1. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Veena Hingarh Statutory Audit under CBS Environment

2. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Audit in a CBS Environment Cash and Bank Balances. Money at call and Short Notice. Investments. Advances Other assets. Deposits and other liabilities. Profit and Loss Account. General. Specialized Branches.

3. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Cash Cash balance which vary significantly from the limit fixed by controlling authorities. –Data available from CBS Joint custody –Check security setting in vault accounting, entries for main cash to counter cash ATM Balance –Verify ATM balance –Check the system of cash replenishment and balance updation

4. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Money at Call and Short Notice Balance confirmation –Data available from CBS Cash transactions remaining un-responded –Data available from CBS Old outstanding balances remaining unexplained and age wise analysis –Data available from CBS Unauthorized deposits and excess of authorized deposits to be reported –Data available from CBS

5. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Investment Physical verification on behalf of H.O. –Book balance available on CBS Income earned on such Investments is not accounted by Branch –Review the income accounts on CBS Matured or overdue investments –Review report generated based on maturity date

6. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Advance NPA identification –All accounts not covered in auto NPA system –System classifies PA to NPA and NPA to PA wrongly –Generate NPA report –Interest charging on NPA accounts –Reversal of interest not done properly –Apply wrong % of provision on NPA Accounts regularize near balance sheet

7. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Advance Assets classification when delay in approval of restructuring package Computation of Drawing Power. Review system parameter setting –Account creation authority –Account activation authority –Disbursement activation authority

8. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Advances Master File - Check Parameters –Repayment Schedule –EMI Schedule –Drawing Power DP / SL monitoring Customer wise Limit Lookup Stock / Debtors Statements Tracking Calculation of DP –Interest Rate and Penal Interest

9. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Advances Master File - Check Parameters –Overdue Principal and Interest (LAOPI) –Asset Classification Account Inquiry (ACI) Insurance expiry list (INSTOEXP/INSEXPD) Change in sanction limit (CHLMT) Loan document expiry date (INQLAC/INQLADC) Non- submitted Stock Statement (STKSTMT) –Standing Instructions (SI) Parameters

10. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Linking of credit limits In CBS environment, in order to know the consolidated outstanding and value of assets of a customer under various credit-limits, all limits are linked to central/common node. –One NPA all NPA –Duplicate Cust-id

11. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Exception Reports - Advances Inactive/ Dormant accounts Zero Balance and Non-zero accrued Interest Debit Balance without Interest Rate Credit balances in Advance accounts Debit to Income Head account Excess allowed over limits/ drawing power Time barred DP notes Temporary OD beyond sanctioned period –(EXCPRPT)

12. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Securities Master Maintenance To check whether values of various securities are updated promptly and drawing powers are allowed on current value of such securities. Security Register (SRM) –value of securities, –date of inspection, –date of valuation.

13. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Other Assets Stationery and Stamps –Check balance as per books from CBS Suspense Accounts / Sundry Assets –Use CBS to obtain details and clarification in respect of old unadjusted entries Check for balances that are not recoverable, common heads being –Advance against travelling, advance payment for expenses, legal expenses, cash in transit

14. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Deposits and Other Liabilities Unusual movements after balance sheet date –Data on CBS Quantification of Overdue / Matured term deposits at the year end. –Data on CBS – relates to old deposits List of major items of contingent liabilities other than Guarantees, LCs, Endorsements, Acceptances etc., –Obtain from CBS

15. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Deposits – Overdue and auto renewal To check whether auto–renewal of overdue TDR has been enabled Comment on –Effective renewals and failures and –On application of interest

16. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Profit and Loss Test check interest / discount income and expenditure for select account in different categories Specifically check –Treatment of instalment paid in advance for EMI based loan and recurring deposit accounts Review with test check system of estimation and provision of Interest on overdue / matured term deposits.

17. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Reasons for Incorrect Interest 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” Next interest demand date not changed and kept same as date of application of interest. Account wrongly marked as Past-due/ “NPA”

18. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Interest not applied Accounts where Interest Code is ‘0’: –Interest will not be charged from Accounts where Interest Code is selected as ‘0’. Hence, a detailed checking is required. Possible reasons can be, Whether NPA Account Accounts with Moratorium? Interest Collection Flag as “No”: –If Interest Collection Flag is selected as “No”, Software will not consider the account for calculation and entry for Debit Interest.

19. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Debit Interest SI Failed Report: –SI Failure can be for any reason like Non availability of Balance in Account Non availability of Limit in Account Technical Snag in execution –Whether Branch has manually passed the entry Loan Installment SI Failed Report: –Same as above –Standing Instruction Inquiry (SII) Interest not applied

20. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation General Inter Branch Accounts –HO Account and branch Accounts agreement –Old outstanding debits in the Head Office Account esp. those inherited Check for window dressing using CBS –Large deposit at year end –Under utilised facilities converted in deposits –Unsecured loans shown as secured Review FA register esp. for assets purchased at HO and debited to branch

21. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Specialised Branch Foreign Exchange Branches –Check if interest is being paid on NOSTRO accounts –If paid, whether service tax has bene collected on services provided to those accounts Large Advances –CBS can provide report on accounts with balance above specified limit

22. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Exploring Each Transaction has unique Tran ID. Facility of exploring a Tran during Account Scrutiny [Drill Down Approach] - press CTRL + E on a Tran during scrutiny of Account.

23. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Special Focus Areas Day end Reports Impact of system generated transactions Intersol Transactions Parking Transactions Impersonal Accounts Security Maintenance Other important areas Jilani and Ghosh committee Reporting

24. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Day end reports Exceptional report (EXCPRPT) List of users Access Log Rejected/Cancelled entries Over-limits/TOD Report GL affected Balances Report Report on large cash transactions/KYC Anti Money Laundering

25. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Exception Reports Debit /Credit balance change Maturity record deleted Inactive accounts reactivated 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

26. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation System generated transactions Application of Interest Application of service charges Updation of parameters globally Balancing & Reconciliations Classification of inoperative accounts

27. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Intersol transactions Reconciled centrally at Data Centre as a part of end of day Large Balances

28. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Income recognition and asset classification To check asset classification done by the system for correctness. To check whether past–due status has been marked to all NPA accounts. Provisioning at HO, normally not by system Reversal of interest Notional interest accounting

29. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation TDS To check whether accounts of customers submitting Form 15G/15H have been linked to correct TDS Table. To check whether all accounts of the customer have been linked to a customer-id for the purposes of TDS.

30. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Parking/Proxy transactions System generated – Standing instructions with sol closed User generated – –Ambiguity –For instance: Depositing RD installment in excess of the cumulative installments. This entry may not be posted in RD Account and posted in Proxy/parking transactions account and reversed subsequently.

31. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Impersonal/personal accounts For instance: (a) sundry credit accounts, (b) sundry deposit accounts, (c) suspense (d) H.O Account etc –Postings in sundry credit accounts and sundry deposit accounts have been duly verified by the branch. –Deposit from public and Deposit from Banks have been shown correctly in appropriate GL Subheads. –Credit balances in Loan accounts have not been shown in sundry deposit account.

32. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Internet Banking To check & comment specifically whether adequate validation procedures such as verification of data relating to customer profile –Identity and address proof –Nature of constitution and –Mode of operations etc. fed into system have been carried out at Branch

33. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Other important areas Verify that balance in GL tallies with the balance in Subsidiary book. Charges automatically calculated. Charges calculated manually not through parameters. Penalty Interest. Lien Marking of fixed deposits.

34. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Areas included under LFAR –Whether hard copies of accounts are printed regularly –Areas of operations covered –Are access and data security measures and other internal controls adequate –Physical Access –Logical Access –Database Access –Back-up Measures –Contingency and disaster recovery plans for loss of data

35. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Areas included under LFAR Scrutiny of the Information System Audit Report. Jilani Committee Recommendation –Have appropriate control measures been devised and documented to prevent the computer system from attacks of unscrupulous elements. (Logical access controls) –All aspects of security, reliability and accessibility are ensured before introduction of EDP applications in place of manual system by having pilot parallel runs.

36. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Areas included under LFAR Jilani Committee Recommendation –Consistent and reliable system of inputting, processing and generation of output of data. –EDP activities brought under scrutiny if inspection and audit including the financial aspects –Are there formal methods for incorporating changes in standard software

37. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Areas included under LFAR Ghosh Committee Recommendation –Are standards devised for suitable internal control (IT Policy) –Are standards in place for fully computerised branches –Replacement of unwilling workers in computer area

38. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Fraud Consideration Review some consideration of fraud –Active ID for transferred employees –Employee absent but transaction from same ID –Duplicate user ID –Review of employee job profile and privileges –Number of head teller in the branch –Employees permitted to commit inter-branch transaction –System of issue of ATM card to customer

39. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Command ACLI (Account Ledger Inquiry) –Check the transactions in any account including Fixed assets, Depreciation, TDS remittance pending, service tax, depreciation, etc. and –“Limit History Maintenance” shows increase or decrease of sanction limit and drawing power of an account. (ACLHM.) It also shows the last review date and expiry date of the account. –“Asset Classification Details” will show if a particular asset is classified as NPA

40. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Commands ACLPCA & ACLPOA (Customer Account Ledger Print & Office Account Ledger Print) –Generate soft copy of any account –ACLPCA generates soft copy of customer accounts (e.g. Saving Accounts, Overdrafts, CC etc.) –ACLPOA gives office accounts (e.g. Block of Fixed Assets, Cash on Hand, Sundry Expenses etc.)

41. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Commands AFI (Audit File Inquiry) –Useful to verify transactions on a daily basis. –Generates a list of critical transactions which are required to be monitored closely, such as premature closure of an FD to check charges thereon or transactions in accounts having balance below minimum limit.

42. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Commands AVGBAL (Average Balance) –Average balance maintained in a particular customer’s account for given range of time. –Useful when commitment charges are taken on OD/CC accounts for under utilization BCREPORT (Bankers Cheque Report) –Generate a list of Banker’s Cheque Outstanding BCREPORT –> Report To: M –> Self: Y –> Data Centre: N –> Other than Home: N –> Data Centre Icl. Self: N –> Paid Only: N –> From Date: –> To Date: –> F4.

43. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Command DCEXPLST ( Report on Expiring Documentary Credits) –Generates the list of Letter of Credits (LCs) expired but not closed. –Such LCs should be closed before the Balance Sheet date to avoid misrepresentation.

44. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Commands DCQRY ( Query on Documentary Credit) –Generates the list of all inland/foreign LCs issued during the given period. –Auditor can also check if the details entered in the system are as mentioned in the documents. –Shows the list of both Inward and Outward Documentary Credits. Each LC can be verified from this menu.

45. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Commands IRM/ ORM (Inward/ Outward Remittance Maintenance) –A branch having foreign business will obviously have Inward and Outward remittances in foreign currencies. –The charges upon those remittances can be checked from these menus; moreover it generates the actual list of transactions the branch has entered into. Auditor can verify supporting documents for such transactions.

46. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Commands MSGOIRP (Outstanding Items Report) –Reports outstanding entries in sensitive accounts such as Suspense Account, Special Debit Account, Pension Payment Account, Sundry Deposits, Sundry Creditors etc. –Gives day wise break up of balances in such accounts, indicating how old one particular entry is. NPARPT (NPA Report) –Generates the list of accounts classified as NPAs

47. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Finacle Commands LAOPI (Loan Overdue Position Inquiry)/TODRP –Generate lists of overdue loan accounts PR (Print Reports) –Various reports can be printed or a soft copy GILR ( Guarantee Issued Liability Register) –Guarantees which are expired but not cancelled can be checked from this menu. POVDPC (Party wise Overdue Packing Credit)] –This menu option lists overdue packing credits

48. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Useful Flexcube Commands Detailed manual is available at –https://docs.oracle.com/cd/E51465_01/homepage.html

49. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Standards on Auditing 200-299 General Principles and Responsibilities –SA 230 - “Audit Documentation” –SA 240 - “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements” 300-499 Risk Assessment and Response to Assessed Risks –SA 300 - “Planning an Audit of Financial Statements” –SA 315 - “Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment”

50. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Standards on Auditing –SA 320 - “Materiality in Planning and Performing an Audit” –SA 330 - “The Auditor’s Responses to Assessed Risks” –SA 450 - “Evaluation of Misstatements Identified During the Audit” 500-599 Audit Evidence –SA 500 - “Audit Evidence” –SA 510 - “Initial Audit Engagements – Opening Balances” –SA 520 - “Analytical Procedures”

51. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Standards on Auditing –SA 530 - “Audit Sampling” –SA 540 - “Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures” –SA 560 -, “Subsequent Events” –SA 570 - “Going Concern” –SA 580 - ”Written Representations” 700-799 Audit Conclusions and Reporting –SA 700 - Forming an Opinion and Reporting on Financial Statements

52. Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation Thank You