A Report

on
Internal Control & Compliance Risk

Prepared for
Professor Dr. Md. Main Uddin
Department of Banking & Insurance
University of Dhaka

Prepared by
Md Sharif Ullah (ID No.: 52310007)
Md. Motaem Hossain (ID No.: 52310010)
Md. Kaykobad (ID No.: 52310026)
Golam Sorwar (ID No.: 52310031)
Md. Parvez Hasan Tarafder (ID No.: 52310032)
Program: Master of Professional Banking
Course: Risk Management in Banking (MPB-503)
Department of Banking & Insurance
University of Dhaka

Date of Submission: 09th September, 2023

 LETTER OF TRANSMITTAL

09th September, 2023

Dr. Md. Main Uddin

Professor
Department of Banking & Insurance
University of Dhaka

Subject: Submission of the report on “Internal Control & Compliance Risk”

Dear Sir,
It is matter of pleasure that we are submitting the report on “Internal Control & Compliance
Risk” as a partial fulfillment of the course “Risk Management in Banking (MPB-503)”. While
making this report we have gone through “Internal Control & Compliance Guidelines by
Bangladesh Bank”, internal control and compliance policies of several banks and recent news
regarding the internal control and compliance issues.

We have sincerely gathered some real-life incidents to comprehend and translate our
knowledge in writing this report. We have enjoyed this report work.

We would be glad to attend any of your calls to clarify on my point, if necessary.

Yours Sincerely,

………………………………………
01 Md Sharif Ullah (ID No.: 52310007)

………………………………………
02 Md. Motaem Hossain (ID No.: 52310010)

………………………………………
03 Md. Kaykobad (ID No.: 52310026)

………………………………………
04 Golam Sorwar (ID No.: 52310031)

………………………………………
05 Md. Parvez Hasan Tarafder (ID No.: 52310032
Page- i
 EXECUTIVE SUMMARY

Banking business has now evolved into the most diversified and complicated financial
activities without having boundary of a country. Banks have to provide smooth services to its
customers by offering customer oriented multi-products and services with transparency and
accountability in an efficient manner for value creation. So, the banks have to face many
inherent and man-made risks in their day-to-day operations. These risks impede to the
achievement of banks’ ultimate objective. Consequently, proper internal control & compliance
system has now become an integral part of banking business operation. However due to lack
of an effective internal control system & good compliance culture in banks, banks are now
facing serious troubles in providing uninterrupted and reliable services. All concerns are aware
enough to demonstrate that all banking activities are performed in compliance with applicable
laws, rules and regulations of the regulator and the concerned bank’s own policy, plan and
procedure.

Page-ii
 TABLE OF CONTENTS
1. Introduction……………………………………………………………. Page 1

1.1 Background of the Report…………………………………………. Page 1

1.1 Objectives of the Report…………………………………………… Page 1
1.2 Rationale of the Report……………………………………………. Page 2
1.3 Scope of the Report………………………………………………... Page 2
1.4 Limitation of the Report…………………………………………… Page 2
1.5 Structure of the Report…………………………………………….. Page 2

