COMMENCEMENT OF AUDIT AND INSPECTION

 

Commencement of Audit and Inspection :

Immediately after sending the Commencement Letter to the Head Office, the Inspecting Official shall start Security verification in the following parameters :

 

CASH DEPARTMENT VERIFICATION :

 a)   The very first step would be checking the Physical Cash available in the Bank Branch.  This should be done before commencement of the Cash Hours so that the Customer Service is NOT affected in any case. 

b)  Confirm that the Safe keys are held under Joint Custody and tallies with the entries made in the Key Register.

c)   Arrive at the entire physical cash available at the Bank Branch. This should tally with the Cash Balance Report as at the close of the previous day.  Complete this exercise in the presence of the Cashier or Cash-in-charge and the Officer of the Bank Branch, who is in-charge of the Safe Keys, otherwise called as the “Joint Custodian”.

d)  Differences, if any, should be immediately brought to the notice of the concerned Bank Branch Head / concerned Officials. 

e)   Call for necessary explanation for the differences and verify whether any late payments have been made on the previous working day.  Verify necessary request letters and vouchers for the same.

f)    Ensure that the Duplicate Keys are deposited in another Branch of the Bank at periodical intervals and the same is rotated as per the Head Office Policy.

g)  Confirm that the Branch strictly follows the Security guidelines while handling cash from Safe in and Safe out as per the guidelines of Head Office.

h)  Ascertain that the inter-transfer of Cash is recorded (if cash is handled in more than One Counter at the Branch)in the Cash Transfer Register.

i)     Whether the system generated Cash Scroll reports are signed by both the Cashier(s) and the Custodian on all days.

j)     Check whether excess / shortage of cash is recorded properly in the register and necessary entries have been passed in the system with due knowledge of the authorized officials of the Branch.

k)  Ensure that the Cash is maintained within the Cash Retention limit as per Head Office guidelines and if the balance is exceeded, call for clarifications from the concerned Officer of the Branch and make a note of it in the Report. 

l)     Check whether the Cash Department is provided with necessary machines like Cash Counting Machine, UV Rays machine and Sorting machine and whether they are in working condition.

m)                       Whether the Branch is holding any counterfeit notes and the same has been reported to Higher Office as per guidelines in vouge.

n)  Whether the Branch is exchanging cut/mutilated notes as per Central Bank (RBI) guidelines.

JEWEL LOAN VERIFICATION :

a)     Take a print out of Ledger account pertaining to all categories of Jewel Loan portfolio and conduct a physical verification of Jewel packets held at the Branch.  It should be ensured that the Jewel packets are kept in the Safe and if any deviations are observed, the same should be brought out in the Report and necessary steps to be taken to ensure that the Bank’s interest is safeguarded.

b)     Any difference is observed, the same should be got clarified with the concerned Officials of the Bank Branch. 

c)     In some Banks there is a practice (as per the instructions of Higher Offices) that some of the jewel loan items are scanned for genuineness of the items contained in the packets with the assistance of an Appraiser from another Branch of the Bank.  If any such report is available, the Inspecting Official should go through the same and seek clarifications in case of any irregularities.

d)     The Inspecting Official should conduct the above exercise with the help of an Appraiser from another nearby Branch of the Bank in the presence of an authorized Official of the Branch, the Appraiser of the Branch (which is under Audit) and necessary certificate should be taken from the Appraiser who conducts the verification.  The Certificate should be signed by the Inspecting Official, Appraiser of the Branch (which is under audit), the Branch Head or an authorized Officer of the Branch / Custodian of the jewel packets.

PRE-REQUISITES FOR COMMENCING BANK BRANCH AUDIT

Pre-requisites for Commencing Bank Branch Audit :

The Inspecting Official should possess a Letter of Authority from his Higher Office clearly addressed to the concerned Bank Branch Head stating that Mr./Ms. _______________ has been assigned with the task of conducting the Audit at the Branch.  The Authority Letter should be invariably signed by the Higher Office official/ In-charge. The Letter of Authority should also contain the Name and signature of the Inspecting Official duly attested by the Head of the Department at Higher Office. 

 

Upon receipt of the Letter of Authority, the Inspecting Official should prepare himself / herself about the topography, way to reach out to the concerned Bank Branch.  The visit to the Branch may be kept confidential by the Inspecting Official.  That is, the visit to the Branch for Audit should be surprise. 

 

Commencement of Audit :

After reaching the Bank Branch, the Inspecting Official should have discussion with the Head of the Branch / Official in charge (in the absence of the Bank Branch Head) duly showing his Letter of Authority, about the purpose of his / her visit and seek for a place / desk with adequate infrastructures, stationeries, etc. After settling down in the Branch, the Inspecting Official is required to send a communication to the Head Office about the commencement of Audit at the concerned Bank Branch.

