4.40
Signboard of the bank is not displayed in godown, where the pledged/ hypothecated stock is stored
4.41
Limit not fully utilised by the borrower/No commitment charge is levied for the limit not fully utilised by the borrower
4.42
Loan against TDR/ STDR, which is matured, is neither renewed nor credited to loan account
4.43
The Stock and Debtors Audit Report not found on record. No audit has been done for accounts of the borrower
4.44
The valuation report in respect of tangible security from government approved valuer have not been obtained
4.45
Guarantees, Opinion Reports Financial statements, IT assessment orders and etc. of the guarantor are not found on record
4.46
Opinion report on guarantor is not obtained
4.47
For Small Government Sponsored loan accounts, security cover could not be ascertained since neither any record was available at branch nor physical verification conducted by the branch
4.48
Pre–sanctions and/or post–sanctions inspection reports were not on record
4.49
The account was overdue for repayment and/or no credit was received from the borrower for a long time
4.50
7
8
9
Bank Branch Statutory Audit – Certain Aspects
VIPUL K.CHOKSI
Fellow Chartered Accountant
|
S. |
Item |
Important Audit Checks |
|
1. |
Deposit i. Term ii. Saving iii. Current iv. FCNR / NRE / NRNR
|
|
|
2. |
Advances |
Extent of Checking : Verify:
Some of the important areas to be examined /reviewed in respect of advances are:
|
|
3. |
Profit & Loss Account |
Income/ Expenditure: Verify
|
|
4. |
Balance Sheet |
Cash & Bank Balances
|
|
|
|
Investments
|
|
|
|
Fixed Assets
|
|
|
|
Inter Branch Reconciliation (IBR)
Check and report
|
|
|
|
Further, vide its circular no. DBOD No. BP.BC. 73 /21.04.018/2002–03 dated February 26, 2003, the Reserve Bank (RBI) advised the banks to maintain category–wise (head–wise) accounts for various types of transactions put through inter–branch accounts so that the netting can be done category–wise. Further, RBI advised banks to make 100 percent provision (category–wise) for net debit position in their inter–branch accounts arising out of the un reconciled entries, both debit and credit, outstanding for more than six months [Refer to the master circular (www.rbi.org.in)] |
|
|
|
Suspense Accounts, Sundry Deposits, etc 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
|
|
5. |
Auditing in CBS/Computerised environment
|
|
|
6. |
Auditors Report & Memorandum of Changes |
|
|
6. |
Long Form Audit Report (LFAR) |
|
|
7. |
Certificates |
There are number of certificates required to be issued by the Branch Auditors. Some of these certificates are relating to disclosures for the Bank as a whole. These are:
Branch auditor need to take due care while certifying the figures of these certificates. In respect of data for compliance of Basel II norms and ALM, the branch auditor need to ensure that data generated by the system are reliable. He need to apply appropriate audit checks to ensure that data generated by the system are reliable. Also refer the relevant Master Circular. Certification of Ghosh and Jilani Committee recommendations is another important certification for which auditor should give suitable disclaimers wherever required. |
|
8. |
General |
|
Income Recognition Asset Classification Norms – At A Glance
|
Credit Facility |
Basis for treating a Credit Facility as NPA |
Remarks |
|
Term Loans |
Ø Interest or instalment remains overdue for a period of more than 90 days from end of the quarter Agricultural Advances: In respect of advances granted for agricultural purposes where interest and/ or instalment of principal remains overdue for a period of more than two crop seasons for short duration crops and one crop season for long duration crops, the advance should be treated as NPA |
Overdue: An amount due to the bank under any credit facility is ‘Overdue’ if it is not paid on the due date fixed by the bank |
|
Cash Credits k Overdrafts |
Ø The account remains continuously “out of order” for a period of more than 90 days i.e. Outstanding balance remains continuously in excess of the sanctioned limit/ drawing power or there are no credits continuously for a period of 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period |
Banks may not classify an account merely due to existence of some deficiencies, ––which are of temporary nature such as non–availability of adequate drawing power, balance outstanding exceeding the limit, non–submission of stock statements and non–renewal of the limits on the due date, etc However, outstanding in an account based on stock statements older than three months would be deemed irregular. Such account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower’s financial position is satisfactory. Further, an account where the regular/ ad–hoc credit limits have not been reviewed/ renewed within 180 days from the due date/ date of ad–hoc sanction respectively, will be treated as NPA |
|
Bills Purchased k Discounted |
The bills purchased/ discounted remains overdue for a period of more than 90 days |
Overdue interest should not be charged and taken to income account in respect of overdue bills unless it is realised |
|
Other Accounts |
Any amount to be received in respect of that facility remains overdue for a period of more than 90 days |
|
|
Government guaranteed advances |
State Government guaranteed advance would attract asset classification and provisioning norms, if interest and/ or principal or any other amount due to the bank remains overdue for more than 90 days |
Credit facilities backed by guarantee of Central Government though overdue may be treated as NPA only when the government repudiates its guarantee when invoked. However, income shall not be recognised if the interest or installment has remained overdue or the account has remained continuously out of order or the bills or any other facility has remained overdue for a period of more than 90 days |
Notes:
