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LFAR 1

LONG FORM AUDIT REPORT [LFAR] TO MANAGEMENTIN CASE OF BANK BRANCHES

Branch ______________

Code No. ____________

Zonal Office __________

Region ______________

________ Circle

The following paragraphs list the matters, which the branch auditors ofbanks are expected to comment upon in their Long Form Audit Reports.

The appendix to this questionnaire contains questions, which are relevantto specialized branches dealing in foreign exchange transactions, recoveryof non-performing assets, clearing house operations and branches havingvery large advances. Auditors of foreign branches of Indian Banks should

also furnish this report. In the case of such branches, reference to theReserve Bank of India should be construed to include the Reserve Bank ofIndia, as well as the relevant regulating authority of the foreign countrywhere the branch is located.

Where any of the comments made by the auditors in their LFAR isadverse, they should consider whether a qualification in their main reportis necessary. It should not, however, be assumed that every adversecomment in the LFAR would necessarily result in a qualification in themain report. In deciding whether a qualification in the main report isnecessary, the auditors should use their judgment in the facts andcircumstances of each case. Where the auditors have any reservation or

adverse remarks with regard to any of the matters to be dealt with in theirLong Form Audit Reports, they may give the reasons for the same. Also,where relevant, instances of situations giving rise to their reservations oradverse remarks may also be given.

I. ASSETS1. CASH

a) Does the branch generally carry cashbalances, which vary significantlyfrom the limits fixed by the

controlling authorities of the Bank?Whether excess balances have beenreported to the controlling authoritiesof the Bank?

b) Does the branch hold adequateinsurance cover for cash-on-hand andcash-in-transit?

c) Is cash maintained in effective jointcustody of two or more officials, asper the instructions of the controllingauthorities of the Bank?


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d) Have the cash balances at the branchbeen checked at periodic intervals asper the procedures prescribed by thecontrolling authorities of the Bank?

2. BALANCES WITH RESERVE BANK OF INDIA, STATE BANK OF

INDIA AND OTHER BANKS

a) Were balance confirmationcertificates obtained in respect ofoutstanding balances as at theyear-end and whether the aforesaidbalances have been reconciled?

The nature and extent of differences should be reported.

b) Your observations on thereconciliation statements may be

reported in the following manner :i) Cash transactions remainingunresponded [give details] :

ii) Revenue items requiringadjustment/write off [give details] :

iii) Old outstanding balancesremaining unexplained/unadjusted.Give details for :

- Outstanding between six monthsand one year ; and

- One year and above

c) In case any items deserve specialattention of the management, thesame may be reported.

3. MONEY-AT-CALL AND SHORT NOTICE

Has the Branch kept money-at-calland short notice during the year? Ifso, whether Instructions/guidelines,

if any laid down by ControllingAuthority of the Bank have beencomplied with?


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4. INVESTMENTS(A) For Branches in India

a) Are there any investments held bybranches on behalf of HeadOffice/other office of the Bank? Ifso, whether these have been madeavailable for physical verification orevidences have been producedwith regard to the same wherethese are not in possession of thebranch?

b) Whether any amounts received asincome on such investments havebeen reported to the Head Office?

c) In respect of investments held bybranches on behalf of Head

Office/other offices of the bankwhether any income is accrued /received any recognised as incomeof the branch contrary to theinstructions of the controllingauthorities of the Bank?

d) Whether there are any matured oroverdue investments, which havenot been encashed? If so, givedetails.

e) Whether the Guidelines of theReserve Bank of India regarding

Transactions in Securities havebeen complied with.

f) Whether the Guidelines of theReserve Bank of India regardingValuation of Investments havebeen complied with.

[B] For Branches outside India

a) In respect of purchase and sale of

investments, has the branch actedwithin its delegated authority,having regard to the instructions/guidelines in this behalf issued bythe controlling authorities of theBank?


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b) Have the investments held by thebranch whether on its own accountor on behalf of the Head Office/other branches been madeavailable for physical verification?Where the investments are not inthe possession of the branch,whether evidences with regard totheir physical verification havebeen produced?

c) Is the mode of valuation of investments in accordance with theRBI guidelines or the normsprescribed by the relevantregulatory authority of the countryin which the branch is locatedwhichever are more stringent?

d) Whether there are any matured oroverdue investments, which havenot been encashed? If so, givedetails?

