internal monitoring unit (imu)

State Bank of Pakistan Banking Service Corporation (Bank) Sukkur

INTERNSHIP REPORT ON INTERNAL MONITORING UNIT

Submitted to: SBP BSC (BANK) SUKKUR

Submitted by: Muhammad Sarwar Shah MBA (Banking & Finance)

Sukkur Institute of Business Administration

Sukkur Institute of Business Administration: Muhammad Sarwar Shah 1

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Table of content

Acknowledgement…………………………………………………………………..……… 01

Introduction of SBP BSC (Bank) Sukkur…………………………………………………. 02

Units of SBP BSC (Bank) Sukkur…………………………………………………………. 04

Internal Monitoring Unit and Internal controls……………………………………………14

Internal Monitoring Unit and Internal Audit Department………………………………...20

Restructuring of Internal Audit Department……………………………………………….23

Introduction of Internal Monitoring Unit…………………………………………………..24

Some qualities of Effective IMU……………………………………………………………25

Key work areas of IMU………………………………………………………………………26

Main duties and responsibilities of IMU…………………………………………………….26

Decision Making Authority of IMU…………………………………………………………27

Contacts/Work Relationships of IMU……………………………………………………….28

Conclusion……………………………………………………………………………………29

References…………………………………………………………………………………….30

Acknowledgement

All thanks to Almighty ALLAH who has empowered my poured knowledge that made me able

to complete this report and made it possible. I would like to thanks management of SBP BSC

(Bank) Sukkur to appoint me as internee and giving me the opportunity to get the practical

exposure of banking sector. This report provides all the knowledge and experience that I got

during my internship in SBP. I would also thank to Sukkur IBA, who selects me for internship at

SBP BSC (Bank), Sukkur.



State Bank of Pakistan Banking Service Corporation BSC (Bank) Sukkur

Vision

“To develop SBP BSC (Bank) into a strong and dynamic institution, equipped with efficient and

professional human resources base having necessary technology, fully capable of providing

quality services to stakeholders and complementing State Bank of Pakistan in achieving its

objectives”.

Mission

“To maintain an efficient currency management system, provide effective banking services

responsive to changing environment so as to command trust and respect of our stakeholders”.

History

SBP Banking Services Corporation, Sukkur is one of the field offices of SBP Banking Services

Corporation (Bank), which was created upon promulgation of Ordinance-2001 as an independent

subsidiary of the State Bank of Pakistan at Sukkur. Sukkur city is the hub of three Provinces viz;

Baluchistan, Punjab & NWFP. Sukkur city is also very important place which covers small &

medium enterprises, wide range of agricultural commodities’ market and also dry and fresh fruits

like Dates, Banana, vegetables etc. As such SBP BSC (Bank), Sukkur is playing a curious role in

the region. State Bank Banking Services Corporation Sukkur Office enjoys a long history of

central banking since its inauguration in 1994. The office gets further importance and increased

responsibilities in terms of serving to the government departments. Nevertheless, as a Field

office of BSC, it is committed towards providing customer oriented banking services to

government, financial institutions and the public, management of currency and National Savings

Schemes and channelizing efficient operations of the payment system. The main focus of the

bank is aimed at bridging the gap between the central bank and it stakeholders so that policies

are made that strengthen the financial system and provide and enabling framework for the

financial industry that fosters economic growth.



STRATEGIC PLANNING

To facilitate alignment of the Vision and Mission with the business operations and work

procedures.

To provide initiatives and facilitate head office in deriving solutions for projects, policies

and procedures.

To provide strategic solutions to mitigate weak areas and to counter threats to

performance.

To build an enabling environment, where employees are motivated to contribute to their

full potential.

To modernize the systems in order to ensure cost-effective operations enhanced delivery

capability and high service standards.

FUNCTIONS AND RESPONSIBILITIES

As an operational arm of the central bank, Sukkur Office is engaged in retail business,

which includes

Receipts, supply and exchange of bank notes and coins

Collecting revenue and making payments for and on behalf of and maintaining accounts

of the government, local bodies, authorities, companies, banks and other financial

institutions

Disbursing of loans and advances to the government, banks, financial institutions and

local authorities and facilitating in inter-bank settlement system

Operational work relating to management of debt and foreign exchange


Performing agency functions while dealing in prize bonds and other saving

instruments of the government


Units of Banking Services Corporation (SUKKUR OFFICE)

1- Prize Bond Unit (PBU)

2- Development Finance Support Unit (DFSU)

3- Public Account Unit (PAU)

4- Treasury Cash Unit (TCU)

