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AUDIT PLANNING 8 th March, 2015 Organized by Nasik Branch of WIRC of ICAI Seminar on

AUDIT PLANNING 8 th March, 2015 Organized by Nasik Branch of WIRC of ICAI Seminar on Statutory Bank Branch Audit _________________________________ CA. Ketan Saiya FCA, DISA(ICAI). LATEST PICKS INTRODUCTION/ BASICS AREAS OF AUDIT EXECUTION & DOCUMENTATION

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AUDIT PLANNING 8 th March, 2015 Organized by Nasik Branch of WIRC of ICAI Seminar on

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  1. AUDIT PLANNING 8th March, 2015 Organized by Nasik Branch of WIRC of ICAI Seminar on Statutory Bank Branch Audit _________________________________ CA. Ketan Saiya FCA, DISA(ICAI)

  2. LATEST PICKS • INTRODUCTION/ BASICS • AREAS OF AUDIT • EXECUTION & DOCUMENTATION • EFFECTIVE REPORTING Coverage …

  3. Introduction … • Over All Business environment is bear phase, NPAs are high and Banks are struggling for recovery • Statutory Branch Audit Limits will be increased…. No of branches under audits will reduce… • In few year Branch Audit may be done away… • Fees is very less but Risk / Expectations – coverage is very high & Time is very Short. AUDIT - INTRODUCTION

  4. Challenges before Auditors • To meet Deadlines of Reporting • Staff shortage in this months due to exam leaves • Newer types of Frauds being committed. Benefits • Updated with Latest Happing in Banking • To gain knowledge about New Industries AUDIT - INTRODUCTION

  5. Latest Picks…. • Total Frauds.

  6. There were nine first information reports (FIR) against several bank officials for colluding with outsiders in committing FD frauds of at least Rs 700 crore. Banks involved were Dena Bank and Oriental Bank of Commerce, and others were Vijaya Bank, UCO Bank, Bank of India and Dhanlaxmi Bank.. Fixed deposit fraud in banks

  7. Police said the accused approached the trusts and individuals to open FDs with public-sector banks using middlemen. In return of interest. Once the FD was opened, the accused gave fake receipts to the entities and used the original ones to open accounts with forged documents. They then transferred the overdraft amount to their accounts using the real-time gross settlement system facility… Fixed deposit fraud in bank…

  8. In a landmark judgment on online banking frauds, six banks, a telecom giant and a card company have been asked to pay out Rs 1.06 crore compensation to customers who have been victims of various online frauds in the past two years. In most of the cases, customers had lost money to fraudsters but banks had held customers responsible for their accounts being compromised.The banks that have been ordered to pay compensation include Central Bank of India, Royal Bank of Scotland, Punjab National Bank, IndusInd Bank, Yes Bank, State Bank of India. Online banking frauds

  9. Other institutions who have been directed to pay are Vodafone and SBI Cards. The Banking Standards and Codes Board of India had earlier last year suggested that the onus of establishing liability in the event of online fraud should rest with the banks. Until now banks have been throwing up their hands whenever a customer's credentials were compromised, holding the customer fully liable for anyone hacking into his email or mobile.  Online banking fraud

  10. THE FINANCIAL EXPRESS (feb, 21 2014)

  11. The forensic audit of United Bank of India (UBI) ordered by the Reserve Bank of India is a first in the country's banking history. According to sources, Deloitte and RBI will examine if there are any hidden NPAs in the bank and if proper systems are in place to identify them. They will also see if there is any manual intervention by the employees in the process of NPA recognition. The RBI team will also examine large value loan accounts of the bank Forensic audit of ubi

  12. MUMBAI/KOLKATA: An audit by consultants Deloitte has found. The bank which has the highest bad loans among state-run lenders was downgraded by rating company ICRA, a unit of Moody's Services."The automated system that detects NPAs was found switched off'', said a person familiar with the findings. Whether it was intentional or by mistake remains a big question", said the person who did not want to be identified. Forensic audit of ubi

