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Bank Branch Audit under Core Banking System

Hosted by Hyderabad Branch of SIRC of ICAI

Table of Contents
 Softwares used by Banking Industry  Traditional Auditing Approach  Auditing through CBS
 What is Core Banking System?  Some basic concepts of CBS

 Audit activity through CBS (Case Specific)

 Audit through “Finacle” Software  Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification

CA. Kuntal Shah, Ahmedabad

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Softwares used by Banking Industry
 Base Software: Core Banking Software  Add-on Softwares for,
 Credit Risk Calculation as per Basel – II Norms  Risk Weighted Assets / Capital Adequacy Computation  Asset Classification and NPA Provisioning computation  Classification of Priority / Non-priority / Sensitive Sector Advances
CA. Kuntal Shah, Ahmedabad 3

Table of Contents
 Softwares used by Banking Industry  Traditional Auditing Approach

 Auditing through CBS
 What is Core Banking System?  Some basic concepts of CBS

 Audit activity through CBS (Case Specific)

 Audit through “Finacle” Software  Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification

CA. Kuntal Shah, Ahmedabad

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Traditional Auditing Approach  Verification of Documents Physically  Availability of Hard Copies for each transaction  Number of Transactions for Audit In nutshell “Computerization does not affect Audit objectives. It only requires change in Audit Methodology.” CA. Ahmedabad 5 . Kuntal Shah.

Kuntal Shah. Ahmedabad 6 .Table of Contents  Softwares used by Banking Industry  Traditional Auditing Approach  Auditing through CBS  What is Core Banking System?  Some basic concepts of CBS  Audit activity through CBS (Case Specific)  Audit through “Finacle” Software  Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification CA.

Kuntal Shah.Auditing through CBS  Understand the Core Banking Software  Review Internal Controls in CBS  Carry out Risk Assessment (viz. Lack / non availability of Audit Trail)       Review Transaction Flow & Audit Trails Apply Exception Approach Determine Sample Size based on review Carry out substantive procedures in & around CBS Documentation of Audit Procedures Prepare report on Audit Findings and prepare final Report CA. Modification of Master Data without proper documentations. Ahmedabad 7 . Manual Interventions in transaction processing.

Kuntal Shah.What is Core Banking System?  Centralised Database  Transactions take place at various locations  Updation of Central Database on Real Time Basis  Report Generation at Back-End  Access Control CA. Ahmedabad 8 .

What is CBS – An Overview Back Office ATM Switch Mobile Banking Branch Central Server Internet Banking Data Warehouse Credit-Card System Phone Banking 9 CA. Ahmedabad . Kuntal Shah.

Kuntal Shah.Table of Contents  Softwares used by Banking Industry  Traditional Auditing Approach  Auditing through CBS  What is Core Banking System?  Some basic concepts of CBS  Audit activity through CBS (Case Specific)  Audit through “Finacle” Software  Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification CA. Ahmedabad 10 .

“0099”. Ahmedabad 11 . Cont… CA.g. An Account No.Concepts  Master Level Configuration  Account Level Configuration  Separate series of Account Nos. – “014678”  Auditor should seek details of formation of Account No. Account Type – “05” say Current Account and Account No. for different Types of Accounts  E.Core Banking System . Kuntal Shah. during discussion with Branch Head. 0099 05 014678 – is made up of Branch Code i.e.

Core Banking System . Modified by. Back Office etc. Entered by. Kuntal Shah.Concepts  Interest Calculation and Application  Maker – Checker Concept (Different Stages for a Transaction) Created by.) (SET ID – Branch / Back Office who initiated the transaction)  Pointing Type Office Accounts  Auto generation of Exception Reports at EOD  Generation of various Tailor-made Reports from Back-End / MIS Server CA.e. Posted by. Deleted by  SOL ID & SET ID Concept  (SOL – Service OutLet ID i. Authorised by. Ahmedabad 12 . Branch.

