bank branch audit - madurai...

Bank Branch Audit

An Integrated Work Paper Model

Updated : 2017

Prepared by CA Sripriya Kumar

A Smart CA Initiative

Views expressed are those of the author. This is an indicative template. Users are advised to exercise discretion in the use of this model work paper template

Bank Branch Audit Working Paper Manual

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This entire document may be printed at the end of the audit and working papers be organised and

cross referenced in the respective sections for user and reviewer convenience

BANK BRANCH AUDIT

INTEGRATED WORK PAPER FILE

Bank Name

Branch

Year 2016-17

Date of Commencement

Date of Completion

Partner In Charge

File reference

Number of Staff deployed

Advances Value

Address of the Branch

Name of the Manager

Phone Number

Circle Office Contact


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TABLE OF CONTENTS

1. APPOINTMENT......................................................................................................................................... 5

2. KEY REPORTS AND CERTIFICATES .................................................................................................... 5

3. AUDIT INSTRUCTIONS AND TEAM ...................................................................................................... 5

4. REPORT, RETURNS AND CERTIFICATES ............................................................................................ 6

5. FINAL NOTES FOR ATTENTION OF PARTNER................................................................................. 10

6. GUIDANCE DOCUMENTATION ........................................................................................................... 13

7. KEY RISKS............................................................................................................................................... 17

8. BRANCH OVERVIEW ............................................................................................................................ 18

9. PHYSICAL VERIFICATION................................................................................................................... 25

10. AUDIT STRATEGY ................................................................................................................................. 27

11. ADVANCES AND INCOME .................................................................................................................... 30

12. NPA REVIEW AND MOC ........................................................................................................................ 37

13. VERIFICATION OF DEPOSITS ............................................................................................................. 38

14. PROFIT AND LOSS ACCOUNT – ANALYTICAL REVIEW PROCEDURES ..................................... 39

15. INCOME RELATED PROCEDURES ..................................................................................................... 39

16. SPECIAL ASPECT OF DEMONETISATION ......................................................................................... 41

17. MAINTENANCE OF WORKING PAPERS ............................................................................................ 49

1. CERTIFICATION RELATED WORKING PAPERS.............................................................................. 49

2. TAX AUDIT WORKINGS ........................................................................................................................ 49

3. OTHER WORKING PAPERS ................................................................................................................. 49

4. REFERENCES ......................................................................................................................................... 49

5. LFAR CHECKLIST – OTHER THAN ADVANCES ............................................................................... 50


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Part A – Basics

Acceptance

Engagement Scope

Key Deliverables


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1. Appointment

a) Branch Assigned for Audit

We have been appointed as the Statutory Auditors of the ……………………… Branch of

……………………………………….. ……………………………… Bank for the year 2016-17

b) Audit Acceptance Letter

The audit acceptance letter has been provided to the CO and a copy is kept for our records. Related

documentation including Declaration of fidelity and secrecy, Declaration of full time practice and

Declaration of Indebtedness has also been attached to this section. Refer Appendix 1 for acceptance

letter

c) Engagement Letter

An engagement letter has been issued and kept in Appendix 2

d) Letter of communication with previous auditor

Communication to the previous auditor M/s ………………………….. has been sent on

………………………. Vide courier ref ……………………… dated ……………………… and

response has / has not been received. Further the previous auditor has / has not been contacted over

phone / e mail. Refer Appendix 3 for Communication sent and response received. Refer Appendix 3

2. Key Reports and Certificates

a) The following key reports / certificates are required to be issued by us

Branch Auditors report

Memorandum of Changes if any

Certified / Attested financial statements

Long Form Audit Report

Schedules and Certificates as per index attached in the next segment

Tax Audit report under Section 44AB of the Income tax Act

3. Audit Instructions and Team


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a) The Branch audit instructions as received from the Head / Circle office have been duly cognised

for in the preparation of this integrated work paper document

b) The audit was commenced on ……………. and completed on …………………. By the following

team

Name Designation Days From To

Partner

Qualified Paid Assistant

Audit Assistant

Articleship trainee

c) The details of Bank Staff from whom data / records / information and explanations were solicited

/ obtained for the purpose of this audit are as under

4. Report, Returns and Certificates

a) Auditors report

b) Long Form Auditors Report

c) Returns

d) Certificates

We are required to certify and complete the following individual reports / returns and certificates ( modify

as necessary based on banks standard instructions ). The number of copies of each submission,