5. ADVANCES[The answers to the following questions may be based on the auditor'sexamination of all large advances and a test check of other advances. Inrespect of large advances, all cases of major adverse features,deficiencies, etc. should be reported. In respect of other advances, theauditor may comment upon the relevant aspects generally, alongwithinstances of situations giving rise to his reservations or adverse remarks.

For this purpose, large advances are those in respect of which theoutstanding amount is in excess of 5% of the aggregate advances of thebranch or Rs. 2 Crores, whichever is less.]

a) Credit Appraisal

In your opinion, has the branchgenerally complied with theprocedures/instructions of thecontrolling authorities of the Bankregarding loan applications,preparation of proposals for

grant/renewal of advances,enhancement of limits, etc.,including adequate appraisaldocumentation in respect thereof.


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b) Sanctioning/Disbursement

i) In the cases examined by you,have you come across instances ofcredit facilities having beensanctioned beyond the delegatedauthority or limit fixed for thebranch? Are such cases promptlyreported to higher authorities?

ii) In the cases examined by you,have you come across instanceswhere advances have beendisbursed without complying withthe terms and conditions of thesanction? If so, give details of suchcases.

c) Documentation

i) In the cases examined by you,have you come across instances ofcredit facilities released by thebranch without execution of all thenecessary documents? If so, givedetails of such cases.

ii) In respect of advances examinedby you, have you come acrossinstances of deficiencies indocumentation, non-registration of

charges, non-obtaining of guarantees, etc? If so, give detailsof such cases.

iii) Whether advances against lien ofdeposits have been properlygranted by marking a lien on thedeposit in accordance with theguidelines of the controllingauthorities of the Bank.

d) Review/Monitoring/Supervision

i) Is the procedure laid down by thecontrolling authorities of the Bankfor periodic review of advancesincluding periodic balanceconfirmation/ acknowledgment ofdebts, followed by the Branch?Provide analysis of the accountsoverdue for review/renewal.

No. of A/cOutstanding [Rs. In

lacs]

- up to 6 months

- between 6 months and 1 year,and

- over 1 year


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ii) Are the stock/book debt statementsand other periodic operational dataand financial statements, etc.,received regularly from theborrowers and duly scrutinised? Issuitable action taken on the basisof such scrutiny in appropriatecases?

iii) Whether there exists a system ofobtaining reports on stock auditsperiodically? If so, whether thebranch has complied with suchsystem?

iv) Indicate the cases of advances tonon-corporate entities with limitsbeyond Rs.10 lakhs where thebranch has not obtained theaccounts of borrowers, duly

audited under the RBI guidelineswith regard to compulsory audit orunder any other statute.

v) Has the inspection or physicalverification of security charged tothe Bank been carried out by thebranch as per the procedure laiddown by the controlling authoritiesof the Bank?

vi) In respect of advances examinedby you, have you come across

cases of deficiencies in value ofsecurities and inspection thereof orany other adverse features such asfrequent / unauthorisedoverdrawing beyond limits,inadequate insurance coverage,etc.?

vii) In respect of leasing financeactivities, has the branch compliedwith the guidelines issued by thecontrolling authorities of the Bankrelating to security creation, asset

inspection, insurance, etc.? Has theBranch complied with theaccounting norms prescribed bythe controlling authorities of theBank relating to such leasingactivities?

viii) Are credit card dues recoveredpromptly?


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ix) Has the branch identified andclassified advances intoStandard/Sub-standard/ Doubtful/Loss Assets in line with the normsprescribed by the RBI? [The auditormay refer to the relevant H.O.instructions for identification ofNon-performing Assets andclassification of advances].

x) Where the auditor disagrees withthe branch classification ofadvances into Standard/ Sub-standard/ Doubtful/ Loss Assets,the details of such advances withreasons should be given. Alsoindicate whether suitable changeshave been incorporated/suggestedin the Memorandum of Changes.

xi) Have you come across cases wherethe relevant controlling authority ofthe Bank has authorised legalaction for recovery of advances orrecalling of advances but no suchaction was taken by the branch? Ifso, give details of such cases.

xii) Have all non-performing advancesbeen promptly reported to therelevant controlling authority of theBank? Also state whether any

rehabilitation programme inrespect of such advances has beenundertaken, and if so, the status ofsuch programme.

xiii) Have appropriate claims for DICGCand export credit guarantees/insurance and subsidies. If any,been duly lodged and settled? Thestatus of pending claims givingyear wise break-up number andamounts involved should be given

in the following format.


