BANK AUDIT
LFAR
Presented by:
CA. Shashi Gupta, FCA
shashifca@gmail.com
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LFAR
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Introduction
Assets
Liabilities
Profit and Loss Account
General
Important Reports from System
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INTRODUCTION
• Two Reports – Branch Audit & LFAR
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
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ASSETS
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2.Balance with Banks
1.Cash
5.Advances
ASSETS
4.Investments
6. Other Assets
3.Money at Call &
Short Notice
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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
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2. Balances with RBI, SBI & Other Banks
• Balance confirmation
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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
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3. MONEY AT CALL & SHORT NOTICE
• Managed by Treasury Department, HO
• At Branch - Instructions of HO
• Booking of Income
• Balance Confirmations
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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
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5. ADVANCES
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Credit Appraisal
Sanctioning
Documentation
Disbursement
Review/Monitoring/Supervision
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5. ADVANCES
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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
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5. ADVANCES
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Inspection / Physical Verification
Valuation of securities
Charge on Securities
Insurance Cover
Frequent / unauthorized overdrawing
beyond limits
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5. ADVANCES
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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)
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5. ADVANCES – Asset Classification
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Standard
Sub-standard
Doubtful
Loss
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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)
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5. ADVANCES - NPA
 valuation reports once in three years
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5. ADVANCES
• Major deficiencies in credit review,
monitoring and supervision
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5. ADVANCES – BG & LC
• Guarantee
adjusted
invoked,
paid
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not
• Guarantee invoked, but not paid
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Letter of Credit and Co-Acceptances
funded
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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
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LIABILITIES
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1. Deposits
LIABILITIES
2.Other
Liabilities
3.Contingent
Liabilities
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1. DEPOSITS
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Application of Interest
Inoperative Accounts
Unusual large movement in accounts
Overdue/matured term deposits
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2. OTHER LIABILITIES
-Bills Payable, Sundry Deposits etc.
• Old Outstanding items - Age wise
details;
• Scrutiny
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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)
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PROFIT & LOSS A/C
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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
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2. Expenditure
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Test checking of interest
Booking of Expenses
Depreciation
Divergent trends in major items of
expenditure
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GENERAL
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1. BOOKS & RECORDS – Manual Records
• Properly maintained
• Balances inked
• Authentication by authorized signatory
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1. BOOKS & RECORDS – Computerized Branches
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Printing of hard copies
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
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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)
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3. INTER BRANCH ACCOUNTS
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Reconciliation
Scrutiny of Outstanding entries
Debit entries in HO accounts
Double response in HO accounts
Report Old/large outstandings
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4. AUDIT/INSPECTIONS
• Major adverse observations pending for
corrections in:
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Previous Branch Audit Report
Concurrent Audit Reports
Revenue Audit Report
RBI Inspection Report
Stock Audits
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5.FRAUDS
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frauds discovered during the year
• suggestions to minimize the
possibilities of their occurrence
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6. MISCELLANEOUS
• Window dressing
• Record of Fixed Assets
• Depreciation
• Impairment of assets
• Other important matters
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SPECIALIZED BRANCHES
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SOME IMPORTANT REPORTS
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Exception Reports
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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)
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Balance Sheet and Profit
& Loss Account
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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.
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LFAR Procedures
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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.
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Compliance Audit
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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.
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Tax Audit
► Interest
paid on Term Deposit above limit
without TDS.
► TDS not remitted within 7 days.
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THANKS
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