is available at Branch. To check whether a Certificate of Registration with GOI is obtained from such organisation to accept foreign contribution. To check if signatures are obtained on reverse of photographs for proper identity verification. Preferably,RBI suggested specific photo-identities are accepted. To check that photographs are strictly not returned while closing the account. To check whether a register of all cash transactions of Rs. 10 lakh & above is maintained and is reported to Controlling offices on fortnightly basis To check that cheques/instruments of high value for collection in newly Email:vijaymgarg@yahoo.com 70 Mob.093145-03871, 094140-41872
opened accounts are monitored adequately. To check that money transfers of Rs. 50,000 and above (single transaction or in aggregate in a day for a customer) are not done in cash and against cheques only. 26 Loans to staff members Whether sanction from competent authority is invariably held on record before disbursing any loan to staff members? Whether loan in any case has been disbursed from sundry debtors account pending receipt of sanction? Whether all the stipulations of the sanction regarding margin, rate of interest amount of instalments, direct payment to dealer etc. are complied with? Whether end use is ensured and all the requisite documents/papers viz. invoice/receipt/insurance/copy of Registration Certificate etc. are obtained and kept on bank record. Whether in case of housing loan to staff, equitable mortgage has been properly created, loan is disbursed in stages and the bills showing the cost incurred are held on record? Whether the property is got insured against various risks stipulated in the Email:vijaymgarg@yahoo.com 71 Mob.093145-03871, 094140-41872
sanction/HO instructions? Whether the instalments in all staff loan accounts are invariably deducted from salary in terms of H.O. 27 Assignment Review Review by Partner Analytical Review Preparation of Draft Report Discussion with Management Issue of Final Report
Sign. Partner: Audit assistant:
NPA Classification & Provisions Non-EMI Loans & Advances
Agricultural Advances
Non-agricultural Advances
Cash Credit & Overdrafts
Long Term Crop Loans
Direct Agricultural Advances & Short Term Crop Loans Interest or Instalment remaining overdue for more than two crop season
Interest or Instalment remaining overdue for more than one crop season
Interest remaining Overdue for 90 days or more Instalment remaining overdue for 90 days or more If Bills discounted remains overdue for more than 90 days.
Exception Other Agricultural Advances for allied activities such as Animal Husbandry are not covered under this exemption. Agricultural advances affected by natural calamities, wherein repaying capacity of the borrower is impaired and where relief measures such as re schedulement of repayment period or sanction of fresh short term loan is granted, such loans may be treated as current dues and need not be classified as NPA.
Account remaining overdrawn continuously for 90 days or more at any time during the year. If there are no credits or credits are insufficient to cover the interest debited during that 90 days during the year when the acc remained overdrawn. Stock statements are not received for 90 days or more and\or not arriving at the DP continuously for a period of 3 months (as at 31stMarch) will make the acc out of order and consequently NPA. If any Borrower Acc is not renewed\reviewed for a period of more than 90\180 days (as at 31st March).
Common exceptions for assets classified as NPA Loans and Advances given Exclusively against Banks own deposits, NSC eligible for surrender, IVPs, KVPs, Life Insurance Policies, etc. shall not be classified as NPA, provided the stipulated margin is maintained and the security is marked as lien. If any account of the borrower is classified as NPA during the year, all other advances given to him shall be classified as NPA. Provisions for NPA RBI 2010-11/529 DBOD.No.BP.BC. 94/21.04.048/2011-12 dated May 18, 2011 Standard Assets Does not carry any risk Non Performing Asset Sub Standard A Fully Secured Asset remaining NPA for less than or equal to 12 months. Doubtful Partly Secured NPAs; Asset remaining NPA for more than 12 months or it has remained in Sub-standard category for a period of 12 months. Loss Assets Advances having no security; or If the Balance Amount O/s is less than Rs.25000/-; or If the realizable value of security is less than 10% of Balance O/s.
Provisions 15 % of For Secured Portion: 100% of the Balance O/S balance Asset Outstanding remaining The unsecured doubtful for 1 exposures year or less- 25% classified as sub Asset standard assets remaining will attract an doubtful for more additional than 1 year up to provision of 10% 3 years- 40% Asset remaining doubtful for more than 3 years100% Unsecured Portion- 100 Email:vijaymgarg@yahoo.com 74 Mob.093145-03871, 094140-41872
