Statutory Audit of Banks Branches
1. On receipt of Appointment latter
 I write for No objection to the immediate previous auditors
 Send Acceptance letter along with Statement of fidelity’ Confidentiality etc.
 Contact the respective Branch Manager –ask about location/stay arrangement etc. i.e. A few questions about the branch/STATOUS REPORT –LFAR.
2.
To Carry with you during your visit to the branches a.
I Authorization letter b.
Guidelines for annual closing of accounts for the respective Bank c.
ICAI Guidance Notes for Statutory Audit d.
Various formats –LFAR &Tax Audit e.
Letter head of your Firm f.
Round stamp/Partners’ Stamp/stationeries/Calculator g.
Ticket and Money
3.
Audit programme /Training of Staff/Updating a) I physical verification of cash and Stamp/stamped documents /stationary b) Bank Balance –RBI/Other Banks and its reconciliation, c) Deposits and borrowing –FD/RD/SBCA/TOD/COD/Annuity/Staff Deposit/Cash Certificates etc. d) Advance –Term loan & Demand loan a.
Cash Credit and Overdraft b.
Bills payable and Bills Discounted c.
Agricultural loan-
I.
Short Duration crop
II.
Long Duration crop d.
Consortium loans/Housing Loan/Educational Loan e.
Government guaranteed loan (Central state) f.
Devolved LC g.
Invocation of Bank Guarantee h.
Overdraw in Deposit accounts i.
Debit Balance in Saving Bank accounts e.
Foreign Exchange-Deposits and Advances accounts f.
Inter Branch Adjustment accounts g.
Housekeeping –Maintenance of books and Records-GL/SL Returens-
Daily/Weekly/Fortnightly/Monthly/Quarterly/Yearly(Wherever applicable as per exiting Bank norms)

h.
Income-Interest Commission /Service on Draft etc. Loan processing changes /Investment Income
(Comparative study and its various analysis) i.
Expenditure –Interest I Operational expenses –salary & Administrative expenditure (Comparative
Study and its various analysis ) j.
Investment k.
Contingent liabilities l.
Frauds and its present status m.
Previous Reports (major discrepancies and its status ) n.
Effect of previous year MOC’s
4.
Allocation of work: Time and Responsibility sharing
At Branch Manager’s Office
 15-20 minutes introduction
 Important –first impression
 FAQ’s about the branch: size of the branch/Total Advance –Fund based Non Fund based/
Deposit profit/ NPA-ratio of accounts and percentages / CD Ratio / whether Computerized.
About the Bank: profit of the Bank / Market share / standing NPA %/ Investment profit Olio /
Capital Adequacy ratio
5.
Start the Audit
Requisition:- a) Last year Balance sheet and Schedule file b) Last year’s closing returns c) Last year’s LFAR and Tax Audit Report d) Concurrent Audit report if any e) Revenue and Inspection Report if any f) RBI Inspection Report-Divergence g) H.O Inspection Report h) All large advances accounts- Files’ and Starts report of documentation/ stock verification /Audited
Balance Sheet i) Stock Audit Report j) Systems Audit Report/ exception report-if computerized k) Ho/RBI Circular File l) File of reply by the bank to the various Audit/ Inspection Report m) Circular for change in the interest rate during the year
6.
At partner’s or proprietor’s level
I. Study of Reports a) Identify weak areas b) Identify NPA Advances accounts c) Revenue leakage if any d) RBI adverse comments if any e) Resultant Provisioning requirement
II. Advance accounts checking a) Statements –Borrowers’ classification account wise b) Summary presentation of Advance Accounts
III. LFAR

IV. Tax Audit Report preparation
V. Closing Returns-Balance sheet profit & Loss Account i.e. the Final Accounts scrutiny a) Provisioning of Income and Expenditure b) Presentation
VI. Foreign Exchange Transactions- including NOSTRO/VOSTRO accounts
VII. Asset liability Management-Residual Maturity Statements
VIII. Movement of NPA’s
IX. Gosh & Jilani a) Fraud/ Internal control and checking (special preparation if any ) b) Committee Recommendations on
7.
At Assistant’s Level:
I. Physical verification a) Cash / party Cash-Cash scroll/Day Book b) Security papers c) Tokens d) Printing and Stationery items particularly Check books, Drafts and Bankers’ Cheque e) Investment papers, if any f) Bills purchased g) Foreign Currency, if any h) Fixed Assets Register i) Numbering of each Fixed Assets of the Branch
II. House keeping a) GL to SL in all deposits and Advances accounts b) Reconciliation c) Maintenance of Books and Records- list of books and Records d) Calendar of Returns
III. Obtain balance confirmation certificates from SBI/RBI and other banks Reconciliation statements of accounts with the Bank
IV. Profit and loss Account Vouching and Income & Expenditure Checking a) Income checking- proper accounting b) Revenue leakage- Accuracy and Documentation inclusive of penal interest applicable areas c) Expenditure checking l.
proper accounting ii.
iii.
iv.
v.
Authority
Documentation
Proprietary
Statutory compliance
V. Closing Return-figure checking up to Balance sheet if not computerized, if computerized
. system checking in a selective way may be adopted
VI. Inter Branch adjustment account- Full provision for Net Debit of transactions which are more than 90 days old
VII. Sundry Assets /Receivables
VIII. Suspense account
IX. Sundry liabilities /payable
X. Contingent Liabilities

