Statutory Branch Audit in CBS Environment ONE BY SIX ISSUES INDORE BRANCH OF CIRC OF ICAI

DISCLAIMER All references are shared for helping understand the key issues and concerns. All members are requested to take appropriate care before drawing any conclusions.

Changes in Business Traditional banking to high level financial advisory Traditional products of deposits and lending to boutique of financial services/ Para- banking activities. Branches to Service outlets. Customer of branches to customer of bank.

Changes in Business Multi-level organization to centralized organization Decentralized data processing to centralized-data processing. Manual accounting to complex computerized- data processing and accounting.

CONCERNS IN CBS Risks Compromise on Controls Loss of Trail Behavioral Issues Attrition Complexity in working

KEY ISSUES KNOWLEDGE TECHNOLOGY EXCEPTIONS REPORTS DOCUMENTATION OTHER ISSUES

KNOWLEDGE

KNOWLEDGE OF CBS Cases on CBS Day End Controls System Generated Transactions

Knowledge of CBS: Cases NPA PROVISIONS: IRAC norms TERM LOAN WITH CREDIT BALANCE IN BANK SAVING BANK ACCOUNT WITH DEBIT BALANCES

KNOWLEDGE OF CBS: Day End Controls Review of day end reports: More in heading EXCEPTION reports

KNOWLEDGE OF CBS: System Generated Transaction Interest debits Charges debits Application of Interest. Application of service charges. Updation of parameters globally. Balancing & Reconciliations. Classification of inoperative accounts etc. Classification of Probable NPA’s

KNOWLEDGE OF CBS: System Generated Transaction Though these runs are controlled centrally at the Data Centre, yet there are several reasons of failure /incorrect output of such runs, like: Interest rate not mapped correctly: for example, interest rate of housing loan to staff linked to interest rate of vehicle loan to staff. Interest rate field kept as “Zero”. Interest collection flag kept as “N” instead of “Y”. Account wrongly marked as Past-due/ “NPA”.

KNOWLEDGE OF CBS: System Generated Transaction Case on OD on FD: Link to exception report.

KEY ISSUES TECHNOLOGY

Technology Auditor’s need to gain knowledge and understanding about clients business. The relationship technology has with business its impact on controls and related impact on audit procedures. Case of ATMs: Change in operations ATMs on moving vehicles.

KEY ISSUES EXCEPTIONS

EXCEPTIONS The most critical aspect for any statutory auditor to look into: Cases What to look for? Where to look for? How to interpret?

EXCEPTIONS: Cases BoM case OD against FD Cheque number change

EXCEPTIONS: WWH What: Exception Reports Where: The BM system. There are daily report folders. How: Generated on: Daily: Detailed discussion in heading REPORTS. Monthly Quarterly Yearly

KEY ISSUES REPORTS

REPORTS Day End Reports from CBS Other Auditor’s Reports

Reports: Day End Excess allowed over limit Debits to Income head accounts Overdue bills and bills returned Withdrawal against clearings Deposits accounts debit balance Temporary O/D beyond sanction limit Standing instruction failed in day

Reports: Day End Debit /Credit balance change Maturity record deleted Inactive accounts reactivated Rejected/Cancelled entries GL affected Balances Report Report on large cash transactions /KYC & Anti Money Laundering etc. Change in master : Auditor should check mainly for 29-30 sep, 30-31 mar, 1-2 apr.

Reports Statutory Audit Stock Audit Tax Audit Revenue Audit Concurrent Audit Forensic Audit

KEY ISSUES DOCUMENTATION

Documentation Case : IPO fraud

KEY ISSUES OTHER ISSUES

Migration The process of Migration is now a days of more use in case of Co-operative banks & RRB’s. If migration process has been undertaken in the supervision of controlling office team, to check & comment. Check with the help of a Sample.

Migration Check the pre migration and post migration reports of any ledger. BALANCING OF BOOKS is relevant from LFAR POINT If branch has undergone an independent Migration Audit, to check whether all irregularities and recommendations have been duly attended/followed.

SECURITY MASTER DATA To check whether values of various securities are updated promptly and drawing powers are allowed on current value of such securities, based on the report of valuation officer. To check whether periodical reports on securities master are taken and scrutinized for verification of various fields i.e. value of securities, date of inspection, insurance, date of valuation, etc.,

ATM To check whether adequate control over physical inventories of ATM cards has been exercised . ATM CARDS at branch and PIN at branch are separately stored with different person. Proper Controls over HOT CARDS and CAPTURED CARDS. To check whether ATM Cash has been verified periodically cash should come in branch balance sheet or not. To check whether ATM transactions are reconciled periodically.

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