% ANNEXURE-I ADVANCES 1. Verify that loans and advances have been sanctioned as per standing guidelines of the bank. (i.e. after due scrutiny and at the appropriate level) 2. Verify that Branch has taken appropriate steps to see the credit worthiness of borrower. CRISIL report, reference from other banks etc 3. Verify whether the sanctions are in accordance with delegated authority. 4. In case of large borrower verify the pre-release audit report.. 5. Verify that securities and documents have been received and properly charged/ registered as per sanction letter and banks guidelines 6. Verify that post disbursement supervision and follow up is proper such as receipt of stock statements, instalments, renewal of limits etc. 7. Check the inspection report of borrower on inspection done by the branch official at regular intervals. 8. In case of large borrower, stock audit report shall be verified to check any major discrepancy. 9. Verify whether there is any misutilisation of the loans and whether there are instances indicative of diversion of funds. Funds shall be used for the purpose for which it is sanctioned and as per undertaking from borrower. 10. Verify that valuation report is taken every 3 years in case of immovable properties given as security. 11. In case of CC account check that drawing power is calculated based on stock/book debts statements submitted by the borrower every month. 12. Check assets offered as security are properly insured and bank clause is Email:vijaymgarg@yahoo.com 75 Mob.093145-03871, 094140-41872
there in insurance policy. 13. Ensure that bank has charged penal interest for non-submission or delay in submission of stock/book debts statements. 14. Check whether the letters of credit issued by the branch are within the delegated power and ensure that they are for genuine trade transactions. 15. Check the bank guarantees issued, whether they have been properly worded and recorded in the register of the bank and that whether they have been promptly renewed on the due dates. 16. Verify proper follow up of overdue bills of exchange. 17. Verify whether the submission of claims to DICGC and ECGC is in time. 18. Verify that instances of exceeding discretionary powers have been promptly reported to controlling/Head Office by the branch and have been got confirmed or ratified at the required level. 19. Verify the frequency and genuiness of such exercise of authority beyond the discretionary powers by the concerned officials. 20. Verify the CREDIT RATING done by the branch & ensure interest rates charged are as per the Credit Rating allotted to the account. In case of large borrower external credit rating must be obtained every year. 21. Check that accounts are renewed on or before due date and renewal is done based on latest financial position of the borrower.
Audit of Foreign Exchange Transactions Audit Considerations Auditor has to comment whether transactions noticed by him are within the powers of the bank Each Fx transaction has to be audited considering: RBI / FEMA / FEDAI / ECGC / Banks Internal Guidelines Major Ares Sr No 1 2 Check foreign bills negotiated under letters of credit. Check FCNR and the other non resident accounts whether the debits and credits are permissible under the rules. 3 Check whether inward/outward remittances have been properly accounted for. 4 Examine extension and cancellation of forward contracts for purchase and sale of foreign currency. Ensure that they are duly authorized and necessary charges have been recovered. 5 Check that balances in Nostro accounts in different foreign currencies are within the limits as Area Checked by Observations
prescribed by Head office. 6 Check that the overbought/oversold position maintained in different currencies is reasonable taking into account the foreign exchange operations. 7 Check adherence to the guidelines issued by RBI/Ho about dealing room operations. 8 Check verification/reconciliation of Nostro and Vostro account transactions/balances. 9 100% checking of Form A1 & A2 & also of the documents evidencing export Certificate. Inter Bank Settlements The auditor shall see that the following is complied with: A. Branch should ensure smooth settlement of their inter-bank transactions. The buyer-bank shall arrange payment of the Rupee equivalent on the settlement day (i.e. date of delivery) and the seller-bank shall lay down foreign currency funds simultaneously on the same day. Rupee payment shall be arranged by delivery of cheques drawn on the Reserve Bank of India unless otherwise specifically agreed to between the banks in advance. Seller-bank shall arrange delivery of the foreign currency funds at the contracted foreign centre by telex, cable or other expeditious means of communication without any additional cost to the buyer-bank and the buyer- bank shall advise their Head Offices / Branches / Correspondents to receive the concerned amount on their account Email:vijaymgarg@yahoo.com 78 Mob.093145-03871, 094140-41872
on the contracted dates. In their own interest banks shall mention in their telexes or cables the "Value-dates" for receipt / delivery of the foreign currency funds in terms of their TT Sale / Purchase contracts. B. In case the seller-bank is unable to substantiate to the buyer-bank that it had intended to effect proper delivery on the settlement day, thereby amounting to deliberate non-delivery of funds, the sellerbank shall pay to the buyer-bank a penalty as decided finally by the Managing Committee of the FEDAI or any other Sub-Committee specially appointed for the purpose by the Managing Committee. The penalty as stated above shall be in addition to the inter-bank claim of the buyer-bank. C. In case claims are not settled within 2 months from the date of lodgment of claim, the matter shall be referred to the FEDAI for a final decision which shall be binding upon the banks concerned. D. Use of incorrectly paid funds In line with the international custom, a bank which has received foreign currency funds, not intended for its accounts, shall be liable to compensate the bank which has been out of funds by either: i. ii. Returning the funds with proper value OR Paying interest at the overdraft rate to the bank out of funds.