  13. Story first published on: Saturday, 01 February 2014 18:29 on SPORTS.NDTV.com A court in Kolkata on Saturday, sent a man arrested for allegedly duping former Indian cricketer V.V.S. Laxman to eight days police custody, police said. Izazul Sheikh, who allegedly siphoned Rs.10 lakh from Laxman's bank account in Hyderabad, was arrested Friday from a nationalised bank's branch in Salt Lake area in Kolkata.According to police, bank officials had alerted them after the same amount was deposited into Sheikh's long dormant account at the Salt Lake branch. VVS Laxman robbed of Rs. 10 lakh from bank account

  14. Story First Published: January 07, 2014 14:37 IST on ndtv.com An ICICI Bank employee and two of his accomplices were arrested for siphoning off lakhs of rupees from a dead woman's account. The accused were identified as MahendraGurav (ICICI Employee), Rajesh Jamkar and BaluGatte. "While Gurav and Jamkar are old friends and stay in Wadala, Gatte is from Mahim," said sub-inspector AtulAdurkar of Matunga police station.Mystery unfoldsThe incident came to light after ICICI Bank's Chandigarh branch sent an email to the Dadar branch, informing it about transaction of huge amounts from GovindKaur's account, as it had been unused for a long time. A resident of UK, Kaur passed away in December (as told by her son). Sensing that something was amiss, Deputy Manager RekhaLaad (Dadar branch) lodged a complaint at the Matunga policestation. Modus operandiWithin 46 days - November 11 to December 27, 2013 - the trio withdrew Rs. 38 lakh of Rs. 49 lakh from Kaur's account. It was Gurav who had identified the account and hatched the plot to siphon money. "From ICICI Bank, the amount was transferred to Dhanlaxmi Bank's Matunga branch, in which Shirodkar had opened an account. The amount was transferred in four parts - Rs. 19 lakh, Rs. 4.65 lakh, Rs. 9 lakh and Rs. 5.35 lakh - via cheques," said Senior Inspector Raghuvendra Thakur of Matunga police station. Bank employee, accomplices siphon off Rs 38 lakh from dead woman's account

  15. The Times of India 1st March 2014 KOLKATA: The mastermind in the Rs 60-crore West Bengal State Cooperative Bank fraud was arrested in Saudi Arabia after Kolkata Police issued a red-corner notice against him. The process for extraditing Arup Nag to India has already started, confirmed Pallab Kanti Ghosh, joint CP (crime). Earlier, five persons were arrested in connection with the fraud. Police identified three of them as Atindra Chandra Saha Sardar, an official of managerial rank at Punjab National Bank's Selimpore branch, Nihar Chowdhury, a former employee at the same branch, and Gautam Gupta, who was accused in bank frauds on previous occasions, too. Rs 60 crore bank fraud @ PNB

  16. "The fraudsters, with the help of insiders, sent forged letters and gave another account number to the depositor that was created under a fictitious name. As soon the amount was electronically transferred, they siphoned it off," said an officer of the detective department.

  17. Latest Picks…. • HDFC Gold Loan Scam of Rs. 1.25 Cr • Manager Sanctioned Loans against fake • gold ornaments – June 18th 2011. • Bhuj – February 2012 • Security guard found that ATM was missing

  18. In February 2010, RBI had imposed a Rs 25-lakh fine on the Jaipur-based private sector lender for violating regulations on five counts. The grounds for the fine are violating RBI directions on acquisition of immovable property, deletion of records in the bank’s IT system, non-adherence to know-your-customer (KYC) and anti-money laundering (AML) norms, irregularities in the conduct of accounts for certain corporate groups and failure to provide certain documents to RBI and misrepresenting that these documents were not available.

  19. March- 8 Deloitte Haskins to probe Bank of Rajasthan accounts MUMBAI: The Reserve Bank of India has ordered a special audit of private sector lender Bank of Rajasthan’s accounts, suspecting violation of operational norms by the lender, including transparency in lending. The apex bank has appointed Deloitte Haskins and Sells to conduct the special audit. Amongst the issues being probed by the audit team include provisioning for non-performing assets and super-annuation benefits, accounting integrity issues and credit dispensation, Mr Padmanabhan told PTI here.

