1 B ANK A UDIT L F A R Presented by: CA. Shashi Gupta, FCA

2 LFAR Introduction Assets Liabilities Profit and Loss Account General Important Reports from System

CA. Shashi Gupta, FCA 3 INTRODUCTION Two Reports – Branch Audit & LFAR LFAR - Questionnaire form Answers - Clear, Precise, Relevant May be Elaborated Questions - Indicative not exhaustive Not a substitute or Part of Br. Audit Report No cross reference to Br Audit Report Adverse comment may find qualification in main report, but not necessarily Branch management response

CA. Shashi Gupta, FCA 4 ASSETS

5 ASSETS 2.Balance with Banks 5.Advances 4.Investments 3.Money at Call & Short Notice 1.Cash 6. Other Assets

CA. Shashi Gupta, FCA 6 1. C ASH Cash Retention Limit Global Insurance Cover – In Custody; In Transit Joint Custody Checking at periodical interval Soiled Notes Counterfeit notes Stapling Ultra Violet Lamps Note Counting Machines

CA. Shashi Gupta, FCA 7 2. Balances with RBI, SBI & Other Banks Balance confirmation Reconciliation Cash transactions remaining un-responded Other items requiring adjustments Old outstanding balances remaining unexplained / unadjusted. Details for: Outstanding between 6 months & 1 year; 1 year and above

CA. Shashi Gupta, FCA 8 3. M ONEY A T C ALL & S HORT N OTICE Managed by Treasury Department, HO At Branch - Instructions of HO Booking of Income Balance Confirmations

CA. Shashi Gupta, FCA 9 4. I NVESTMENTS Managed by Treasury Department, HO At Branch - Instructions of HO Certificate of Investments held Physical Verification Booking of Income Matured Investment Un-serviced Investments Balance Confirmations

CA. Shashi Gupta, FCA A DVANCES Credit Appraisal Sanctioning Documentation Disbursement Review/Monitoring/Supervision

CA. Shashi Gupta, FCA A DVANCES Stock / Book debt statements DP calculations Periodic operational data Financial statements Audit Report of Corporate borrower Tax Audit of Non-Corporate borrower - limit beyond Rs lac Balance Confirmations

CA. Shashi Gupta, FCA A DVANCES Inspection / Physical Verification Valuation of securities Charge on Securities Insurance Cover Frequent / unauthorized overdrawing beyond limits

CA. Shashi Gupta, FCA A DVANCES Previous Branch Audit Report Concurrent Audit Reports Revenue Audit Report RBI Inspection Report Stock Audits (Annual Stock Audit in case of NPA where outstanding Rs 5.00 cr and above)

CA. Shashi Gupta, FCA A DVANCES – Asset Classification Standard Sub-standard Doubtful Loss

CA. Shashi Gupta, FCA A DVANCES Accounts with claims for DICGC / Export Credit Guarantee / Insurance / subsidies Rehabilitation of accounts Recalled Advances Accounts where Legal action to be taken / already taken Compromise / Settlement / write-off accounts (details of cases in excess of Rs lacs)

CA. Shashi Gupta, FCA A DVANCES - NPA  valuation reports once in three years

CA. Shashi Gupta, FCA A DVANCES Major deficiencies in credit review, monitoring and supervision

CA. Shashi Gupta, FCA A DVANCES – BG & LC Guarantee invoked, paid but not adjusted Guarantee invoked, but not paid Letter of Credit and Co-Acceptances funded

CA. Shashi Gupta, FCA O THER A SSETS Stationery and Stamps Term Deposit Receipts, Drafts, Pay orders, Cheque Books, Traveler’s Cheques, Gift Cheques, etc. Control on Custody and Issue Sundries & Suspense Accounts Age-wise analysis of pending entries Unusual items Squared up entries

CA. Shashi Gupta, FCA 20 LIABILITIES

CA. Shashi Gupta, FCA 21 LIABILITIES 1. Deposits 2.Other Liabilities 3.Contingent Liabilities

CA. Shashi Gupta, FCA D EPOSITS Application of Interest Inoperative Accounts Unusual large movement in accounts Overdue/matured term deposits

CA. Shashi Gupta, FCA O THER L IABILITIES -Bills Payable, Sundry Deposits etc. Old Outstanding items - Age wise details; Scrutiny

CA. Shashi Gupta, FCA C ONTINGENT L IABILITIES Items not acknowledged by Branch (other than constituents’ liabilities such as BG, LC, co-acceptances, endorsement, etc.) (obtain certificate from manager that all contingent liabilities have been disclosed; none will result in LOSS)