 

Ledgers / Files required for Audit on the day of commencement of Audit :

 

·        Trial Balance as on the Date of Audit      

•   Cash Balance Report (as per system)

·       Jewel Loan Ledger (as per system)

·       Security items Register (if maintained manually or from system)

·       Postage Register

·       Stamps Register (if maintained manually or from system)

•  Key Register
  

·       Account Opening Forms file(s)

·       Staff Attendance File/Register

·       List of Loans and Advances accounts (existing and newly sanctioned during the audit period)

·       Loans and Advances Files

·       Files relating to Non-Performing Asset accounts

·       Stock / Book Debt Statements files

·       Mortgage Register

 ·       Complaints Files

·       Minutes of Customer Service Meetings file

·       Bills Register

·       Last Audit Report file (This should contain last Audit Report, Reply submitted by the Bank Branch and also communication about the status of the last Audit Report).

·       Preventive Vigilance report file (if any conducted during the audit period) and rectification / reply submitted by the Branch thereof.

·       Visit reports of Higher Office officials.

·       Cash Remittance Register

·       ATM Card Register (pending for disposal)

·       Cheque Book Issued Register

·       Office Furniture and Fixtures file (or report from system)

 

 

Audit Risk Ratings

Risk Ratings in an Audit

The Risk Ratings of a Bank office/Branch is assessed based on its performance with regard to Deposit mobilization, Lending of funds, monitoring of accounts (both Deposits and Advances accounts) and handling of Non-performing Assets.

To enable the Auditors/Inspectors, the guidelines may vary from Bank to Bank, however, without deviating from the stipulations laid down by Controller, i.e. Reserve Bank of India.

PROCEDURE TO BE FOLLOWED

With a view to ascertaining the Risk of the Bank Branch in Deposits and Lending Portfolio and related matters, the Inspecting Official has to take a Sample of Accounts as under :

Loans / Advances sanctioned during the Audit Period, i.e. from the last date of Audit till the date of commencement of present Audit	100%
Cash Credit / Secured Overdraft Accounts (Standard category)	100%
Existing Loans with a Threshold limit as prescribed by the Bank Management	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.
Existing Loans below the Threshold limit	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.
Loans and Advances granted to Staff of the Bank	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.
Accounts falling under the categories of Early Alert System and Special Mention Accounts	100%
Loans and Advances accounts that have been newly classified as Non-Performing Assets during the Audit period, i.e. from last audit date till present audit date	100%
Other Sub-standard accounts	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.
Doubtful and Loss Assets	As per the prescribed norms of the Bank Management and Policies prevailing from time to time.

 RECORDING OF OBSERVATIONS

Observations on the above parameters are to be recorded and irregularities be incorporated in the Audit Report.  This will enable to assess the Risk factor in Credit portfolio of the Bank Branch.

RISK IN OTHER AREAS OF OPERATION

Now coming to the assessment of risks in other areas of operation of the Bank Branch, the following areas to be checked and observations are to be recorded in the Audit Report :

 

a)     Deposit Accounts :

·       Go through the Account Opening Forms of all types of Deposit Accounts, say 100% for accounts opened during the Audit period, i.e. from the date of last audit till the date of present audit.

·       Make observations about compliance with regard to Know Your Customer (KYC) guidelines as laid down by the Central Bank (RBI).  Deviations, if any, should be brought to the notice of the Bank Branch Head for immediate rectification.  The Inspecting Official should, invariably, report unrectified/ persisting irregularities in the Audit Report.  Necessary steps would be made by the Controlling Office(s) for rectification thereof. 

·       Conduct of the Deposit accounts, i.e. source of funds credited and reasons for debits made in the account should be inquired with the Bank Branch Head or can be ascertained with the help of Credit challans or Paying-in-slips (in case of credits) and withdrawal instruments (in case of debits). 

·       Source of funds in the event of High value Deposits should be ascertained by the Inspecting Official to confirm veracity/genuineness or legitimate transaction.

·       Mode of a transaction – whether it is Cash / Cheque / Demand Draft / Bankers’ cheque or any other mode of transaction made through digital banking channels should be ascertained.

·       Also, take a list of accounts that have been upgraded to Operative accounts during the period of Audit and go through the documents submitted by the Account holder(s) for correctness.  Analyze the transactions that have taken place in In-operative / Dormant accounts.  Obtain the vouchers related to such transactions and ascertain their genuineness.

b)     Verification Impersonal Accounts :

·       Go through the transactions (manually made) for huge amounts in Sundry and Suspense accounts and in case any doubt arises, the same should be got clarified with the Bank Branch Head.

·       Seek necessary clarifications from the Bank Branch officials for non-reversal of old outstanding entries in Impersonal accounts and incorporate the same in the Audit Report.

 

c)     Income and Expenditure Accounts :

·       Go through the High value and doubtful transactions made (mostly manually) to various Heads of Income and Expenditure accounts and call for necessary clarifications from the concerned Bank Branch Officials.

d)     Earnings and Commissions received :

·  Verify all the entries pertaining to the refund of commissions charged by the system and its reversal.  Ascertain from the Bank Branch Officials to ensure that there are any approvals of Higher Offices in this regard.  If not, report in the Audit Report, which will enable recovery by way of Leakage of Income to the Bank. (Leakage of Income will be dealt with separately).

TO BE CONTINUED,,,,,,,,