  20. Fraud of Rs.53 Lakhs by Short Cash Loading in ATM– Valsad Axis Bank 6th March 2010

  21. Latest Picks…. • Nov 13, 2009 Madhu Koda associate deposited • Rs. 640 crore cash UBIZaveri Bazar • Between November 2006 and December 2008. • The cash transactions were carried out by a • Balaji group company — Balaji Universal Trade. • The same group operated by Punamia was • earlier found to be behind hawala and legal • money transfers to the tune of $110 million to • other front companies of the cartel based in Dubai

  22. Latest Picks…. • February 23, 2010 • RBI Cancels the Licenseof • Ichalkaranji Urban Co-op. Bank. • RBI Delivered order canceling the • license after the close of business • On 11th Feb. 2010.

  23. Date : 24 Dec 2010 Rupee Co-operative Bank Ltd., Pune, Maharashtra – Penalized • The Reserve Bank of India has imposed a monetary penalty of ` 5.00 lakh • The bank had violated RBI directives by purchasing/discounting cheques beyond the ceiling of ` 0.25 lakh in current accounts. • The bank had also violated RBI instructions by disbursing loans to individuals for purchase of land for more than ` 25.00 lakh.

  24. Date : 23 Dec 2010 Arjun Urban Co-operative Bank Ltd., Solapur, Maharashtra – Penalised The Reserve Bank of India has imposed a monetary penalty of ` 1.00 lakh on of Section 47(A)(1)(b) read with Section 46(4) of the Banking Regulation Act, 1949 (AACS) for violation of Reserve Bank of India's directives on exposure limit, unsecured loans and director related loans.

  25. Date : 29 Jul 2010 Bhandari Co-operative Bank Ltd., Dadar, Maharashtra – Penalised The Reserve Bank of India has imposed a monetary penalty of Rs.5.00 lakh The Bank had : sanctioned unsecured advances beyond the ceiling of Rs.50,000/- prescribed to Grade IV bank having Demand and Time Liabilities (DTL) of more that Rs.10.00 crore, in violation of Reserve Bank of India's directive on maximum limit on unsecured advances to single party/connected group.

  26. Date : 01 Jul 2010 Vasai Vikas Sahakari Bank Ltd., Thane, Maharashtra – Penalised The RBI has imposed a monetary penalty of Rs.5.00 lakh for not following KYC norms while opening the Current Account of a director related firm.ii) granting unsecured advances to director related firm.iii) allowing cheque purchase beyond permissible limit.iv) allowing unsecured advances beyond permissible limit.v) allowing limits beyond exposure ceiling.

  27. Latest Picks…. January 19, 2011 • Four persons, including a real estate agent and a diamond trader, have been arrested for stealing diamonds worth Rs4.40 crore from lockers of a State Bank of India branch by making as many as 15 duplicate keys......... PTI

  28. Latest Picks…. Press Trust of India, December 28, 2010 (Gurgaon) • Funds amounting to Rs. 400 crore of 20 high net worth customers have been siphoned off. The fraud is said to be a handiwork of Shivraj Puri, the employee who is alleged to have sold investment products to high net worth clients claiming that they would generate unusually high returns. Also he forged some government documents. Transferred the funds to some fictitious accounts.

  29. Citibank employee Shivraj Puri was arrested last month in connection with an investment scam in India. Latest Picks…. Mr. Shivraj Puri of Citi Bank is arrested.

  30. Latest Picks….Frauds… Latest Picks…. February 22, 2011 • The Reserve Bank on Tuesday imposed penalties of Rs1 lakh each on four cooperative banks on various charges including violation of anti-money laundering guidelines. • The four banks are the Jamnagar Mahila Sahakari Bank, Amreli Nagarik Sahkari Bank, Shri Mahila Sewa Sahakari Bank, Ahmedabad, and the Virambam Mercantile Cooperative Bank, the RBI said in different statements.

  31. Latest Picks….Fraud Latest Picks…. July 30, 2010. • The Reserve Bank of India (RBI) today imposed a penalty of Rs 5 lakh on private sector lender ICICI Bank for violating Know-Your Customer (KYC) norms, and the same amount on Standard Chartered Bank for not providing information on time about its foreign currency loan facility. • "The RBI has imposed a penalty of Rs 5 lakh on ICICI Bank... For violation of the guidelines on Know Your Customer (KYC)/Anti Money Laundering (AML) standards," the central bank said in a statement.

