Checklist for Statutory Audit of Bank Branch Audit (An Overview)

Deposit

i.   Term

ii. Saving

iii.  Current

iv. FCNR/ NRE/ NRNR

i)    New Accounts opened & Accounts closed;

ii)  Dormant Accounts;

iii)  Interest calculations;

iv)  Test check account statements for unusual/  large/ overdraft transactions;

v)    Overdue Term deposits & banks policy for its renewal;

vi)  Accrual of interest;

vii)RBI Norms for Non-resident deposits & its operations – with due importance to opening and operation of accounts like NRE, NRNR, FCNR, RFC, etc.;

viii) Interest on various types of deposits;

ix) Tax Deducted at Source.

x) Large deposits placed at the end of the year (probable window dressing).

xi) Examine unusual trend in account opening or account closing, dormant accounts that have suddenly been reactivated by heavy cash withdrawals or deposits, overdrawing, etc.

xii)  Examine interest trends as compared to average annual deposits (monthly average figures).

ii) Review appraisal system, Files of large as well as critical borrowers, sanctions, disbursement, renewals, documentation, systems, securities, etc.

iii) Review on test check basis operations in the Advances Accounts.

iv) Compliance of sanction terms and conditions in the case of new advances.

v) Whether the borrower is regular in submission of stock statements, book debt statements, insurance policies, balance sheets, half yearly results, etc. and whether penal interest is charged in case of default/ delay in submission of such data.

vi) Charge of interest and recovery for each quarter or as applicable to be verified.

vii)  Review the monitoring system, i.e. monitoring end use of funds, analytical system prevalent for the advances, cash flow monitoring, branch follow-up, consortium meetings, inspection reports, stock audit reports, market intelligence (industry analysis), securities updation, etc.

viii) Check classification of advances, income recognition and provisioning as per RBI Norms/ Circulars.

ix) Examine interest trends as compared to average annual advances (monthly average figures).

x) Scrutinise the final advances statements with regard to assets classification, security value, documentation, drawing power, out standings, provisions, etc.

xi) Check whether Non-Fund based (Letter of Credits/ Bank Guarantees) exposure of the borrowers is within the sanctioned limits.

xii)  Compare projected financial figures given at the time of project appraisal with actual figures from audited financial statements for relevant period and ascertain reasons for large variance.

xiii)Take into account the assessment of RBI if the regional office of RBI has forwarded a list of individual advances to the bank, where the variance in the provisioning requirements between the RBI and the bank is above certain cut off levels

Verify:

i)   Short debit of interest/ commission on advances;

ii) Excess credit of interest on deposits;

iii)  In case the discrepancies are existing in large number of cases, the auditor should consider the impact of the same on the accounts;

iv)  Determine whether the discrepancies noticed are intentional or by error;

v)  Check whether the recurrence of such discrepancies are general or in respect of some specific clients;

vi)  Proper authority in sanction and disbursement of expenses as also the correctness of the accounting treatment given as to revenue/ capital/ deferred expenses.

vii) Check accrual of income/ expenditure especially for the last month of the financial year.

viii) Divergent Trends – Divergent trends in income/ expenditure of the current year may be analysed with the figures of the previous year.

Wherever a divergent trend is observed, obtain an  explanation along with supporting evidences like monthly average figures, composition of the income/ expenditure, etc.

i) Physically verify the Cash Balance as on March 31, 2020 or reconcile the cash balance from the date of verification to March 31, 2020.

ii) Confirm and reconcile the Balances with banks as on March 31, 2020.

i) Physically verify the Investments held by the branch on behalf of Head Office and issue certificate of physical verification of investments to bank’s Investments Department.

ii)  Check receipt of interest and its subsequent credit to be given to Head Office.

i) As per RBI norms, unrealised interest on NPA accounts should be reversed and not charged to “Advance Accounts”. Reversal of unrealised interest of previous years in case of NPA accounts is required to be checked.

ii) Partial Recovery in respect of NPA accounts should be generally appropriated against principal amount in respect of doubtful assets.

Check Inter-branch transfer memos relating to Fixed Assets and whether they have been correctly classified in the accounts and depreciation accounting thereof.

i) Understand the IBR system and accordingly prepare an audit plan to review the IBR transactions. The large volume of Inter Branch Transactions and the large number of unreconciled entries in the banking system makes the area fraud-prone.

ii) Check up head office inward communication to branch to ascertain date up to which statements relating to inter branch reconciliation have been sent.

i) Reversal of any large/ old/ unexplained entries, which had remained outstanding in IBR.

ii) Items of revenue nature, cash-in-transit (for example, cash meant for deposit into currency chest) which remains pending for more than a reasonable period.

iii) Double responses to the entries in the Accounts.

iv)    Test Check accuracy and correctness of “Daily statements” which are prepared by the branch and sent to IOR department. The auditor should duly consider the extent of non-reconciliation in forming his opinion on the financial statements. Where the amounts involved are material, the auditor should suitably qualify his audit report

v)  Suspense accounts are adjustment accounts in which certain debit transactions are temporarily posted whose authorisation is pending for approval. Sundry Deposit accounts are adjustment accounts in which certain credit transactions are temporarily posted whose authorisation is pending for approval, As and when the transactions are duly authorised by the concerned officials they are posted to the respective accounts and the Suspense account/ Sundry Deposit account is credited/ debited respectively.

vi)Ask for and analyse their year-wise break-up. o Check the nature of entries parked in such Accounts.

vii) Check any movement in such old balances and whether the same is genuine and has been properly authorised by the competent authority.

viii) Check for any revenue items lying in such accounts and whether proper treatment has been given for the same.

ii)   Include Audit Qualifications in the Auditors Report and not in the LFAR;

iii)  Quantify the Audit Qualifications for a better appreciation of the point made to the reader;

iv)  For suggesting any changes in the financial statements of the branch, quantify the same in the Memorandum of Changes (MOC) and make it a subject matter of qualification and annex it to the Auditors Report.

Agricultural Advances: In respect of advances granted for agricultural purposes where interest and/ or installment of principal remains overdue for a period of more than two harvest seasons but for a period not exceeding two half years, the advance should be treated as NPA.