For Copy of Master Circular on Prudential Norms on Income recognition, Asset Classification and Provisioning pertaining to the Advances Portfolio issued by Reserve Bank of India vide DBOD.No.BP.BC. 17 /21.04.048/2009-10 dated July 1, 2009 refer to www.notifics.rbi.org.in
Once an account has been classified as NPA, all the facilities granted to the borrower will be treated as NPA except in respect of Primary Agricultural Credit Societies (PACS)/ Farmers Service Societies (FSS). Also, in respect of additional facilities sanctioned as per package finalised by BIFR and/ or term lending institutions, provision may be made after a period of one year from the date of disbursement in respect of additional facilities sanctioned under the rehabilitation package. The original facilities granted would however continue to be classified as sub–standard/ doubtful, as the case may be
Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and Life policies need not be treated as NPA. However income on such advances can be recognized subject to availability of margin. Advances against gold ornaments, government securities and all other securities are not covered by this exemption
Till the time the account is identified as NPA, income is recognised irrespective of whether realised or not. Where an account is identified as NPA during the year, unrealised income should not be recognised for the year. Also, interest accrued and credited to income account in the previous year should be reversed or provided for if the same is not realised
If the accounts of the borrowers have been regularised before the balance sheet date by repayment of overdue amounts, the same should be handled with care and without scope for subjectivity. Where the account indicates inherent weakness on the basis of the data available, the account should be deemed as a NPA. In other genuine cases, the banks must furnish satisfactory evidence to the Statutory Auditors about the manner of regularisation of the account to eliminate doubts on their performing status
RBI had issued series of circulars on restructuring of advances during the year 2008-09 .Despite this there were lot of areas where there was lack of clarity on some aspects of restructuring The Master Circular issued by RBI on 1st July 2009 has separate Part B only on restructuring. Classification of various categories of restructured advances should be done as per Para 9.1 to 18 of this chapter.
Part C of the Master Circular dated 1st July 2009 deals with Prudential Norms in on Income Recognition, Asset Classification, Provisioning, and Capital Adequacy in respect of Agricultural Debt Waiver and Debt Relief Scheme, 2008
In absence of a clear agreement between the bank and the borrower for the purpose of appropriation of recoveries of NPAs, banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner. Thus in case of recoveries in NPAs, auditor should verify that appropriation between interest and/or principal is done as per its consistent accounting policy of the Bank
ASSET CLASSIFICATION & PROVISIONING – AT A GLANCE
|
Category |
Conditions to be satisfied |
Provision Amount |
Remarks |
|
Stand–ard Assets |
|
General Provision on standard assets is as under:
|
|
|
Sub–Standard Assets |
|
|
In respect of accounts where there are potential threats of recovery on account of erosion in the value of security or non–availability of security and existence of other factors such as frauds committed by borrowers, it will not be prudent for banks to first classify them as sub–standard and then as doubtful after expiry of twelve months from the date the account has become NPA. Such accounts should be straightaway classified as doubtful asset (when realizable value of security is less than 50% of the total value of security) or loss asset (when realizable value of security is less than 10% of the value of security), as appropriate, irrespective of the period for which it has remained as NPA |
|
Doubtful Assets |
|
|
|
|
Loss Assets |
|
|
|
Draft Engagement Letter to be sent to the Appointing Authority of the Bank
March 20, 2010
The Zonal/ Regional Manager
_____________ Bank
_____________ Zone/ Region
Mumbai
Dear Sirs:
Re.: Engagement Letter
You have requested that we audit the balance sheets of __________ Branch & __________ Branch of _________ Bank as at March 31, 2009 and the related profit and loss account for the year ended on that date. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements
We will conduct our audit in accordance with the auditing standards generally accepted in India and with the requirements of the Banking Regulation Act and the Reserve Bank of India Act and the guidelines issued under the said statutes from time to time. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation
However, having regard to the test nature of an audit, persuasive rather than conclusive nature of audit evidence together with inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements of financial statements, resulting from fraud, and to a lesser extent error, if either exists, may remain undetected
In addition to our report on the financial statements, we expect to provide you with a separate letter concerning any material weaknesses in accounting and internal control systems which might come to our notice in the form of a Long Form Audit Report
The responsibility for preparation of financial statements on a going concern basis is that of management. Management is also responsible for selection and consistent application of appropriate accounting policies, including implementation of applicable accounting standards along with proper explanation relating to any material departures from those accounting standards. The management is also responsible for making judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the entity at the end of the financial year and of the profit or loss of the entity for that period
Responsibility of management also includes maintenance of adequate accounting records and internal controls for safeguarding of the assets of the branch and for the preventing and detecting fraud or other irregularities. As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit.
