internal control in banks -anj-290307

8/2/2019 Internal Control in Banks -ANJ-290307

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-A.N.Jayaram, Manager


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ORGANISATION

What is an ORGANISATION

Bankingwhat do you mean by it-

Basically acceptance of deposits andlending.

Banking business- take money, give money

and make money StructureUnitary/Two/Three tier

structures


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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.


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SYSTEMS

Systems are tools fortransforming objectives/

policies into performanceThey lay down framework

for day-to-day operations


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SYSTEMS-Requisites

Systems should have clearly definedobjectives

It should have necessary controls andsafety features, be monitorable & subjectto periodic review

Should be cost effective and involveoptimum use of technology & manpower


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SYSTEMS

lGoal setting Long term,Short term

lCorporate Planning & Budgeting

lMonitoring & ReviewlOrganizational planning-unitary,two/three

tier structure

lWork planning-Operations Manual,

Advances Manual,Documentation rules,job cards,booklets

Are these updated regularly?


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SYSTEMS- in Banks

Delegation of powers & reporting systems.

Assigning business targets.

Sanctioning /disbursement/documentation

Review/monitoring/supervision

Physical verification of securities chargedto the bank been carried out as per

prescribed procedure and reported incontrol returns.


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Internal Controls- Five aspects

Control Environmentincludes integrity,

ethical values & competence of people

Risk AssessmentIdentification & Analysis

Control Activities Policies & Procedures

Information & Communication -timeliness

Monitoringto assess the quality

of systems performance over time.


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Whyinternal controls Effectiveness and efficiency of

operations

Reliability of financial reporting Adherence to established

procedures

Compliance withapplicable laws and

regulations


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Types of

Internal Control

Control through returns - Off-site

Control through audits - On-site

Control through visits by

executives - On-site

ControllersRO/ZO/DO/HO.


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MIS & Control returns

Returns Management Information

(MIS) and Financial Information

Integrity & reliability of dataincluding returns under off site

surveillance system to be ensured.


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On-site ControlsVarious types of audit

lStatutory Audit, LFAR

lRevenue/Income audit

lInternal auditlConcurrent audit

lEDP/computer Audit

lRisk based Internal Audit(RBIA)


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House keeping

Balancing of books of accounts andreconciliation of balances in controlrecords/GL and Subsidiary records.

Inter branch reconciliation. System in place to forward on a daily

basis, statement of debit/credittransactions in relation to other branches

Old/large outstanding transactions/entries at debit which remainunexplained


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Remember..

Bad housekeeping provides ample scope forfrauds.

There are always unscrupulous elements- eithercustomers or staff members waiting to take

advantage of deficient systems. Some instancesunauthorised debits in in-

operative/ even regular accounts, loans infictitious names, pledging of spurious jewels,

forged documents. CLASSIC EXAMPLE OF DEFICIENT

INTERNAL CONTROLSIPO SCAM


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What is to be ensured

by internal inspectorsThe inspecting officers, apart from

business parameters, should critically

examine:

Adequacy of coverage of concurrent/other audits,adherence to prescribed periodicity.

Position of compliance, timeliness, quality

Comparison of current internal/risk rating withprevious ratings- to assess improvement/deterioration


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Existence of business continuity plan,disaster recovery plan, conducting ofprescribed exercises.

Housekeeping- system of rotation of staff,long outstanding entries requiring reversal.

Assessment of the level of customer serviceprovided in the areas of normal bankingservices, currency management, forex andgovernment business

An analysis of frauds detected and causativefactors


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Level of adherence to KYC/AML guidelines.

Compliance with clean note policy of RBI.

Display of particulars regarding BankingOmbudsman Scheme in the premises.

Reliability and integrity of data furnished inMIS statements/control returns.

Adherence to periodicity of branch visit bycontrollers, and efficacy of visits.


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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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internal control in banks -anj-290307

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