  32. No Fixed Format of Reporting some bank has their pre defined format in some bank auditor can design his own format. • Do Value Add in report even if there is predesigned format, we can always add. • Primary Role is expression of his opinion on transactions which are not in sync with the guidelines. Introduction…

  33. Audit Planning

  34. BASICS…. • Compliance with BR Act & RBI Guidelines • Compliance with Policies of Bank • Guidance Note of ICAI • Go thru Standards on Auditing like - • Knowledge of Business, • Terms of Audit Engagement, • Audit Planning, • Audit Sampling, • Audit Documentation • Audit Evidence • Using the work of another auditor, Audit Materiality

  35. Obtaining Information … • Read Appointment Letter – Terms Conditions very Carefully. • Size of branch- Advances & Deposits, • To Know Branch Timing & Match it • Name / Portfolio and Designation of staff. • Obtain All Telephone/ Fax numbers / Email id • Issue Requirement letter • List the requirements i.e. report and certificates to be signed. E.g. Quarterly some additional returns are to be signed

  36. Introduction… • Obtaining the list of Reports Generated by Computer system. • List of books and records maintained manually. • Obtain latest reports i.e. Statutory Auditors and internal reports to H.O. • Obtain monthly average of advances and deposits, E.g. SBM Matunga • Review accounting policies and auditors report of the bank • Obtain H.O. Latest RBI Circulars

  37. Statutory AUDIT – INTRO… • Prepare Audit programme • Define Audit Procedures – Extent / Periodicity of Checking. • Documentation to be created. • Define Materiality Levels • Representation letter / Confirmations to be obtained. • Discuss the Draft Reports- reservation, major observation, qualifications with branch management. • `

  38. Introduction… • To Quantify the Qualification. E.g. Error in Interest Calculations / Non-charging of penal interest, Other Revenue leakages. • Issue of final reports in Time. • Provisioning of expenses in March. • Rent expenses. • Security aspect in NPA advances.

  39. Team to have Knowledge of : • Function of bank • Banking Industry – Rules & Regulations applicable • Products handled by Bank • If Forex Branch, FEDAI Guidelines – Foreign exchange transactions Introduction…

  40. Team needs to be fully conversant with the nitty gritties and possess adequate knowledge to counter the defensive arguments put forth by the branch. • Have Practice of Giving Queries in writing & Taking acknowledgement • Seniors to Review queries and replies on regular basis so the report review and discussion is easy. Introduction…

  41. Identify the staff - • Experienced/Train the staff (CBS system) • Access to CBS and other arrangements • Manpower requirement – • Allocate the work (Deposits, Advances, Misc. items, etc.), decide who does what? • How many days/hours, time to be spent on monthly reporting • Timely Completion of the checking and report BASIC…Planning…Staff

  42. Obtaining Audit Evidence • Audit working papers - complete • Timely discussion and rectification of queries • Exhaustive Checklist – Provided by banks / Develop In house EXECUTION OF WORK

  43. Few Exceptional reports • Overdrawing • Debits in in operative accounts • Operation in In-operative Accounts. • Cash transactions without PAN • Overdue amounts • TOD accounts • TOD’s in CA & SB accounts • Cheques drawn against clearing accounts CHECKLISTS…

  44. Flash Report to Management • Any transaction susceptible to fraud should be directly reported to RBI by the Auditor and to the top management Reporting to Management/RBI

  45. Custody of various Secured Items… • Custody of Secured Items:- - Term Deposits Receipts, Cheque Books. -Demand Drafts, Pay In Slips. E.g. BOB Sakinaka Fraud SECURITY ITEMS

  46. Receipt of these items should be supported by delivery Challans and should be recorded properly. • All entries should be authenticated by the Branch Manager. • Physical verification should be conducted at regular intervals. • Entries for Cheques issued are to be properly entered. • FDR’s issued but not collected by the depositors should be kept in proper custody. SECURITY ITEMS

  47. Delegation of authority: Verify that all expenses are incurred after obtaining approval from appropriate Authority. Further the expenses should be properly accounted Following List of Expenses to be verified: - Interest paid on deposits. - Interest paid on borrowings. - Establishment Expenses. - Rent * Check Agreement - Professional Fees - Capital Expenditure EXPENSES

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