BANK AUDITING WITH SPECIAL REFERENCE TO BANGALORE CITY
CO-OPERATIVE BANK
BANK AUDITING WITH SPECIAL REFERENCE TO BANGALORE CITY
CO-OPERATIVE BANK
DECLARATION
I ABHIJITH HR student of central college, hereby declare that
this project report titled BANK AUDITING WITH SPECIAL REFERENCE TO
BANGALORE CITY CO OPERATIVE BANK, Bangalore is an independent
research work carried out by me during the academic year 2013-2014
under the valuable guidance and supervision of Dr.RAMACHANDRA GOWDA
faculty of commerce and management, central college Bangalore,
submitted for the requirements of Bangalore University for the
award of the degree of MASTER OF FINANCE AND ACCOUNTING.This Report
is a result of my own Endeavour and has not been presented toany
university or institution for the award of any degree or diploma of
any university.
Place: Bangalore ABHIJITH HRDate: (Reg.No. 12TUCFA023)
ACKNOWLEDGEMENTI would like to extend my deep sense of gratitude
to M.F.A Co-coordinator, Dr.M.MUNIRAJU, for providing me with
necessary facilities for carrying out this project successfully.I
am also greatly thankfully and indebted to my guide Dr.RAMACHANDRA
GOWDA for her valuable guidance and co-operation extended in
completion of the project.I also extend my fullest gratitude to Mr.
MANJUNATHA N, Manager,The Bangare City Co-operative Bank, Bangalore
for granting me the permission to the project and providing me the
necessary information whenever required.I also thank my parents and
friends for their encouragement and support for the successful
completion of the project.Finally, I would like to acknowledge all
those people who are involved directly or indirectly in this
process without which this work would not have been success.
Place: Bangalore ABHIJITH HRDate: (STUDENT)
BANGALORE UNIVERSITY
DEPARTMENT OF COMMERCECENTRAL COLLEGE CAMPUS, BANGALORE 560
001.
CERTIFICATE
This is to certify that the dissertation titled BANK AUDITING
WITH SPECIAL REFERENCE TO BANGALORE CITY CO OPERATIVE BANK,
Bangalore is based on an original study conducted by Mr. ABHIJITH
HR Reg. No 12TUCFA001 under my guidance for the requirements of the
Bangalore University for the Award of Degree in Master of Finance
and Accounting.To the best of knowledge and belief the matter
presented in this report is not submitted for any degree or diploma
of any university.Place : BangaloreDate: Dr.RAMACHANDRA GOWDA
(GUIDE)
BANGALORE UNIVERSITY
DEPARTMENT OF COMMERCECENTRAL COLLEGE CAMPUS, BANGALORE 560
001.
CERTIFICATE
This is to certify that the dissertation titled BANK AUDITING
WITH SPECIAL REFERENCE TO BANGALORE CITY CO OPERATIVE BANK,
Bangalore is based on an original study conducted by Mr. ABHIJITH
HR, Reg. No 12TUCFA001 under my guidance for the requirements of
the Bangalore University for the Award of Degree in Master of
Finance and Accounting.To the best of knowledge and belief the
matter presented in this report is not submitted for any degree or
diploma of any university.
Place: BangaloreDate: Dr.M.RAMACHANDRA GOWDA (CHAIRMAN)
BANGALORE UNIVERSITY
DEPARTMENT OF COMMERCECENTRAL COLLEGE CAMPUS, BANGALORE 560
001.
CERTIFICATE
This is to certify that, MR. ABHIJITH HR, Reg. No 12TUCFA001
student of under Master of Finance and Accounting, during the
academic year 2013-14 of this college, has successfully completed
his project work embodied in this dissertation titled BANK AUDITING
WITH SPECIAL REFERENCE TO BANGALORE CITY CO OPERATIVE BANK,
Bangalore under my guidance for the requirements of the Bangalore
University.This study has not formed the basis for the award of any
other degree or diploma of any university. His character and
conduct is good during the study and we wish his all the success in
his future endeavors.Place: Bangalore Dr. M.MUNIRAJUDate:
(co-ordinator of commerce)
INTRODUCTION
ORIGIN OF THE WORDThe word bank was borrowed in Middle English
from Middle French banque, from Old Italian banca, from Old High
German banc, bank "bench, counter". Benches were used as desks or
exchange counters during the Renaissance by Florentine bankers, who
used to make their transactions atop desks covered by green
tablecloths.
A bank is a financial institution and a financial intermediary
that accepts deposits and channels those deposits into lending
activities, either directly by loaning or indirectly through
capital markets. A bank links together customers that have capital
deficits and customers with capital surpluses.
MEANING: A bank is a financial institution which deals with
deposits and advances and other related services. It receives money
from those who want to save in the form of deposits and it lends
money to those who need it.
BANKING IN INDIA:Banking in India in the modern sense originated
in the last decades of the 18th century.The first banks were.1}
Bank of Hindustan (1770-1829).2} General Bank of India ( 1786).The
largest bank, and the oldest still in existence, is the State Bank
of India, which originated in the Bank of Calcutta in June 1806,
which almost immediately became the Bank of Bengal. This was one of
the three presidency banks, the other two being the Bank of Bombay
and the Bank of Madras, all three of which were established under
charters from the British East India Company. The three banks
merged in 1921 to form the Imperial Bank of India, which, upon
India's independence, became the State Bank of India in 1955. For
many years the presidency banks acted as quasi-central banks, as
did their successors, until the Reserve Bank of India was
established in 1935.In 1969 the Indian government nationalized all
the major banks that it did not already own and these have remained
under government ownership. They are run under a structure know as
'profit-making public sector undertaking' (PSU) and are allowed to
compete and operate as commercial banks. The Indian banking sector
is made up of four types of banks, as well as the PSUs and the
state banks, they have been joined since the 1990s by new private
commercial banks and a number of foreign banks.Banking in India was
generally fairly mature in terms of supply, product range and
reach-even though reach in rural India and to the poor still
remains a challenge. The government has developed initiatives to
address this through the State Bank of India expanding its branch
network and through the National Bank for Agriculture and Rural
Development with things like microfinance.Indian Banking Industry
currently employees 1,175,149 employees and has a total of 109,811
branches in India and 171 branches abroad and manages an aggregate
deposit of 67504.54 billion (US$1.1trillion or 860billion) and bank
credit of 52604.59 billion (US$840billion or 670billion). The net
profit of the banks operating in India was 1027.51 billion
(US$16billion or 13billion) against a turnover of 9148.59 billion
(US$150billion or 120billion) for the fiscal year 2012-13.The
Reserve Bank of India (RBI) is India's central banking institution,
which controls the monetary policy of the Indian rupee. It was
established on 1 April 1935 during the British Raj in accordance
with the provisions of the Reserve Bank of India Act, 1934.[3] The
share capital was divided into shares of 100 each fully paid, which
was entirely owned by private shareholders in the beginning.[4]
Following India's independence in 1947, the RBI was nationalized in
the year 1949. The RBI plays an important part in the development
strategy of the Government of India.
CLASSIFICATION OF BANKS
1} ON THE BASIS OF OWNERSHIP
A) Public Sector Banks.
These types of banks are operated by the Government. Their main
focus is to serve the people rather earn profits. State bank of
India, Punjab National bank, State bank of Patiala, Allahabad Bank,
etc. are the some of the important examples of Public sector
bank.B) Private Sector Banks.
These banks are owned and operated by the private institutes and
are controlled by the market forces. The greater share of the
private sector banks is held by private players and not the
government. Some good examples of Private sector banks are Kotak
Mahindra bank, ICICI Bank, HDFC Bank, Axis Bank, etcC) Co-operative
sector.
Is very much useful for rural people and provide finance to
farmers, salaried people, small scale industries, etc. These banks
are controlled, owned, managed and operated by the cooperative
societies and came into existence under Cooperative Societies Act
in 1912.
2} ACCORDING TO THE LAW
A) Scheduled Banks.In India are those banks which have been
included in the Second Schedule of Reserve Bank of India (RBI) Act,
1934.[1] RBI in turn includes only those banks in this schedule
which satisfy the criteria laid down vide section 42 (6) (a) of the
Act.As on 30 June 1999, there were 300 scheduled banks in India
having a total network of 64,918 branches. Scheduled commercial
banks in India include State Bank of India and its associates (5),
nationalized banks (20), foreign banks (45), private sector banks
(32), co-operative banks and regional rural banks.
B) Non scheduled bank.
It is a bank which does not come under RBI act 1949.
3} ACCORDING TO THE FUNCTIONS
A) Central bank.
The central bank is also called the banker's bank in any
country. In India, the Reserve Bank of India is the central bank.
The Federal Reserve in USA and the Bank of England in UK function
as the central bank. This bank makes various monetary policies,
decides the rates of interest, controlling the other banks in the
country, manages the foreign exchange rate and the gold reserves
and also issues paper currency in a country. The monetary control
is the primary function of a central bank in most countries and so
they are considered as the lender of last resort to various
commercial banks.
B) Commercial banks.
These banks function to help the entrepreneurs and businesses.