Kuntal Shah.  Document list of Reports available in CBS and its menu codes.  Review Exception Reports generated by Data Center. / MIS Reports CA.What is CBS – Auditors‟ Checklist  Document list of Softwares. Applications and interface details associated with CBS  Review Usage Manual (if available at Branch) or Document Software navigation options and Menu Codes. Ahmedabad 13 .

Table of Contents  Softwares used by Banking Industry  Traditional Auditing Approach  Auditing through CBS  What is Core Banking System?  Some basic concepts of CBS  Audit activity through CBS (Case Specific)  Audit through “Finacle” Software  Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification CA. Kuntal Shah. Ahmedabad 14 .

Kuntal Shah. Ahmedabad 15 .Audit Activity through CBS  Customer Master Level and Account Level Updations for Loans / CC Accounts  What to verify?       Interest Parameters (Regular & Penal Interest) Repayment Instructions Standing Instructions (SI) Parameters DP / SL monitoring Customer wise Limit Lookup Stock / Debtors Statements Tracking and calculation of DP  When to verify?  At the time of verification of Documents for Advance CA.

Ahmedabad 16 . Kuntal Shah.Audit Activity through CBS  Analysis of Advance Accounts  What to verify?  Turnover of CC Account based on Borrower‟s Business profile  In case of Loan accounts ACTUAL recovery of Installments and Interest  After / during verification of Advances Documentation  When to verify? CA.

Probable NPA Account.Audit Activity through CBS  NPA Analysis  What to verify?  Reports on NPA and Probable NPA generated (if any) from CBS or CIS (Credit Information System)  NPA Account. Other Advance Accounts with some irregularities: Transactions & Account Scrutiny for Correct Classification  After / during verification of Advances Documentation CA. Kuntal Shah. Ahmedabad 17  When to verify? .

Audit Activity through CBS  NPA Account Verification  What to verify?  Classification of NPA  Date of NPA  Calculation of Provisioning System)  Reversal of Revenue charged (out of  When to verify?  After / during verification of Advances Documentation CA. Ahmedabad 18 . Kuntal Shah.

Audit Activity through CBS  Security details updation  What to verify?  Whether Lien is marked in System for Fixed Deposits Accounts?  Whether details of security obtained are mentioned in Master Details?  After / during verification of Advances Documentation  When to verify? CA. Ahmedabad 19 . Kuntal Shah.

Kuntal Shah.  Improper reversal of Office Account entries  During verification of LFAR Compliance  When to verify? CA.Audit Activity through CBS  Office Accounts (Inter Branch) Accounts  What to verify?  Entries outstanding in Office Accounts as on date. Ahmedabad 20 .  Long Outstanding entries.

Kuntal Shah. Whether by Constructive Payment or otherwise?  Account Code List / Name of Expense (charges) accounts Liable for TDS should be obtained from BM  During verification Compliance  When to verify? of Income Tax CA.Audit Activity through CBS  TDS Related Records  What to verify?  Debit to Charges Accounts and relevant entries to TDS Account. Ahmedabad 21 .  Reversals in TDS Account.

Audit Activity through CBS  Fixed Assets & Depreciation Entries  What to verify?  Verify Calculation of Depreciation (mostly done out of the system)  Entries passed in FA Accounts  Check Repairs & Maint. Ahmedabad 22 . A/c and other relative account for entries pertaining to Purchase of New Fixed Asset  During verification Compliance  When to verify? of Income Tax CA. Kuntal Shah.

compulsory change of password. If not. verify the compliances as follows. Powers done centrally.  Records for User – ID Creation properly maintained?  Records for Deletion of user-ID with proper authorisation available?  Other issues like security of password.Audit Activity through CBS  Logical Access Controls:  Creation / Deletion / Amendment in User Profile. CA. Kuntal Shah. Ahmedabad 23 . Transaction Limit for employees etc.

Kuntal Shah.Audit Activity through CBS  Output Controls:  Whether Hard copies of Accounts available?  Whether such reports are signed?  Security of Data:  Whether the encryption software is available in Server / Backup Server (If data is stored)  Whether the computers are having Antivirus Software?  Whether the AV Software is updated on regular basis? CA. Ahmedabad 24 .

