Bank Audit under CBS · 2020-03-07 · 02-03-2020 1 Bank Audit under CBS CA. Premnath. D. C...
Transcript of Bank Audit under CBS · 2020-03-07 · 02-03-2020 1 Bank Audit under CBS CA. Premnath. D. C...
02-03-2020
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Bank Audit under CBS
CA. Premnath. D.C Ramachandram & Co.,
9347556771
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Elon Musk
In aerospace in order to create SpaceX
In automotive in order to create Tesla with
self-driving features
In trains in order to envision the Hyperloop
In aviation in order to envision electric
aircraft that take off and land vertically
In technology in order to envision a neural
lace that interfaces your brain
In technology in order to help build PayPal
In technology in order to co-found OpenAI,
a non-profit that limits the probability of
negative artificial intelligence futures
Can Audit Become Agile?
Seven Keys To Thinking The Unthinkable
1st , active and broader involvement in disruption:
2nd , being prepared and adaptive
3rd , assessing the risk of future disruption
4th , proactive involvement in disruptive events
5th , flexible talent management
6th , flexible planning
7th , put new technologies to work.
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New & Emerging Technology – Impact on CA Mobility
Cloud
Digital Service Delivery
Big Data
Social Collaboration
Block Chain Technology
Artificial Intelligence
Machine Learning
IOT
Payment Systems
Cyber Security
Robotic4
Embrace and leverage newtechnologies in performing audit work.Auditors need to be at the forefront ofadopting artificial intelligence,cognitive computing, and smart robots.Auditors need to understand howtechnologies such as blockchain workand how they can be used in theirorganizations. They must takeadvantage of machine learning anddata analytics in their audit processes— real-time auditing should be arequirement as organizationsimplement new business processes.
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Blockchain tech could help prevent frauds like at PNB
Given the distributed ledger technology’s
potential to improve monitoring, SBI has
adopted it in its reconciliation systems,
payment gateways
‘Immediate notification’
“Transaction reconciliation systems at
present do not result in immediate
notification,” Mrutyunjay Mahapatra,
Deputy Managing Director and Chief
Information Officer at State Bank of India,
told The Hindu. “Using blockchain, all
parties on the chain will be immediately
notified about a transaction.”
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Letter of Credit Workflows Put on the Blockchain
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AI, BOT, ML in bankingHDFC Bank has developed an AI-based chatbot, “Eva”,built by Bengaluru-based Senseforth AI Research.Since its launch in March this year, Eva (which standsElectronic Virtual Assistant) has addressed over 2.7million customer queries, interacted with over 530,000unique users, and held 1.2 million conversations.
Eva can assimilate knowledge from thousands ofsources and provide simple answers in less than 0.4seconds, the bank said. Within the first few days of itslaunch, Eva has answered more than 100,000 queriesfrom thousands of customers from 17 countries acrossthe globe.
“With the launch of Eva, the bank’s customers can getinformation on its products and servicesinstantaneously. It removes the need to search, browseor call. Eva also becomes smarter as it learns throughits customer interactions. Going forward, Eva would beable to handle real banking transactions as well, whichwould enable HDFC Bank to offer the true power ofconversational banking to its customers,” thebank stated in a company news release.
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Banking Industry in Indian Economy
GDP – Rs. 190 Lakhs Crores
Deposits Rs 127.80 Lakhs Crores & Bank
credit Rs 96.80 Lakhs Crores
NPAs Rs. 10.00 Lakhs Crores
Banking Frauds Rs. 2.05 Lakhs Crores during
last 11 years of 50000 cases
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How Control Lapses : Banks Non Compliance to RBI circulars
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Banks Year Fine
Rs.
Violation
1 SBI, Corp
Bank,
BOB,UBI,
AHB, AB,
BOM, IOB
Feb
2019
6.5Cr non-compliance with various directions issued by
the RBI on monitoring of end use of funds,
exchange of information with other banks,
classification and reporting of frauds, and on
restructuring of accounts, the central bank said in a
statement, SWIFT, FEMA,
2 Karnataka
Bank
Feb
2019
4 delays in the implementation of new controls
relating to the SWIFT system of international
payments. Gitanjali Gems related fraud, with an
exposure of around Rs 86 crore.