They give financial services to these businessmen like debit cards,
banks accounts, short term deposits, etc. with the money people
deposit in such banks. They also lend money to businessmen in the
form of overdrafts, credit cards, secured loans, unsecured loans
and mortgage loans to businessmen. The commercial banks in the
country were nationalized in 1969.
C) Foreign banks: Are those that are based in a foreign country
but have several branches in India. Some examples of these banks
include; HSBC, Standard Chartered Bank etc.
D) Savings banks:These banks function with the intention to
culminate saving habits among people, especially those who belong
to low income groups or those who are salaried. The money these
people deposit in the banks are invested in securities, bonds etc.
These days, many commercial banks perform the dual functions of
savings bank. The postal department is also in a way a saving
bank.
E) Agricultural banks:Those banks that gives credit to
agricultural sector.
F) Industrial banks:Those banks that offer long and medium term
loan to industrial sectors and work for their development.
The functions of banks are briefly highlighted in following
Diagram or Chart
1} PRIMARY FUNCTIONS OF BANKS:The primary functions of a bank
are also known as banking functions. They are the main functions of
a bank. These primary functions of banks are explained below.A)
Accepting DepositsThe bank collects deposits from the public. These
deposits can be of different types, such as:a. saving deposit.b.
fixed deposit.c. current deposit.
B) Granting of Loans and Advances.The bank advances loans to the
business community and other members of the public. The rate
charged is higher than what it pays on deposits. The difference in
the interest rates (lending rate and the deposit rate) is its
profit.The types of bank loans and advances are:-0. Cash Credits.1.
Loans.2. Discounting of bill of exchange.3. Over draft.
2} SECONDARY FUNCTIONS OF BANKSThe bank performs a number of
secondary functions, also called as non-banking functions. These
important secondary functions of banks are explained below.A)
Agency Functions.The bank acts as an agent of its customers. The
bank performs a number of agency functions which includes:-0.
Collection of Cheques1. Periodic Payments2. Portfolio Management3.
Periodic Collections4. Other Agency Functions5. Transfer of fundB)
General Utility Functions.The bank also performs general utility
functions, such as:-0. Locker Facility1. Issue of draft, letter of
credit2. Underwriting of Shares3. Dealing in Foreign Exchange4.
Project Reports5. Social Welfare Programmes6. Other Utility
Functions.
CO-OPERATIVE BANKS
The Co operative banks in India started functioning almost 100
years ago. The Cooperative bank is an important constituent of the
Indian Financial System, judging by the role assigned to co
operative, the expectations the cooperative is supposed to fulfill,
their number, and the number of offices the cooperative bank
operate. Though the cooperative movement originated in the West,
but the importance of such banks have assumed in India is rarely
paralleled anywhere else in the world. The cooperative banks in
India play an important role even today in rural financing.The
businesses of cooperative bank in the urban areas also have
increased phenomenally in recent years due to the sharp increase in
the number of primary co-operative banks. While the co-operative
banks in rural areas mainly finance agricultural based activities
including farming, cattle, milk, hatchery, personal finance etc.
along with some small scale industries and self-employment driven
activities, the co-operative banks in urban areas mainly finance
various categories of people for self-employment, industries, small
scale units, home finance, consumer finance, personal finance,
etc.Co operative Banks in India are registered under the
Co-operative Societies ActThe cooperative bank is also regulated by
the RBI. They are governed by the Banking Regulations Act 1949 and
Banking Laws (Co-operative Societies) Act, 1965.
DEFINITION OF CO-OPERATIVE BANKS:In the words of Henry Wolff
Co-operative banking is an agency which is in a position to deal
with the small means on his own terms
INTRODUCTION OF THE TOPICThe audit of banking companies plays a
very important role in India as it help to regulate the banking
companies in right manner. In audit ofbanks includes various types
of audit which are normally carried out inbanking companies such as
statutory audit, revenue/income expenditure audit, concurrent
audit, computer and system audit etc. the above audit is mainly
conducted by the banks own staff or external auditor. However, the
rules and the regulation relating to the conduct of various types
of audit orinspections differ from a bank to bank expect the
statutory audit for which the RBI guidelines is applicable. In
this, I have given more importance on the overall bank audit
system. In todays competitive world audit is very much necessary as
well as compulsory , because investor investing decision is depend
on that particular concept if auditor has expressing his view
aboutparticular organization is true and fair then investor can get
his ideas about how much he should invest in particular
companies.ORIGIN AND EVOLUATION OF AUDITING1) Origin of term :The
term audit is derived from the Latin term audire mean to hear. In
early days, an auditor used to listing to the accounts read out by
the accountant in order to check them.2) Ancient origin :Auditing
is as old as accounting. It was in use in all ancient countries
such as Mesopotamia, Egypt, Greece, Rome, U.K., and India. The
Vedas, Ramayana, Mahabharata contain references to accounting and
auditing. Arthashasastra by Kautilya gives detailed rules for
accounting and auditing of public finances. The Mauryas, the Guptas
and the Mughals had developed and accounting and auditing system to
control state finances. Thus, basically, accounting and auditing
had their origin in the need for the government to control the
income and expenditure of the state and the army. The original
object of auditing was to detect andprevent errors and frauds.3)
Compulsory audits of companies:With increasing number of companies,
the companies acts indifferent countries began providing for
compulsory audit of accounts ofcompanies. Thus U.K. audit of
accounts of limited companies became compulsory in 1900. In India,
the companies act, 1913 made audit ofcompany accounts compulsory.
With increase in size of companies, the object of audit also
shifted to ascertaining whether the accounts were true and fair
rather than true and correct. Thus, the emphasis was not
arithmetical accuracy but on fair representation of financial
affairs.4) Development of accounting and auditing standard:The
international accounting standards committee and the accounting
standards board of institute of chartered accountant of India have
developed standard accounting and auditing practices to guide the
accountants and auditor in their day-to-day work.5) Computer
technology:The latest development in auditing pertains to the use
of computers in accounting as well as auditing. Really, auditing
has come a long way from hearing the accounts in the ancient day to
using computers to examine computerized accounts of today.
DEFINITION OF AUDITINGVarious persons such as the owners,
shareholders, investors, creditors, lenders, government etc. use
the final account of business concern for different purposes. All
these users need to be sure that the final accountsprepared by the
management are reliable. An auditor is an independent expert who
examines the accounts of a business concern and reports whetherthe
final accounts are reliable or not. Different authorities have
defined auditing as follows.
Definition of 'Audit'An unbiased examination and evaluation of
the financial statements of an organization. It can be done
internally (by employees of the organization) or externally (by an
outside firm).MautzDefine the auditing as auditing is concerned
with the verification of accounting data, with determining the
accuracy and reliability of accounting statement and
reports.International auditing guidelinesDefines the auditing as
auditing is an independent examination of financial information of
any entity with a view to expressing an opinion thereon.
BASIC PRINCIPAL OF AUDITING: Integrity, objectivity and
independence:The auditor should be honest and sincere in his audit
work. He must be fair and objective. He should also be independent.
Confidentiality:The auditor should keep the information obtained
during audit, confidential. He should not disclose such information
to any third party. He should, keep his eyes and ears open but his
mouth shut. Skill and competence:The auditor should have adequate
training, experience and competence in Auditing. He should have a
professional qualification (i.e.be a Chartered Accountant) and
practical experience. He should be aware of recent developments in
the field of auditing such as statement of ICAI, changes in company
law, decisions of courts etc. Working papers:The auditor should
maintain working papers of important matters to prove that audit
was conducted with due care according to the basicprinciples.
Planning:The auditor should plan his audit work. He should prepare
an auditprogrammed to complete the audit efficiently and in time.
Audit evidence:The report of the auditor should be base on evidence
obtained in the course of audit. The evidence may be obtained
through vouching oftransactions, verification of assets and
liabilities, ratio analysis etc. Evaluation of accounting system
and internal control:The auditor should ensure that the accounting
system is adequate. He should see that all the transaction have
been properly recorded. He should study and evaluate the internal
controls. Opinion and report:The auditor should arrive at his
opinion on the account based on the audit evidence and submit his
report. The opinion may be unqualified, qualified or adverse. The
audit report should clearly express his opinion. Law should require
the content and form of audit report.
NEW PRINCIPLES FOR AUDITING BANKSThe Basel Committee published a
consultative document on the external audit of banks on 21 March
2013. It proposed 16 principles and set out supervisory
expectations on how: external auditors can discharge their
responsibilities more effectively audit committees can contribute
to audit quality in their oversight of the external audit an
effective relationship between external auditors and supervisors
can lead to regular communication of mutually useful information
regular and effective dialogue between banking supervisors and
relevant oversight bodies can enhance the quality of bank
audits.The Basel Committee also published a letter to the
International Auditing and Assurance Standards Board calling for
more authoritative guidance relating to bank audits, and setting
out specific areas where International Standards on Auditing should
be improved.This guidance would supersede existing Basel Committee
material on the relationship between banking supervisors and banks
external auditors (2002) and external audit quality and banking
supervision (2008). The consultation closes on 21 June 2013.
AUDIT COMMITTEEIn pursuance of RBI circular September 26, 1995,
a bank is required to constitute an Audit Committee of its Board.