applicability and / or completion status is also as under

S No Index No o

f co

pie

s

Com

ple

tio

n

Sta

tus

RETURNS

Designation Name Grade

Branch Manager

Loans Officer

Deposit Officer

Other Officers


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S No Index No

of

cop

ies

Co

mp

leti

on

Sta

tus

1 BS - 1 Liabilities

2 BS - 2 Assets

3 BS - 3 Expenditure for the half year ended 31-03-17

4 BS - 4 Income for the half year ended 31-03-17

5 Final A & L as on 31-03-17

6 Final P & L for the year 31-03-17

7

BS 7 – STATEMENT OF CLAIMS MADE AGAINST THE BANK NOT ACKNOWLEDGED AS DEBT

8 BS 8 – DETAILS OF RESTRUCTUTRED A/C (EXCLUDING CDR)

9

BS 9 – DETAILS OF COUNTRYWISE, RISK CATEGORY WISE EXPOSURE

B Supplementary to BS Schedules

10 SUPP. B – BREAK UP OF LCS, GUARANTEES, ETC.

11 SUPP. C – CLASSIFICATION OF ADVANCES

12 Supp D - Break iup of sundry receivables and sundry depsoits

13 SUPP. E1 & E2 – EXPOSURE TO SENSITIVE SECTOR

14 Supp F - information relating to DSB 1 and additional information

15 SUPP. G – CASH & BANK BALANCE FOR SELECT NON-FRIDAYS

16 Supp H - Residual maturity pattern of forex advances / deposits

17 SUPP. K - PARTICULARS OF EXPENDITURE AND INCOME RELATING TO PREVIOUS YEARS

18 SUPP. M – BREAK UP OF PAYMENTS TO AND PROVISIONS FOR EMPLOYEES

C LA General and LA Suit Filed as at 31-03-17

19 Loan Analysis Summary

20 Recoveries made in Select Borrowal accounts from 01-04-16 to 31-03-17

21 Control Sheet for NPA, Income Recognition, Movement of NPA and Interest reversal of NPA

22 BS - 3 Expenditure for the half year ended 30-09-16

23 BS - 4 Income for the half year ended 30-09-16

24 Supp M - 30-09-16

25 SFVM inventory statement


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S No Index No

of

cop

ies

Co

mp

leti

on

Sta

tus

CERTIFICATES

26 Branch Audit Report

27 Annexure A to E ( Memorandum of Changes )

28 Questionnaire in addition to Branch Audit report

29 Special Deposit Scheme 1975

30 Compulsory Deposit scheme 1974

31 PMRY scheme

32 Form of Certificate on sharing of recoveries in claim settled accounts under SLGS 1971/SLGS(SSI) 1981

33 Interest Subvention claim

34 Interest relief on Rupee Export credit

35 Compliance of Accounting Standard 11 as per Annual Closing Circular

36 Technology upgradation fund scheme

37 Capital subsidy scheme for processing machinery

38 Long Form Audit report

39 Tax audit report

40 SLR / CRR

41 Ghosh Committee Report

42 Jhilani Committee Report

43 Statement of Capital Adequacy

44 Statement of Risk Weight Assets

45 Certificate of passing previous year MOC

46

Certificate of Compliance with Income recognition, Asset Classsification and provisioning norms

47 Provision for sacrifice under NPV method for restructured advances

48 Provision held on upgraded restructured advances for two years

49 Sector wise, security wise and asset classification wise statement

50 Certificate of Lending to Sensitive Sector

51 Certificate of Cash Margin held


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Part B – Finalisation

Final Audit Notes

Scope Limitations

Representation Letter

Final Copies of Signed / Audited Documents


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5. Final Notes for Attention of Partner

a) Scope Limitations, if any

The following scope limitations have been appropriately dealt with in the Audit report of the branch /

LFAR and suitably highlighted as matters of emphasis .The Branch management has not been able to

furnish the following details / records / explanations in connection with the audit

The

follo

win

g

unit

visit

s

requested by us could not be undertaken due to the following reasons

b) Significant Audit Notes

The following matters have been observed during the audit. These matters have been classified as

Qualification in audit report

MoC Prepared

Discussion pending for attention of partner

Taken to LFAR

Ignored due to immateriality

Any other

Information requested

and not provided

Amount Impact on audit,

if any

Management Comments

Information requested and not

provided

Amount Impact on audit, if any Management Comments


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Matters for Consideration Impact Final

Resolution

c) Representation letter

Management Representation letter has been obtained and kept in Appendix 4

d) Schedules initialed for Identification Purposes

In case of any schedules not audited by us ( eg. Sep 30 A/L, P/L etc) these may be signed with a seal as

―Initialled for Identification purposes only‖


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Part C – Audit Planning

Guidance Documentation


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6. Guidance Documentation

a) RBI Master Circular

RBI issues master circulars every year on July 1 of the year. These circulars lay down the compliance

requirements on a ―refreshed‖ basis and supercedes earlier circulars. These are available on the RBI

website. The specific circulars for the components to be audited need to be reviewed . Check under the

segment called Notifications in rbi.org.in

b) Audit Guidance provided by the bank

All major banks provide a CD containing the Audit instructions which would include a description of the

key risks, components, lists of returns and certificates and the target dates. This data needs to be reviewed

before the commencement of the audit

c) Audit reports of the previous year

Signed copies of the financial statements and Audit reports of the previous year need to be obtained

d) Various Audits / review reports / inspections conducted by the bank / RBI

e) Guidance Note on Bank Audits

The ICAI has published a detailed guidance note on Bank Audits. Specific segments of this guidance note

may be referred for the components under audit. This is available on

The Auditing and Assurance Standards Board of the Institute of Chartered Accountants of India has

issued the Guidance Note on Audit of Banks 2017 edition. For the benefit of members, complete text of the

Guidance Note and the contents of accompanying CD can be downloaded at:

Please note that the soft copy of accompanying CD as uploaded on website contains only the list of Master

and other relevant Circulars of RBI. However, the CD that will come with the book will contain the

complete text of Master Circulars as well as other relevant Circulars.

To download ZIP file of text of Guidance Note and contents of accompanying CD, please click on the

below link:

f) Auditing Review and Other Standards

The work has been planned and performed in accordance with the following Auditing, Review and Other

Standards as prescribed by the Institute of Chartered Accountants of India to the extent applicable for the

engagement

SA reference Description

SA 200 OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH STANDARDS ON


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AUDITING.

SA210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS.

SA220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS.

SA230 AUDIT DOCUMENTATION.

SA240 THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS.

SA250 CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS.

SA260 COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE.

SA265 COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT.

SA299 RESPONSIBILITY OF JOINT AUDITORS.

SA300 PLANNING AN AUDIT OF FINANCIAL STATEMENTS.

SA315 IDENTIFYING AND ASSESSING THE RISK OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT.

SA320 MATERIALITY IN PLANNING AND PERFORMING AN AUDIT.

SA330 THE AUDITOR’S RESPONSES TO ASSESSED RISKS.