3 UBI, BOM Nov
2018
3 Cr delay in detection and reporting of fraud in some
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S
#
Banks Year Fine
Rs.Cr
Violation
4 ICICI 2018 58.9 non-compliance of its directions on direct sale of
securities from its held-to-maturity (HTM)
portfolio and specified disclosure.
5 Indian Bank 2018 1 violating cyber security guidelines.
6 Federal Bank 2018 5 KYC/Anti Money Laundering
7 Axis, IOB 2018 5 NPA, AML, KYC
8 HDFC,PNB, 2016 10 irregularities in advance import remittances,
KYC/AML
7 22 Banks 2014 49.5 flouting norms and may be allowing customers to
launder money12
How Control Lapses : Banks Non Compliance to RBI circulars
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NPA RBI AQI DivergenceBank Divergence Rs. Crs
UBI 589
LVB 54.9
Indian Bank 820
UCO 1217
SBI 11932
IOB 358
BOI 329
Central Bank 2565
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RBI told banks to disclose divergence
when the additional provisioning for NPAs
assessed by RBI exceeds 10% of the
published net profits after tax
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RBI AQI NPA Divergence in PSU Banks 45600Crs
How far NPAs are system Driven ?????
SC Judgement on Amrapali
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• It is observed that there was no monitoring done by the
officials of Bank of Maharashtra, Andhra Bank and other
banks by releasing of term loan to the Company.
• Even basic checks, End Use of funds were forgone
• No technical requirements followed as relating to release
of Term Loan facilities to a borrower.
• The banks acted as mute spectator to unapproved
diversion which was almost happening evidently in all
banking transactions
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CBS versions in use are different, security solutions,
controls divergent: RBI ex-ED - RBI G. Padmanabhan “Customisation is varied. Security solutions and controls are divergent.
Pointing out the process of merger was complex, he said the banks ought to be
conscious of the security challenges. “Banks have started discussions… but they
should focus on security as much as on functionalities or user interfaces,” he said,
adding skill set availability on security will be a greater challenge.
“There is a lot of dependency on service providers. There is a significant
cybersecurity risk in that a lot of data is going back and forth and held by third
parties,” he said, asking “will a merger of different versions of CBS enhance the
challenge?”
Another challenge would be merging of SOC operations of the banks.
Different banks may have different set of controls and until these are fully merged the
weakest link threat needs to carefully monitored and controlled, he said.
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Bank Audit - Mantra
Knowledge of Banking and Allied Laws & CBS
Discretionary Powers – Impact on
Corruption/Fraud/Errors
Control – Manual/System, Preventive, Corrective,
Compensating
Audit Risk - Selection of Sampling – Data analytics
Audit Tools – Spread sheet, Word, Google Docs
Audit Documentation17
Learning Objectives
Audit As Per Standards
Software Usage in
Banks
Usage of Finacle &
BANCS
Data Extraction &
Analysis
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•Verify System /Manual Controls•Verify Preventive Controls•Verify Detective Controls•Verify Corrective Controls•Verify Compensating Controls•Extract CBS Reports
Audit Under CBS
Compliance Procedure –Controls around CBS
Assertions & ROMM
Substantive Procedure –inspection, observation, inquiry,
confirmation, recalculation, reperformance, or
analytical procedure
Assertions & ROMM
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We state in our Audit Report.
