Statutory bank branch audit plan

CA. Sangam Kumar Aggarwal, , Last updated: 30 March 2017
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BANK AUDIT PLAN

Action to be taken on Receipt of Appointment letter

Call the Manager
Send him a mail and letter showing the documents required for bank audit
Send him an Audit Engagement letter
Send the NOC letter to the Previous Auditor

Documents to be kept with before going to Bank Audit

All the Stamps
Letter Head
Bill Performa
Pan Drive
Soft copy of Master Circulars
Books and material on Bank Audit, Income Tax & Service Tax

Questions to be asked from Branch Manager

1. Nature of Advances i.e. MSME

Large Corporate Loan Against FD/NSC/KVP etc.
Loan Against FD/NSC/KVP etc.
Housing Loan
Agriculture
Infrastructure
LC / other Non Fund Based Advances

2. Amount of Advances
3. Detail of Previous Auditor
4. Whether any restructuring of Advances
5. Circular on Closing of Accounts

Reports Required from the Branch Manager

Circular on Closing of Accounts
Concurrent Audit Report
Statutory Audit Report, LFAR, Tax Audit Report FY 14-15
Any RBI Inspection
Any System Audit
PNPA Report for Dec, Jan, Feb & March
SMA-2 Report
List of New Advances sanctioned during the year
List of Restructured account during the year.
List of NPA accounts upgraded during the year
List of New NPA account declared during the year.
List of accounts in which TOD has been allowed during the year
List of Infrastructure Projects
HO Circular on Credit Appraisal and Sanctioning power
Whether the Controlling authority has authorized for legal action for recovery of advances and if so whether the branch has initiated the action properly.
List of advances guaranteed by Central Govt and State Govt.
List of LC devolved and BG invoked during the year.
List of inoperative account. In case of a/c more than 10 years old then to be Transferred under a separate DEAF deposit a/c . Only Credit should be allowed in operative a/cs.
MOC if any passed in previous year and in any quarter of current year under audit (Whether proper effect has been taken in accounts or not)
Copy of Lease Deed of the Branch Premises
Copy of the Service Agreements with the various Service Providers to the Branch.
Copy of the TDS Returns filed
User ID and Password of the TRACES Website
Copy of the Service Tax Returns Filed.
Complaint Register
Advance Application Register
Security Register
Fraud Register

Balance Sheet Items

1. Check the Suspense Account thoroughly and specially entries outstanding for more than 3 months.

2. Check the reconciliation statements of with other Banks and RBI.

3. Check the contingent liabilities (LC issued, Guarantee issued, any legal case etc) fully disclosed in balance sheet. Otherwise issue MOC.

Advances

Obtain the Advance application register and Advances Summary Report.

In Advance Summary report, check the nature of advances, and particularly FITL, Sight Bills, Usance Bills etc. Sight Bills- RR to be handed over to customer by bank on receipt of payment and in case of usance bill RR to be handed over to the customer on signing / acceptance of the bills.

Outstanding in all FITL a/cs are matched by corresponding credit balance in FITL wise in Sundry credit balance. (Point no-28 of CC)

Obtain Potential NPA report as on 31st Jan and 28th Feb and compare it with as on 31st March.

Obtain the list of New Loans sanctioned during the year for the purpose of LFAR and documentation purpose.

In case of Old Term Loan, Just check the sanction date and amount outstanding as on audit date. The outstanding balance should correspond to the Loan sanctioned less the EMI to be received. Otherwise may be a case of NPA.

Check the End use of Advances Given, No case of diversion of funds should be in the account. No heavy cash withdrawal should be.

In case of Packing Credit Limit, the loan repayment should be out of foreign remittance.

Compare the Figure of Gross Advances as on 31st march and on the date of audit to monitor any unusual movement

Check in the selected accounts, whether DP is properly calculated.

To check whether there are proper transaction in the account in comparison to sales of the borrower.

To check whether the borrower has not utilized the short term funds for long term investments.

To check in Working Capital Advances, that the limit has been duly renewed and if not renewed within 6 months from the due date of renewal, then the account will become NPA. (Para 4.2.4)

Stock statements should not be older than 3 Months for calculation of DP (Para 4.2.4.)

Accounts regularized near Balance Sheet date. (Para 4.2.6.)

