BANK AUDIT LFAR Presented by CA Shashi Gupta

BANK AUDIT LFAR Presented by: CA. Shashi Gupta, FCA shashifca@gmail. com 1

LFAR • • • Introduction Assets Liabilities Profit and Loss Account General Important Reports from System 2 CA. Shashi Gupta, FCA

INTRODUCTION • Two Reports – Branch Audit & LFAR - Questionnaire form Answers - Clear, Precise, Relevant May be Elaborated Questions - Indicative not exhaustive Not a substitute or Part of Br. Audit Report No cross reference to Br Audit Report Adverse comment may find qualification in main report, but not necessarily • Branch management response • • 3 CA. Shashi Gupta, FCA

ASSETS 4 CA. Shashi Gupta, FCA

2. Balance with Banks 1. Cash 5. Advances ASSETS 4. Investments 6. Other Assets 3. Money at Call & Short Notice 5 CA. Shashi Gupta, FCA

1. CASH • Cash Retention Limit • Global Insurance Cover – In Custody; In Transit • Joint Custody • Checking at periodical interval • Soiled Notes • Counterfeit notes • Stapling • Ultra Violet Lamps • Note Counting Machines 6 CA. Shashi Gupta, FCA

2. Balances with RBI, SBI & Other Banks • Balance confirmation • • Reconciliation Cash transactions remaining un-responded Other items requiring adjustments Old outstanding balances remaining unexplained / unadjusted. Details for: • Outstanding between 6 months & 1 year; • 1 year and above 7 CA. Shashi Gupta, FCA

3. MONEY AT CALL & SHORT NOTICE • Managed by Treasury Department, HO • At Branch - Instructions of HO • Booking of Income • Balance Confirmations 8 CA. Shashi Gupta, FCA

4. INVESTMENTS • Managed by Treasury Department, HO • At Branch - Instructions of HO • Certificate of Investments held • Physical Verification • Booking of Income • Matured Investment • Un-serviced Investments • Balance Confirmations 9 CA. Shashi Gupta, FCA

5. ADVANCES • • • Credit Appraisal Sanctioning Documentation Disbursement Review/Monitoring/Supervision 10 CA. Shashi Gupta, FCA

5. ADVANCES • • • Stock / Book debt statements DP calculations Periodic operational data Financial statements Audit Report of Corporate borrower Tax Audit of Non-Corporate borrower limit beyond Rs 10. 00 lac • Balance Confirmations 11 CA. Shashi Gupta, FCA

5. ADVANCES • • • Inspection / Physical Verification Valuation of securities Charge on Securities Insurance Cover Frequent / unauthorized overdrawing beyond limits 12 CA. Shashi Gupta, FCA

5. ADVANCES • • • Previous Branch Audit Report Concurrent Audit Reports Revenue Audit Report RBI Inspection Report Stock Audits (Annual Stock Audit in case of NPA where outstanding Rs 5. 00 cr and above) 13 CA. Shashi Gupta, FCA

5. ADVANCES – Asset Classification • • Standard Sub-standard Doubtful Loss 14 CA. Shashi Gupta, FCA

5. ADVANCES • Accounts with claims for DICGC / Export Credit Guarantee / Insurance / subsidies • Rehabilitation of accounts • Recalled Advances • Accounts where Legal action to be taken / already taken • Compromise / Settlement / write-off accounts (details of cases in excess of Rs 50. 00 lacs) 15 CA. Shashi Gupta, FCA

5. ADVANCES - NPA Ø valuation reports once in three years 16 CA. Shashi Gupta, FCA

5. ADVANCES • Major deficiencies in credit review, monitoring and supervision 17 CA. Shashi Gupta, FCA

5. ADVANCES – BG & LC • Guarantee adjusted invoked, paid but not • Guarantee invoked, but not paid • Letter of Credit and Co-Acceptances funded 18 CA. Shashi Gupta, FCA

6. OTHER ASSETS Stationery and Stamps Term Deposit Receipts, Drafts, Pay orders, Cheque Books, Traveler’s Cheques, Gift Cheques, etc. • Control on Custody and Issue Sundries & Suspense Accounts • Age-wise analysis of pending entries • Unusual items • Squared up entries 19 CA. Shashi Gupta, FCA

LIABILITIES 20 CA. Shashi Gupta, FCA

1. Deposits LIABILITIES 2. Other Liabilities 3. Contingent Liabilities 21 CA. Shashi Gupta, FCA

1. DEPOSITS • • Application of Interest Inoperative Accounts Unusual large movement in accounts Overdue/matured term deposits 22 CA. Shashi Gupta, FCA