We also wish to invite your attention that our audit process is subject to 'Peer Review' under the Chartered Accountants Act, 1949. The reviewer may examine our working papers during the course of the peer review
We look forward to full cooperation with your staff and we trust that they will make available to us whatever records; documentation and other information are requested in connection with our audit
Our fees will be billed upon completion of our audit assignment
Kindly acknowledge receipt
For ABC & Co
Chartered Accountants
Draft Letter of Requirements to be sent to the Branch
March 20, 2010
The Branch Manager
_____________ Bank
_____________ Branch
Mumbai
Dear Sir:
Sub.: Statutory Audit of your branch for the year 2009-2010
As you are aware, we have been appointed as the Statutory Auditor to report on the accounts of your Branch for the year 2009-2010
In order to enable us to finalise the audit programme and furnish our report on the audit of the accounts for the year 2009-2010 of your branch, may we request you to keep the following information/ clarification ready and make the same available to our audit team at the earliest:
Latest Reports
The following latest reports on the accounts of your Bank, and compliance by the Bank on the observations contained therein may be kept ready for our perusal:
Latest RBI Inspection Report;
Internal/ Concurrent Audit Reports;
Head Office Inspection Reports;
Internal Inspection Reports;
Revenue Audit Report (if any);
Income and Expenditure Control Report (if any);
Report on any other Inspection/ Audit that may have been conducted during the course of the year relevant to the financial year 2009-2010
Circulars in Connection with Accounts
Please let us have a copy of the Head Office circulars/ instructions in connection with the closing of your accounts for the year, to the extent not communicated to us or incorporated in our letter of appointment
Accounting Policies
Kindly confirm whether, as compared to the earlier year, there are any changes in the accounting policies during the year under audit. If so, please let us have a list and a copy of the accounting policy/ies amended by the bank during the year covered by the current audit and compute the financial effect thereof to enable us to verify the same
Deposits
Please let us have the Interest rate structure, applicable for the current year, for all the types of deposits accepted by the branch
Kindly confirm having transferred Overdue/ Matured Term Deposits to Current Account Deposit. If not, details/ particulars of credit balances comprising Overdue/ Matured Term Deposits as at the year–end which continue to be shown as Term Deposit, particularly where the branch does not have any instructions/ communication for renewal of such deposits from the account holder and amount of provision of interest made on such overdue/ matured term deposits, should be separately marked out and be kept ready for our reference
Advances
Kindly confirm whether in respect of the advances against tangible securities, the branch holds evidence of existence and latest market value of the relevant securities as at the year–end
Kindly inform the year–end status of the accounts, particularly those which have been adversely commented upon in the latest reports of RBI/ Internal Auditors/ Concurrent Auditors/ Statutory Auditors, etc on the branch as also accounts in respect of which provisions have been made/ recommended as at the previous year–end
Information in relation to such advances accounts where provision computed/ recommended may please be prepared indicating:
i Name of the borrower
ii Type of facility
iii * Total amount outstanding as at the year–end (both for principal and interest) specifying the date upto which interest has been levied and recovered
iv Particulars of securities and value on the basis of latest report/ statement
v Nature of default and action taken
vi Brief history and present status of the advance
vii * Provision already made/ recommended
viii NPA since when (please specify the date)
* Corresponding figures for the previous year–end may please be given
Kindly confirm whether the borrowers’ account have been categorised according to the norms applicable for the year into Standard, Sub–standard, Doubtful or Loss assets, with special emphasis on Non–Performing Assets (NPA) and whether such classification has also been made applicable by the branch to advances with balances of less than Rs.25,000 each
Kindly confirm whether you have examined the accounts and applied the norms borrower–wise and not account–wise for categorising the accounts. Please let us have the particulars of provisions computed/ recommended in respect of the above during the financial year under auditA list of all advances accounts which have been identified as bad/ doubtful accounts and where pending formal sanction of the higher authorities, the relevant amount have not been re–classified/ re–categorised in the book of the Branch for provision/ write off. This covers all account identified by the Branch or internal/ external auditor or by RBI inspectors but the amount has not been written–off wholly or partly
In case the Bank has recommended action against the borrowers or for initiating legal or other coercive action for recovery of dues, a list of such borrowers’ accounts may be furnished to usPlease let us have a list of borrowers’ accounts where classification made as at the end of the previous year has been changed to a better classification, stating reasons for the same
Kindly also confirm whether any income has been adjusted/ recorded to revenue, contrary to the norms of income recognition notified by the Reserve Bank of India and/ or Head Office circulars issued in this regards; and particularly where the chances of recovery/ realisablity of the income are remote
Kindly also confirm whether any income has been recorded on Non–Performing Accounts other than on actual realisation
Outstanding in Suspense/ Sundry Account
Kindly let us have a year–wise/ entry–wise break up of amounts outstanding in Suspense/ Sundry accounts as on March 31, 2010. Kindly explain the nature of the amounts in brief. Supporting evidences relating to the existence of such amounts in the aforesaid accounts may be kept ready at the branch for verification. Reasons for non–adjustment of items included in these may be made known