In case of NPA, Check whether any amount of devolvement of LC or Guarantees invoked has been debited in a separate account, because this account will also be treated as NPA (Para 4.2.7.ii)

In case of LC received, but the issuing bank did not make payment on due date, then the bill discounted amount against this LC will be treated as NPA immediately. (Para 4.2.7.iii)

Check the treatment of Advances under Consortium arrangements (Para 4.2.7.iv)

In case of Loan against FD/NSC/KVP etc. - No NPA if adequate Margin (Para 4.2.11.)

Loan Guaranteed by Central Govt. – NO NPA but the income recognition on realization basis. And in case of loan guaranteed by State Govt. – May be NPA (Para 4.2.14)

Provision Rate on Teaser Home Loan is 2% in place of 0.40% during the period of teaser home loan rate. (Para 5.9.13)

Whether the Controlling authority has authorized for legal action for recovery of advances and if so whether the branch has initiated the action properly.

Classification of Advances- Check the classification is proper - MOC on change in classification

Sector Wise
Security Wise
Facility Wise

Restructuring of Advances-

If any inherent weakness in advance, then restructuring
May be of Standard / Substandard / Doubtful advances
Check the compliance of terms of restructuring completely
Upfront promoter contribution is must in case of Restructuring
If restructuring g fails, then the NPA status to be treated from the old date and not from the date of restructuring.

Project Loans-
Check the project loan granted in earlier years from the point of view of DCCO and Non-commencement of CO within 2 yr / 1 yr then account will be NPA otherwise Restructuring required.

NPA ACCOUNTS

Check the account which has been declared NPA during the year under audit, whether account has been declared NPA from the actual date or as on last day of the year. Further all the unrealized income has been reversed properly.

In case any account has been converted NPA, then check other accounts of the same borrower from Customer ID.

Check in NPA account master, the correct value of security and correct date of NPA for the purpose of provisioning. (Point No-26 of Closing Circular)

Check whether any NPA account has been upgraded during the year. Whether upgradation is genuine. i.e. Fresh funds have been credited in the accounts.

Check that in NPA account there should be no debit transaction. Only credit transaction is allowed.

Check the classification of the NPA. i.e. the account which was declared NPA last year should be transferred to Doubtful asset this year. And so on.

Check that Proper Provision has been created on each category of NPA.

To check in doubtful advances, whether any advance is to be converted into Loss Assets.

In case of NPA accounts, Valuation report is must once in 3 years and in case valuation report is older than 3 years then entire loan is unsecured and provision accordingly and reporting in LFAR.

Annual stock audit is must in case of NPA with balance more than 5 Crores.

If the valuation of security is less than 50% of the last valuation, then the account can directly be transferred to doubtful.

If security value is 10% of the outstanding loan amount, then the loan account can be transferred directly to loss assets.

In case of Fraud, the a/c will be treated directly doubtful.

Deposits

i. Compare the Figure of Gross Deposits as on 31st march and on the date of audit to monitor any unusual movement.
ii. Check the complete process of accepting deposits on sample basis.

Profit & Loss A/c

To cross check whether any income on NPA account is credited in Income Side or not.
To cross check the calculation of Interest Charged and Interest paid.

Cross verify total interest debited into 3 Parts-

(i) Interest on which TDS deducted

(ii) Interest On which TDS not deducted due to Form 15G/15H received.

(iii) Interest on which TDS not deducted due to below exemption limit

To cross check on sample wise that the rate of interest has been properly entered in the master data.

To ask from the bank, whether there is any change was liable in rate of interest of any loan (such as in case of home loan etc) and check whether the effect of this change has been properly entered in master data of the customer.

Obtain a list of account in which the rate of interest has been changed during the year and to cross check whether the rate of interest was changed under proper authority.

To check in case of income on loan guaranteed by Central Govt./ State Govt, No income recognition if NPA. (Para4.2.14)

To check whether processing fees, Penal charges, renewal charges have been properly booked by the branch.

To check the Processing fees debited at every time review / renewal.

Check that ECGC premium paid by bank in P&L Insurance exps. And not under Commission Exps. (Point no-4 of Closing Circular)

To check whether any Housing Loan has been given on teaser rates, and if so then whether the rate of interest has been changed or not after the teaser period. The teaser rate is to be changed after the teaser period.

Whether any Foreign Currency Remittance, then check the 15CA & 15CB, BOE of the Goods received.

Check whether Interest has been properly debited on Deposits taken by the branch.

Whether there is any renovation of the Branch and if yes, then applicability of TDS and Service Tax Reverse Charge and VAT WCT to be checked properly.