SA402 AUDIT CONSIDERATIONS RELATING TO AN ENTITY USING A SERVICE ORGANISATION.

SA450 EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT.

SA500 AUDIT EVIDENCE.

SA501 AUDIT EVIDENCE—SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS.

SA505 EXTERNAL CONFIRMATIONS.

SA510 INITIAL AUDIT ENGAGEMENTS—OPENING BALANCES.

SA520 ANALYTICAL PROCEDURES.

SA530 AUDIT SAMPLING.

SA540 AUDITING ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE ACCOUNTING ESTIMATES, AND RELATED DISCLOSURES.

SA550 RELATED PARTIES.

SA560 SUBSEQUENT EVENTS.

SA570 GOING CONCERN.

SA580 WRITTEN REPRESENTATIONS.

SA600 USING THE WORK OF ANOTHER AUDITOR.

SA610 USING THE WORK OF INTERNAL AUDITORS.

SA620 USING THE WORK OF AN AUDITOR’S EXPERT.

SA700 FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS.

SA705 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT.

SA706 EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR’S REPORT.

SA710 COMPARATIVE INFORMATION— CORRESPONDING FIGURES AND

COMPARATIVE FINANCIAL STATEMENTS.


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SA720 THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL

STATEMENTS.

SA800 SPECIAL CONSIDERATIONS—AUDITS OF FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH SPECIAL PURPOSE FRAMEWORKS.

SA805 SPECIAL CONSIDERATIONS—AUDITS OF SINGLE FINANCIAL STATEMENTS AND SPECIFIC ELEMENTS, ACCOUNTS OR ITEMS OF A

FINANCIAL STATEMENT.

SA810 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS.

SRE2400 ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS.

SRE2410 REVIEW OF INTERIM FINANCIAL INFORMATION PERFORMED BY THE INDEPENDENT AUDITOR OF THE ENTITY.

SAE3400 THE EXAMINATION OF PROSPECTIVE FINANCIAL INFORMATION.

SAE3402 ASSURANCE REPORTS ON CONTROLS AT A SERVICE ORGANISATION.

SRS4400 ENGAGEMENTS TO PERFORM AGREED-UPON PROCEDURES REGARDING FINANCIAL INFORMATION.

SRS4410 ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION.


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Part D – Branch and Risk Understanding

Internal Control Framework

Audit Risk and Focus Areas

Understanding of the Branch

7. Key Risks


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The key risks in Bank Branch Audits are as under . All our audit procedures should be directed at

minimizing these audit risks

Material Misstatement of income, expenses, Assets or Liabilities.

Unrecorded liabilities and contingent liabilities

Asset Classsification and NPA provisions not adequate for impaired assets

Asset Classification and Income Recognition especially for restructured assets

KYC / AML norm compliance related issues

Internal control failures over banking operations including potential / undetected frauds

Wrong certification

8. Branch Overview

a) Products dealt by the bank branch

Fund based Asset products

Fee based Asset Products

Asset


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b) Key data

c) Target Vs Accomplishment

d) Advances Overview - top 10 advance categories of the branch

Cash credit Bank Guarantees

Overdraft Letters of credit

Home loans Money transfers

Personal loans

Vehicle Loans

Jewel loans

Description 2016-17 2015-16

Rs . lakhs Rs . lakhs

Total Assets

Total liabilities

Total Advances

Total Deposits

Income

Expenditure

Profit / Loss

Description 2016-17 2015-16

Target

Rs . lakhs

Actual

Rs . Lakhs

Total Advances

Total Deposits

Rating of the Branch

S No Category of advances 2016-17 2016-17 2015-16 2015-16


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e) Large Advance Profiling

List of advances greater than Rs 2 Crores or individually accounting for 5% of the total advances

whichever is lower to be covered for detailed checking are as under

Rs . lakhs No of accts


1 Cash Credit

2 Overdraft

3 Term loans

4 Crop loans

5 Housing loans

6 Jewel loans

7 Personal loans

8..

10 Other advances

Total Advances

S No Account reference / name 2016-17 2016-17 2015-16 2015-16



1

2

3

4

5

6


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f) Customer wise advances

Based on our discussions with the branch manager, these advances belong to the same party and are

considered for checking on a collective basis as slippage in one account could result in NPA status for all

accounts

g) A

dvan

ce

profil

ing

by

value

S No Customer Name Facilities 2016-17

Rs . lakhs

1 1

2

3

2 1

2

3

3 1

2

3

S No Slab - Rs Lakhs outstanding 2016-17 2015-16


1 <Rs 1 lakh

2 Rs 1 – 5 lakhs

3 Rs 5 – 10 lakhs

4 Rs 10 - 50 lakhs

5 Rs 50 lakhs – Rs 1 Crore

6 Rs 1 to 2 Crores

7 Rs 2 to 5 Crores

8 Rs 5 to 10 Crores

9 >Rs 10 Crores


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h) Deposit profiling

i) Restructured advances

The following are the advances restructured by the branch and to be reviewed for compliance with

restructuring terms and conditions as per revised sanctions. Repeated restructured accounts will also be

reviewed

j) Interest rate and other charges on major advances ( specify range )