Ahmedabad 25 . Kuntal Shah.Audit Activity through CBS  Backups  Important Activity for Non CBS Branches  Backup should be stored on Off-site Location  Backup should have been tested at periodical intervals  Backup Register should be maintained CA.

Kuntal Shah. Ahmedabad 26 . – – – – – Balance exceeded Account Limit Manual debits to Income Account Value Dated Transactions Manual entry for SI Failure cases Instrument passed against Clearing CA.Audit Activity through CBS  Auto Generated Reports  Exception Report:  Reports for the month end and two days prior and after month end should be verified.  Exceptions of following natures should be closely verified.

Check whether the same is due to.  Report contains details of Accounts where Balance in Accounts are greater than the Limits Sanctioned.Audit Activity through CBS  Irregularity Report:  Reports for the month end and two days prior and after month end should be verified. – Application of Interest – Granting of Intra Day TOD – Passing of Instruments against Clearing Effects CA. Ahmedabad 27 . Kuntal Shah.

Kuntal Shah. Possible reasons can be. a detailed checking is required. CA. Hence. Ahmedabad 28 .Audit Activity through CBS  Accounts where Interest Code is „0‟:  Interest will not be charged from Accounts where Interest Code is selected as „0‟. Software will not consider the account for calculation and entry for Debit Interest. – Whether NPA Account – Accounts with Moratorium?  Interest Collection Flag as “No”:  If Interest Collection Flag is selected as “No”.

Audit Activity through CBS  Debit Interest SI Failed Report:  Failure of Standing Instruction for Debit Interest should be closely verified.  Loan Installment SI Failed Report:  Same as above CA. Kuntal Shah. SI Failure can be for any reason like – Non availability of Balance in Account (In case of TOD in Operative Account) – Non availability of Limit in Account – Technical Snag in execution  Whether Branch has manually passed the entry for all such cases should be verified. If the SI is failed the Account will not be debited for Interest. Ahmedabad 29 .

Kuntal Shah. Ahmedabad 30 .  Excel can be used to verify cases of DP > SL. CA. Margin Requirement etc.Audit Activity through CBS  Report containing all Advance Accounts with Limits:  Generally. CBS Software generate a Report wherein details of all Advance Accounts are listed.

Kuntal Shah. Ahmedabad 31 .Table of Contents  Softwares used by Banking Industry  Traditional Auditing Approach  Auditing through CBS  What is Core Banking System?  Some basic concepts of CBS  Audit activity through CBS (Case Specific)  Audit through “Finacle” Software  Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification CA.

Ahmedabad 32 . Kuntal Shah.Finacle – Core Banking Software  Overview and Implementation Structure  Some features of Transaction processing  Audit Procedures and Menu Codes  Generation of Reports through Finacle CA.

Kuntal Shah.infosys.com CA. Ahmedabad 33 .Finacle in IDBI Bank Source: www.

Finacle .Overview  Some of the Banks using Finacle are            Bank of Baroda Bank of India Union Bank of India Canara Bank Federal Bank IDBI Bank ICICI Bank Axis Bank ABN Amro Vijaya Bank UCO Bank CA. Ahmedabad 34 . Kuntal Shah.

Kuntal Shah.Finacle – Core Banking Software  Overview and Implementation Structure  Some features of Transaction processing  Audit Procedures and Menu Codes  Generation of Reports through Finacle CA. Ahmedabad 35 .

Sub Type are useful to Identify Nature of Transaction (like Cash Deposit.press CTRL + E on a Tran during scrutiny of Account. Ahmedabad 36 . Kuntal Shah. Withdrawal)  Facility of exploring a Tran during Account Scrutiny [Drill Down Approach] .  Combination of Tran ID and Date of Transaction is required to locate a Tran  Tran Type.Features in Transaction Processing  Features:  Each Transaction has unique Tran ID.Finacle .  Driven by various Inter-linked menus Cont… CA.

Ahmedabad 37 .Finacle .Features in Transaction Processing (Cont…)  Pointing Type Office accounts (Useful in review of outstanding / part reversed Office Account entries) CA. Kuntal Shah.