Inter–branch/ Office Accounts/ Head Office Account
Please let us have a statement of entries (head–wise) which originated prior to the year–end at other branches, but were responded during the period after March 31, 2009 at the branch
Date–wise details of debits in various sub–heads relating to Inter–branch transactions and reasons for outstanding amounts particularly those, which are over 30 days as at the Balance Sheet date
Contingent Liabilities
Kindly confirm whether other than for advances, there are any matters involving the Bank in any claims in litigation, arbitration or other disputes in which there may be some financial implications, including for staff claim, municipal taxes, local levies etc If so, these may be listed for our verification, and you may confirm whether you have included these as contingent liabilities
Kindly confirm whether guarantees are being disclosed net of margins, or otherwise as at the year–end, and whether the expired guarantee where the claim year has also expired, continue to be disclosed in the Branch return. Please confirm specifically
Interest Provision
Kindly confirm whether interest provision has been made on deposits etc in accordance with the latest instruction of the RBI/ interest rate structure of the bank. A copy of such instructions/ rate structure may be made available for our scrutiny
Kindly confirm whether any amount recorded as income upto the year–end, which remains unrecovered or not realisable, has been reversed from any of the income heads or has been debited to any expenditure head during the financial year. If so, please let us have details to enable us to verify the same
Kindly confirm the accounting treatment as regards reversal, if any of interest/ other income recorded up to the previous year–end; and the amount reversed during the year under audit i.e. income of earlier years derecognised during the year
Foreign Currency Outstanding Transactions
Kindly confirm whether amount outstanding as at the year–end have been converted as at the year–end rates prescribed by FEDAI. An authenticated copy of the FEDAI rates applied may be given for our records
Kindly confirm the amount of inward value of foreign currency parcels, if any, which originated prior to the year–end from other banks, but could not be recorded as these were in transit and for which entries were made after the year end
Investment/ Stationery
For Investment held by the branch:
These may be produced for physical verification and/ or evidence of holding the same be made available
Stock of unused security paper stationery/ numbered forms like B/Rs, SGL forms, etc may please be produced for physical verification
It may be confirmed whether income accrued/ collected has been accounted as per the laid down procedure
It may be confirmed whether Investment Valuation has been done as per the extant RBI guidelines
13. Long Form Audit Report – Branch response to the Questionnaire
In connection with the Long Form Audit Report, please let us have complete information as regards each item in the questionnaire, to enable us to verify the same for the purpose of our audit
14. Tax Audit in terms of Section 44AB of the Income–tax Act, 1961
Please let us have the information required for the tax audit under section 44AB of the Income–tax Act, 1961 to enable us to verify the same for the purpose of our report thereon
15. Other Certification
Please furnish us the duly authenticated information as regards other matters, which as per the letter of appointment require certification
16. Bank Reconciliation & Confirmations
Please let us have, the duly reconciled statements for all Nostro as well as Local bank accounts. A copy of the year–end balance confirmation statements should also be called for and kept ready for our review
17. Books of accounts and records
Kindly keep ready all the records like vouchers, documents, Fixed Assets Register, etc for our verification
We shall appreciate your kind co–operation in the matter
Thanking you,
Yours truly,
For ABC & Co
Chartered Accountants
_______________________
Partner
Draft of Management Representation Letter to be obtained from the Branch Management
April 7, 2010
M/s XYZ & Co
Chartered Accountants
Mumbai
Dear Sirs,
Sub.: Audit for the year ended March 31, 2010
This representation letter is provided in connection with your audit of the financial statements of _____________ branch of _______________ BANK for the year ended March 31, 2010 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view of the financial position of ___________ branch of _______________ BANK as of March 31, 2010 and of the results of operations for the year then ended. We acknowledge our responsibility for preparation of financial statements in accordance with the requirements of the Reserve Bank of India and recognised accounting policies and practices, including the Accounting and Auditing Standards issued by the Institute of Chartered Accountants of India
We confirm, to the best of our knowledge and belief, the following representations:
1 ACCOUNTING POLICIES
The accounting policies which are material or critical in determining the results of operations for the year or financial position are set out in the financial statements and are consistent with those adopted in the financial statements for the previous year. The financial statements are prepared on accrual basis except as stated otherwise in the financial statements
There are no changes in the accounting policies followed by the branch during the current year
2 ASSETS
The branch has a satisfactory title to all assets and there are no liens or encumbrances on the branch's assets. The branch has not received any legal notices from the landlords asking them to vacate the premises that the branch is currently occupying as a lessee
3 FIXED ASSETS
The Fixed Assets held by Branches have been properly accounted and have been physically verified at the year end. No discrepancies are noticed on such verification. Depreciation on these assets have been adequately provided as per the policy of the Bank.