Advances Type Interest % Charges % Charges % Charges %

k) Interest rate on deposits

S No Category of deposit accounts 2016-17 2016-17 2015-16 2015-16



1

2

3

4

5

6 Others

Total Deposits

S No Account reference / Name During

2016-17

Upto

2015-16

2016-17

Rs . lakhs Rs. Lakhs Rs . lakhs

1

2

3

4

5


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Deposit type Days Interest %

l) Any frauds reported

Note on frauds reported at the branch in the last few years

m) Information in the public domain

We have scanned the public domain for information pertaining to the Bank and we report as under :

n) Asset Classification as of date of audit

o) NPA Movement

Account ref Pre Audit NPA 2016-17

Opening NPA

Add : Additions

Add : Additions MoC Nil

Less : Repayments

Add : Legal Costs etc

Closing NPA

S No Category 2016-17 2016-17 2015-16 2015-16



1 Standard

2 Substandard

3 Doubtful

4 Loss

Total advances


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Details of NPA Accounts

Account ref NPA – 2015-16 NPA 2016-17


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9. Physical Verification

i. Cash

Complete the physical verification of cash and ensure that the same is tallied denomination wise

and agree to GL as at the closing date

ATM cash should also be covered

Document the physical verification in a cash count format

Obtain a cash certificate from the branch management

Any excess / shortage / difference must be reported in the Statutory Audit report itself

ii. Gold

Complete the physical verification of jewels pledged for gold loans

Document the physical verification in a count format

Obtain a certificate from the branch management

Any excess / shortage / difference must be reported in the Statutory Audit report itself

iii. Investments

Physical verification of Investments

Obtain certificate from bank manager for the same).

If investment is held /done by the Branch


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Part E – Performing the Audit

Audit Strategy

Previous Years Audit Reports

Concurrent, Revenue Audits,Inspections


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10. Audit Strategy

a) Top Down Approach

Based on our high level review of the branch data, loans and deposits CBS files and based on discussions

with the Branch manager the following is proposed as the audit strategy. - The audit strategy will envisage

a top down approach which involves understanding the Balance Sheet and P & L and a drill down to

perform compliance and substantive procedures at a component / transaction level

Top Down Approach to audit

Understanding of the internal control framework

Utilisation of Other Audit reports – Revenue, Inspection and Concurrent audit reports

Review of previous years audit reports

Identification of high risk areas which are also material

Focus on Advances and Income

Focus on revenue leakages and non fund based products

Unit visits

b) Internal Control Framework

Discuss with the manager on the following elements of the Internal Control Framework and

ensure that these are in place

Detailed Operating Procedure manuals

Delegation of powers and Authorisation of transactions

Segregation of duties and Independent Checks and balances

Controlled Maintenance of records and documents

Elaborate system of Accountability for assets of the bank

Extensive computerization and procedure standardization

c) Review Notes of Concurrent, RBA, Inspection Reports and Stock audit reports of borrower

accounts

Reports Conducted / Report date

Previous year audit report

Internal Audit under Companies Act 2013

Risk based Internal Audit

Revenue Audit

Inspection

Concurrent Audit

Stock Audit

Vigilance Audit

Systems Audit

RBI inspection


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S No /

report

Account reference / nature of

issue / date of report

Amount Present Status

– Rectified,

LFAR, MoC,

Unadjusted

Impact, if any

on audit

strategy


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Part F – The Audit

Advances and Income


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11. Advances and Income

a) Overall Audit Approach

The approach for Audit of advances envisages the following important phases

Understanding the large types of advances

Understanding the large value accounts where deficiencies will have a material impact

Internal Controls – follow the questions in the LFAR and check samples against checklists so that

each advance type can be checked with reference to its unique requirements

Review of NPA

b) Planning for Audit of Advances ( from the GN on Bank Audit of ICAI )

i. Obtain largest accounts of the branch.

ii. Obtain the list of Specially Mentioned Accounts or irregular accounts, These are published by the

bank as daily exception reports . These are accounts which are most likely to slip to NPA

iii. Obtain the list of restructured accounts: as these require separate additional provisioning.

c) Summary of advances of the branch ( as per Balance Comparison report)

Advance Category Current year Previous Year

d) Review of Top Advances

Top accounts > = Rs 2 Crs / 5% advance ) should be checked 100% to cover all accounts. This is a

requirement in the LFAR also

Ensure that the review

o All loan balances >Rs 2 Crs

o All disbursements during the year >Rs 2 Crs

o Near to Rs 2 Crore balances where repayments have happened in the last few weeks


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The bank needs to provide the particulars of the top accounts in the prescribed format kept at the

end of the LFAR

The broad principles in relation to Appraisal, Sanctioning, Documentation and post disbursement

review shall be adhered to

Any deficiencies in the above accounts need to be viewed seriously and reported in the LFAR. In

case the audit opinion is likely to be impacted, attention should be drawn to Matters of Emphasis

paragraphs etc of the Auditors report

e) Restructured Advances

Obtain a list of restructured advances

Review the sanction of the restructuring

Restructured advances to be reviewed with reference to revised terms of sanction properly

approved by the relevant sanctioning authority

Ensure compliance for the terms of restructuring ( any non compliance will be regarded as a

slippage )

Obtain a general understanding of the type of advance which has been restructured – project / non

project advances, prior to or after Commencement of Commercial production etc as per the RBI

master circular which deals in detail on manner and mode of treatment of restructured advances

All terms of revised sanction are complied with ( including but not limited to revision in

commercial production, interest rate revision, rescheduling of repayments, additional security

cover, promoters contribution enhancements, escrow requirements etc ). In case of non

compliance, appropriate reclassifications have been considered

f) Advances Verification – Cash Credit and overdraft accounts

For CC and OD accounts selected, check for the following :

Financial Statements and solvency / capability of borrower / limit

Unaudited financial statements have been furnished for balances <Rs XX lakh

Audited financial statements have been furnished for balances >Rs XX lakh

Audited financial statements have been furnished for corporate borrowers

Income tax returns have been furnished

Credit Appraisal has been done on merits of business / profession and not based on collaterals

offered

Limit fixation and approval


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Proposal for assessment of Working capital needs is available

