INTERNAL CONTROLS IN BANK

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-A.N.Jayaram, Manager:

-A.N.Jayaram, Manager _ Internal Control in Banks

ORGANISATION:

ORGANISATION What is an ORGANISATION Banking – what do you mean by it-Basically acceptance of deposits and lending. Banking business- take money, give money and make money Structure – Unitary/Two/Three tier structures

Policy formulation and implementation:

Policy formulation and implementation Policies are formulated at head office level Policies : credit, investment, customer acceptance, recovery, inspection, technology, risk management etc. Implementation takes place at branch level Importance of sensitisation among people who implement banks’ policies.

SYSTEMS :

SYSTEMS Systems are tools for transforming objectives/ policies into performance They lay down framework for day-to-day operations

SYSTEMS-Requisites:

SYSTEMS-Requisites Systems should have clearly defined objectives It should have necessary controls and safety features, be monitorable & subject to periodic review Should be cost effective and involve optimum use of technology & manpower

SYSTEMS :

SYSTEMS l Goal setting –Long term,Short term l Corporate Planning & Budgeting l Monitoring & Review l Organizational planning-unitary,two/three tier structure l Work planning-Operations Manual, Advances Manual,Documentation rules, job cards,booklets Are these updated regularly?

SYSTEMS- in Banks:

SYSTEMS- in Banks Delegation of powers & reporting systems. Assigning business targets. Sanctioning /disbursement/documentation Review/monitoring/supervision Physical verification of securities charged to the bank been carried out as per prescribed procedure and reported in control returns.

Internal Controls- Five aspects:

Internal Controls- Five aspects Control Environment –includes integrity, ethical values & competence of people Risk Assessment – Identification & Analysis Control Activities – Policies & Procedures Information & Communication -timeliness Monitoring – to assess the quality of system’s performance over time.

Why internal controls:

Why internal controls Effectiveness and efficiency of operations Reliability of financial reporting Adherence to established procedures Compliance with applicable laws and regulations

Types of Internal Control:

Types of Internal Control Control through returns - Off-site Control through audits - On-site Control through visits by executives - On-site Controllers – RO/ZO/DO/HO.

MIS & Control returns:

MIS & Control returns Returns – Management Information (MIS) and Financial Information Integrity & reliability of data including returns under off site surveillance system to be ensured.

On-site Controls Various types of audit :

On-site Controls Various types of audit l Statutory Audit, LFAR l Revenue/Income audit l Internal audit l Concurrent audit l EDP/computer Audit l Risk based Internal Audit(RBIA)

House keeping :

House keeping Balancing of books of accounts and reconciliation of balances in control records/GL and Subsidiary records. Inter branch reconciliation. System in place to forward on a daily basis, statement of debit/credit transactions in relation to other branches Old/large outstanding transactions /entries at debit which remain unexplained

Remember…………..:

Remember………….. Bad housekeeping provides ample scope for frauds. There are always unscrupulous elements- either customers or staff members waiting to take advantage of deficient systems. Some instances – unauthorised debits in in-operative/ even regular accounts, loans in fictitious names, pledging of spurious jewels, forged documents. CLASSIC EXAMPLE OF DEFICIENT INTERNAL CONTROLS – IPO SCAM

What is to be ensured by internal inspectors:

What is to be ensured by internal inspectors The inspecting officers, apart from business parameters, should critically examine: Adequacy of coverage of concurrent/other audits, adherence to prescribed periodicity. P osition of compliance, timeliness, quality Comparison of current internal/risk rating with previous ratings- to assess improvement/ deterioration

What is to be ensured:

What is to be ensured ü E xistence of business continuity plan, disaster recovery plan, conducting of prescribed exercises. Ü H ousekeeping- system of rotation of staff, long outstanding entries requiring reversal. ü Assessment of the level of customer service provided in the areas of normal banking services, currency management, forex and government business An analysis of frauds detected and causative factors

What is to be ensured:

What is to be ensured ü Level of adherence to KYC/AML guidelines. ü Compliance with clean note policy of RBI. Display of particulars regarding Banking Ombudsman Scheme in the premises. ü Reliability and integrity of data furnished in MIS statements/control returns. ü Adherence to periodicity of branch visit by controllers, and efficacy of visits.

Sum Up………………..:

Sum Up……………….. What is an Organisation- What is Banking business Importance of Systems Need for Internal Controls Types of internal control in Banks How the internal controls are to be ensured

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Thank you

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