XI. Premises and other fixed Assets (also Rent Agreement and renewal)
I. Documentation-file study
What are the documents normally we expect in the files: a) DPN b) Sanction letter c) Appraisal of project d) Letter of Hypothecation e) Agreement for loan f) Letter of Guarantee / counter guarantee g) Legal opinion about non encumbrance status of securities h) Non encumbrance certificate i) Pre-disbursement Audit Report j) Registration of charges m case of a company k) Completion of mortgaged properties l) Security pledged and recording its line – m) Insurance on the charged securities n) AOD (Accounts overdue) o) Stock Statement (only paid stocks) non moving stocks are to be excluded p) DP and inspection Resister ii. Non compliance and irregularities usually we see a.
Documents -not in file b.
Documents are there but not executed properly c.
In cash of a company- charge not register with Roc within stipulated period d.
Blank/ incomplete documents e.
Resolution regarding power and authority to borrower-not on record f.
FDR pledged –not on record g.
FDR pledged –not on endorsed h.
Latest financial Statement not on record i.
Accounts overdue (AOD) j.
Insurance papers-not on record k.
Insurance expired l.
Guarantee / counter Guarantee –expired and deletion from Register from within reasonable period m.
Valuation report of immovable property not on record n.
Inspection report not on record o.
Review Removal Report not on record p.
For charging of penal interest (see condition from the sanction latter )
III. Prudential Norms-Recovery
PA-NPA-S/std; Doubtful; Loss a.
Term Loan b.
Repayment of Installment due for more than 90 days Cash Credit /Over draft c.
Cash Credit /Over draft d.
Interest not paid for a period of more than 90 days e.
Outstanding balance is in excess of limit. DP, whichever is less, for more than 90 days event if one or two credit during last few months and credit not sufficient to cover the interest debited f.
Bills payable- Overdue for more than 90 days g.
Agricultural Loan h.
Short duration Crops-(two harvest season) i.
Long duration crops-(one harvest season) h.
Consortium Advance- Bank independently to judge the status i.
Government sponsored schemes-substandard and doubtful but not loss j.
List of fresh NPA classified during the year k.
Develop letter of credit and guarantee- due immediately more than 90 days
IV. RBI latest norms a.
Stock statement older than 3 months- irregular;

b.
Review –NPA when due for more than 90 days
V. other RBI revisions in NPA norms a.
A solitary or a few credits – See inheritance weakness in the account operation NPA b.
Straight way to doubtful in case erosion in value of security is that the reduced value is below 50% of the value assured by the bank/RBI at the time of last inspection c.
Straight way loss value of security is less than 10% of outstanding balance
VI. Mechanism a.
Loss- nothing to be seen except proper accounting
100 % provision doubtful b.
Deficit to be verified and for that security valuation to be seen whether proper standard date of NPA
- if more than 12 months – doubtful – each and every account – recovery in the light of prudential norms
VII. Restricted Accounts- RBI guidelines
Good Account:
1.
Delayed commission of production
2.
Delayed rate of interest
Bad Account :
1. Non Recovery
2. Non rate of interest
VIII. Rescheduling / Restructuring a.
Prolonging of repayment schedule b.
Prolonging in interest jate c.
Both of above d.
RBI Guidelines – Std or S/Std,/ Doubtful status to maintain Maintaining Std, Allowed provided e.
Totally covered with security f.
Sacrifice is provided for g.
Other wais in status h.
To see status as on date of restructuring
IX. Sacrifice of Interest a.
Present value of interest receivable as per original terms minus present value of interest receivable as per the Restructured term. DF- ROI- Current PLR-(+ - )
X. preparation of Audit Report: => a.
Accumulate all observation of ‘principal’ and/or ‘Assistants’ accounts and branch level b.
In case of any change, pass MOC and DO NOT change the accounts at Branch level c.
Prepare LFAR-Please fill in all the, columns, But avoid “yes”, “no” “NA”or”NIL”
Give your opinion clearly and with examples. d.
Prepare TAR(Tax audit Report ) e.
Any observation, issue special report and attach with the main report f.
Discuss observations g.
Main report must be on the Firm’s letter head h.
In case of any serious lapse report separately to the top management. i.
Stamping and initialing-properly done j.
signature by both Audit and Management k.
follow Distribution chart l.
Take back with you
I.
One full set of report and main accounts
II.
Stay Certificate m.
Working papers and files duly initialed whoever required other papers carried by you
XI. Office papers

1.
Keep all working papers and authenticated papers. Branch wise in separate files in office.
2.
Keep the evidence of traveling/lodging/flooding etc in a file for raising bills to the bank.