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DICGC ECGC

No. Amount[Rs. inLacs]

No. Amount[Rs. inLacs]

Particulars

Claims as at thebeginning of theyear [Give year-wise details] upto March

2007-2008

2008-2009

2009-2010

Further claimslodged during theyear 2010-2011

TOTAL

A

Amountsrepresenting:

a) Claims accepted/settled[Give year-wisedetails]

upto March2007-2008

2008-2009

2009-2010

2010-2011

b) Claims rejectedGive year-wisedetails]

upto March2007-2008

2008-2009

2009-2010

2010-2011

TOTALB

Balance as at the

year-end[Give year-wisedetails]

upto March2007-2008

2008-2009

2009-2010

2010-2011

A-B


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xiii) In respect of non-performing assetshas the branch obtained valuationreports from approved valuers forthe field assets charged to theBank, once in three years, unlessthe circumstances warrant ashorter duration?

xiv) In the cases examined by you hasthe branch complied with theRecovery Policy prescribed by thecontrolling authorities of the Bankwith respect tocompromise/settlement and write-off cases? Details of the cases ofcompromises/settlement and write-off cases involving write-offs/waivers in excess of Rs. 50.00

lakhs may be given.xv) List the major deficiencies in credit

review, monitoring and supervision.

e) Guarantees and Letters of Credit

i) Details of outstanding amounts ofguarantees invoked and funded bythe branch at the end of the yearmay be obtained from themanagement and reported in the

following format :

a) Guarantees invoked, paid but not adjusted:

Sr.No.

Date ofInvocation

Name ofthe party

Name ofbeneficiar

y

Amount[Rs. Inlacs]

Date ofRecover

y

Remarks

b) Guarantees invoked but not paid

Sr.No.

Date ofInvocation

Name ofthe party

Name ofbeneficiar

y

Amount[Rs. Inlacs]

Date ofRecover

y

Remarks

ii) Details of the outstanding amounts of letters of credit and co-

acceptances funded by the branch at the end of the year may be obtainedfrom the management and reported in the following format:


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Sr.No.

Date offunding

Name ofthe

party

Nature[LC/Co-

acceptance, etc.

Amount[Rs. Inlacs]

Date ofRecovery

Remarks

6. OTHER ASSETSa) Stationery and stamps

i) Does the system of the Bankensure adequate internal controlover issue and custody of stationery comprising of securityitems [Term Deposits Receipts,

Drafts, Pay Orders, Cheque Books,Traveller's cheques, Gift Cheques,etc.] ? Whether the system is beingfollowed by the branch?

ii) Have you come across cases ofmissing/ lost items of suchstationery?

b) Suspense Accounts / Sundry Assets

i) Does the system of the Bank

ensure expeditious clearance ofitems debited to SuspenseAccount? Details of old outstandingentries may be obtained from theBranch and the reasons for delay inadjusting the entries beascertained. Does the scrutiny ofthe accounts under various sub-heads reveal balances, which inyour opinion are not recoverableand would require a provision/write off? If so, give details in the

following format :

Date of EntryAmount [Rs. In

lacs] Nature Remarks

ii) Does your test check indicate anyunusual items in these accounts? Ifso, report their nature and the

amounts involved.


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II. LIABILITIES

1. DEPOSITS:

i) Have the controlling authorities ofthe Bank laid down any guidelineswith respect to conduct andoperations of Inoperative Accounts?In the cases examined by you,have you come across instanceswhere the guidelines laid down inthis regard have not beenfollowed? If yes, give detailsthereof.

ii) After the balance sheet data and allthe date of audit, whether therehave been any unusual large

movements [whether increase ordecrease] in the aggregatedeposits held at the year-end? If so,obtain the clarifications from themanagement and give yourcomments thereon.

iii) Are there any overdue / maturedterm deposits at the end of theyear? If so, amounts thereof shouldbe indicated.

2. OTHER LIABILITIESBill Payable, Sundry Deposits, etc.

i) The number of items and theaggregate amount of oldoutstanding items pending forthree years or more may beobtained from the branch andreported under appropriate heads.Does the scrutiny of the accountsunder various sub-heads reveal oldbalances? If so, give details in the

following format

Date of EntryAmount [Rs. In

lacs] Nature Remarks

ii) Does your test check indicate anyunusual items of materialwithdrawals or debits in these

accounts? If so, report their natureand the amounts involved.


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3. CONTINGENT LIABILITIES

List of major items of thecontingent liabilities [other thanconstituents' liabilities such asguarantees, letters of credit,acceptances, endorsements, etc.]not acknowledged by the Branch?