5- Deposit Account Unit (DAU)

6- Foreign Exchange Operations Unit (FEOU)

7- General Services Unit (GSU)

8- Currency Management Unit (CMU)

9- Export Refinance Unit (ERU)

10- Internal Monitoring Unit (IMU)

1-PrizeBond Unit

Public finance is a field of economics concerned with paying for collective or Governmental

activities, and with the administration and design of those activities. Governments usually

borrow by issuing securities such as Government Bonds and Bills. Internal debt owed by a

Government as part of the country's national debt. It is a form of fiat creation of money, in which

the Government obtains cash not by printing it, but by borrowing it. The money created is in the

form of Treasury Securities Bonds or Securities borrowed from the Central Banks. These may be

traded but will only rarely be spent on goods and services. Prize Bonds are bearer type of

security and major instrument of internal source of financing source; through which Government

finance their expenses by issuing Bonds. Prize Bonds is in under of Ministry of Finance and

National Directorate. Funds raised through Prize Bonds are used to offset Government

borrowing and are refundable to the Bond holder (owner), on the demand. Prize Bonds carry no

interest, but have Prize Money through draw.



2-Development Finance Support Department

INTRODUCTION

Development of an inclusive financial system in the country that could ensure access to financial

Services to all segments/sectors of the economy is an important strategic objective of SBP. The

Establishment of Development Finance Group (DFG) in SBP in the recent past is aimed at

creating the necessary institutional capacity in SBP to achieve this strategic objective. While the

DFG is engaged in enhancing its capacity to catalyze and facilitate expansion of financial

services in un-banked/under-banked areas/sectors, the group based in Karachi, has no presence in

the field to continuously interact with grassroots level stakeholders and monitor banks’ progress

(at regional/district level) to develop and expand their development finance capacity. The

SBPBSC however has presence in 16 key areas/regions across the country with immense

potential for growth of development finance. The Development Finance Support Department

(DFSD) in the BSC is aimed at using the BSC field offices across the country to augment the

DFG capacity and its role for connecting the Unbanked/under-banked areas/sectors with the

country’s financial markets. The DFSD though group Based in BSC Head Office Karachi

(HOK), it has gradually established Units in 13 field offices. The Divisions/Units in the field

offices are the local contact points for continuous interaction with stakeholders.

KEY FUNCTIONS

The following are the key functions of DFSD; (all these functions would be undertaken by using

the BSC field offices network):

Monitoring

I. To coordinate and interact with DFG and banks to have region-wise and branch wise

plans/targets for financing to SMEs, Micro Enterprises (MEs)1, low cost housing and to

farming/rural communities.

II. To monitor banks’ performance towards achievement of their regional and branch-wise

targets of development finance using the BSC field offices.


http://www.sbp.org.pk/sbp_bsc/BSC/DFSD/index.htm


III. To collect regional and/or branch-wise data from Data Warehouse or DFG Departments, for

assessing banks’ performance as well as to study regional trends in growth and development

of SMEs, Micro and Rural Finance;

IV. To develop and maintain province-, region- and district-wise development finance database;

this will help us optimally target our resources to increase outreach of financial services in

un-banked/under-banked areas/sectors;

V. To monitor banks’ progress towards building and enhancing their retail capacity (in terms of

branch network, IT systems, human resources) to expand their development finance outreach

in different regions of the country;

Awareness and Information Dissemination

VI. To organize programs/field visits/workshops/seminars in consultation with DFG to create

awareness amongst the target population viz. the SMEs, MEs and farming community about

financial services being offered by banks and financial institutions; (the training and field visits

programs undertaken by ACD, being the field activity, could be transferred to the department;

the capacity at field offices would be built gradually to undertake such programs on more

frequent basis);

VII. To develop linkages with SMEDA, representatives/associations of SMEs and MEs, farming

community, chambers of commerce and agriculture, trade bodies for better and wider

dissemination of SBP Development Finance policies and approach;

VIII. To facilitate the DFSUs in conducting the meetings of Regional Focus Groups for

Agriculture, SME and Micro-finance. The Groups have been constituted in all BSC offices to

exclusively review the trends in each of these sectors and evolve operational strategies to

increase outreach of Agriculture, SME and Micro-finance in their respective regions;

IX. To develop linkages with provincial and District governments, agricultural research and

extension departments to explore synergies between their poverty alleviation and information

dissemination programs and the department’s goal for increasing outreach of financial services in

un-banked/under-banked areas/sectors;



X. To facilitate linkages/partnerships between technical and vocational institutes and

banks/MFBs for imparting technical/vocational training to the prospective clients of banks/MFBs

on cost sharing basis;

XI. To develop linkages with universities and colleges in the region to initiate development

finance courses/specializations/majors to cater to the growing demand for development finance.