Sanction as per limits of branch

Interest / Charges is as per the policy of the bank

If immovable property has been offered as security

EC for continuous period is available and is clear

Title Deeds have been deposited with the bank

If immovable property , EM regn>Rs 25 lakhs

Legal opinion is available and indicates clean title deeds

Valuation report is present and is commensurate

Valuation report is less than three years old

Insurance policy available, adequate and comprehensive

Security of stock and book debts / other collaterals

Demand Promisory note has been furnished

Hypothecation agreement for stocks and Drs

Guarantee Agt has been executed properly

ROC regn of charge for cos for hyp of stock and book debts - Form 8

ROC regn of charge for cos for hyp of immov property

ROC search report once in XX years

Others

Monitoring Actions

Submission of stock statements on a monthly basis

Maintenance of drawing limit based on Working capital statements

Quarterly book debts Certified by CA

Stock audit once a year by CA for >Rs 1 cr

Godown visit by banker - monthly or qtrly

Repayments / TOD / One off credits

Debit and Credit summation to be reviewed to ensure continuous operation

Review of accounts featuring in Irregular report as per CBS

One off credits to be investigated

Drawing in excess of sanctioned limit on a continuous basis

Consistent excess over drawing power as per sanction

CBS Updation

Loan details recorded correctly in CBS

Interest is updated correctly as per base documents


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Test of repayments done

Test of interest accrual done

Test of accuracy of processing charges

g) Advances Verification – Housing loans

Obtain the sample of housing loans as selected by you

If samples are not provided report to the partner under Scope Limitation segment

Loan application is available

Loan application is signed and properly executed

Sanction letter is available

Loan proposal indicating projections etc

Title deeds lodged with bank

Assessment of repayment capability - Sal cert / it returns / pl acct etc

Margin at XX% ( Land cost + constrn cost )

EC available

Legal opinion

Approved Building plan - CMDA

Insurance policy

Pledge deed

All documents refer to the same survey number

EM creation by deposit of title deeds

EM registered for Rs 25 lakhs

Direct payment to vendor of land / contractor

If client own construction, stage payment subj to original bills cert by civil engg for work done

Inspection of property by bank

Final valuation cert for completed properties

Valuation report is less than three years - available from expert




h) Advances Verification – Term loans

Obtain the sample of Term loans as selected by you



Loan application is signed and properly executed


Loan proposal indicating projections etc as well as financial / audited financial statements

Title deeds lodged with bank

Assessment of repayment capability

LTV ratio is maintained

If release against Proforma , then final invoice has been received

If final invoice has not been received and time has elapsed, physical verification needs to be done


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In final invoice and proforma check for parameters such as TIN number, supplier particulars etc

Obtain installation certificate , if loan is for machinery

If for any other purpose, check proof of end use

Latest audited financials as per norms

In case of restructuring, check for the same




i) Advances Verification – Educational loans

Obtain the sample of loans as selected by you



Loan appln is signed and properly executed


Loan for Grad / PG

Loan - Inland –Foregin

Plus 2 pass proof

Asst of repayment of parent

For loan to minor , parent should sign the application and all documents for self and on behalf

of

Where minor > 18 yrs after disbursement, AOD and LOU counter signed by parent

Parent IT return

Parent Salary certificate / PL acct profit

Ceiling based on course

Not given for capitation fee

Margin maintained at X%

Less than max ceiling

, Rs 25K no sec

Rs 25 - 50K - surety apart from parent

>Rs 100 K – collateral

EM creation by deposit of title deeds

EM registered for .Rs 25 lakhs

All documents refer to the same survery number


Approved plan

Inspection of property by bank, if collaterial

Interest to be serviced before completion of course for loans to employed Persons





j) Advances Verification – Vehicle loans



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DPN

Hypothecation agreement

Loan proposal indicating projections etc

Financials of the borrower prior to loan date

IT returns for period before loan sanc. Date

RC book - certified true copy

RC endorsed in favour of bank - Hypothecation endorsement

Loan is sanctioned net of margin for 'Cost and Accessories" not for charges

Disbursement amount , tenure and tenor as per sanction

Duplicate keys

Original invoice

Direct payment to dealer for vehicle

Guarantor signature

Comprehensive insurance - live now and bank clause in fav of Ind Bank

For second hand vehicle - valn report from approved valuer

Higher margin requirement for second hand vehicle




k) Advances Verification – Jewel Loans



Loan agreement is available and properly executed

Jewel packet verified for weight and purity

Letter of pledge is available

Rate of interest updated properly





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l) Advances Verification – Loans against Own Deposits



Letter of pledge is available

Nature of security - RD / FD

Lien is marked in system against the FD

Deposit receipt is available with bank and discharged

Loan closed after due date of deposit




m) Advances Verification – Loans against financial assets





Loan amount original sanctioned is within powers

Securities in the name of the borrower

In case security not in the name of the borrower , consent letter is available

Shares - demat and pledged noting in demat

LIC - Assignment in favour of bank and regd

Govt instruments tfd as "Sec to Ind Bank " - NSC / KVP

Loan is within margin limits of surr. Value

Loan is within margin limits of mkt. Value for shares

Loan is within margin limits of face value for govt notified instmts

Shares erosion in market value

LIC erosion in surr. Value due to unpaid premium has been cognised for





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12. NPA Reviewand MoC

a) NPA Overview and movement

Account ref NPA 2016-17

Opening NPA

Add : Additions

Add : Additions MoC

Less : Repayments

Add : Legal Costs etc

Closing NPA

b) NPA review

The NPA file was obtained from CBS as at date of audit

The Specially Marked Accounts files were obtained

The irregular files were obtained

The files were cross referenced to the loan balance and CCOD file

Clean loans – top value were test checked to ensure that there are no impairments

Loans featuring in any of the above reports – NPA / SMA and IRR were considered for the

review

The accounts were reviewed individually with the Branch manager to determine the extent of

slippage, possibility of recovery and the need for reclassification

Additionally, accounts identified as potential NPA based on documentation / security lapses

were also considered for the review and rectification before the Balance Sheet date