4 CAPITAL COMMITMENTS
At the balance sheet date, there were no outstanding commitments for capital expenditure
5 OTHER CURRENT ASSETS
In the opinion of the management, other current assets have a value on realization in the ordinary course of the branch’s business which is at least equal to the amount at which they are stated in the balance sheet
6 CASH k BANK BALANCES
The Cash balance as on March 31, 2010 is Rs._____________
7 LIABILITIES
The branch has recorded all known liabilities in the financial statements
8 CONTINGENT LIABILITIES
8.1 The branch has disclosed in notes to the financial statements all;
· guarantees that we have given to third parties;
· Letters of Credits (Local/ Import);
· Letters of Comfort (Local/ Import);
· Deferred Payment Credits/ Guarantees (Local/ Import);
· and all other contingent liabilities
8.2 Other than for advances, there are no matters involving the branch in any claims in litigation, arbitration or other disputes in which there may be some financial implications, including for staff claim, branch rentals, municipal taxes, local levies etc except for those which have been appropriately included under contingent liabilities
8.3 Guarantees are disclosed net of margins as at the year–end, and expired guarantee where the claim year has also expired has been correctly removed from the branch return
8.4 Contingent liabilities disclosed in the notes to the financial statements do not include any contingencies, which are likely to result in a loss and which, therefore, require adjustment of assets or liabilities
8.5 No cases/ legal disputes are pending against the branch/ lodged by the branch, for which no liability has accrued/ is likely to accrue in the future
9 PROVISIONS FOR CLAIMS k LOSSES
Provision has been made in the accounts for all known losses and claims of material amounts
10 There have been no events subsequent to the balance sheet date that require adjustment of, or disclosure in, the financial statements or notes thereto
11 PROFIT k LOSS ACCOUNT
Except as disclosed in the financial statements, the results for the year were not materially affected by:
(a) transactions of a nature not usually undertaken by the branch;
(b) Circumstances of an exceptional or non–recurring nature;
(c) Charges or credits relating to prior years;
(d) Changes in accounting policies
12 We have made available to you all the following latest reports on the accounts of our branch, and compliance by the branch on the observations contained therein:
a) Previous year’s Branch Audit Report;
b) Internal Inspection Reports;
c) Report on any other Inspection Audit that has been conducted during the course of the year relevant to the financial year 2009-2010
Apart from the above, the branch has not received any notice, show cause, inspection advice, etc from Government of India, Reserve Bank of India or any other monitoring or regulatory authority of India that could have a material effect on the financial statements of the branch during the year
13 BALANCING OF BOOKS
The books of the accounts are computerized and hence the subsidiary records are automatically balanced with the relevant control records
14 OVERDUE/ MATURED TERM DEPOSITS
All Overdue/ Matured Term Deposits are held as Matured Term Deposits
15 ADVANCES
15.1 In respect of all the advances against tangible securities, the branch holds evidence of existence and market value of the relevant securities as at the year–end
15.2 All the borrowers’ account have been categorised according to the prevalent RBI norms applicable for the year, into Standard, Sub–standard, Doubtful or Loss assets, with special emphasis on Non–Performing Assets (NPA)
15.3 We have examined the accounts and applied the norms borrower–wise and not account–wise for categorising the accounts
15.4 The classification of advances made as at the end of the previous year has not been changed to a better classification
15.5 No income has been adjusted/ recorded to revenue, contrary to the norms of income recognition notified by the Reserve Bank of India; and particularly where the chances of recovery/ realisability of the income are remote
15.6 No income has been recorded on Non–Performing Accounts other than on actual realisation
16 OUTSTANDING IN SUSPENSE/ SUNDRY ACCOUNT
The year–wise/ entry–wise break up of amounts outstanding in Sundry deposits/ Sundry assets as on March 31, 2009 has already been submitted to you along with explanation of the nature of the amounts in brief and supporting evidences relating to the existence of such amounts in the aforesaid accounts
17 INTEREST PROVISIONS
17.1 Interest provision has been made on deposits, etc in accordance with the extant instructions of the Head Office
17.2 Any amount recorded as income upto the year–end, which remains unrecovered or not realisable, has been reversed from the respective income heads or has been debited to corresponding expenditure head during the year
17.3 The accounting treatment as regards reversal, if any of interest/ other income recorded upto the previous year end; and the amount reversed during the year under audit i.e. income of earlier years de–recognised during the year has been made in accordance with the prevalent RBI norms of Income Recognition
17.4 The interest provision for Head Office Interest shall be made at the Head Office
18 STATIONERY
Stock of unused stationery like security papers, cheque books, demand draft book, etc have been produced for your physical verification and are in order
19 LONG FORM AUDIT REPORT–BRANCH RESPONSE TO THE QUESTIONNAIRE
In connection with the Long Form Audit Report, complete information as regards each item in the questionnaire has been made available to you in order to enable you to verify the same for the purpose of your audit
20 OTHER CERTIFICATION