“We have conducted our audit in
accordance with generally accepted
auditing standards in India………”
Non Compliance will attract
penal action U/s 21 of CA Act
SA – 230, 300-499, 500,520, 530, 710
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230 Audit Documentation 240 The Auditor’s
Responsibilities Relating to
Fraud
250 Consideration of Laws
and Regulations in an Audit
of Financial Statements
260 Communication with
Those Charged with
Governance
265 Communicating Deficiencies in Internal Control to
Those Charged with Governance and Management
300 Planning an Audit of
Financial Statements
315 Identifying and Assessing the Risks of Material
Misstatement Through Understanding the Entity and Its
Environment
500-599 Audit Evidence 500 Audit Evidence 520 Analytical Procedures
505 External Confirmations 530 Audit Sampling 580 Written Representations
700-799 Audit Conclusions and Reporting
AUDIT PROCESS FLOW ASSERTIONS
CHECK CONTROLS
1. COMPLIANCE TEST
AUDIT TEST
2. SUBSTANTIVE TEST
ANALYTICAL PROCEDURES
ROMM - RISK OF MATERIAL
MISSTATEMENTS
OBSERVATIONS
DISCUSS WITH TCWG(THOSE CHARGE WITH GOVERNANCE)
AGREENO POSSIBILITY TO
RECTIFY DISAGREE
1. PROVIDE/CREATE PROVISION
2. WRITTEN OFF
DISCLOSE QUALIFY
EMPHASIS MATTER PARAGRAPH
Existence,
Completeness,
Valuation,
Rights and Obligations,
and
Presentation and
disclosure
SA 315
Identifying and Assessing the Risks of Material
Misstatement Through Understanding the Entity
and Its Environment
Business of bank is collecting deposits and
lending loans/LC/Guarantees
Runs as per Banking Regulation Act, FEMA, PMLA, IT Act, GST, IBC
Negotiable Instruments Act, Etc.,
Accounting as per Accounting Standards
issued by ICAI
Major Business is operated and controlled
thru CBS & Other Standalone Applications
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Various Application – Banking System Core Banking Application – “FINACLE” of Infosys Ltd inclusive of modules
including NPA Management system (as IRCA norms), Government Business Module (GBM), etc.
Core Banking Application – “FINACLE” of Infosys Ltd for Overseas branches and UK subsidiary of Bank.
Application Audit for Internet Banking for Domestic and overseas branches.
Treasury Application from M/s Infosys (Replaced existing KASTLE system), being used at our Treasury branch.
Application purchased from CMC (TCS) for our Demat operations.
LAS (Lending Automation Solution)
MIS (Management Information System)
PeopleSoft HRM Solution32
Various Application – Banking System MFTP (Matched Fund Transfer Pricing)
SWIFT
ATM Switch
Document Management System (Account Opening Process)
Enterprise Application Integrator (EAI)
Oracle GL
Centralised FI gateway Application including E-KYC, DemoAuth, APBS, etc.
E-Remit
GSTN System
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System Driven NPAs - Can the system detect the ever greening?
1. Servicing interest/installment
from CC/PC account to C/A;
from C/A to TL or
disbursement to CC.
2. Adhoc limits to regularise.
3. Transfer from associate units by allowing excess in CC or new TOD.
4. Cheque purchase account to CC and chequereturned next day.
System Driven NPAs - Can the system detect the ever greening?
5. Intra day credits & debits
7. Same credit for two quarters
8. Accounting of Devolved LCs
9. Exceeding in Bills limit
10. Inadequate/ wrong DP
11. Combined excess of CC & Devolved LC
System Driven NPAs - Can the system detect the ever greening?
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System Driven NPAs - Non financial aspects
1. Extension of COD
2. Non satisfactory performance in restructured accounts
3. Additional Finance on restructured account
4. Stock statement older by 6 months.
5. NPI of the borrower account
6. Interest accrued during extended COD period.
7. Where the CC limit is full, credit in CC towards Term loan installments/ interest and debit to CC and transfer to TL but in CC, there are not other credits enough to CC interest debits.