Kuntal Shah. Ahmedabad 38 .Finacle – Core Banking Software  Overview and Implementation Structure  Some features of Transaction processing  Audit Procedures and Menu Codes  Generation of Reports through Finacle CA.

Inquiry – Criterion Search Inquire on Transaction (Office Accounts) Bills Module (Inland) Foreign Bills Module – Single Case Foreign Bills Inquiry – Criterion Search CA. Kuntal Shah. Tran.Finacle – Audit Procedure Verification Account Scrutiny Customer Master Account Level Inquiry Transaction Inquiry Fin. Ahmedabad Menu Code ACLI CUMM ACM / ACI TI / TM FTI IOT BM FBM FBI 39 .

Ahmedabad 40 .Finacle – Audit Procedure Verification Guarantee Inquiry Query on Documentary Credits . Kuntal Shah. Credits (LC) Maintenance Module Account Search based on predefined Criteria – (May not be available or Slow) TDS Inquiry Menu Code GI DCQRY ODCM ACS TDSIP Pending Installment List Loan Overdue Position Inquiry Account Turnover Report PLIST LAOPI ATOR CA.Criterion Search Docu.

Kuntal Shah. Ahmedabad 41 . CA.Finacle – Audit Procedure Verification TOD Inquiry – Account specific List of Pending and Dishonored Bills Menu Code ACTODI FBPADB The list is only for guidance and the menu codes may not be applicable in all the banks.

Finacle – Core Banking Software  Overview and Implementation Structure  Some features of Transaction processing  Audit Procedures and Menu Codes  Generation of Reports through Finacle CA. Kuntal Shah. Ahmedabad 42 .

Ahmedabad 43 .Finacle – Audit Procedure Report Generation Printing of Office Accounts Bill Balancing Report – Based on GL Code All Bills Balancing Report Menu Code ACLPOA BR BRBPR Foreign Bills Balancing Report Exception Report FBBR EXCPRT CA. Kuntal Shah.

Kuntal Shah. Ahmedabad 44 .Table of Contents  Softwares used by Banking Industry  Traditional Auditing Approach  Auditing through CBS  What is Core Banking System?  Some basic concepts of CBS  Audit activity through CBS (Case Specific)  Audit through “Finacle” Software  Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification CA.

Ahmedabad 45 . Kuntal Shah.Credit Risk / Risk Weighted Assets Computation  Various softwares for computation of Credit Risk / Risk Weighted Assets  CRisMAC by D2K Technologies  The software is used by  Bank of Baroda  Bank of Maharashtra  Punjab National Bank  The Bank of Rajasthan  SBICI  Vijaya Bank  Dena Bank  Deutsche Bank (Details as per Company’s website) CA.

Kuntal Shah. Ahmedabad 46 .Features of Credit Risk / Risk Weighted Assets computation softwares  Asset classification and provision computation as per IRAC Guidelines  Sectorwise Asset Classification  Credit Risk Calculation  Risk Weighted Assets / Capital Adequacy Calculation CA.

g. Total amount of Advance figure as per Balance Sheet do not agree with Sectorwise or Classification of Advancewise Report  Change in Date of NPA leading to incorrect Provisions  Borrowerwise Asset Classification not followed.g.  Manual Intervention between CBS and Risk Computation Software  E.Inconsistencies generally observed  Data as per one statement do not agree with the other statement  E. Kuntal Shah. Security obtained for Advance Account needs to be entered manually CA. Ahmedabad 47 .

Ahmedabad 48 .  Restructured (other than CDR) proper updation not carried out in CBS / Risk Comp.g.Inconsistencies generally observed  Long Outstanding entries in Office Account / Sensitive Accounts  Routing of cash shortages / other manipulation through Office Account / Inter Branch / Sensitive Accounts  Improper reversal of entries of Sensitive Account leading to loss of Audit Trail  E. Partial Reversal / Doubly reversal / Reversal exceeding entry amount etc. Software CA. Kuntal Shah.

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