E. In case the, seller-bank delivers foreign currency funds to the Nostro account other than the notified account of the buyer-bank, that bank shall on request in writing, from the seller-bank accept adjustment of funds between the accounts subject to levy of interest and miscellaneous expenses, if any.
F. In case the seller-bank delivers foreign currency funds to a correspondent bank for account of a branch of the bank other than the one intended, the buyer-bank shall adjust the foreign currency funds, subject to recovery of any miscellaneous expenses. The seller-bank shall not be liable for, interest after the date of delivery of funds. Internal Controls The major internal controls in relation to such transactions are: 1. Counter party confirmation should be properly obtained. 2. Recording the deals at an appropriate time. 3. Segregation of duties has been done appropriately 4. The directives by RBI are followed and complied with effectively 5. Proper system of hedging against possible exchange losses is done where possible. 6. There are periodic reconciliations of NOSTRO Accounts. 7. The transactions between the branch designated as authorized dealer and other branches should be periodically done.
Audit Procedures 1. The various aspects of respective transactions similar to those in Indian rupees should be complied with. 2. Instructions given in Circulars of RBI to be complied with 3. Compliance of AS-11 to be seen 4. Relevant Inter Branch transactions have been complied with 5. Any Profit/Loss arising from foreign exchange transactions have been accounted for correctly. 6. Export Guarantees have been verified. 7. Reconciliation of NOSTRO Accounts have been done 8. Old unreconciled entries have been provided for 9. VOSTRO Accounts have been maintained properly Email:vijaymgarg@yahoo.com 80 Mob.093145-03871, 094140-41872
10. Accounts of Foreign Customers and NRIs are dealt with properly 11. Exchange rates applied are up to date. Sl. No I 1. 2. 3. 4. FCNR ACCOUNTS Details of deposits tallying with Branches System of reporting Applicability of notional rate Revaluation is done every reporting Friday for CRR purposes 5. 6. 7. 8. 9. Is it debited to proper head of account Calculation of Interest test checked Payment authorization made by valid Authority Liabilities reversed on payment Method of reconciliation of Nostro Account with FCNR 10. II Revaluations has not to be taken to P&L A/c RESIDENT FOREIGN CURRENCY ACCOUNTS 1. 2. 3. III 1. 2. Track record of exporters Permission of RBI Opening of Accounts of SEZ in compliance EEFC ACCOUNTS No credit facilities against the security of balances 100% of Inward remittance for Status Holder Exports. Aspects to be seen Checked by Remarks
Sl. No IV
Aspects to be seen
Checked by
Remarks
FOREIGN CURRENCY LOANS AND EXPORT CREDIT IN FOREIGN CURRENCY
1.
Whether the bank has formulated an accounting policy for the same
2. 3.
Whether the branch follows the same. Whether the assets are booked at A category branch of B category Branch
4.
Whether the Branch collected the Interest properly by duly applying the BC selling rate for the Interest (or) is recovered from foreign currency sources of borrower.
5.
Rupee to be converted to foreign currency by suitable rate.
6.
Overdue loans- overdue interest at 2% more than the normal rate.
7. 8. 9.
Crystallization into rupee liability Conversion at TT selling rate to market liability The export borrower availing pre shipment credit in foreign currency has to avail post shipment credit also in foreign currency.
10.
Foreign currency loans granted to domestic borrowers, accounting entries are similar
11.
Re- statement of foreign assets, risk weightage provisioning norms etc.
12. 13.
Name of such accounts and type of arrangement Funding of these accounts- bonafide transactionsfreely convertible balances Email:vijaymgarg@yahoo.com 82 Mob.093145-03871, 094140-41872
Sl. No 14. 15.
Aspects to be seen System of monitoring overseas banks Forward purchase/sale of foreign currencies against rupee for funding is prohibited
Checked by
Remarks
16.
Temporary overdrawals to overseas branch/ correspondent not to exceed specified limit
17.
Statement to be sent to forex market division of RBI
V 1. 2.
NON RESIDENT BANK ACCOUNTS Name of such accounts and type of funding System of monitoring overseas bank not to take a speculative view on Rupees
3.
Forward purchase/ sale of foreign currencies against rupee for funding is prohibited , compliance
4. 5. 6. 7.
Temporary over drawls Purpose Period Statement to be sent to Forex Market division of RBI
VI 1.
INTERNAL CONTROLS Counter party confirmation should be properly obtained.
2. 3. 4.
Recording the deals at an appropriate time. Segregation of duties has been done appropriately The directives by RBI are followed and complied with effectively
5.
Proper system of hedging against possible exchange Email:vijaymgarg@yahoo.com 83 Mob.093145-03871, 094140-41872
Sl. No
Aspects to be seen losses is done where possible.
Checked by
Remarks
6.
There are periodic reconciliations of NOSTRO Accounts.
7.
The transactions between the branch designated as authorized dealer and other branches should be periodically done.
8.
Counter party confirmation should be properly obtained.
9. VII 1.
Recording the deals at an appropriate time. GUARANTEES AGAINST EXPORTS Caution List exporters- RBIs prior approval obtained
2. 3. 4.
Type of Guarantee Legal/ credit departments approval Counter Guarantees on performance, advances payment whether obtained a premium remitted to them properly