2. Internal Control & Compliance Risk..…………………………………. Page 3

2.1 Internal Control & Compliance……………………………………. Page 3

2.2 Objectives of Internal Control & Compliance……………………... Page 4

2.3 Policy Guidelines for Internal Control & Compliance…………….. Page 4

2.4 Internal Control & Compliance Environment……………………... Page 4

2.5 The Major Elements of an Internal Control Process……………… Page 5

2.6 Factors of Internal Control & Compliance Environment…………. Page 5

2.7 Compliance Process……………………………………………….. Page 6

2.8 Effect of non-managing of Internal Control & Compliance Risk… Page 10

2.9 Reasons behind the arising of Internal Control & Compliance Risk Page 11

2.10 Internal Control & Compliance in Bangladesh………………….. Page 12

2.11 Internal Control & Compliance in World………………………... Page 12

3. Conclusion & Recommendation………………………………………. Page 13

4. References & Sources…………………………………………………. Page 13

Page- iii
1. Introduction:
Banks are undoubtedly an important part of our developing economy. In our country, 61
scheduled banks are providing nationwide and cross border banking services. Complexities in
bank operation are increasing rapidly and dynamically in day-to-day operation. With demand
of market, new and complex products have been introduced. As the risk is an integral part of
the banks, variations in risks have also been emerged notably. To keep the stability in the
banking industry, risk management has become a vital task for leveling the financial soundness
with the international banks. As central bank, Bangladesh Bank has issued prudential
guidelines on 06 (six) core risk in banking i.e. (i) Credit Risk, (ii) Internal Control &
Compliance Risk, (iii) Asset & Liability Management Risk, (iv) Foreign Exchange Risk, (v)
Money Laundering Risk, and (vi) Information and Communication Technology Risk. We are
going to discuss on the internal control and compliance risk and better way to manage it.

1.1 Background of the Report:

This report is evolved as a particular fulfillment as well as a mandatory requirement for the
completion of our course, “Risk Management in Banking (MPB-503) of MPB Program of
Dhaka University under department of Banking and Insurance.

To finish the above-mentioned requirement, we have selected the topic, “Internal Control &
Compliance Risk in the context of Bangladeshi banking industry.

Economy of Bangladesh has got a momentum of transition towards a great uplift for
development. The banking sector is playing a pivotal role in this context. In such a time
stringent banking practice in line with the best international practices is a crying need. Effective
Internal Control System results in better risk management practices in terms of identification,
management, monitoring and mitigation of risks. It ensures reliable financial and managerial
information that promote better strategic decision for a bank. Banking is a diversified and
multifarious financial activity, which involves different risks. The issues of effective internal
control and compliance system, good governance, transparency of all financial activities,
accountability towards its stakeholders and regulators have become momentous to ensure
smooth performance of the banking industry. An Effective internal control and compliance
system has become essential in order to underpin effective risk management practices and to
ensure smooth performance of the banking industry.

1.2 Objective of the Report:

The report solely carries the details about risk of arising out of proper internal control and
compliance agent banking module. The objectives of this report can be classified into two
major sections. A careful assessment of that particular subject headed to the development of
the following detailed objectives.

(a) Primary objectives:

To evaluate and represent the current condition of the culture of internal control and compliance
and risks associated for not application properly.

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(b) Secondary objectives:
To complete the “Risk Management in Banking” course under MPB Program.
To present scenario of internal control and compliance its associated risks.
A brief demonstration of “Internal Control & Compliance Risk”.
The effect of culture and good governance regarding “Internal Control & Compliance Risk”.

1.3 Rationale of the Report:

The single greatest factor contributing to operational failure in banks is the lack of adequate
internal control and compliance. Bangladesh has witnessed a considerable growth in banking
sector. A persistent moderate economic growth rate, high degree of competition in the banking
sector, speedy urbanization rate has gradually transformed our banking sector to a large and
vibrant one. The nature and magnitude of business as well as the degree of competition in the
banking industry has increased manifold in recent years. So for this we have studied and
prepared this report on the topic, “Internal Control & Compliance Risk”.

1.4 Limitation of the Report:

Like other reports, this report regarding the internal control & compliance risk is not flawless.
During the time period of completing the report, several limitations are faced. A brief list is
mentioned below-
 Inadequate data on the internal control and compliance issues due to
confidentiality of many banks in Bangladesh.
 Reliability of data could be a roadblock to complete the report
flawlessly.
 The time period to complete the report could be another barrier.

1.5 Report Methodology:

To prepare this report we have we have gone through the guidelines of internal control and
compliance by Bangladesh Bank, other several govt. and private commercial banks. We have
also gone through the news on the issues regarding internal control and compliance risk related
issues on some daily newspapers.

Page 02 of 13