Research & Surveys

XII. To conduct/arrange/sponsor regional surveys/empirical studies on key and burning issues

relating to expansion, growth and impact of development finance. (Linkages with research and

educational institutions will be developed for the purpose).

\

3-Public Account Unit (PAU)

SBP BSC (Bank) provides banking services to Government through PAU. PAU is responsible

for maintaining the account of Federal, Provincial, District and Zakat accounts Under section

21(1) of the SBP Act 1956 the Bank is obliged to accept money for account of the Federal, and

Provincial Government in Pakistan and to make payment on their account and to carry out their

exchange, remittances, and other Banking Operations including management of Public Debt. It

provides data on the Government accounts to the accountant General Pakistan Revenue, Pakistan

Railway, and SBP on daily basis. The position of Government balances is provided to Finance

Department of SBP for submission of Government Departments. Automation of business

processes and online data entry has provided an impetus of secured transmission and automated

of updating of data, and because of this integration among Field Offices System generated error

free reports; client statement and elimination of duplication of work have resulted in quality

based banking services to Government Departments. Another responsibility of PAU is the

ZAKAT collection and maintenance of its balances.

Type of Account

Drawing Account

When an Officer of a Government Department is authorized to draw funds from Bank

without limit such an account is called Drawing Account.



Assignment Account

In case of certain Department, Accountant General Authorizes the bank is to open Ledger

Deposit Accounts in favor of the head of these Departments and Army unit are called

Assignment Account.



Main Units of PAU

a) Payment Unit: Major Functions of payment unit are:

To keep specimen signatures of drawers/DDO’s records up to date

To maintain Cheques Series advice

Stop Cheques

To maintain schedule/advices

Pass cheques/Bills e.t.c.

b) Receipts Unit

This unit is responsible for keeping accounts of money paid into SBP BSC (Bank) for credit to

Government Account (Central and Provincial). All money that are tendered at the bank for credit

to Government Account should be accompanied by Treasury Challan in the form of prescribed

by the Government concerned are permitted to be deposited by the member of the Public direct

into the Bank for credit to Government Accounts Such as: Income Tax and Sales Tax Deposits.

All Challan require to be counter signed by Treasury Officers or Head of the Government

Department on whose account the amount paid.

c) Clearing House

SBP BSC (Bank) among other things also acts as a Clearing House for Commercial Banks who

have to maintain Current Accounts with it. The SBP BSC (Bank) Offices supervise the working

of the Local Clearing House as all the important centers where the Bank has established its

offices through National Institutional Facilitation Technologies.



4- Treasury Cash Unit (TCU)

Functions that are perform by TCU:

Physically receipts/payments on behalf of Government and Commercial Banks.

Sale/Encashment of National Prize Bonds.

Sale/Encashment of Coins.

Counters:

Coin Counter: Sale/Encashment of Coins

Government Counter: Receipts/Payment on behalf of Government

Exchange Counter: Exchange of Currency Notes

Defaced/Defective Counter: Exchange of Defaced/Defective Currency Notes

Banking Counter: Receipts/Payments on behalf of Commercial Banks through

instrument.

National Prize Bonds Counter: Sale/encashment of National Prize Bonds.

5- Deposit Account Unit (DAU)

The DAU is part of the Banking Service Corporation (BSC). The DAU is responsible for

maintaining the Bank’s Accounts and also provide the Remittance to Banks.

Types of services provided by SBP BSC (Bank) through its DAU are:

a) Current Account

b) SBP Remittances Facility Schemes;

Current Account

SBP BSC (Bank) provides facility to other Banks to open current in SBP BSC (Bank) without

any charges. Current Account is maintained by DAU that is entrusted with the work of opening

and maintaining the Current Account of Schedule and Non-Schedule Banks, Local Bodies and

Other Foreign Banks. There are two main reasons to open account in SBP BSC (Bank);

1- When they have excess amount above their holding capacity



2- For settlement of transactions with Other Banks or for Clearing purposes.

Remittances

In order to facilitate movements of funds from one place to another place, SBP BSC (Bank)

provides Remittances facilities through, Demand Draft, Mail Transfer, Bank Draft, Government

Draft, and Telegraphic Transfer.