CA. Shashi Gupta, FCA 25 PROFIT & LOSS A/C

CA. Shashi Gupta, FCA Income – Interest & Discounts Test checking Income Recognition norms prescribed by RBI Interest on overdue / matured term deposits divergent trends in major items of income and expenditure

CA. Shashi Gupta, FCA Expenditure Test checking of interest Booking of Expenses Depreciation Divergent trends in major items of expenditure

CA. Shashi Gupta, FCA 28 GENERAL

CA. Shashi Gupta, FCA 29 1.B OOKS & R ECORDS – Manual Records Properly maintained Balances inked Authentication by authorized signatory

CA. Shashi Gupta, FCA 30 1.B OOKS & R ECORDS – Computerized Branches Printing of hard copies Extent of computerization Areas of operation covered Data security Creation on new logins Change of Pass words Control on access of files/reports Maker/Checker System Updation of Master Record Regular back-ups Contingency and disaster recovery plans Suggestions

CA. Shashi Gupta, FCA Reconciliation of Control & Subsidiary Records last date up to which such figures reconciled (certificate to the effect that there was no difference in migration of data from manual to computerization)

CA. Shashi Gupta, FCA INTER BRANCH ACCOUNTS Reconciliation Scrutiny of Outstanding entries Debit entries in HO accounts Double response in HO accounts Report Old/large outstandings

CA. Shashi Gupta, FCA AUDIT/INSPECTIONS Major adverse observations pending for corrections in: Previous Branch Audit Report Concurrent Audit Reports Revenue Audit Report RBI Inspection Report Stock Audits

CA. Shashi Gupta, FCA 34 5.FRAUDS frauds discovered during the year suggestions to minimize the possibilities of their occurrence

CA. Shashi Gupta, FCA MISCELLANEOUS 6. MISCELLANEOUS Window dressing Record of Fixed Assets Depreciation Impairment of assets Other important matters

CA. Shashi Gupta, FCA 36 SPECIALIZED BRANCHES

CA. Shashi Gupta, FCA 37 SOME IMPORTANT REPORTS

CA. Shashi Gupta, FCA 38 Exception Reports Inactive accounts reactivated. Inactive accounts reactivated. Debits to Income head accounts. Debits to Income head accounts. Overdue bills. (Overdue Interest). Overdue bills. (Overdue Interest). Bills returned. Bills returned. Withdrawal against clearings. Withdrawal against clearings. Deposits accounts with Dr balance. Deposits accounts with Dr balance. Temp O/D beyond sanction limit. (Penal) Temp O/D beyond sanction limit. (Penal) Matured deposits not renewed. (Interest) Matured deposits not renewed. (Interest)

CA. Shashi Gupta, FCA 39 Balance Sheet and Profit & Loss Account ► ► Age-wise & head-wise classification of A/cs. ► ► Advances disbursed by transfer to deposit A/cs. ► ► Abnormal transactions in Term Deposit A/cs. ► ► GL Error Report. ► ► Loan A/cs with Zero interest rate. ► ► Accounts having minimum interest rate. ► ► Interest Applied/ Failed Report for Deposits. ► ► Interest Applied /Failed Report for Advances.

CA. Shashi Gupta, FCA 40 LFAR Procedures ► ► Overdue stock/book-debts/QIS statements. ► ► Overdue reviews /renewals of credit limits. ► ► Expired insurances/under-insurances of ► ► securities. ► ► Overdue inspection of securities. ► ► Overdue renewal of loan documents. ► ► TDRs where lien has been lifted. ► ► Loans against TDR where lien Not marked. ► ► Cash balance above retention limit. ► ► Accounts having sanction limit 5 cr.

CA. Shashi Gupta, FCA 41 Compliance Audit ► ► A/cs where moratorium period expired. ► ► Sub standard a/cs restructured during year. ► ► Standard a/cs rescheduled during year. ► ► Turnover of Transaction in CC accounts. ► ► Report on overdue EMIs & interest in loan a/cs. ► ► A/cs where value of securities is less than DP. ► ► A/cs out of order for more than 90 days. ► ► Sub-standard NPA upgraded during the year.

CA. Shashi Gupta, FCA 42 Tax Audit ► ► Interest paid on Term Deposit above limit without TDS. ► ► TDS not remitted within 7 days.

CA. Shashi Gupta, FCA 43 THANKS THANKS