The membership of the audit committee is restricted to the
Executive Director, nominees of Central Government and the RBI,
Chartered Accountant director and one of the non-official
directors. One of the functions of this committee is to provide
direction and oversees the operations of the total audit function
in the bank. The committee also has to review the internal
inspection function in the bank, with special emphasis on the
system, its quality and effectiveness in terms offollow up. The
committee has to review the system of appointment and remuneration
of concurrent auditors. The audit committee is, therefore,
connected with the functioning ofthe system of concurrent audit.
The method of appointment of auditors, theirremuneration and the
quality of their work is to be reviewed by the Audit Committee. It
is in this context that periodical meeting by the members ofthe
audit committee with the concurrent auditors help the audit
committee to oversee the operations of the total audit function in
the bank
Considering the coverage of this audit assignment and the
specialized nature of work there is also a need for training to be
imported to the staff of the auditors. This training has to be
given in specialized field such as foreign exchange,
computerization, and areas of income leakage, fraud prone areas,
determination of credit rating and other similar specialized areas.
The bank can organize such training programmed at various places so
that it can ensure the quality of audit.
ADVANTAGES, DISADVANTAGES AND LIMITATIONS OF AUDITIt is
mandatory for public companies to have statutory financial
statements audit. Many business stakeholders have embraced
auditing. So today we will look at the advantages of having
financial statements audit and the disadvantages.ADVANTAGES OF
AUDIT1. Audited accounts are readily accepted by Government
authorities like Tax authorities and Central banks.2. By auditing
the accounts Errors and frauds can be detected and rectified in
time.3. Audited accounts carry greater authority than the accounts
which have not been audited.4. For accessing finance from financial
institutions like Banks, previous years audited accounts are
evaluated for determining repayment capability.5. Regular audit of
account create fear among the employees in the accounts department
and exercise a great moral influence on clients staff thereby
restraining them from commit frauds and errors.6. Audited accounts
facilitate settlement of claims on the retirement/death of a
partner.7. In the event of loss of property by fire or on happening
of the event insured against, Audited accounts help in the early
settlement of claims from the insurance company.8. In case of
Public Company where ownership is separated from management,
auditing of accounts reassure the shareholders that accounts have
been properly maintained, funds are utilized for the right purpose
and the management have not taken any undue advantage of their
position.9. To determine the value of the business in the event of
purchase or sales of the business, audited account will be the
treated as the base for the evaluation.10. The audit of accounts by
a qualified auditor also help the management to understand the
financial position of the business and also it will help the
management to take decision on various matters like report in
internal control system of the organization or setting up of an
internal audit department etc.11. If the accounts have been audited
by an independent person, disputes between the management and labor
unions on payment of bonus and higher wages can be settled
amicably.12. In the event of admission of a new partner, audited
accounts will facilitate the formation of terms and conditions for
joining the new partner. Last 3 years audited accounts will give a
general idea about the growth and financial position of the
business to the new partner.
DISADVANTAGES OF AUDIT1. The payment of audit fees brings extra
cost burden to the organization.2. During an audit the auditor
requires the attention several company staff and therefore causes
disruption.
LIMITATIONS OF AUDIT1. An audit does not assure future viability
of the organization audited2. An audit does not assure the
effectiveness and efficiency of management.3. Auditors express
opinion and therefore does not give total assurance of the true
fair presentation of annual reports.4. An auditor cannot check each
and every transaction he has to checkonly the selected areas and
transaction on a sample basis.
TYPES OF AUDIT IN A BANK
1. STATUTORY AUDIT.2. INTERNAL AUDIT.3. CONCURRENT AUDIT.4.
SYSTEM AUDIT.5. REVENUE AUDIT.1 STATUTORY AUDITStatutory auditor is
a title used in various countries to refer to a person or entity
with an auditing role, whose appointment is mandated by the terms
of a statute.In the United Kingdom, the term "statutory auditor"
refers to an external auditor whose appointment is mandated by law.
A "statutory audit" is a legally required review of the accuracy of
a company's or government's financial records. The purpose of a
statutory audit is the same as the purpose of any other audit - to
determine whether an organization is providing a fair and accurate
representation of its financial position by examining information
such as bank balances, bookkeeping records and financial
transactions. The European Union has also made efforts to mandate
statutory audits and statutory auditors on an EU-wide level.
2 INTERNAL AUDITThe examination, monitoring and analysis of
activities related to a company's operation, including its business
structure, employee behavior and information systems. An internal
audit is designed to review what a company is doing in order to
identify potential threats to the organization's health and
profitability, and to make suggestions for mitigating the risk
associated with those threats in order to minimize costs.
Regulations, such as the Sarbanes-Oxley Act of 2002, have increased
corporate requirements for performing internal audits. They are
important components of a company's risk management, as they help
companies identify issues before they become substantial problems.
They also help identify risky behavior by individual employees and
threats posed by outside parties, such as attempts to steal
intellectual property.
3 CONCURRENT AUDITConcurrent audit is a systematic and timely
examination of financial trascation on a regular basis to ensure
accuracy, compliance with procedure and guidelines. The concept of
concurrent audit has been introduced to reduce time gap between
occurrences of transaction and is overview or checking. It serves
the purpose of effective internal control. Concurrent audit is an
examination, which is contemporaneous with the occurrence of
transactions or is carried out as near thereto as possible. The
main focus while conducting concurrent audit it to ensure that
transactions are not dealt with in routine but in adherence with
the systems and procedures laid down. We ensure that the
transaction or decisions are within the policy parameters laid
down, they do not violate the instructions or policy prescriptions,
and that they are within the delegated authority and in compliance
with the terms and conditions for exercise of the delegated
authority
4 SYSTEM AUDITIn todays technology advancement banking are using
a well organized computer system to perform their transaction. So
it is very necessary to conduct system audit in order to evaluate
computer system for effectiveness.System audit is the audit of such
computer environment/system and comprise of following internal
control over Electronic Data Processing (EDP) activities and with
application controls over accounting applications/assuring that all
transaction records are authorized completely, accurately, timely
processed manner which in turn are verified by computer.5 REVENUE
AUDITRevenue audit refers to the audit of revenues/ incomes. In
revenue audit of banking companies, auditors go through the various
sources of revenues from which bank earn income. In revenue audit
of banks, the auditor inspects that all the records are showing
true and fair picture of revenues or not.
STAGES IN AUDITING1 preliminary work:A) The auditor should
acquire knowledge of the regulatory environment in which the bank
operates. Thus, the auditor should familiarize himself with the
relevant provisions of applicable laws and ascertain the scope of
his duties and responsibilities in accordance with such laws. He
should be well acquainted with the provisions of the Banking
Regulation act, 1956 in the case of audit of a banking company as
faras they relate of preparation and presentation of financial
statements and their audit.
B) The auditor should also acquire knowledge of the economic
environment in which the bank operates. Similarly, the auditor
needs to acquire good working knowledge of the services offered by
thebank. In acquiring such knowledge, the auditor needs to be aware
of the many variation in the basic deposit, loan and treasury
services that are offered and continue to be developed by banks in
response to market conditions. To do so, the auditor needs to
understand the nature of services rendered through instruments such
as letters ofcredit, acceptances, forward contracts and other
similar instruments.C) The auditor should also obtain and
understanding of the nature ofbooks and records maintained and the
terminology used by the bank to describe various types of
transaction and operations. In case of joint auditors, it would be
preferable that the auditor also obtains a general understanding of
the books and records, etc, relating to the work of the other
auditors, In addition to the above, the auditor should undertake
the following:
Obtaining internal audit reports, inspection reports, inspection
reports and concurrent audit reports pertaining to the bank/branch.
Obtaining the latest report of revenue or income and expenditure
audits, where available. In the case of branch auditors, obtaining
the report given by the outgoing branch manager to the incoming
branch in the case of change in incumbent at the branch during the
year under audit, to the extent the same is relevant for the
audit.
D) RBI has introduced and offsite surveillance system for
commercial banks on various aspects of operations including
solvency, liquidity, asset quality, earnings, performance, insider
trading etc., and has indicated that such reports shall be
submitted at periodic intervals from the year commencing 1-04-1995.
It will be appropriate to be familiar with the reports submitted
and to review them to the event that they are relevant for the
purpose of audit.
E) In a computerized environment the audit procedure may have to
appropriately tuned to the circumstances, particularly as the books
are not authenticated as in manually maintained accounts and the
auditor may not have his in-house computer facility to taste the
software programmer. The emphasis would have to be laid on internal
control procedure related to inputs, security in the matter of
access to EDP system, use of codes, passwords, data inputs being
prepared by person independent of key operators and other build-in
procedure for data validation and system controls as to ensure
completeness and correctness of the transaction keyed in. system
documentation of the software may be obtained and examined.F) One
set of tests that the auditor at both the branch level and head
office level may apply for audit of banks in analytical
procedure.