Restructured accounts listing was obtained and reviewed in detail

c) Details of MoC’s

S No

Nature of Issue Debit Account

Credit Account

Amount Remarks

Rectification of Income recognition

Reclassification of NPA’s ( fresh )

Change in the status of Old NPA’s

Account reclassifications within P&L: and A&L

Reclassification of Loans and Advances where done


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S No

Nature of Issue Debit Account

Credit Account

Amount Remarks

differently by the branch

Assets put to use and not capitalized

d) NPA Movement statement

Obtain the NPA movement statement from the branch

Check opening NPA with reference to the previous year audited financial statements

Check additions

Check deletions

Closing balance should tie to the closing NPA report

All cases of deletions should be verified for payment by the borrower or for restructuring

13. Verification of Deposits

Obtain the list of deposit samples to be verified


Date of deposit

If SB acct holder, give SB ref

Application form and complete

Photograph

ID proof and age proof

Address Proof

Introducer

Pan copy

Pan related documentation

Rate as per norm

CBS updation done correctly

Interest Computation is accurate

Deposit file has been reviewed for interest rates on a substantive basis (sanity checks)


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14. Profit and Loss Account – Analytical review procedures

Description 2016-17 2015-16 2015-16 2015-16

Amount

Rs . lakhs

Amount

Rs . Lakhs

% Change Nos Nos % Change

Total Advances

Total Deposits

Interest on advances

Interest on deposits

Other Incomes

Profit / Loss

NPA Amount

Ratios

Interest to advances

Interest to deposits

15. Income Related Procedures

These procedures are in addition to the procedures performed at time of audit of loan files

Obtain the break up of fund based ( loans , CC, OD ) and Fee based ( Guarantees, LC etc )

Fund based

Obtain the schedule of charges and interest rates for different categories of liability products

Prepare a schedule of total income of the bank

The checking of interest of large loan accounts will be completed in the above audit procedures

Tabulate the value checked against the total income

Extend verification if the value of interest verified if necessary

Fee based

Discuss with the manager and obtain an understanding of the various fee based products

Obtain the schedule of charges and interest rates for different categories of fee based liability

products

Check the guarantees register and verify accuracy of computation of income

Obtain a list of all packing credit and other facilities and verify accuracy of computation of

income

Extend verification if the value of interest verified if necessary


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Part G – The Audit

Demonetisation


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16. Special Aspect of Demonetisation

Consequent to the announcement made by the Honourable Prime Minister, Shri. Narendra Modi on 8th

November, 2016 regarding the withdrawal of the existing currency notes of denomination of Rs. 500 and

Rs. 1,000, there have been a series of announcements and notifications by the RBI.

For each of the below categories, please select samples and confirm compliance

a) Restrictions on Exchange

Date Date to Event description Samples / Exceptions

Nov 8 Nov 13 The Specified Bank Notes of aggregate value of 4000/- or below

were exchanged for any

denomination of Bank notes having legal tender, with a requisition slip in

the format specified by RBI and

proof of identity as declared in the Notification

Nov 14 Nov 17 The limit for exchange of Specified Bank Notes, over the counter was

increased from Rs. 4000/- to Rs.

4500/- w.e.f 14th Nov 2016, vide notification no. DCM (plg) No.

272/10.27.00/2016-17 dated

November 13, 2016

Nov 18 Nov 24 The limit was again revised from Rs. 4500/- to Rs. 2000/- w.e.f November 18, 2016, vide RBI notification no.

DCM (plg) No. 1302/10.27.00/2016-

17 dated November 17, 2016

Nov 24 The Exchange Facility was finally withdrawn and permitted only till the

end of business hours on November

24, 2016 as mentioned by

Government of India in the Notification earlier. However, the

exchange facility has not been

withdrawn from RBI Offices

b) Restrictions on Deposits


Nov 8 Nov 24 The Notification stated that no limit was specified on the quantity

or value of the Specified Bank

Notes to be credited to the account maintained with the branch by a

person, provided the Specified

Bank Notes were tendered in accordance with standard banking


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procedure and on production of valid Proof of Identity

However, where compliance with extant KYC norms was not

complete in an account, maximum

value of specified bank notes to be deposited was restricted to Rs.

50,000/-.

c) Restrictions on physical withdrawals ( general accounts )


Nov 8 Nov 13 Cash withdrawal from a bank account over the counter was restricted to Rs. 10,000/- per day subject to a weekly

overall limit of 20,000/- as per the

Notification

Nov 14 Nov 24 From 14th November, 2016, the weekly limit of Rs. 20,000/- for withdrawal was increased to Rs.

24000/- vide notification

RBI/201617/129 DCM (plg) No. 1272/10.27.00/2016-17 dated

November 13, 2016.

Nov 25 Notification no. RBI/2016-17/158 DCM (Plg) No.1424/10.27.00/2016-

16 dated November 25, 2016 instructed banks to continue allowing

their existing customers to withdraw

cash from their accounts uptoRs. 24000/- in a week, till further

instructions are given.

d) Special concessions for CC / OD holders


Nov 21 .. RBI vide notification no. RBI/2016-17/142 DCM (Plg)

No.1317/10.27.00/2016-17 dated 21st

November, 2016 allowed the current/overdraft/cash credit account

holders (operational for the last 3

months or more) to withdraw cash up to Rs. 50,000/- in a week subject to certain


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terms and conditions.

The same facility was extended to traders registered with APMC markets

via notification no. RBI/201617/146

DCM (Plg) No.1323/10.27.00/2016-17

dated 21st November, 2016.