Check that the income recognition in case of State / Central Govt. guaranteed loans must be on realization basis and not on due basis.

Income recognition in case of LC/BG/Bill discounted / Bill purchased- to be on monthly basis (Point no- 16 of CC)

Check the Following Expenses from TDS and Service Tax Reverse Charge Point of view-

Security Service Charges
Other Service Providers and other Contractors
TDS on Provision of Expenses.
Legal & Professional Charges
Tour/ Travelling / Transport Exps.
Any Foreign Payment / Payment made in Foreign Currency

Check the following points from Tax Audit Reporting Point of view-

TDS Deductible but not deducted
TDS Deducted but not deposited
Details to be reported in Point No-34(a) of the tax Audit Report.
TDS Return filing dates
In case of Late deduction and/or late deposit of TDS, Interest Provision is required.
Whether any type of demand / unusual payments has been debited in P & L a/c
Any Foreign Payment / Payment made in Foreign Currency

Check from TRACES site, whether any 234E late fees is pending to be deposited, if yes, then prepare MOC.

CERTIFICATION

Cross verify all the figures in certificate from the records.

Check the weight given to corporate advances for issue of Capital Adequacy Certificate.

2% Intt. Subvention is given for Short term production credit in agriculture sector disbursed in the year under audit. Check the utilization of funds for Direct Agriculture purpose. And if cross verification not possible then give the disclaimer in the certificate. (Point no-13 of closing circular)

3% Interest Subvention given for timely repayments, then cross verify some instances of timely repayments for the loans given in FY immediately preceding the year under audit. (Point no-13 of closing circular)

For Interest Subvention for WSHG and NRLM. Check that the credit limit allowed is not more than 3 Lac (Point no-14 of Closing Circular)

Certificate on classification of Advances- Check the classification is proper -

Sector Wise
Security Wise
Facility Wise

TDS RELATED COMPLIANCES

Check whether in case of 15G/15H received and interest paid is more than 250000/- (above exemption limit)
Check whether any interest paid to NRI then TDS to be deducted u/s 195 and TDS return to be filed in 27EQ
Check the TDS Returns and form 15H on which TDS has not been deducted.
Check that the Form 16A / 16 has been issued after downloading from TRACES site and from manual.
Check in TDS Returns, Entry for TDS on non availability of PAN has been given name wise and not in consolidated manner.

LFAR REPORT

Check the Cash balance on various odd dates. There may be System generated report for this.
Obtain the name of the persons who were the custodian of the Joint cash.
Obtain any report showing cash balance has been verified at periodic intervals.

Balance Confirmation

Obtain a copy of the Balance confirmation and analyse the reconciliation statement. Further the entries outstanding for more than 6 months to be reported.
Check in the reconciliation statement, whether there is any entries which should not be part of reconciliation but requires entries in books then MOC required.
If any investment appearing in the Balance Sheet then verify physically the Investments.
In case of NPA accounts, Valuation report is must once in 3 years and in case valuation report is older than 3 years then entire loan is unsecured and provision accordingly and reporting in LFAR.
In case of non corporate borrower enjoying limit of more than 10 lac, whether Audited Financials are in File and if not, then report the cases.

Stationary & Stamps

Physically verify the unused Stationary (FD, Cheque books, DD Book, Pay order etc)
Whether properly entered in the Security Register.
Whether the Stationary is issued in Serial Number and in sequence and if not then report.
Whether any instance of missing security noticed.

Suspense Account

Debit Entries for more than 1 year to be scrutinized and checked whether any MOC is required for debit entries.
No Entry above 3 month should remain in suspense a/c (Point no-23g of the Closing Circular)
Full Provision is required for GL suspense debit entries outstanding beyond 6 months (Point no-23g of the Closing Circular)

Profit & Loss Account
Check whether the Branch has a system of providing interest on overdue / matured deposits

In respect of computerized branches:

Whether hard copies of accounts are printed regularly?
Indicate the extent of computerization and the areas of operation covered.
Are the access and data security measures and other internal controls adequate?
Whether regular back-ups of accounts and off-site storage are maintained as per the guidelines of the controlling authorities of the bank?
Whether adequate contingency and disaster recovery plans are in place for loss/ encryption of data?

To check the DD/PO issued for more than Rs.50000/- must be from the debit to the account only and not from cash. Report if any case.

Test check KYC and other formalities in New Account opened.

General Points to be checked in Branch