Statutory Audit under CBS Environment - ICAI of CBS... · Statutory Audit under CBS Environment. ... •Security Register (SRM) –value of securities, ... Useful Finacle Commands

Bank Statutory Audit in a CBS Environment © South-Asian Management Technologies Foundation

Arif Ahmed, Partner: Arif Ahmed & Associates

Statutory Audit under CBS

Environment


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.


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


Money at Call and Short Notice

• Balance confirmation


• Cash transactions remaining un-responded


• Old outstanding balances remaining unexplained

and age wise analysis


• Unauthorized deposits and excess of authorized

deposits to be reported



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


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


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)


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


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


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.


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


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


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.


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”


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


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


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


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.



• 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



• 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


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


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


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


System generated transactions

• Application of Interest

• Application of service charges

• Updation of parameters globally

• Balancing & Reconciliations

• Classification of inoperative accounts


Intersol transactions

• Reconciled centrally at Data Centre as a

part of end of day

• Large Balances


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


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


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.


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.


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


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.


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


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


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.)



• 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.



• 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.


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.



• 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.



• 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.



• 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



• 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


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



• 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



• 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



• 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


Useful Flexcube Commands

• Detailed manual is available at

– https://docs.oracle.com/cd/E51465_01/homepage.html


Thank You

Documents

Statutory Audit under CBS Environment - ICAI of CBS... · Statutory Audit under CBS Environment. ... •Security Register (SRM) –value of securities, ... Useful Finacle Commands