2 Evaluation of internal control system:It may be noted that
transaction in banks are voluminous and repetitive, and fall into
limited categories/heads of account. It may, therefore, be more
appropriate that the evaluation of the internal control is made for
each class/category of transaction. If the exercise of internal
control evaluation is properly carried out, it assist the auditor
to determine the effectiveness or otherwise of the control systems
and accordingly enable him to strengthen his audit procedures, and
lay appropriate emphasis on the risk prone areas. Internal control
would include accounting control administrative controls. A)
Accounting controls:Accounting controls cover areas directly
concerned with recording of financial transactions and maintenance
of such registers/records as to ensure their reliability. Internal
accounting controls are also envisaging such procedures as would
determine responsibility and fix accountability with regard to
safeguarding of the assets of the bank. It would not be out of
place of mention that there is a distinction between accounting
system and internal accounting controls. Accounting system
envisages the processing of the transaction and events, their
recognition, and appropriate recording. Internal controls are
techniques, method and procedures so designed and usually built
into systems, as would enable prevention as well as detection of
errors, omissions or irregularities in the process of execution and
recording of transaction/events. The internal accounting controls
as would ensure prevention of errors, omissions and irregularities
would include following: No transaction can be registered/recorded
unless it is sanctioned/approved by the designated authority.
Built- in dual control/supervisory procedures ensure that there is
an independent automatic check on input/vouchers. No single person
has authority to initiate transaction and record through all stages
to the general ledger. Each day transactions are accurately and
promptly recorded, and the control and subsidiary records are kept
balanced through personnel independent of each other.
The auditor would be well advised to look into other areas may
lead to detection of errors, omissions and irregularities, inter
alias in the following Missing/loss of security paper, stationery
forms. Accumulation of transactions/balances in nominal heads of
accounts like suspense, sundries, inter-branch accounts, or other
nominal head of accounts particularly if there accounts
particularly if these accounts are extensively used to balance
books, despite availability of information. Accumulation of
old/large unexplained/unsubstantiated entries in accounts with
Reserve Bank of India and other banks and institutions. Transaction
represented by mere book adjustments not evidenced/substantiated or
upon non-honoring of contracts/commitments. accounts/inter-branch
accounts. Analytical review procedure. Serious irregularities
pointer out in internal audit/inspection/special audit
Complaints/matters pending in the vigilance/grievances cell, as
regards discrepancies in accounts of constituents, etc. Results of
periodic analytical review, if observed as adverse.
B) Administrative control:These are broadly concerned with the
decision making process and laying down of authority/delegation of
powers by the management. It may be noted that in the normal
course, the head office use the zonal/regional offices do not
conduct any banking business. They are generally responsible for
administrative and policy decisions which are executed at the
branch level.
3 Preparation of audit program for substantive testing and its
execution: Having familiarized him the requirements of audit, the
auditor should prepare an audit programme for substantive testing
which should adequately cover the scope of his work. In framing the
audit programmers, due weigh age should be given by the auditor to
areas where, in his view, there are weaknesses in the internal
controls. The audit programmers for the statutory auditors would be
different from that of the branch auditor. At the branch level,
basic banking operation is to be covered by the audit. On the other
hand, the statutory auditors at the head office (provisions for
gratuity, inter-office accounts, etc.). The scope of the work of
the statutory auditors would also involve dealing with various
accounting aspects and disclosure requirements arising out of the
branch returns.
4 Preparation and submission of audit report :The branch auditor
forwards his report to the statutory auditors who have to deal with
the same in such manner, as they considered necessary. It is
desirable that the branch auditors reports are adequately in
unambiguous terms. As far as possible, the financial impact of all
qualification or adverse comments on the branch accounts should be
clearly brought out in the branch audit report. It would assist the
statutory auditors if a standard pattern of reporting, say, head
wise, commencing with assets, then liabilities and thereafter items
related to income and expenditure, is followed. In preparing the
audit report, the auditor should keep in mind the concept of
materiality. Thus, items which do not materially affect the view
presented by the financial statements may be ignored. However, in
the judgment of the auditor, an item though not material, is
contrary to accounting principles or any pronouncements of the
Institute of Chartered Accountants of India or in such as would
require a review of the relevant procedure, it would be appropriate
for him to draw the attention of the management to this aspect in
his long form audit report. In all cases, matters covering the
statutory responsibilities of the auditor should be dealt with in
the main report. The LFAR (long form audit report) should be used
to further elaborate matters contained in the main report and as
substitute thereof. Similarly while framing his main report, the
auditor should consider, wherever practicable, the significance of
various comments in his LFAR, where any of the comments made by the
auditor therein is adverse, he should consider whether
qualification in his main report is necessary by using his
discretion on the facts and circumstances of each case. In may be
emphasized that the main report should be self-contained
document.
RESEARCH DESIGNTITLE OF THE STUDYA PROJECT REPORT ON THE BANK
AUDITING WITH SPECIAL REFERENCE TO BANGALORE CITY CO-OPERATIVE BANK
AT CHAMRAJPET, BANGALORE
MEANING OF RESEARCH DESIGN: A detailed outline of how an
investigation will take place. A research design will typically
include how data is to be collected, what instruments will be
employed, how the instruments will be used and the intended means
for analyzing data collectedThere are two type of research design.
1 Qualitative. 2 Quantitave.
STATEMENT OF THE PROBLEMAuditing is the most important part of
banking organization. The success and failure of any bank or
company solely depends upon auditing and process of auditing. Due
to misappropriation in the accounts and finance of banking industry
the audit of the banking play a vital role on the bank. Every
banking industry however small or big, public or private or co
operative banks has to as it mandatory. In this project the study
is focus on BANGALORE CITY CO-OPERATIVE BANK.A banking companies
are requires maintaining the books of account in accordance with
section 209 of the companies act 1956. Banking generally a sound
internal control system. The auditor has to evaluate such system
carefully. The fundamental requirement of an audit, as regards
reporting on statement of account can be discharged from the
examination of the internal checked and verification of assets and
liabilities by making a comparison and reconciliation of balance
with those in the year and that of amount ofincome and expenses by
application of test checks. The banking regulation act casts
greater responsibilities on the directors of banks as compared to
those of other companies in the matter of supervision over their
working. Therefore, they exercise, or are expected to exercise
greater supervision over the affairs of bank. The auditor is
entities to rely on such supervision and to limit his checking to
test checks. The financial position of a bank is depended on the
condition of assets, loan, investment, cash balanced and those of
its liabilities and fund. Their verification forms an important
part of the balance sheet. Most of the banks have their own
internal audit or inspection department entrusted with the
responsibilities of checking the account of various branches. The
statutory auditor may not, therefore duplicate work.
OBJECTIVES OF THE STUDY
To study how the banks will do auditing. To identify the
internal control in selected area. To study the steps involved in
bank auditing. To understand the type of banks auditing. To
analysis the efficiency and effectiveness of bank auditing. To make
suggestion if there is a problem with regard to the banks
auditing.
SCOPE OF THE STUDY An introduction to Bangalore city co
operative bank. The scope of the study is limited to Bangalore city
co operative bank. The scope of the study of bank auditing is very
wide so I have done as possible as my concern. An attempt is made
to identify how the auditing will takes place in the Bangalore city
co-operative bank.
RESEARCH METHODOLOGY:This is the case study and an index study
of audit of bank with special reference to the BANGALORE CITY
CO-OPERATIVE BANK .The research methodology based on primary data
and secondary data.The various data is collected by adopting two
main methods. They are
PRIMARY DATA: The primary data has been collected from the
concerned authority through direct interview.
SECONDARY DATA: The secondary data has been collected from the
various sources including audit report, company profile, financial
statement of company, and published periodical annual report of the
company. It has also been collected through website
www.google.com.
LIMITATION OF THE STUDY
The published information used in the study may not be accurate
and may be biased. The study is conducted only on the main branch
of the company. The research may not contribute to overall
performance of the BANGALORE CITY CO-OPERATIVE BANK LTD. The study
was undertaken for less than one month that to in year ending, so
information gathering during that period may not sufficient. To
collect data about auditing was quite difficult due to year ending
and non co operation of some respondent. This proved to be the
major limitation of the study. Due to secrecy maintenance in the
bank some data could not included in the project report.
BANGALORE CITY CO OPERATIVE BANK HEAD OFFICE CHAMRAJPET
BAGALORE
HISTORYSri.K.Ramaswamayya was the main architect of the Bank.
The Bank started its operation in the year 1905 and was recognized
as the Urban Credit Co-operative society on 6th April 1907. The
bank was awarded grade-1 by RBI.The Bangalore City Co-operative
Bank Ltd was established under the Co-operative Society Act bearing
registration number 314/CS, dated RBI NO granted 08.04.1907 from
the Registration of Co-operative Societies in Karnataka and
License. UBT/KA/642, dated 11.11.1986 for conducting the Banking
Business. The bank has 12 branches along with one administration
office and all branches have been computerized under the
jurisdiction of Bangalore City Co-operative Bank, Bangalore
Development Authority and Bangalore Urban and peripheral areas. The
operation of the bank is throughout Bangalore Co-operative Limited.
Section 3(F) of the multi-state Co-operative societies Act 1984
defines Co-operative principles are as:Membership of multi-state
co-operative society should be voluntary an open without any
social, political or religious discrimination, to all persons who
can in a society other than with institutional membership.