6-Foreign Exchange Operation Unit

Background:

On the formation of the Banking Services Corporation, Exchange Policy Department was

bifurcated into two parts. Policy side went to State Bank and the Operation side came under the

Banking Services Corporation. The later was named Foreign Exchange Operations Department

(FEOD)

Functions:

Scope of the FEOD consists of implementation of Foreign Exchange policies by monitoring and

overseeing the operations of the Authorized Dealers. The Core Functions of the Department are:

Providing data collection support to SBP through different statements and returns.

Facilitating Importers and Exporters.

Responding to the queries of the Field Offices and Authorized Dealers.

Monitoring of Export Overdue Cases.

Issuing show cause notices to the defaulting exporters and referring the cases to

Adjudication Department.

Allowing private remittances on various accounts.

Handling of Monthly Returns.



Payment of Research and Development Support to Garment Industry

Payment of Freight Subsidy on Import of Cement

Facilitating Government functionaries / Agencies in disbursement of the foreign

budgetary allocations.

In this context, FEOD, HOK performs dual functions:

Oversee the operations of the field offices

Functions as the Karachi field office

7-General Service Unit

Mission Statement

Our mission is to provide dedicated and high quality service to our stakeholders with a sense of

warmth and friendliness. Our continuous focus would be towards preparing dynamic policies,

adopting innovative methods to solve unsolved problems and ultimately become strategic

partner in achieving the organizational objectives.

Vision Statement

Our vision is to help the Bank transform into a model institution by inculcating high spirit of

service and extending unmatchable facilitation to our stakeholders.

About Us

As a part of restructuring plan, General Services Department has been established to provide an

efficient service to the BSC employees through one-window approach. It places a renewed vigor

of the management to resolve all employee-related issues with a proactive approach and higher

service delivery standards so that they could work with more devotion and commitment.

A brief profile of the department’s functions

1. Employee Benefits Division



Disbursement of monthly salary and allowances

Reimbursement of educational expenses

Management of staff loan cases and assessment of properties

Maintaining PF/GPF accounts of Bank employees

Payment of retirement benefits related to fund accounts

Financing of life insurance policies against PF/GPF accounts

2. Procurement Division

Procurement of goods and services as per PPRA Rules 2004

Assisting departments and offices in the procurement process

Preparation of bidding documents for standardized procurement practices

Purchasing stationary for Bank

3. Services Division

Development of Business Plan

Preparation of annual budget

Maintaining employee leave records

Managing dark system

4. Printing Press

Cater to the printing requirements of State Bank of Pakistan and its subsidiaries

Ensure in-time and quality printing of jobs / publications

Effectuate sufficient and timely procurement of printing material

Printing and subsequent delivery of printed stuff as per set out priorities

5. Medical Division



Issuance of confinement letters.

Grant of permission for treatment at offices other than place of duties.

Activation /deactivation of medical facilities of employees/ex-employees and

their dependents

Issuance of approval letter for treatment/pathological tests etc. from un-approved

hospitals/laboratories.

Arrange purchase of high quality medicines against approved indent and ensure

short expiry medicines are replaced on timely basis.

Financial scrutiny and arrange re-imbursement of individual claims in respect of

medical facilities lodged by in service or ex-employees.

To arrange advance in respect of any emergency/costly treatment like cancer,

hepatitis, angiography, angioplasty and CABG etc.

Process the cases of enlistment of hospitals, consultants, laboratories etc.

Payment/Settlement of bills of approved hospitals, consultants, laboratories

according to approved rates.

6. Health Clinic

Examine the patients and prescribe treatment and medicines as per Medical

Attendance Rules and Regulations.

Issue referral letters, where required, to patients for external

consultants/specialists, pathological tests, diagnosis and hospital admission etc.

Process request for issuance of medicines prescribed by the external

consultants/specialists for treatment to the patients.

Visit different hospitals for ensuring provision of best services by them to the

admitted patients and also looking to the provision of on the spot approval for any



required specialized investigation/treatment/test e.g. MRI, CT scan, angiography/

angioplasty, chemotherapy etc.

Provide technical advice and recommendations to Medical Division on

determining the fitness or otherwise of the candidates selected for SBP and its

subsidiaries and provide their reports directly to PMD or HRD.

8- Currency Management Unit (CMU)

Being the Prime Controller of Currency in the Country, the BSC has put in special efforts in reviewing

currency procedure, practices, rules and regulations for various internal and external functionaries

through CMU.