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III. PROFIT AND LOSS ACCOUNT

1Whether the branch has a systemto compute discrepancies ininterest/discount and for timelyadjustment thereof in accordancewith the guidelines laid down inthis regard by the controllingauthorities of the Bank? Has thetest checking of interest revealedexcess / short credit of a materialamount? If so, give details thereof.

2 Has the branch complied with theIncome Recognition normsprescribed by RBI? [The Auditormay refer to the instructions of thecontrolling authorities of the Bank

regarding charging of interest, onnon-performing assets].

3 Whether the branch has a systemto compute discrepancies ininterest on deposits and for timelyadjustment of such discrepanciesin accordance with the guidelineslaid-down in this regard by thecontrolling authorities of the Bank?Has the test check of interest ondeposits revealed any excess /short debit of material amount? Ifso, give details thereof.

4 Does the Bank have a system of estimating and providing interestaccrued on overdue / matured termdeposits?

5 Are there any divergent trends inmajor items of income andexpenditure which are notsatisfactorily explained by thebranch? If so, the same may bereported upon. For this purpose, an

appropriate statement may beobtained from the branchmanagement explaining thedivergent trends in major items ofincome and expenditure.


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IV. GENERAL

1. BOOKS AND RECORDS

a) In case any books of account aremaintained manually, does generalscrutiny thereof indicate whetherthey have been properlymaintained, with balances dulylinked out and authenticated by theauthorised signatories?

b) In respect of computerisedbranches :

v Whether hard copies ofaccounts are printed regularly?

v Indicate the extent ofcomputerisation and the areasof operation covered.

v Are the access and datasecurity measures and otherinternal controls adequate?

v Whether regular back-ups ofaccounts and off-side storageare maintained as per theguidelines of the controllingauthorities of the Bank?

v Whether adequatecontingency and disasterrecovery plans are in place for

loss / encryption of data?v Do you have any

suggestions for theimprovement in the systemwith regard to computerisedoperations of the branch ?

2. RECONCILIATION OF CONTROL AND SUBSIDIARY RECORDS :

Have the figures, as at the year end, in the control and subsidiary recordsbeen reconciled? If not, the last date upto which such figures have beenreconciled should be given under the respective heads, preferably in thefollowing format:

Account Head Date GeneralLedgerBalance

[Rs.]

SubsidiaryBalance [Rs.]

Last Date onwhich

balanced


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3. INTER BRANCH ACCOUNTS

i) Does the branch forward on a dailybasis to a designated cell/HeadOffice, a statement of debit/credittransactions in relation to otherbranches?

ii) Does a check of the balance in theHead Office Account as shown inthe said statement during and as atthe year-end reveal that the sameis in agreement with the HeadOffice Account in the generalledger?

iii) Are there any outstanding debits in

the Head Office Account in respectof Inter-branch transactions?

iv) Does the branch expeditiouslycomply with / respond to thecommunications from thedesignated cell /Head Office asregards unmatched transactions?As at the year-end are there anyunresponded /uncomplied queriesor communications ? If so, givedetails?

v) Have you come across items of double responses in the HeadOffice Account? If so, give details.

vi) Are there any old/large outstandingtransaction/entries at debits as atyear-end which remain unexplainedin the accounts relatable to inter-branch adjustments?

4. AUDITS / INSPECTIONS

i) Is the branch covered by

concurrent audit or any otheraudit / inspection during the year?

ii) In framing your audit report, haveyou considered the major adversecomments arising out of the latestreports of the previous auditors,concurrent auditors, stock auditors,concurrent auditors, stock auditorsor internal auditors, or in thespecial audit report or in theInspection Report of the Reserve

Bank of India ? State the variousadverse features persisting in thebranch, though brought out inthese audit / inspection reports.


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5. FRAUDS

Furnish particulars of fraudsdiscovered during the year underaudit at the branch, together withyour suggestions, if any, tominimise the possibilities of theiroccurrence.

6. MISCELLANEOUS

i) Does the examination of theaccounts indicate possible windowdressing?

ii) Does the branch maintain recordsof all the fixed assets acquired andheld by it irrespective of whetherthe values thereof or depreciationthereon have been centralised ?Where documents of title inrelation to branch or otherbranches are available at thebranch, whether the same havebeen verified?

iii) Are there any other matters, which

you as a branch Auditor would liketo bring to the notice of themanagement or the CentralStatutory Auditors?

Date: STATUTORY BRANCH AUDITORS

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