Nov 29 .. However, withdrawals of deposits made in current legal tender notes on or after

November 29, 2016 was allowed

beyond the current limits preferably in

the new legal tender notes i.e. Rs. 2000/- and Rs. 500/- as per circular

RBI/2016-17/163

DCM.No.1437/10.27.00/2016-17 dated November 28, 2016.

e) Restrictions on physical withdrawals ( Jandhan Accounts )


Nov 29 Certain limits as a matter of precaution were set on the

operations of PMJDY accounts by

RBI vide notification RBI/2016-17/165 DCM(plg) No

1450/10.27.00/ 2016-17 dated

November 29, 2016 which allowed

Fully KYC compliant account

holders to withdraw Rs. 10,000/- from their accounts, in a month.

Branch managers may allow

withdrawals beyond Rs. 10,000/- only after ascertaining the

genuineness of such withdrawals

Non-KYC compliant account holders to withdraw Rs. 5,000/- per

month from amount deposited through Specified Bank Notes after

November 09, 2016 within the

overall ceiling of Rs. 10,000


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f) Restrictions on physical withdrawals ( NRI / NRO accounts )

NRI/NRO accounts: Specified bank notes were allowed to be deposited in the NRO accounts. If

someone is not in India then written authorization to enable another person to act on their behalf was

accepted

g) Restrictions on physical withdrawals ( Marriage )


Nov 22 Notification RBI/2016-17/145 DCM(plg) No. 1320/10.27.00/21-17 dated November 21, 2016

empowered the account holders to

withdraw a maximum of Rs.

2,50,000/- from a single account if there is a marriage in the house on

or before December 30, 2016 on

providing sufficient KYC documents

h) Restrictions on physical withdrawals ( farmers )


FAQ updated upto Dec 1,

2016

Farmers were allowed cash withdrawals of Rs. 25,000/- per

week from their loan or deposit accounts, which were KYC

compliant (clarified by FAQs last

updated on December 1, 2016).

i) Restrictions on ATM withdrawals


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Nov 9 Nov 10 All ATMs and other machines used for receipt and payment of cash were shut on 9th and 10th

November, 2016 as instructed via

the Notification. They were re-

configured to disburse banknotes of Rs. 100/- and Rs. 50/-

denomination prior to reactivation

of machines on November 11, 2016.

Nov 11 Nov 18 In the Notification withdrawal from ATM was restricted to Rs.

2000/- per day per card

Nov 19 Important :In the Notification withdrawal from ATM was restricted to Rs. 2000/- per day per

card up to November 18, 2016

which was raised to Rs. 4000/- per

day per card from November 19, 2016. However there was no such

clarification by RBI on the

increment of limit to Rs. 4000/-

on November 19, 2016 and so the

limit stood the same as before i.e.

Rs. 2000.

Nov 10 Nov 30 Vide RBI Press Release - 2016-17/1199 dated November 14, 2016 all charges of ATM usage were

waived from November 10, 2016

till November 30, 2016.


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j) Bank branch working days


Nov 9 Nov 9 November 9, 2016(Wednesday) was declared to be a non-business

working day for all banks to carry

out preparations for implementing the scheme as per this circular.

Nov 12 Nov 13 Banks were advised to keep all the branches open on November 12 and

13, 2016 as referred by RBI in the

Press release: 201617/1161 dated November 9, 2016.

k) Reporting


Nov 8 Every banking company and every Treasury had to complete and

forward a return (Annex - 1) in the

prescribed format, showing the details of the cancelled notes held

by it at close of business on

November 8, 2016 and recalled by it, by 13:00 pm on November 10,

2016, to the concerned Regional

Office of RBI, under whose jurisdiction the Head Office of the

bank is located

Nov 10 Dec 30 Each bank branch exchanging Bank notes in the denomination of

Rs. 500/- and Rs. 1000/- to report at the close of each business day

starting from November 10th, 2016

till the closure of the scheme on

December 30th, 2016 by email or Fax to Controlling Office, a

statement (as per Annex - 6)

showing details of specified bank notes exchanged by it. Controlling

Offices will aggregate these

statements and report in Annex - 6A to Department of Currency

Management, RBI


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l) Incremental CRR


Nov 26 As per circular RBI/2016-17/159 DBR.No.Ret.BC.41/12.01.001/2016-17

dated November 26, 2016, a directive was issued under section 42(1A) of the

Reserve Bank of India Act, 1934

requiring all Scheduled Commercial Banks/ Regional Rural Banks / all

Scheduled Primary (Urban) Co-operative

Banks / all Scheduled State Co-operative

Banks to maintain with the Reserve Bank of India, effective from fortnight

beginning November 26, 2016 an

incremental CRR of 100 per cent on the increase in NDTL between September 16,

2016 and November 11, 2016. The

incremental CRR being a temporary

measure was to be reviewed by RBI on December 9, 2016 or earlier.


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m) Deposits of SBN by banks

Date Event description Samples / Exceptions

As per RBI circular no. RBI/2016-17/153 DCM

(Plg)

No.1383/10.27.00/201617 dated November 24,

2016;

Banks may deposit SBNs directly with the offices of RBI under whose

jurisdiction they are located. These

SBNs will remain, in the vaults of RBI, under the lock and key of the

depositing banks till taken up for

examination

For the SBNs deposited by banks, RBI will afford credit to their current accounts maintained with RBI.

Thereafter, if any shortage,

counterfeit note, mutilated note, etc.

is detected during detailed processing at RBI, the value of the same will be

recovered from the bank concerned.

As per RBI/2016-17/160 DCM (Plg) No.1430/10.27.00/2016-

17 dated November 27,

2016

it has been decided to introduce a new scheme for depositing SBNs with designated currency chest at the

district level, under guarantee

agreement similar to the current

facility available at RBI offices.