Individual member should enjoy equal rights of voting one member,
one vote.Surplus of savings, if any arising out of the operation of
the society belongs to the society as a whole and no individual
members has a claim to the surplus.The bank has been making steady
and consistent progress on all spheres having established on 6th
April 1907 with head office at Pampamahakavi Road, Chamarajapete,
and Bangalore. With an intention to provide loan and give
highinterest on deposit to the customers and members. The bank was
established under the co-operative society ActBearing registration
on number 314/CS, on 8th April 1907 from the registrar of
co-operative societies in Karnataka and license was granted by RBI
vide no, UBD/KA/642 dated 11th November 1986 for conducting banking
business.
The Bangalore City Co-Operative Bank Ltd is one among the top
urban co-operative banks in the country. The banks were honored as
the best urban co-operative bank in the period of 1926, 1927, and
1928 by the Mysore province. During 2002 and 2004 Karnataka state
government has honored the bank as best urban co-operative
bank.
The bank has been extending credit facility and also including
the habit of savings among the small traders, foot path vendors,
hawkers coming under priority sector. The bank has made advances to
large number of 3 wheelers, self-employed owners and thus has
extended self-employed owners and thus has extended self-employment
opportunities to large number of people. Bank completing 100 years
in 2007.
NATURE OF THE BUSINESS CARRIED
The Bangalore City Co-Operative Banks nature of the business
carried is as following under the points. Issuing of gold coins.
Cash receipts/deposit. Cash withdrawals. Sanction and disbursement
of loans. Locker facilities. Updating and issuing of new pass books
and cheque books. Issuing demand drafts. RTGS facilities.
QUALITYPOLICY
Following are some of the rules and regulations provided by the
bank for the benefit of customers:
Avail nomination facilities to a/c holders including savings
bank a/c and current a/c holders. Bank will exchange mutilated
currency notes as per RBI guidelines. Bank will give standing
instructions for the payment of bills, interest, insurance etc.
Bank provides required and important guidelines to the locker
holders.
VISION, MISSION AND QUALITY POLICYVISIONAs per the laws of the
banks: Accepting deposits for the purpose of promoting saving
habits in the minds of public and the members. Providing various
types of loans facilities to members. To open new branches with
permission from RBI and register of co-operative societies. To
provide short term and medium term credit worthy farmers.
To carry out banking business. To serve as balancing center in
the state. To function as a leader of co-operative in Karnataka. To
raise the deposits of the bank more than 550 cores.
MISSION
To meet the growing aspiration of the customers of the bank in
particular and other in the general in the changing environment. To
bring about total customers satisfaction by providing quality
services To promote socio economic development and employment as
national and social objectives. To meet the economic and career
aspirations of the employees of the bank. To promote the
effectiveness of credit and to reduce the risk in getting a credit
through careful and continuous supervision.
FUNCTIONS
Provisions of short term loans to carry out seasonal agriculture
and for the purpose of sale of agriculture products. Provisions for
medium term loans for irrigation, poultry farming, animal husbandry
etc. Acceptance of deposits Provision of remittance and payment
facilities. Collection of cheques, drafts etc. for the customers.
Acceptance of valuables for safe custody.
OWNERSNIP PATTERN
Bangalore City Co-operative Bank Ltd is city co-operative bank
providing its services to business people and to the general
public. The bank issued all its shares to its members only and it
issued equal shares for each member of the bank. The number of
members in the year 2010-11 was 47698, The number of members in the
year 2011-12 was 54139, The number of members in the year 2012-13
was 58218.
BOARD OF DIRECTORS:
NameDesignation
Dr. Devaraju T.M.President
Sri. AnjanappaVice President
Smt.C.M.Bhagyalakshmamma,Directors
Sri N. ManjunathaGeneral Manager
STRUCTURE OF CO-OPERATIVE BANKING IN INDIA
RBIBRANCH OF SLDBsCLDBsSLDBsPLDBsPACsCCBsUCBs(PCBs)NABARD
SCBs
RBI : Reserve Bank of India.NABARD : National Bank of
Agriculture and Rural Development.SCBS : State Co-operative
Bank.SLDBS : State Land Development Bank.UCBS :Urban Co-operative
Bank.DCCBS :District Central Co-operative Bank.PACS : Primary
Agricultural Credit SocietiesCLDBS : Central Land Development
Bank.PLDBS : Primary Land Development Bank
STRUCTURE OF CO-OPERATIVE ORGANIZATION:STATE CO-OPERATIVE BANK
(BCCO- BANK):
Urban Credit
CooperativeBankNon-AgriculturalCo-operativeBankAgriculturalCredit
CooperativeBank
Customer cooperativeIndustrial cooperativeLong termLendingShort
termLending
NON-CREDIT
CREDITState land bankSTATE LEVEL(BCCOB)
Housing BanksUrban Banks-Bank Employees-Specialized
cooperatives
DistrictCentral CooperativeBankSchemes
PrimaryLandDevelopment
Land Mortgage
Primary co-operative bankGrain bankMP
co-operativeSocietiesESS
THE MAIN OPERATIONS OF THE BANK: (CUSTOMER SERVICES)
Withdrawals. Cash receipts. Sanctions and disbursements of loans.
Locker facilities. Clearing cheques. Updating pass book. Issuing
new cheque book. Issuing demand draft. Pay order. Mail transfer.
Telegraphic transfer. Opening of fixed deposits.
THE BANKAS PROVIDES NOMINATION FACILITIES: Savings Bank Account
Holder. Current Account Holder. Term Deposit Account Holder. Safe
Deposit Account Holder. Individual/Joint Account Holder. Housing
Loan Holder (return of original document.
AREA OF OPERATION:The providing banking services to its members
and depositors, nearby their residence only the bank along with its
head office and administration offices at Chamarajapete, have
started 13 or its branches at various areas in the city.The
following table shows you the area of operation of Bangalore City
Co-Operative Bank and its establishment of several branches in
different years at many areas or city.
YEARSAREA/CITIES
1907Head office Chamarajapete, Bangalore.
1980Vijayanagara, Bangalore.
1981Jayanagar, Bangalore.
1983Indira agar, Bangalore.
1988Chamarajpete west, Bangalore.
1992Shanthinagar, Bangalore.
1994Mahalakshmipuram, Bangalore.
1994Sanjaynagar, Bangalore.
1995Padmanabhanagar, Bangalore.
1996Koramangala, Bangalore.
2002Avalhalli Bangalore.
2002R.T.nagar, Bangalore.
2009Jananajyothi nagar Bangalore.
2012H.R.B.R. Kammana Halli, Bangalore.
2012Krishna raja puram, Bangalore.
2012Ramanagara town, Ramanagar.
COMPETITORS INFORMATIONThe Bangalore City Co-operative Bank is
one of the leading co-operative banks in the Bangalore city
operating its activities with several branches in and around
Bangalore it is facing many competitors in the market. The list of
competitors is as given below:
Apex Bank State Bank of India State Bank of Mysore Canara Bank
ICICI Bank Karnataka Bank Syndicate Bank
INFRASTRUCTURAL FACILITIES:
The bank has 160x134 sq. feet site. The building is built in
100x100 sq. feet of the site. A ground floor and first floor is
built to carry out the banking activities. It is built for own use.
In the ground floor, there is a head office branch of the bank and
in the first floor, there is an administrative offece.The head
office of the bank is located in Chamarajapete. It has 13 other
branches. All the branches have computer facilities. Each branch
has its own department which are fully furnished and well equipped
for smooth functioning of the banking activities. Proper lighting,
ventilation, drinking water facilities is arranged.
AWARD AND ACHIEVEMENT:
The Bangalore City Co-operative Bank has got Best urban
co-operative bank in the state award on the time of Shriman
Maharaja Shree Kanteerava Narassimharaja Odeyar and it also got
Good Co-Operative bank in state in the year 2002, and 2007-08. The
bank for its excellent series in the year 1926, 1927, and 1928 in
the year 2002 and 2004 the bank got the BEST URBAN CO-OPERATIVE
BANK from state government.YEARSAWARDS
2002The best urban co-operative bank in Karnataka
2004The best urban co-operative bank
2007100 years completed co-operative bank in Karnataka
2008The best urban co-operative bank in Karnataka
WORK FLOW MODEL:
Different types of activity carried on by the bank. Loan
activity Deposit activity Clearing activity Shares activity
LOANS AND ADVANCES OFFERED BY THE BANK:Business loans to
traders, workshop, hotels and other business ventures. Vehicle
loans 75% loans against the cost of vehicle (two, three and four
wheeler) with repayment span as per payment capacity. Personal
loans for petty, trade, education, housing, marriage and other
ceremonial purposes. Housing loans for construction/acquisition of
homes repairs, renovation etc. Consumer loans for purchase of house
hold articles like TV, fridge, furniture, computer etc. for
graduates, and educational loans professional courses.
FUTURE GROWTH AND PROSPECTS: The bank wants to increase its
operations by setting up its branches all over the Karnataka. There
are planning to enter core banking. Mobilization of saving,
deposits, loans etc. Installation of ATM facility in all the areas.
Opening of branches at all direct headquarters and minorities
concentrated centers. Introduction of more added services such as
home banking, networking services, E-banking and E-sampling.
Launching of mobile banking and teller banking Foreign exchange
business. Opening of currency chest and small coin depot. To
increase deposits. Improve the customer services by adopting latest
technology. Taking permission from RBI to start branches in T.