Duly authenticated, information as regards other matters which, as per the bank’s letter of appointment, require certification have been made available to you
21 GENERAL
There is no enquiry going on or concluded during the year by Central Bureau of Investigation (CBI) or any other Vigilance or Investigating Agency on the branch or on its employees and no cases of Frauds or of Misappropriation of Assets of the branch have come to the notice of the Management during the year other than for amounts for which provisions have already been made in the books of accounts
22 The provision for non–performing assets, depreciation, provision for income tax, provision for bonus, gratuity, etc is made at the Head Office. Therefore the same has not been provided in the branch accounts
23 There have been no irregularities involving management or employees who have a significant role in the system of internal control that could have a material effect on the financial statements
24 At the end of the year, the branch has translated its holdings of Foreign Deposit Accounts at a notional rate of Rs.38 to 1 USD. The difference between the notional rate of Rs.38 and the actual rate as at the year end will be accounted for at the Head Office
25 The financial statements are free of material mis–statements, including omissions
26 The branch has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of non–compliance. There has been no non–compliance with requirements of regulating authorities that could have a material effect on the financial statements in the event of non–compliance
27 We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the financial statements
28 The other particulars required have already been given to you and particulars and other representations made to you from time to time are true and correct in all respects
29 TAX AUDIT FOR THE YEAR ENDED March 31, 2010
TAX AUDIT IN TERMS OF SECTION 44AB OF THE INCOME–TAX ACT, 1961
The information required for the tax audit under section 44AB of the Income–tax Act, 1961 has been made available to you in order to enable you to verify the same for the purpose of your report thereon. In respect of the Tax Audit under section 44 AB of Income Tax Act, 1961 of _____________ branch of _______________ BANK for the year ended March 31, 2010, we certify the following:
PART – A
29.1 Our Permanent Account No. is ______________
29.2 The address as per the jurisdiction of the assessee falls under section 124 of the Income Tax Act, 1961 is ______________________
29.3 The status as defined under the Income Tax Act, 1961 is Company
PART – B
29.4 There is no change in nature of business in current year as compared to preceding previous year
29.5 The books of accounts maintained by us have been correctly disclosed in clause 9(b) of Form 3CD
29.6 Our Profit & Loss account does not include profits and gains assessable on presumptive basis under section 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, 172 of the Income–Tax Act, 1961
29.7 The method of accounting followed is as per clause 11(a) which has been consistently followed in the immediately preceding previous year. There was no change in the method of accounting employed vis–à–vis the method employed in the immediately preceding previous year
29.8 Sum received from employee towards contributions to any provident fund or super annuation fund or any other fund mentioned in section 2(24)(x) which is paid/ not paid within due dates to concerned authorities under section 36(1)(va) are mentioned in Clause 16 (b) of our Form 3CD and the same are correct
29.8 In Clause 17 of Form 3CD, there are no other amounts of such items debited to Profit & Loss Account
29.9 No payments are made to persons specified under section 40A(2)(b)
29.10 There is no amount of profit chargeable to tax u/s. 41 as disclosed under clause 20 of Form 3CD
29.11 Except for the items shown under clause 21 (ii) (B), no tax, duty or other sum as referred to u/s. 43B has been provided as at the year end
29.12 No expenditure/ income of an earlier year has been debited/ credited to the Profit & Loss Account except to the extent disclosed under clause 22 (b) of Form 3CD
29.13 No loans or deposits of Rs.20,000 or more have been repaid in cash other than those specified in the statement of particulars as given in the respective clause of Form 3CD. The details of loans or deposits of Rs.20,000 or more given in the said statement of particulars is true and correct
29.14 Section–wise details of deduction admissible under chapter VI–A
No other deductions other than those mentioned in clause 26 of Form 3CD is available to the branch
29.15 Details of delay in payment of tax deducted at source to the credit of the Central Government are given in the statement of particulars. Apart from that, there are no other delay in payment of Tax Deducted at Source
29.16 The other particulars required have already been given to you and particulars and other representations made to you from time to time are true and correct in all respects
Thanking you
Yours faithfully
For & on behalf of ___________ branch of _______________ BANK
Authorised Signatory
In respect of common irregularities, the Auditors can give their comments borrower–wise in the LFAR in the format given hereunder:
|
Name of Borrower |
Name of Branch |
Region |
IRAC Status |
Sanctioning Authority |
Facil–ity |
Limit |
Amount o/s. as at the year end |
Irregularity No. |
|
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
|
|
|
|
|
|
|
|
|
|
In respect of Column 9 above, “Irregularity No.”, the number as given in the “Glossary to Irregularities” in Point 5, under the head “Item” below should be given for the irregularity applicable to respective borrower
In case the auditors feel that inspite of the list of irregularities given below, there are some other irregularities, which the auditor would like to bring to notice, the auditor may separately disclose under the given head by giving “appropriate number”