System Driven NPAs - Non financial aspects
Materiality & Audit Risk
Loans issued are not used
for the purposes for
which it is sanctioned
Prudential norms are
not followed
Accounting treatment is
not in accordance
with AS
control under CBS is
not adequate
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Evidence of Import - Physical Imports(i) If Rem. exceeds USD 100,000 or its equivalent, it is obligatory on the part of
the AD to ensure that the importer submits :-
(a) EC copy of B/E for home consumption, or
(b) EC copy B/E for warehousing, in case of 100% EOU/ or
(c) Customs Assessment Certificate or Postal Appraisal Form, as declared by the
importer to the Customs Authorities, where import has been made by post, as
evidence that the goods for which the payment was made have actually been
imported into India.
(ii) For imports on D/A basis, AD should insist on production of evidence when
effecting remittance. However, if importers fail to produce documentary
evidence due to genuine reasons such as non- arrival of consignment, delay in
delivery/ customs clearance of consignment, etc., AD may, if satisfied, allow
reasonable time, upto 3 months from the date of remittance, to the importer.
BoB were alleged to have remitted Rs 6,000 crore of black money late last year.
Pursuant to the internal audit of the Bank of Baroda, the Reserve Bank of India and
investigative agencies in October 2015 were advised by the bank of certain
irregularities observed
The RBI carried out the investigation and noted the deficiencies which were
reflective of weaknesses and failures in internal control mechanisms in respect of
certain anti-money laundering provisions such as monitoring of transactions, timely
reporting to Financial Intelligence Unit and assigning of Unique Customer
Identification Code to customers, BoB said.
In a clarification to the exchanges on October 12, 2015, BoB had said that a total of
5,853 outward foreign remittances transactions aggregating to $546.10 million
(around Rs 3,500 crore) for the purpose as ‘Advance remittance for Imports’ and for
other purposes have been remitted through 38 current accounts to various overseas
parties numbering about 400, mainly based in Hong Kong and one of them in the
UAE. PNB also informed the BSE that the RBI has imposed an aggregate penalty of
Rs 3 crore on it.
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Overview of Finacle
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Overview of Finacle
Menu Block: The block houses all the menu and sub-menu options available in Finacle.
Menu Option Block: Menu Code to be entered to gain access to the respective menu.
Action Bar: User can execute the process of Finacle Operations by clicking on various options on this bar. The Hot-Keys are also assigned for all options, which appear on the bar.
Message Bar: The message Bar displays warnings, exceptions, errors or Lists under a specific field code.
Favorites: Menu items which are required and used on Regular basis can be put in favorites by copying from Menu Block. As a one time process Specific Menu Item which is required to be copied to Favorites should be located in Menu Block and with the use of Drag and Drop the function can be stored under Favorites menu.
Progress Indicator: It shows the progress of the action initiated through the use of Colours (i.e.Green indicates that the System is “Ready” for processing and Red indicates that the “System is busy in Processing Activity:
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Type abrep at the
menu option and
press enter it
shows the following
screen
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ABC Bank Reports
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ABC Bank ReportsType module name, you will get the
list by pressing F2 then select the
required module by holding Shift+F4
and then press F4 it goes to report
number and then follow the same
procedure.(by pressing F2 and then
select required no. by holding shift +
F4 ) .For Going Back screen F3
should be used. And then press F4 it
displays the following screen
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Type Branch code , and then
date other fields are optional
and then press F4 it displays
the following screen
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Type F/B and then Y or N in print
required press F4 for going next tab
and come to BG Queue and then
Press F10. Type y at print option it
will give the print directly. for soft
copy u have to follow the following
procedure
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The above screen
means some working is
going on after
processing it displays the
following screen
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Type t at box and press
CTRL+e it displays the
following screen
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Then come to main menu screen by
clicking at menu option which is
available at down tool bar or u can
come by pressing F3 upto u get the
following screen
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Type PR at menu option
and press enter it displays
the following screen.
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Type t at box and press
CTRL+e it displays the
following screen
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Then press Ctrl +e it
displays the message at
the bottom whether file has
been transferred or not like
in the following screen.