2. OTHER LIABILITIES -Bills Payable, Sundry Deposits etc. • Old Outstanding items - Age wise details; • Scrutiny 23 CA. Shashi Gupta, FCA

3. CONTINGENT LIABILITIES • Items not acknowledged by Branch (other than constituents’ liabilities such as BG, LC, co-acceptances, endorsement, etc. ) (obtain certificate from manager that all contingent liabilities have been disclosed; none will result in LOSS) 24 CA. Shashi Gupta, FCA

PROFIT & LOSS A/C 25 CA. Shashi Gupta, FCA

1. Income – Interest & Discounts • Test checking • Income Recognition norms prescribed by RBI • Interest on overdue / matured term deposits • divergent trends in major items of income and expenditure 26 CA. Shashi Gupta, FCA

2. Expenditure • • Test checking of interest Booking of Expenses Depreciation Divergent trends in major items of expenditure 27 CA. Shashi Gupta, FCA

GENERAL 28 CA. Shashi Gupta, FCA

1. BOOKS & RECORDS – Manual Records • Properly maintained • Balances inked • Authentication by authorized signatory 29 CA. Shashi Gupta, FCA

1. BOOKS & RECORDS – Computerized Branches hard copies • Printing of • • • Extent of computerization Areas of operation covered Data security Creation on new logins Change of Pass words Control on access of files/reports Maker/Checker System Updation of Master Record Regular back-ups Contingency and disaster recovery plans Suggestions 30 CA. Shashi Gupta, FCA

2. Reconciliation of Control & Subsidiary Records • last date up to which such figures reconciled (certificate to the effect that there was no difference in migration of data from manual to computerization) 31 CA. Shashi Gupta, FCA

3. INTER BRANCH ACCOUNTS • • • Reconciliation Scrutiny of Outstanding entries Debit entries in HO accounts Double response in HO accounts Report Old/large outstandings 32 CA. Shashi Gupta, FCA

4. AUDIT/INSPECTIONS • Major adverse observations pending for corrections in: • • • Previous Branch Audit Report Concurrent Audit Reports Revenue Audit Report RBI Inspection Report Stock Audits 33 CA. Shashi Gupta, FCA

5. FRAUDS • frauds discovered during the year • suggestions to minimize the possibilities of their occurrence 34 CA. Shashi Gupta, FCA

6. MISCELLANEOUS • Window dressing • Record of Fixed Assets • Depreciation • Impairment of assets • Other important matters 35 CA. Shashi Gupta, FCA

SPECIALIZED BRANCHES 36 CA. Shashi Gupta, FCA

SOME IMPORTANT REPORTS 37 CA. Shashi Gupta, FCA

Exception Reports • • Inactive accounts reactivated. Debits to Income head accounts. Overdue bills. (Overdue Interest). Bills returned. Withdrawal against clearings. Deposits accounts with Dr balance. Temp O/D beyond sanction limit. (Penal) Matured deposits not renewed. (Interest) 38 CA. Shashi Gupta, FCA

Balance Sheet and Profit & Loss Account ► ► ► ► Age-wise & head-wise classification of A/cs. Advances disbursed by transfer to deposit A/cs. Abnormal transactions in Term Deposit A/cs. GL Error Report. Loan A/cs with Zero interest rate. Accounts having minimum interest rate. Interest Applied/ Failed Report for Deposits. Interest Applied /Failed Report for Advances. 39 CA. Shashi Gupta, FCA

LFAR Procedures ► ► ► ► ► Overdue stock/book-debts/QIS statements. Overdue reviews /renewals of credit limits. Expired insurances/under-insurances of securities. Overdue inspection of securities. Overdue renewal of loan documents. TDRs where lien has been lifted. Loans against TDR where lien Not marked. Cash balance above retention limit. Accounts having sanction limit 5 cr. 40 CA. Shashi Gupta, FCA

Compliance Audit ► ► ► ► A/cs where moratorium period expired. Sub standard a/cs restructured during year. Standard a/cs rescheduled during year. Turnover of Transaction in CC accounts. Report on overdue EMIs & interest in loan a/cs. A/cs where value of securities is less than DP. A/cs out of order for more than 90 days. Sub-standard NPA upgraded during the year. 41 CA. Shashi Gupta, FCA

Tax Audit ► Interest paid on Term Deposit above limit without TDS. ► TDS not remitted within 7 days. 42 CA. Shashi Gupta, FCA

THANKS 43 CA. Shashi Gupta, FCA