Dasarahalli, Banasavadi, Krishnarajapura and Yelahanka. To raise
deposits up to 500 crore and loans and advances up to 370 core. To
increase net profit up to 9 crore. To reduce non-performing assets
at 0%. To make all branches to core banking facilities and help to
customers. To acquire own building for all branches. To provide
training for employees to acquire more knowledge about the bank
work.
BANK GROWTH A BIRD VIEW (31.03.2013)
Paid up share capital43,16,59,372-00
Reserves and surplus71,44,23,015-53
Deposits975,96,47,834-74
Cash at bank26,53,83,552.00
Loans and advances692,55,27,605-00
Investment3,82,97,12,243.00
Net profit11,09,28,872
Number of members58218
Net NPA (%)1.61
RBI classificationGrade 1
Audit classificationA
SWOT ANALYSIS:
SWOT analysis is done for a company to find out overall
strength, weaknesses, threats, and opportunities, lending to
gauging the comparative potential of the company. The SWOT analysis
enables a company at recognizes its market standing and adopts
strategies accordingly. Hare SWOT analysis of the Bangalore city
co-operative bank is made to understand the positioning of the bank
better: STRENGTHS:
1. BRAND NAME:The Bangalore city co-operative bank has earned a
reputation in the market for extending quality services to the
market visa-a-visa is competitors. I have earned a strong Brand
name in co-operative banking.
2. VAST EXPERIENCE:The Bangalore city Co-operative bank has a
vast experience of hundred years in banking business.
3. DIVERSIFIED PORTFOLIO:The Bangalore city co-operative bank
has the entire product under its belt, which helps it to extend the
relationship with existing customer. The bank has umbrella of
product to offer their customers, if once customer has relationship
with the bank. Some product, which bank offering are:- Retail
banking. Business banking. Merchant Establishment Services.
Personal loans & car loans. Insurance.
4. AGGRESSIVE MARKETING:The Bangalore city co-operative bank is
known for its aggressive marketing of its products. Recent strategy
to push its product is, it the sole sponsored of a Kannada music
show which is telecasted in ETV Kannada channel.
5. FOCUSON ALL KINDS OF CUSTOMERS:The bank targets not only the
top bracket of clients but even cater to the needs of small
customers. Due to this reason the bank may retain good clients
effectively.
6. AGGRESSIVE APPROACH IN LENDING:Bank has an aggressive
approach in lending. Because of this policy companies prefer this
bank when to other nationalized bank.
WEAKNESS:
1. TECHNOLOGY:From its inception, bank has not adopted a policy
of selecting internationally proven and specialized packaged
systems for its technology. Banks technology platform has not been
acknowledged globally which as a competitive advantage for any
bank
2. NO PRESENCE OUTSIDE INDIA:Bank is having any presence outside
India, because of which companies prefer MNC Bank, mainly City
bank. So if the bank tries to emerge outside India then it has a
huge potential of customers.
3. POOR CUSTOMER CARE/SERVICE: With its aggressive marketing
this bank is rapidly increasing its customer base. They are not
however; increase the number of employees accordingly. This is
leading to deterioration of the standard the number of employees
accordingly. This leading to detonation of the standard of customer
services.
4. MARKET SHARE:Bank has not got market share in the industry in
according to our survey. This is a great setback for any
business.
OPPORTUNITIES:
1. NEW IT & ITES COMPANIES:IT & ITES sector is on boom
in the Indian market context, with new companies mushrooming in the
market; it opens the door for bank to capture the huge untapped
market.
2. DISSATISFIED CUSTOMERS OF OTHER BANKS:The groups from its
survey and analysis of companies have found out that there are many
companies which are not satisfied its current bank, so the bank
with its superior service quality long working hours can capture
those customers.
3. BUSINESS ADVISING FOR SMALL PLAYERS:The analysis has also
indicated that the concept of business advising through very
popular with the higher end players is virtually nonexistent in the
lower end of the market. It should take this opportunity to provide
business advising to the smaller companies at competitive rate and
try to take the first mover advantage.
THREATS:
1. ADVENT OF MNC BANK:Large numbers of MNC banks are mushrooming
in the Indian market due to the friendly policies adopted by the
government. This can increase the level of competition and prove a
potential threat for market share of the bank.
2. DISSATIESFIED CUSTOMERS:The analysis indicated that through
most of the companies are satisfied with the product offer by this
bank but the poor customer support/services is creating a lot of
dissatisfaction among the customers, this can prove to be a serious
problem as far as the market reputation of the bank is concerned
and can be a major threat in future business accusation.
3. EVER IMPROVING NATIONALIZED BANKS:With PSU banks like SBI
going all out to compete with the private banks and government
giving them a freehand to do so, it can prove to be serious threat
for the bank like the Bangalore City Co-Operative Bank.
DATA ANALYIS AND INTERPRETATION
Analysis of data is a process of inspecting, cleaning,
transforming, and modeling data with the goal of highlighting
useful information, suggestion, and conclusion and supporting
decision making.Data analysis has multiple fact and approaches,
encompassing diverse techniques under a verity of name, in a
different business, science, and social domains.
TOOLS USED FOR ANALYSIS AND INTRPRETATION OF DATA AT BANGALORE
CITY COOPERATIVE BANK:
GROWTH OF DEPOSIT. GROWTH OF LOANS. GROWTH OF NET PROFIT.
THE FOLLOWING TABLE SHOWS GROWTH OF DEPOSIT
TABLE NO 1
.
YEARAMOUNT(in crores)% OF CHANGES
2009378.6323.64
2010486.8822.23
2011597.6218.46
2012736.1018.80
2013975.9624.57
CHART NO 1.
ANALYSISFrom the above table and chart we can observe that how
growth of deposit took place in 2009 the deposit was Rs378.63 and
in 2010 it was increase to Rs486.88 nearly 22.23%change has taken
place. In 2011 the deposit has move from 486.66 to 597.62 (18.46%).
in 2012 the deposit has increase lit from 597.62 to 736.1(18.80%).
In 2013 it has increase to975.96 from 736.1 (24.57%).
THE FOLLOWING TABLE SHOWS GROWTH OF LOANS
TABLE NO 2.
YEARAMOUNT(in cr)%CHANGES
2009294.8520.74
2010352.9816.46
2011444.1220.52
2012526.5015.64
2013692.5523.97
CHART NO 2.
ANALYSIS From the above table and chart we can observe that how
growth of loan took place in 2009 the loan was Rs294.85 and in 2010
it was increase to Rs352.98 nearly 16.46%change has taken place. In
2011 the loan has move from 444.12 to 526.5 (20.52%). in 2012 the
loan has increase lit from 444.12 to 526.5(15.64%). In 2013 it has
increase to 692.55from 526.5 (23.97%).
THE FOLLOWING TABLE SHOWS GROWTH OF NET PROFIT
TABLE NO 3.
YEARAMOUNT(Cr)%CHANGES
20095.1717.40
20105.343.18
20117.9632.91
201210.3523.09
201311.005.9
CHART NO 3.
ANALYSIS From the above table and chart we can observe that how
growth of net profit took place in 2009 the net profit was Rs5.17cr
and in 2010 it was increase to Rs5.34cr nearly 3.18% change has
taken place. In 2011 the net profit has move from 5.34cr to 7.96cr
(32.91%). in 2012 the net profit has increase lit from 7.96cr to
10.35 (23.09%). In 2013 it has increase to 11 from 10.35
(5.9%).
INTERNAL CONTROL IN CERTAIN SELECTED AREAS
GENERAL
The staff and officer of a bank should lift form one position to
another frequently and without prior notice. The work of one person
should always be checked by another person in the normal course of
business. All arithmetical accuracy of the book should be proved
independently every day. All bank form (e.g. books, demand draft
book, travellers cheque, etc.) should be kept in the possession of
an officer, and another responsible officer should occasionally
verify the stock of such stationary. The mail should be opened by
responsible officers. Signature on all the letters and advice
received from other branches of the bank or its correspondence
should be checked by an officer with signature book. The signature
book of the telegraphic codebook should be kept with responsible
officers, used, and seen by authorized officers only. The bank
should take out insurance policies against loss and employees
infidelity. The power of officers of different grade should be
clearly defined. There should be surprise inspection of office and
branches at periodic interval by the internal audit department. The
irregularities pointed out in the inspection reports should be
promptly rectified.
CASH:
Cash should be kept in the joint custody of two responsible
people. In addition to normal checking by the chief cashier, cash
should be test checked daily and counted in full occasionally by
responsible officers unconnected with the balanced shown the
balanced shown by the daybook every day. The cashier should have no
access to the ledger account and the daybook. This is an important
safeguard. Bank management are often tempted to used cashier
because of their shorter working hours as a ledger clerks in the
absence of regular staff on leave, etc. This cash can be a very
expensive price of economy.
CLEARINGS:
Cheques received by the bank in clearing should with the list
accompanying them independent list should be prepared for cheques
debited to different customers account and those return unpaid and
these should be checked by officers. The total numbered and amount
of cheques sent out the bank for clearing should be agreed with the
total of the clearing pay-in-slip, by an independent person. The
unpaid cheques received back return clearing should be checked in
the same manner as the cheques received.