5. 6. 7. 8. 9. 10 VIII
Collection of commission Accounting of commission Accounting entries at BC selling rates FEMA compliance Risk Weight Assessment Capital Adequacy RECONCILIATION OF NOSTRO ACCOUNTS
Sl. No IX 1. 2. 3. 4. 5. 6. 7. 8. 9. X 1. 2. 3. 4. 5. 6. 7. 8. 9 10 11
Aspects to be seen
Checked by
Remarks
COUNTRY RISK Funded exposures Investments NOSTRO minor debit balances Overdraft in VOSTRO Accounts Remittances honoured drawing arrangements Loans and Advances Trade Credit and receivables Other Monetary assets Non Funded Exposures DEALS VERIFICATION Confirmation of deals from counter parties Rate Scan Settlement on due date Overdue Interest payments Consistency in recognizing payables and receivables Mistakes are corrected immediately Internal adherence to systems FEDAI rates compliance VERIFICATION OF DEALS REGISTER COMPUTATION OF EXCHANGE RATES BOOKING AND CANCELLA-TION FORWARD EXCHANGE CONTRACTS
12
EXCHANGE POSITIONS AND COVER OPERATIONS AND TRADING
Sl. No 13 14
Aspects to be seen
Checked by
Remarks
NOSTRO ACCOUNT MAINTENANCE RECONCILIATION OF NOSTRO ACCOUNTS BALANCES WITH MINOR ACCOUNTS MAINTAINED
15 16 17
VOSTRO ACCOUNTS MAINTENANCE RATE SCANNER MAINTENANCE MARKET LEVELS VIS A VIS FORWARD PREMIUMS
18
INTERNAL CONTROL GUIDELINES OF THE BANK AS PER FOREIGN EXCHANGE POLICY IS FOLLOWED
19
OBSERVATIONS OF CONCURRENT AUDIT REPORT NOTED AND ACCOUNTED FOR
20 21
RBI GUIDELINES FOLLOWED FOREIGN EXCHANGE DEPARTMENT INSTRUCTIONS AND RULES FOLLOWED
22
FEMA COMPLIANCE
IMPORTANT MASTER CIRCULARS ISSUED BY RESERVE BANK OF INDIA ON 1ST JULY 2011 1 2 3 4 5 6 7 8 9 10 11 12 13 Master Circular - Lending To Priority Sector Master Circular on Branch Authorisation Master Circular on Export Credit Refinance Facility Master Circular - Lending to Micro, Small & Medium Enterprises (MSME) Sector Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs) Frauds Classification and Reporting Master Circular Exposure Norms Master Circular on Credit Card Operations of banks Master Circular - Disclosure in Financial Statements - Notes to Accounts Master Circular on Wilful Defaulters Master Circular - Guidelines For Relief Measures By Banks In Areas Affected By Natural Calamities Master Circular - Guarantees and Co-acceptances Master Circular Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under PMLA, 2002 Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances Master Circular Prudential norms for classification, valuation and operation of investment portfolio by banks Master Circular - Prudential Norms on Capital Adequacy - Basel I Framework Master Circular - Prudential Guidelines on Capital Adequacy and Market Discipline- New Capital Adequacy Framework (NCAF) Master Circular on Rupee / Foreign Currency Export Credit & Customer Service To Exporters Master Circular- Loans and Advances Statutory and Other Restrictions Master Circular on Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts Master Circular - Interest Rates on Advances Email:vijaymgarg@yahoo.com 87 Mob.093145-03871, 094140-41872
14 15 16 17 18 19 20
21
22 23 24 25 26
Master Circular on Housing Finance Master Circular of instructions relating to deposits held in FCNR(B) Accounts Master Circular - Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) Master Circular Detection and Impounding of Counterfeit Notes Master Circular Levy of Penal Interest for Delayed Reporting/Wrong Reporting/Non-Reporting of Currency Chest Transactions and Inclusion of Ineligible Amounts in Currency Chest Balances Master Circular Facility for Exchange of Notes and Coins Master Circular on Risk Management and Inter-Bank Dealings Master Circular on Memorandum of Instructions governing money changing activities Master Circular on Compounding of Contraventions under FEMA, 1999 Master Circular on External Commercial Borrowings and Trade Credits Master Circular on Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad Master Circular on Foreign Investment in India Master Circular on Money Transfer Service Scheme Master Circular on Memorandum of Instructions governing money changing activities Master Circular on Risk Management and Inter-Bank Dealings Master Circular on Export of Goods and Services Master Circular on External Commercial Borrowings and Trade Credits Master Circular on Compounding of Contraventions under FEMA, 1999 Master Circular on Import of Goods and Services Master Circular on Non-Resident Ordinary Rupee (NRO) Account Master Circular on Memorandum of Instructions for Opening and Maintenance of Rupee/ Foreign Currency Vostro Accounts of Nonresident Exchange Houses Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non- Indian Origin Master Circular on Establishment of Liaison / Branch / Project Offices in India by Foreign Entities Master Circular on Remittance Facilities for Non-Resident Indians / Persons of Indian Origin / Foreign Nationals Email:vijaymgarg@yahoo.com 88 Mob.093145-03871, 094140-41872
27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42
43 44 45
46 47 48 49 50 51
Master Circular on Miscellaneous Remittances from India Facilities for Residents Master Circular- Priority Sector Lending - Credit Facilities to Minority Communities Master Circular on Self Employment Scheme for Rehabilitation of Manual Scavengers Master Circular on Priority Sector Lending - Special Programmes SGSY Master Circular - Priority Sector Lending - Credit facilities to SCs and STs Master Circular - Priority Sector Lending - Special Programmes - SJSRY