As per RBI/2016-17/162 DCM (Plg)

No.1438/10.27.00/2016-

17 dated November 28,

2016

with a view to expand the ambit of the Chest Guarantee Scheme for

Specified Bank Notes (SBN) -

(CGSS), it has been decided that

banks operating currency chests may be allowed to operate CGSS if they

have additional space in their

existing currency chest or additional storage space at the same centre

which is nearly as safe and secure as

that of a currency chest. Requisite approval for the above will be

granted by the concerned Regional

Office (RO) of RBI, on receipt of

request from any bank subject to the terms and conditions laid down in the

above mentioned circular


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17. Maintenance of Working Papers

1. Certification Related Working papers

Asset Liability Management

Jilani committee and Ghosh committee

Capital adequacy ratio

PMRY / SEEUY

SLR / CRR – 12 odd dates

Compliance with RBI Norms on IRAC

DICGC / ECGC

Interest subvention schemes

TUF schemes

Certification of Provision for Restructured Accounts

Certificate of Sensitive Sector and CRE

Other Certificates

2. Tax Audit Workings

1.1. Tax audit report

1.2. Audit program

1.3. Samples

3. Other Working papers

Any other relevant information

4. References

Branch Audit guidance document as received from the HO / CO

Bank Authority levels for sanction limits for loans and advances

IRAC norms relevant for this audit

RBI master circular – July 1, 2016

Other RBI Circulars relevant for the purpose of this audit

Guidance Note on Bank Branch audit as issued by the ICAI

Revised SA700, 705 and 706 for reporting


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5. LFAR Checklist – Other than advances

As attached

A.ASSETS:

1 Cash

- Obtain a schedule of denomination of cash

- Physically verify the existence of cash and tally with the (and tally

with the) above schedule


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- Tally physical balance with Cash Scroll and the General Ledger as on

the date of verification

- Ascertain the retention limit of cash fixed by the head office. In case

the balance exceeds the Retention Limit the same may be reported in

the following format:

Cash Balance in excess of Rs.

Date: Amount Rs.

- Verify the insurance cover taken on transit cash.

- Verify whether cash is maintained in effective joint custody of two or

more persons

- Ensure that are responsible official verifies physical cash on a daily

basis.

- Check whether the cash balance has been verified periodically by the

Branch Manager in addition to the Head cashier.

2 Balances with other Banks - Verify whether the branch has any balances with other banks.

- Obtain confirmatory letter from the bank or branch wherever applicable.

- Ensure whether BRS is prepared periodically.

- Verify BRS on a test check basis.

- Check for unresponded credits/debits found in the BRS and report the

same.

3 Investments - Obtain the schedule of investment held by the branch.

- Check for appropriate authorization issued by H.O/ Controlling

Authority

- Conduct physical verification of investments and tally with the above

schedule

4 Advance - Ensure that monitoring of slippage of accounts from standard to

substandard/doubtful is done and reported promptly to the Controlling Authority.

- Ensure that recovery measures are promptly taken.

-


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5

Other Assets

Stationery/Stamps

- Obtain schedule of Stationery Stocks

- Ensure that the physical balance tallies with the above schedule.

- Suspense Accounts/Sundry Assets.

- Obtain anschedule/return of suspense account and verify the items

for long outstanding items.

- Report unusual/long outstanding items.

- Verify transfer to H.O during the year

- Does the scrutiny of accounts under various sub-heads reveal balances, which in your opinion are not recoverable and would

require provision/ writeoff.

B. LIABILITY:

Bills payable, Sundry deposits etc.,

- Does the scrutiny of account sunder various sub-heads reveal odd balances?

- Report the number of items and aggregate of amount of old

outstanding item spending for 3 or more years

- Check amount received against suite filled accounts

- Check unidentified deposits e g. Excess cash found in the branch etc.,

C. PROFIT AND LOSS ACCOUNT

- Ensure that the branch has followed the income recognition norms

stipulated by RBI

- Test check calculations of interest on deposits for excess/short credit of

material amount if so give details thereof.

- Study preceding 2 years half year returns for divergent trends in major

items of income and expenditure and report those which are not

satisfactorily explained by the branch

- Indicate the effect of changes if any in accounting policies on the items

of income and expenditure.

D. GENERAL

House keeping

- Ensure whether the branch is regular in furnishing a house keeping

return to the Controlling Authority.

- Verify whether the branch maintains the books and records properly in

accordance with the H.O guidelines.

- Ensure that the balances are duly linked and properly authenticated by

responsible official /authorised signatories?

- Report the lapses in balancing procedures

- Report differences in crystallised balances lying unattended


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- Ensure that the control and subsidiary records have been reconciled at

the year-end or at the prescribed intervals

- Inter Branch Accounts - Are there any double responses or wrong responses in H.O A/c.

- Indicate the outstanding entries in the inter branch accounts together

with a statement of reasons for their remaining outstanding and the

steps taken by the management in respect thereof.

- Are there any frauds discovered during the year under audit and report

if any.

- Does the examination of the accounts indicate possible window

dressing?

- Are there any matter ,which you as branch auditors would like to bring

to the notice of the management or the central statutory auditor.

- Tax Audit U/s 44AB ofI.TAct,1961

- Audit Report to be made in form3CA

- Obtain verify and certify particulars required in form3CD

- Other Certifications

- 1. PMRY, SEEUY and SEPUP scheme certification

Ensure that correct claim/subsidy is calculated

- 2.DICGCscheme

Verify whether the information furnished is correct according to the books/records maintained by the Branch.

- Verify whether the recoveries effected in the Claims Received A/c have

been proportionately remitted to the corporation.

- 3 Ensure that the certificates required are within the scope of audit

e g. Certification that the debts are fully secured.