Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Arif Ahmed, Partner: Arif Ahmed & Associates
Statutory Audit under CBS
Environment
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
LFAR and CBS
• 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.
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
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
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
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Advance
• NPA identification
– Check parameter setting for NPA marking
– Confirm whether NPA marking is set to manual
– Generate NPA report
– Loans Overdue Position Inquiry : LAOPI
– Loan Overdue Details : LOANODUE
• Review system parameter setting
– Account creation authority
– Account activation authority
– Disbursement activation authoriy
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Advances
• Master File - Check Parameters
– Repayment Schedule:
• Loans Repayment Schedule Report : LARSH
– EMI’s
– Interest Rate
– Drawing Power
– Penal Interest
– Overdue Principal and Interest (LAOPI)
– Asset Classification
• Account Inquiry (ACI)
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
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Other Assets
• Stationery and Stamps
– Check balance as per books from CBS
– Valuable paper inventory system: VPIS
• 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
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.
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
• List of major items of contingent liabilities
other than Guarantees, LCs, Endorsements,
Acceptances etc.,
– Obtain from CBS
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
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.
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 overdue/ “NPA”
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
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 been collected
on services provided to those accounts
• Large Advances
– CBS can provide report on accounts with
balance above specified limit
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Areas Included under LFAR
• Whether hard copies of accounts are printed
• 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
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.
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
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
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
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
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Exception Reports
• 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
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
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
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 overdue status has been marked to all NPA accounts.
• Provisioning at HO, normally not by system
• Reversal of interest
• Notional interest accounting
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.
– TDS Inquiry & Printing : TDSIP
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.
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.
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
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.
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
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
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.)
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.
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.
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.
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.
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.
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
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
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Some More Finacle Commands
• Interest Report for Accounts : AINTRPT
• Loan Interest Details Inquiry : AITINQ
• Abnormal Transaction Inquiry : ATI
• Bills Inquiry : BI
• Rate List History Query : RTHQRY
• Standing Instructions Inquiry : SII
• TDS Inquiry & Printing : TDSIP
• Transactions Exceptions Inquiry : TEI
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Some More Finacle Commands
• Customer Unutilised Limit Inquiry : CULI
• Charges Income Report : CHGIR
• Exceptions Report : EXCPRPT
• Report for Matured OD/FD Accounts : ODFDREP
• Loans Overdue Position Inquiry : LAOPI
• Loans Repayment Schedule Report : LARSH
• Pending Instalments List : PLIST
• BG Margin Printing : BGMARGIN
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Some More Finacle Commands
• Account TOD Inquiry : ACTODI
• Accounts Turnover Report : ATOR
• Insurance Expired Yesterday : INSEXPD
• Loan Overdue Details : LOANODUE
• List of Pending and Dishonoured Bills : FBPADB
• Overdue Foreign Bills : ODFB
• Guarantees Expired but not Reversed : GENR
• Guarantees Invoked or not Paid : GIPNP
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Some More Finacle Commands
• Guarantees Issued Cum Liability Register : GILR
• Loan Sanction Limit Review : LAROR
• Insurance Expiry List : INSTOEXP
• Loan document expiry date : INQLAC
• Change in sanction limit : CHLMT
• Non submitted stock statement : STKSTMT/SRM
• Loan account Master report : LAMP
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
Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation
Thank You