For the aforesaid purpose, “appropriate number” would mean, for example, if the auditors feels that in case of “Review/ Monitoring/ Supervision”, which has the number “4”, any additional irregularity has to be incorporated, he may give a number after the last number appearing in the list, such as “4.62”, and onwards. Similarly in case of “Credit Appraisal” which has the number “1”, any additional irregularity may be given “1.19”, and so on
The borrower–wise details may be given in descending order based on the Amount outstanding
|
Item |
REMARK |
|
1 |
Credit Appraisal |
|
1.1 |
Loan application not on record at Branch |
|
1.2 |
The appraisal form was not filled up correctly and thereby the appraisal and assessment was not done properly |
|
1.3 |
Loan application is not in the form prescribed by Head Office |
|
1.4 |
The Bank did not receive certain necessary documents and Annexures required with the application form |
|
1.5 |
Basic documents such as Memorandum & Articles of Association, Partnership deed, etc., which are a pre–requisite to determine the status of the borrower, not obtained |
|
1.6 |
Certain adverse features of the borrower not incorporated in the appraisal note forwarded to the management |
|
1.7 |
Industry/ group exposure and past experience of the Bank is not dealt in the appraisal note sent to the management for sanction |
|
1.8 |
The level for inventory/ book–debts/ creditors for finding out the working capital is not properly assessed |
|
1.9 |
Techno–economic feasibility report, which is required to know the technical aspects of the borrower’s business, is not obtained from Technical Cell |
|
1.10 |
Credit report on principal borrowers and confidential report from their banks are not insisted from the borrowers |
|
1.11 |
The opinion reports of the associate and/ or sister concerns of the borrower are not scrutinised |
|
1.12 |
The opinion reports of the associate and/ or sister concerns of the borrower are not called for |
|
1.13 |
The opinion reports of the associate and/ or sister concerns of the borrower are not updated |
|
1.14 |
The opinion reports of the associate and/ or sister concerns of the borrower are not satisfactory |
|
1.15 |
The procedure/ instructions of head office regarding preparation of proposals for grant not followed |
|
1.16 |
The procedure/ instructions of head office regarding preparation of proposals for renewal of advances not followed |
|
1.17 |
The procedure/ instructions of head office regarding preparation of proposals for enhancement of limits, etc. not followed |
|
1.18 |
No exposure limits are fixed for forward contract for foreign exchange sales/ purchase transactions |
|
2 |
Sanctioning and disbursement |
|
2.1 |
Credit facility sanctioned beyond the delegated authority or limit of the branch |
|
2.2 |
Certain proposals were sanctioned pending approval of higher authorities wherever required |
|
2.3 |
Ad–hoc limits were granted for which sanctions were pending since long |
|
2.4 |
Facilities were disbursed before completion of documentation |
|
2.5 |
Facilities were disbursed without following sanction terms |
|
2.6 |
Facilities were disbursed without any sanction |
|
2.7 |
Sanction letter was missing in the branch |
|
2.8 |
Guarantor as required in the sanction letter was not obtained |
|
2.9 |
Required promoters stake not invested before disbursement of loan |
|
2.10 |
Sanctions were made without proper appraisal |
|
2.11 |
Security charge not created before disbursement as required by sanction letter/renewed letter |
|
2.12 |
Full disbursement of the facility not made |
|
2.13 |
Sanction terms were not complied with or were not recorded |
|
2.14 |
Disbursement Made without proper sanction |
|
2.15 |
Term loan was disbursed by creating the cash credit or savings account of the borrower |
|
3 |
Documentation |
|
3.1 |
330 The security against which the advance was sanction was not available/ was not on record |
|
3.2 |
Mortgage for the property given as security is not created |
|
3.3 |
Mortgage for the property given as security created, was inadequate, as compared to terms of sanction |
|
3.4 |
Second charge as required, on assets is not created in favour of the bank |
|
3.5 |
Documents of Second charge on assets is not on the record |
|
3.6 |
Documents pertaining to registration of charges with ROC or any other concerned authority requiring charging of assets is not obtained |
|
3.7 |
Copies evidencing lodgment of the original conveyance/ sale deeds with the Sub–Registrars for registration not on record |
|
3.8 |
Authority letter/ Power of Attorney to the Bank to collect the original documents from the Sub–Registrar not on record |
|
3.9 |
Documents pertaining to consortium advances not yet executed/ not available with bank |
|
3.10 |
Documents signed by persons not duly authorised to sign or who have signed in other capacity accepted by the bank |
|
3.11 |
Signatures of the executants were not found on all the pages of the documents |
|
3.12 |
Some of the documents on record were blank, without signatures of Branch Manager, witnesses, or guarantors, etc |
|
3.13 |
Revival letters in respect of documents to be reviewed from the borrowers not received |
|
3.14 |
Guarantors have expired |
|
3.15 |
Guarantors not on record |
|
3.16 |
Guarantors not renewed |
|
3.17 |
Guarantors not assigned |
|
3.18 |
Worth of the Guarantors not available |
|
3.19 |
Stamping not as per the amended Stamps Act |
|
3.20 |
Documents have become mutilated, soiled, time barred or not obtained |
|
3.21 |
Opinion report by the field officer for the borrowers not found on record |
|
3.23 |
“Nil Encumbrance Certificate/s” or “No Dues Certificate/s” or “No lien Letters” not obtained for the mortgage/s |