CONSTITUENT LEDGER:
Before making payment, cheques should properly checked in
respect of signature, date, balanced in hand etc. and should be
passed by an officers and entered into constituents account. No
withdrawal should normally be allowed against cheques deposited on
the same day. An officer should check all the entries made in the
ledger with the original document particularly nothing that the
correct account have been debited or credited. Ledger keeper should
not have access to voucher summary sheet after they have been
checked by an officer and to the daybook. Interest debited or
credited to constituent account should be independently
checked.
BILL OF COLLECTION:
All documents accompanying the bill should be received and
entered in the register by a responsible officer. All the time of
dispatch, the officer should also see that all document sent along
with the bills. The account of customers or principals should be
credited only after bills have been collected or an advice to that
effect received form the branch or agent to which they were sent
for collection. It should be ensured that bills sent by one, branch
for collection to another branch of the bank, are not in the
collection twice in the amalgamated balance sheet of the bank. For
this purpose, the receiving branch should reverse the entries such
as bills at the end of the receiving branch at the end of the year
fir closing purposes.
BILL PURCHASED:
At the time of purchased of bill, an officer should verify that
all the document of titles are properly assigned to the bank.
Sufficient margin should be kept while purchased or discounting a
bill to cover any decline in the value of the security etc. If the
bank is unable to collect a bill on the due date, immediately step
should be taken to recoveries the amount form the drawer against
the security provided. All irregular outstanding account should be
reported to the head office. In the case of purchased outstanding
at the close of the year discount received thereon should thereon
should be properly apportioned between years.
LOAN AND ADVANCES:
The bank should make advances only after satisfying itself as to
the creditworthiness of the borrowers and after obtaining sanction
from the proper authorities of bank. The entire necessary document
(e.g. agreement, demand promissory note, letter of hypothecation
etc.) Sufficient margin should be kept against securities taken to
cover any decline in the value thereof and also to comply with
proper authorities of directives. Such margin should be determined
by the proper authorities of the bank as a general policy or for
particular account. All the securities should be received and
returned by responsible officer. They should be kept in the joint
custody of two such officer In the case of good in possession of
the bank, content of the package should be test checked at the time
of receipt. Surprise check should be made in respect of
hypothecated goods not in the possession of the bank. Market value
of good should be checked by officer of the bank by personal
enquiry in addition to the invoice to the invoice value given by
the borrowers. As soon as any increased or decreased takes take
place in the value of securities proper entries should be made in
the drawing power book and daily balance book. These entries should
be checked by an officer. All account should be kept within both
the drawing power and the sanctioned limit at all times. At the
account, which exceed the sanctioned limit or drawing power or are
against unapproved securities or are otherwise irregular, should be
brought to the notice of the management/head office regularly.
DEMAND DRAFT:
The signature on demand draft should be checked by an officer
with signature book. All the best demand draft sold by should be
immediately confirmed by the advice to the branches concerned. If
the branches does not receive does not received proper confirmation
of ant demand draft form the issuing branch or does not received
credit in its account with that branches, it should take immediate
step to ascertain the reason.
INTER BRANCH ACCOUNT:
The account should be adjusted only on the basis of application
with reasonably good credit assessment. Prompt action should be
taken preferably by central authorities, if any entries are not
reasonably time.
CREDIT CARD OPERATION:
There should be effective screening of application with
reasonably good credit assessment. There should be strict control
over storage and issues of card. There should be at system whereby
a merchant confirm the statues of utilized limit of a credit card
holder form the bank before accepting the settlement in case the
amount to be settled exceed a specified percentage of the total
limit of the credit holder. There should be system of prompt
reporting by the merchant of all settlement accepted by them
through credit cards. Reimbursement to merchants should be made
only after verification of the validity of merchant acceptance of
card. All the reimbursement should be made immediately charged to
the customers account. There should be a system to ensure that
statements are sent regularly and promptly to the customers. There
should be a system to monitor and follow up customer payment. Items
overdue beyond a reasonable period should identification and
attended to carefully. Credit should be stopped by informing the
merchant through periodic bulletin, as early as possibly to avoid
increased losses. There should be a system of periodic review of
credit card holder account. On the basis, the limit of customer may
be revised; it necessary, the review should also includes
determination of doubtful amount and the provisioning in respect
thereof.
BOOKS OF ACCOUNTS OF BANKS
A banking company is required to maintain the books of accounts
in accordance with sec.209 of the companies act. There are,
however, certain imperatives in banking business they are the
requirements to maintain accurate and always up to date account.
Banks, therefore, device their accounting system to suit these
requirements. The main characteristics of a banks system of book
keeping are as follows:Entries in the personal ledgers are made
directly from vouchers instead of being posted from the books of
prime entry.
A. The vouchers entered into different personal ledgers each day
are summarized on summery sheet; the totals of each are posted to
the control accounts in the general ledger.
B. The general ledger trail balance is extracted and agreed
every day.C. All entries in the detail personal ledgers and the
summary sheet are check by person other than those who have made
the entries, with the general results that most clerical mistakes
are detected before another day begins.D. A trial balance of the
detailed personal ledgers is prepared periodically, usually every
two weeks, and agreed with the general ledger control accounts.E.
Expecting for cash transactions, always two vouchers are prepared
for each transaction, one for debit and the other for credit. This
system ensures double entry at the basic level and obviates the
possibility of errors in posting.
PRINCIPAL BOOKS OF ACCOUNT GENERAL LEDGER:It contains control
accounts of all personal ledgers, the profit and loss account and
different assets and liabilities accounts. There are certain
additional accounts known as contra accounts, which is unique
feature of bank accounting. These contra accounts are maintained
with a view to keeping control over transactions, which have no
direct effect on the banks positions. For e.g. letter of credit
opened, bills received for collection, guarantee is given etc.
PROFIT AND LOSS LEDGERS:Some banks keep one account for profit
and loss in this general ledger and maintained separate books for
the detailed accounts. These are columnar books having separate
columns for each revenue receipt and expense head. Other banks keep
separate books for debits and credits posted are entered in to the
profit and loss account in the general ledger.
SUBSIDIARY BOOKS OF ACCOUNTS
PERSONAL LEDGERS:Separate ledgers are maintained by banks for
different types of accounts, i.e. current account, saving account,
etc. As has been maintained earlier, these ledgers are posted
directly from vouchers and the entire voucher entered in each
ledger in a day is summarized in to Voucher Summary Sheets. BILL
REGISTERS:Details of different types of bills are kept in separate
registers, which have suitable columns. For e.g. bill purchased,
inward bill for collection, outward bills for collection etc are
entered serially day to day in separate registers. Entries in these
registers are made by reference to the original documents. OTHER
SUBSIDIARY REGISTERS:There are different registers for various
types of transaction. Their number, volume and details, which
differ according to the individual needs of each bank. For example,
there will be registers for:A. Demand drafts, telegraphic and mail
transfers issued on branches or agencies.B. Demand drafts,
telegraphic and mail transfers received from branches and
agencies.C. Letters of credit.D. Letter of guarantee.
DEPARTMENTAL JOURNALS:Each department of bank maintains a
journal to note the transfer entries passed by it. These journals
are memoranda book only, as all the entries made there are also
made in the daybook, through voucher summary sheets. The purpose is
to maintain a record of all transfer entries originated by each
department. Other memoranda books: Besides the book mentioned
above, various departments of a bank have to mention a number of
memoranda books to facilitate their work. Some of the important
books are described below: Receiving cashiers cash book. Paying
cashiers cash book. Main cash book. Cash balance book.The main
cashbook is maintained by a person other than cashier. Each cashier
keeps a separate cashbook. When cash is received, it is accompanied
by pay-in-slips or other similar documents. The cashier makes entry
in his book, which is check by the chief cashier. Outward
clearings:A person checks the vouchers and list with the clearing
cheques received books. The vouchers are then sent to appropriate
departments, where customers accounts are immediately credited.
Normally no drawings are allowed against clearing cheques deposited
the same day but exceptions are often made by the manager in the
case of established customer.
Inward clearing:Cheques received are check with the accompanying
list. These are then distributed to differed department and number
of cheques given to each department is noted in a memo book. When
the cheques are passed and posted in to ledger, there number is
independently agreed with the memo book. If the cheques are found
unpayable, they are return to clearing house.
Loans and overdrafts departments:a) Registers for shares and
other securities held on behalf of its customerb) Summary books of
securities give in details of government securities.c) Godown
registers maintained by the Godown keepers of bank.d) Overdraft
sanction registere) Drawing power book.f) Delivery order books.g)
Storage books. Deposit department:a) Account opening and closing
registers.b) Fixed deposits rate register.c) Due date dairy.d)
Specimen signature book. Establishment department:a) Salary and
allied registers.b) Register of fixed assets.c) Stationary
registersd) Old record registers General:a) Signature books of bank
officersb) Private telegraphic code and ciphers Statically
books:Statically records kept by different books are in accordance
with their individual needs. For example, there may be books for
recording: Average balances in loans etc. Deposits received and
amounts paid out each month in the various departments. Number of
cheques paid. Number of cheques, bills and other items collected.
INCOMPLETE RECORDS:In some situations, the auditor may find that
certain accounting and other records are not up to date. In such a
situations, the auditor should first ascertain the extent of
arrears in housekeeping and the areas in which accounting and other
records are not up to date. It may also be noted that in Long Form
Audit Report (LFAR0), the auditor has to make detailed observation
on such arrears.
