Bank audit special – LFAR: Important Points to Be taken care of
LFAR: Important Points To Be taken care
LFAR is LONG FORM AUDIT REPORT designed to explore and check existence of control system in the working of the bank. It aima to obaerve the lacunae in the operations and different areaa of working along with in the internal control system of the Bank.
Statutory Audit Report may not incorporate fillowing aspect.
1. Whether Cash Balance is within the limits prescribed by Controlling Authorities.
2. Regular reporting of Excess Cash Balance
3. Insurance for Cash -in-custody and Cash-in-Transit (Generally at H.O. level)
4. Balance with RBI, SBI and Other Banks- Verify Balance Confirmation Certificates and Reconciliation Statements, in case of difference. Analyze Pending/ Outstanding entries in Reconciliation and Explanation to be obtained from the Branch. If there are any revenue entries pending in Reconciliation which require Write Off – the same should be reported in LFAR. If there are pending entries in Reconciliation Statement outstanding for a period of more than 6 months, specific details of such pending entries should be given in LFAR.
5. Investments Normally, Investments of Bank are accounted at H.O. Level. If there are any such transactions at Branch, the Auditor should physically verify such Investment Certificates and should obtain a certificate from the Branch regarding the Investments of Head Office held at the Branch. Examine that income from Investments is regularly received and matured Investments are encashed on time.
6. Advances – Reporting on four areas:
(a) Credit Appraisal– At the time of application and sanction. – And also on Review/Renewal
(b) Sanction / Disbursement – Authority to Sanction, Compliance of Sanction Terms before Disbursement.
(c) Documentation- Execution & Renewal of Documents, Vetting of Documents by Legal Dept.- Disbursement without Documentation??
(d) Review / Monitoring / Supervision of Advances.
Credit Apraisal
1. Whether Application from borrower in prescribed form?
2. Whether KYC Compliance as Per RBI Requirements?
3. Whether Evaluation of Financial Data, Project Report- CMA data, Projected P&L, BS & Cash Flow etc. done?
4. Board Resolution for the availment of the facility
5. Latest I. Tax Records & Net Worth of Borrower/Guarantor
6. Confidential report and NOC from the existing banker
7. CIBIL Report, Title clearance report & valuation report
8. Whether Analysis of important Financial ratios done?
9. Whether Security Valuation & Title Verified?
10. Whether Appraisal done by Competent person?
Advances – Sanction & Disbursement
1. Examine the sanction procedure and powers.
2. Check that the Limits sanctioned are within the powers of the sanctioning authority
3. Any change in the terms of sanction whether ratified by proper authority
4. Examine the system of Pre & Post-Disbursement unit inspection and reports.
5. Whether Acceptance of the terms & conditions of sanction obtained from Borrower?
6. Verify that Disbursement done only after compliance of all the Sanction terms and conditions
Advances – Loan Documentation
1. Whether All loan documents, as required by the sanction letter and loan policy have been executed
2. Whether Loan documents are properly executed and approved by legal department or legal expert?
3. Fresh loan documents obtained on change in limit, change in the constitution of the borrower?
4. Whether Original title deeds, title clearance certificate valuation report are held on record?
5. Whether Charge on securities registered with ROC/ RTO/ LIC/ other appropriate authority
6. Lien marking/ NOC of housing society
Advances – Monitoring/ Supervision
1. Verify that Regular QIS, Stock & Debtors statements are submitted and scrutinized – Examine Stock Inspection reports
2. Whether Periodic Review of Overdue/ NPA accounts is done by Bank
3. Adequacy and Validity of Insurance Cover.
4. Review/ Renewal of facilities carried out as per Bank policy
5. End use of Funds – Ensure that No Diversion of Funds
6. Penal interest charged for breach of DP limits/ non-submission of Stock Statements?
7. Stock statements older than 3 months – Account will be NPA.
8. Non-renewal/ Non-regularization of regular/ ad-hoc limit within 180 days from the due date will make the account NPA.
9. Verify Stock audit report (once in 12 months) and Valuation Report (once in 3 yrs) for Accounts with limits> Rs.5.00 Crore
Annexure to LFAR: (to be obtained from Branch Management)- For Branches dealing in Large Advances/Asset Recovery Branches – for all advances with outstanding balance of Rs.2 Crores and above
– For Advances upgraded or downgraded during the year with with outstanding balance of Rs.1 Crores and above.
– For All other Branches – in respect of advances with outstanding balance of Rs.10 Crores and above.
10. Other Assets:
A) Stationery & Stamp Items:
– Examine the control on custody and issue of Stationery Items like Drafts, Pay Orders, TDRs, Cheque Books, Traveller
Cheques etc.
B) Sundries & Suspense Debit Items:
– Obtain details of age-wise analysis of Pending Entries in Sundries and Suspense Debit Account.
– Examine the reasons for Long Outstanding / Pending Entries and its Recoverability.
– Suggest Write Off / Provisioning for Irrecoverable Items.
Liabilities – Deposits:
– Verify Compliance of KYC Norms in case of Deposit Accounts.
– Compliance of H.O. Guidelines for operations in Dormant/ Inoperative Deposit Accounts.
– Inoperative Accounts – Possible Fraud Area.
– Examine Unusual Large Movements in Deposit Accounts at the year end.
– Obtain and Examine the list of Overdue/ Matured Deposits (Figure to be reported in LFAR)
– Whether Bank has a system of providing for Interest on Overdue / Matured Deposits?
Other Liabilities – Bills Payable, Sundry Deposits etc :
– Obtain and Examine the list of age-wise pending entries in Bills Payable and Sundry Deposit Accounts.
– Identify Unusual Items if any in these accounts.
– Also Examine How these items have been disposed off (e.g. Deposit of Money without Account Number in Sundry Deposits A/c.) – Possible Fraud Area.
– Also suggest Disposal of Long Outstanding Entries.
Contingent Liabilities :
– Examine the List of Contingent Liabilities
(Other than Constituent Liabilities such as
Guarantees, LC etc.).
– Discuss with Branch about any legal matters pending against the Branch and possibility of any loss in respect of any such items –Whether such items have been disclosed as Contingent Liability or whether Provision made for the probable Loss?
Profit and Loss Account:
– Interest and Commission income to be verified on Test Check basis.
– Examine the system of changing the rate of interest on deposits/ advances from time to time as per Head Office Circulars.
– Examine the implementation of Income Recognition Norms with respect to Income from NPA Accounts.
– Whether there are any Divergent Trends in respect of major items of Income or Expenditure? – Comparison and Ratio Analysis are Important Tools for finding out such Divergent Trends in Revenue Items.
Audits/ Inspections:
– Examine the observations/qualifications in Previous Audit Report and Reports of Concurrent Audit, Internal Audit, RBI
Inspection, Stock Audit, Credit Audit, Revenue Audit etc. and find out that whether they have been complied with in time?
– Consider the major adverse comments and non-compliances of such reports while finalizing your Audit Report.
Frauds:
– Examine the Fraud Register maintained by the Branch and report the frauds discovered during the year under Audit.
– Examine the corrective steps taken by the Branch to minimize the occurrence of such frauds in future.
– Auditor may give useful suggestions to minimize the possibility of Occurrence of Frauds with respect to various aspects.
Miscellaneous:
– Examine proper maintenance of Fixed Asset Records and Calculation of Depreciation.
– Examine the Possibility of Window Dressing by the Branch.
– Any other matter to be brought to the notice of the Management or Central Statutory Auditors.