Bank Audit

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CA VIJAY KUMAR GARG Chartered Accountants

STATUTORY BANK BRANCH AUDIT

Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

Co ordination with the Branch Management

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

Verify whether cash held by the Branch is adequately insured.

Stationery & Stamps

Physically verify stationery and stamps as on March 31, 2012.

Email:vijaymgarg@yahoo.com Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 10 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

For XYZ & Associates Chartered Accountants FRN:

Email:vijaymgarg@yahoo.com 13 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

Draft Letter of Requirements to be sent to the Branch

Date: The Branch Manager _____________ Bank _____________ Branch Mumbai

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CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 18 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 19 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

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CA VIJAY KUMAR GARG Chartered Accountants

Yours truly, For XYZ & Associates Chartered Accountants FRN:

Draft of Written Representation Letter to be obtained from the Branch Management

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CA VIJAY KUMAR GARG Chartered Accountants

CA VIJAY KUMAR GARG Chartered Accountants

and all other contingent liabilities

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CA VIJAY KUMAR GARG Chartered Accountants

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CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 27 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 28 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 29 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 30 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 31 Mob.093145-03871, 094140-41872

CA VIJAY KUMAR GARG Chartered Accountants

Email:vijaymgarg@yahoo.com 32 Mob.093145-03871, 094140-41872

Date: The Branch Manager _ Bank _ Branch Mumbai