VERIFICATION OF ASSETS AND LIABILITESCAPITAL AND LIABILITIES:1)
CAPITALThe following particulars have to be given in respect of
share capital in the balance sheetThe capital owned by central
government as on the date of balance sheet including contribution
from government, if any, for participation in world bank project
should be shown.2) RESERVES AND SURPLUS:The following are required
to be disclosed in the balance sheet under the head Reserves and
Surplus.a) Statutory reserves.b) Capital reserves.c) Share
premium.d) Revenue and other reserves.e) Balance in profit and loss
account.The auditor should verify the opening balances of various
reserves with reference to the audited balance sheet of the
previous year. Addition to or deductions from reserves should also
be verified in the usual manner, e.g. with reference to board
resolution. In the case of statutory reserves and share premium,
compliance with legal requirements should also be examined. Thus,
the auditor should specifically examine whether the requirements of
governing legislation regarding transfer of the prescribed
percentage of profits to reserve fund have been complied with. In
case the bank has been granted exemption form such transfer, the
auditor should examine the relevant documents granting such
exemption. Similarly, it should be examined whether the
appropriations from share premium account conform to the legal
requirements.3) DEPOSITS:Deposits are required to be classified in
the balance sheet under the following heads.A. I. Demand Deposits
a) from banks b) from others II. Saving Bank Depositsa) From
banks.b) From Others.
THE AUDITOR MAY VERIFY TYPES OF DEPOSITS IN THE FOLLOWING
MANNER.I. current account:The auditor should verify the balances in
individual accounts on a sampling basis. He should also examine
whether the balances as per subsidiary ledgers tally with the
related control accounts in the general ledger.The auditor should
consider the debit balances in current account are not netted out
on the liabilities side but appropriately included under the
advances.Inoperative accounts are a common area of frauds in banks.
While examining current account, the auditor should specifically
cover in his sample some of the inoperative account revived during
the year. The auditor should ascertain whether inoperative are
revived only with proper authority. For this purpose, the auditor
should identify cases where there has been a significant reduction
in balances compared to the previous year and examine the
authorization for withdrawals.ii. Saving bank deposits:The auditor
should verify the balances are individual account on a sampling
basis. He should also examine whether the balances as per
subsidiary ledgers tally wit the related control accounts in the
general ledger.The auditor should also check the calculations of
interest on a sampling basis. It is not usual for branches to
interest saving bank up to a date close to the end of the
accounting period for e.g.25th March based on the actual balances
with interest of the remaining period on an estimated basis at the
head office leveliii. Term deposits:Term deposits are deposits
repayable after a specified period. They are considered time
liabilities of the bank.The auditor should verify the deposits with
reference to the relevant registers. The auditor should also
examine, on a sampling basis, the registers with the counter-foils
of the receipts issued and with the discharged receipts returned to
the bank.
IV. Deposits designated in foreign currencies:In the case of
deposits designated in a foreign currency, for e.g. foreign
currency non-resident deposits, the auditor should examine whether
they have been converted into Indian rupees at the rate notified in
his behalf by the head office.V. interest accrued but not due: The
auditor should examine that interest accrued but not due on
deposits is not included under the deposited but is shown under the
head other liabilities ad provision4) BORROWING:Borrowings of a
bank are required to be shown in balance sheet as follows:I.
Borrowing in India.a. Reserves Bank of India.b. Other banks.c.
Other institution and agencies.Borrowing from RBI, other
banks/financial institution etc. should be verified by the auditors
with reference to confirmation certificated and other supporting
document such as agreements, correspondence etc.The auditor should
also examine whether a clear distinction has been made between
rediscount and refinance for disclosure of the amount under the
above head since rediscount does not figure under this head.The
auditor should examine whether borrowing of money at call and short
notice is properly authorized. The rate of interest paid/payable on
as well as duration of , such borrowing should also be examined by
the auditor.5) OTHER CURRENT LIABILITIES:The third schedule to the
banking Regulation act, 1949, requires disclosure of the following
items under the head other liabilities and provisionThe auditor may
verify the various items under the head other liabilities and
provision in the following manner.Bills payable Bills payable
represent instrument issued by the ranch against money received
from customers, which are to be paid to the customers or as per his
order. These include Demand Draft, Telegraphic Transfer, and Mail
transfer and Mail Transfer, Traveller cheques, Pay order, Banker
cheques, and similar instrument issued by the bank but not
presented for payment until the balance sheet date.Inter office
adjustment:The balanced in inter office adjustment account, if in
credit, is to be shown under this head.Interest accrued:Interest
accrued but not due on deposit is to be shown and borrowing is to
shown under this head. The auditor should examine this with
reference to terms of various type of deposits and borrowings. It
should be specially examined that such interest has not been
clubbed with the deposits and borrowing shown under the deposits
and borrowing.6) OTHERS.According to the notes and instructions for
compilation of balance sheet and profit and loss account, issued by
the Reserve Bank of India, the following items are to be included
under this head. Net provision for income tax and other taxes like
interest tax, less advances payment and tax deducted at source.
Surplus in aggregate in provision for bad and doubtful debts
provision account. Contingency funds, which are actually in the
nature of reserved but are not disclosed as such. Provision towards
standard assets. These are to shown separately as contingent
standard assets. Proposed dividend/transfer to government.
ASSETS:1) CASH, BANK BALANCED AND MONEY AT CALL AND SHORT
NOTICE:The third schedule to the Banking Regulation act, 1949,
requires following disclosure to the be made in the made in the
balance sheet regarding cash, balances with Reserve Bank of India.,
balance with other bank, and money at call and short notice.Cash
and balance with Reserve Bank of India.I. Cash in hand II. Balance
with Reserve Bank of IndiaBalanced with banks money at call and
short noticeA) Balanced with banks 1. In current account 2. In
other deposits account.B) Money at call and short notice1. With
banks2. With other institutions
2) CASH RESERVED:One of the determinants of cash balance to be
maintained by banking companies and other schedule is the
requirement for maintenance of certain minimum cash reserve. While
the requirement for maintenance of cash reserve by banking
companies is contained in the banking regulation act,1949
corresponding requirements for schedule bank is contain in the
Reserve Bank of India.3) STATUTORY LIQUIDITY RATIO:Section of 24
the act requires that every banking company shall maintain in India
in cash, gold or unencumbered approved securities an amount which
shall not, at the close of business on any day, be less than twenty
five percent, or such other percentage not exceeding forty, as the
RBI bank form time to time, of total demand and time liabilities in
India as on last Friday of the second preceding fortnight.4)
INVESTMENT:The auditor should verify the investment scripts
physically at the close of business on the date of balance sheet.
In exceptional cases where physical verification of investment
scripts on the balance sheet date is not possible the auditor
should carry out the physical verification on a should take in to
consideration any adjustment for subsequent transaction of
purchase, sale etc. he should take particular care to see that only
genuine investment are produced before him.5) ADVANCES:In carrying
out of audit of advances, the auditor of advances, the auditor is
primarily concerned with obtaining evidence about followinga)
Amount included in balance sheet in respect of advances are
outstanding at the date of balance sheet. b) Advances represent
amount due to the bank.c) There are no unrecorded advances.d) The
stated basis of valuation of advances is appropriate and properly
applied, and that the recoverability of advances is recognized in
their valuation. e) The advances are disclosed, classified and
describe accordance with recognized accounting policies and
relevant statutory and regulatory requirements.f) The auditor
should ascertain the statues of balancing of subsidiary ledger
relating to advances.g) The auditor should review the operation
other advances accounts.
6) FIXED ASSETS:In carrying out an audit of fixed assets, the
auditor is concerned primarily with obtaining evidence about their
existence and valuation.The branch auditor should ascertain whether
the accounts in respect of premises and/or other fixed assets are
maintained at the branch or centrally. Similarly, he should
ascertain the location of documents of title or other documents
evidencing ownership of various items of fixed assets. The auditor
should verify the opening balance of premises with reference to
schedule of fixed assets, ledger or fixed asset register.In respect
of fixed assets sold during the year, a copy of the sale deed and
receipt of the salve value should examined by the auditor.7) OTHER
ASSETS:The auditor should see that whether there are any reversals
entries indicating the possibility of irregular payments or frauds
in case of inter- office adjustments. The auditor should also pay
attention towards interest-accrued part from the banks point of
view. The auditor should see that internal control over stationery
items. The auditor should verify the stationery and stamps.
The auditor should examine the non-interest bearing advances to
the staff with reference to the relevant documentation. The auditor
should also see that the entries under the head suspense account.
The auditor should also verify prepaid expenses in the same manner
as in the case of entities.
N.P.A.GUIDELINESThe guideline requires the banks to classify
their advances in four broad categories as follows:-1. STANDARD
ASSET:-A standard asset is one, which does not disclose any
problems, and which does not carry more than normal risk attached
to the business such asset is not a non-performing asset.2.
SUB-STANDARD ASSET:It is one, which has been classified as N.P.A.
for period not exceeding not more than 18 months.3. DOUBTFUL
ASSET:It is one, which remained has N.P.A for p