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It saves the file
in the path given
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LOG on Screen
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Enter the user no., Password, Branch No., Terminal No. and then click to transmit
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menu screen, for enquiry about the customer is Short, &
long EnquiryEvery Customer must
have a CIF no. (Customer information
form no.)
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Click at DEPOSIT /CC/OD Accounts Menu it gives the different options and then click at Enquires again it
gives the different options.. For term
Loan there is another Menu DL/TL Accounts & Services.
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click at transmit
click at Long Enquiry
enter account no.
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We can see Rate of interest, Outstanding Balance, and basic
information about the customer.
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To View the transactions in a customer account. click DEPOSIT/cc/od Accounts and then Enquires, and then at transactions it displays the following
screen.
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It displays the above screen, if we enter the account no. and enter the start date
and end date and click at transmit, it displays the following screen.
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It Displays the above screen, it displays only 14 transactions at a time, for next transactions we have to enter the
transactions number at (like 15 ) Next Transactions Serial No. and then click at
transmit
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CBS Reports
Interest Report for Accounts : AINTRPT
Loan Interest Details Inquiry :
AITINQ
Abnormal Transaction Inquiry
: ATIBills Inquiry : BI
Rate List History Query : RTHQRY
Standing Instructions Inquiry
: SII
TDS Inquiry & Printing : TDSIP
Transactions Exceptions Inquiry :
TEI
Customer Unutilised Limit
Inquiry : CULI
Charges Income Report: CHGIR
Exceptions Report : EXCPRPT
Report for Matured OD/FD Accounts :
ODFDREP
Loans Overdue Position Inquiry :
LAOPI
Loans Repayment Schedule Report :
LARSH
PCFC Balancing Report : PCFCBAL
Pending Installments List :
PLIST
BG Margin Printing : BGMARGIN
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Menus used for verification account wise
ACLI (Account Ledger Inquiry):
ACI (Account Inquiry)
LAOPI (Loans & Advances Overdue Position Inquiry):
Account TOD Inquiry : ACTODI
Accounts Turnover Report : ATOR
Insurance Expired Yesterday : INSEXPD
Loan Overdue Details :
LOANODUE
List of Pending and DishonoredBills : FBPADB
)Overdue Foreign Bills : ODFB
Guarantees Expired but not
Reversed : GENR
Guarantees Invoked or not Paid : GIPNP
Guarantees Issued Cum Liability
Register : GILR
Loan Sanction Limit Review :
LAROR
Insurance Expiry List : INSTOEXP
Loan document expiry date
:INQLAC
Change in sanction limit :
CHLMT
Non submitted stock statement :
STKSTMT/SRM
Loan account Master report :
LAMP
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Benefits of Excel as DSS - Compliance of SA
• (Revised) Audit Documentation230
• Risk Assessment and Response to Assessed Risks300-499
• Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment315
• (Revised) Audit Evidence500
• (Revised) Analytical Procedures520
• (Revised) Audit Sampling530
• (Revised) Comparative Information—Corresponding Figures and Comparative Financial Statements710
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1. Analytical Tests
Horizontal Analysis
Vertical Analysis
Ratios Trend analysis
Performance Measures
Statistics Stratifications Aging
Benford’s Law Regression Monte Carlo simulation
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Data Management/ Analysis Reports
Append/Merge Calculated
Fields/Functions Cross Tabulate Duplicates
Extract/Filter Export Gaps Index / Sort
Join / Relate
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Lesson Summary
NPA’s in a matter of minutes
Selection of cases for LFAR
verification
Documentation of Observations
on Loans
Automated Reporting of LFAR
Observations
Automated Working papers,
Peer ReviewSA Compliance
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The tools would help us to
identify the following:
March 2, 2020Premnath D.S. B.Com., FCA 74
As the Chandokya Upanishad says:
If we apply knowledge with faith, dedication and deep analysis, our actions become stronger. This will
lead to success.
Yadaiva Vidyaya Karoti Shradhaya Upanishada
Tadeva Viryavattaram Bhavati!*****