|
3.24 |
Advances for vehicle loans, Registration certificate, transfer certificate, etc. not obtained |
|
3.25 |
Work completion certificate, sale deeds, share certificates in societies, etc. not on record for housing loans |
|
3.26 |
Documents are not duly attested/ signed by concerned officials/not renewed |
|
3.27 |
The agreements for hypothecation do not contain details regarding goods hypothecated |
|
3.28 |
Copy of Bills/ receipts, on the basis of which the amount was disbursed not found on record. For e.g. Vehicle Loans, Plant & Machinery |
|
3.29 |
Charge on main &/ or collateral securities not created in terms of sanction letter |
|
3.30 |
Original security papers/ sale deed/ lease deed/title deed/ agreement of sale not available on record |
|
3.31 |
TDR are not discharged or renewed |
|
3.32 |
Control returns not sent to the H.O. |
|
3.33 |
The branch has not taken any action for not compliance with terms of agreement |
|
3.34 |
No documents executed for enhancement of limit/document not on record |
|
3.35 |
ECGC Post shipment policy not obtained |
|
3.36 |
Credit facility released without execution of all necessary documents |
|
3.37 |
Common Seal not affixed on Letter of Comfort |
|
3.38 |
Confirm orders for export credit not found on record for facilities released |
|
4 |
Review/ Monitoring/ Supervision |
|
4.1 |
The account is frequently overdrawn |
|
4.2 |
The account is continuously overdrawn |
|
4.3 |
The account is overdrawn and the branches have not taken sufficient steps to regularise the accounts promptly |
|
4.4 |
The balance outstanding have exceeded the drawing power |
|
4.5 |
Balance confirmation and acknowledgment of debt not obtained |
|
4.6 |
The stock, book–debts statements not received regularly/ promptly |
|
4.7 |
The FFI/ financial statements/audited statements/FFR 1 & 2/ other operational data, etc., not received regularly/ promptly |
|
4.8 |
The stock, book–debts statements, etc., not scrutinised and no suitable action is taken |
|
4.9 |
The FFI/ financial statements/ audited statements/FFR 1 & 2/ other operational data, etc., not received regularly/ promptly/ not scrutinised and no suitable action is taken |
|
4.10 |
Non–moving stock is not deducted to arrive at the drawing power |
|
4.11 |
The age–wise break–up of debtors is not found on record. The borrowers are allowed to draw money on entire outstanding debt, which must rather be for the recent debts as prescribed for particular industries and as per margin prescribed in the sanction letter |
|
4.12 |
Wide discrepancies observed in the stock statements and stock figures in the annual audited financial statements |
|
4.13 |
No penal interest has been charged for delay in submission of various statements as per the terms of agreement depending upon the type of loan/ credit availed by the borrower |
|
4.14 |
Many branches have not adhered to the prescribed frequency of physical verification of securities given against loans & advances |
|
4.15 |
Drawing power limits are not revised as per market value of shares for advances against security of shares |
|
4.16 |
End–use of funds not ensured/ not known funds utilised for purpose other than for which granted |
|
4.17 |
The projections submitted by the borrower stay far beyond the actual performance. Further, no explanation for the same is taken from the borrower |
|
4.18 |
Major sale proceeds of the borrower not routed through the Bank |
|
4.19 |
Audited statements of non–corporate borrowers having limit beyond Rs.10 lacs not received
|
|
4.20 |
Renewal proposals of advances not received on time and in many cases the limits are not renewed |
|
4.21 |
Application of wrong rate of interest, processing charges, commission, other charges, etc. resulting in income leakage/ excess booking of interest of the Bank |
|
4.22 |
Insurance cover for stock/ property is inadequate/ not on record/ not renewed/ not endorsed in favour of the Bank |
|
4.23 |
Inspection/ physical verification of security charged, not been carried out |
|
4.24 |
Expired bills/ foreign currency sight bills which are outstanding, have not been crystallised |
|
4.25 |
EBW statements on write–off of overdue export bills of ECM not found on record |
|
4.26 |
Confirmation as to genuineness of export transactions not obtained from Bank’s foreign offices/ correspondents/ customs department |
|
4.27 |
Import credit, bill of entry evidencing import of goods not found |
|
4.28 |
Documents are not obtained for bills discounted under Letter of Credit |
|
4.29 |
Advances, which are eligible for whole turnover packing credit guarantee cover of ECGC, are not brought under its cover |
|
4.30 |
Though government guaranteed accounts are irregular since long, the issue of invocation of guarantee does not seem to have been considered |
|
4.31 |
Prescribed margins not maintained as per sanctions |
|
4.32 |
Allocated limits, full terms of sanctions, stock statements, inspection reports, margin, etc. not available at monitoring branches |
|
4.33 |
For allocated limits, inordinate delays were noticed in responding to transfer by the allocator branch |
|
4.34 |
Regular meetings not held with other consortium members to review the performance of borrowers and to assess the current state of affairs/not been held as per norms |
|
4.35 |
Individual members of the consortium are not advised about the quarterly operating limits/ D. P. allocated to each one of them |
|
4.36 |
Minutes of the consortium meetings not found on record/not been held as per norms |
|
4.37 |
Inspection report from the consortium members not obtained |
|
4.38 |
The capital of the borrower has eroded/ networth is negative/ decreasing. Close monitoring needs to be done |
|
4.39 |
The drawing power is calculated wrongly and/or hence the borrower is allowed to enjoy excess credit than actually eligible |