Main function of this unit is to create awareness among common public about:

Forecasting that how much currency will be needed in coming year

Issue and Distribution of Fresh Notes and Coins

Inventory Management and Accounting

Withdrawal of Soiled Notes from circulation and their destruction

Note exchange facilities and Anti-counterfeit measures

9-Export Refinance

Export Refinance Scheme was introduced with an aim to boost exports of non-traditional items

in Pakistan. The scheme is bifurcated in two parts i.e. Part I & Part II. Under Part-I, the finance is

given on pre as well as post shipment basis for export of eligible commodities. This facility is

provided on a case-to-case basis. Under Part-II, an exporter may avail the export finance limit,

based on his last year’s export performance in respect of eligible commodities.

The process of disbursement of credit through export refinance schemes is operationally carried

out through the field offices of the Bank. These offices have meaningfully contributed towards

disbursement of export finance at industrial centers of the country through commercial banks.



The various sectors of business facilitated by this scheme include textile, carpets,

telecommunication, IT, electronics, leather, frozen seafood etc.

10-INTARNAL MONITORING UNIT (IMU) OF SBP BSC (BANK)

Internal Monitoring Unit and Internal Control

Internal Monitoring Unit is basically established at SBP BSC (Bank) to monitor and control the

functionality of the BSC Bank so that Bank can operate in an effective way. Before going to

explain Internal Monitoring Unit, first I would like to explain internal control of any

organization.

What are Internal Controls and who is Responsible for Them?

Internal control is defined as a process affected by an organization's structure, work and authority

flows, people and management information systems, designed to help the organization

accomplish specific goals or objectives.[1] It is a means by which an organization's resources are

directed, monitored, and measured. It plays an important role in preventing and detecting fraud

and protecting the organization's resources, both physical (e.g., machinery and property) and

intangible (e.g., reputation or intellectual property such as trademarks). At the organizational

level, internal control objectives relate to the reliability of financial reporting, timely feedback on

the achievement of operational or strategic goals, and compliance with laws and regulations. At

the specific transaction level, internal control refers to the actions taken to achieve a specific

objective (e.g., how to ensure the organization's payments to third parties are for valid services

rendered.) Internal control procedures reduce process.

Internal Controls can be categorized as either accounting controls or administrative controls.

Accounting controls are designed to safeguard Bank assets and ensure the accuracy of financial

records. Administrative controls are designed to promote operational efficiency, effectiveness,

and adherence to Bank policies and procedures. Bank management is responsible for designing

and maintaining an adequate system of internal control. Internal Audit independently reviews

and evaluates the adequacy of the system of internal controls and makes recommendations to

management to improve these controls based on system testing and control analysis.


http://en.wikipedia.org/wiki/Fraud

http://en.wikipedia.org/wiki/Internal_control#cite_note-0

http://en.wikipedia.org/wiki/Management_information_system


Everyone in an organization has responsibility for internal control to some extent. Virtually all

employees produce information used in the internal control system or take other actions needed

to effect control. Also, all personnel should be responsible for communicating upward problems

in operations, noncompliance with the code of conduct, or other policy violations or illegal

actions. Each major entity in corporate governance has a particular role to play:

Management: The Chief Executive Officer (the top manager) of the organization has overall

responsibility for designing and implementing effective internal control. More than any other

individual, the chief executive sets the "tone at the top" that affects integrity and ethics and other

factors of a positive control environment. In a large company, the chief executive fulfills this

duty by providing leadership and direction to senior managers and reviewing the way they're

controlling the business. Senior managers, in turn, assign responsibility for establishment of

more specific internal control policies and procedures to personnel responsible for the unit's

functions. In a smaller entity, the influence of the chief executive, often an owner-manager is

usually more direct. In any event, in a cascading responsibility, a manager is effectively a chief

executive of his or her sphere of responsibility. Of particular significance are financial officers

and their staffs, whose control activities cut across, as well as up and down, the operating and

other units of an enterprise.

Board of Directors: Management is accountable to the board of directors, which provides

governance, guidance and oversight. Effective board members are objective, capable and

inquisitive. They also have knowledge of the entity's activities and environment, and commit the

time necessary to fulfill their board responsibilities. Management may be in a position to

override controls and ignore or stifle communications from subordinates, enabling a dishonest

management which intentionally misrepresents results to cover its tracks. A strong, active board,

particularly when coupled with effective upward communications channels and capable

financial, legal and internal audit functions, is often best able to identify and correct such a

problem.

Auditors: The internal auditors and external auditors of the organization also measure the

effectiveness of internal control through their efforts. They assess whether the controls are


http://en.wikipedia.org/wiki/Auditors

http://en.wikipedia.org/wiki/Internal_audit


properly designed, implemented and working effectively, and make recommendations on how to

improve internal control. They may also review Information technology controls, which relate to

the IT systems of the organization. There are laws and regulations on internal control related to

financial reporting in a number of jurisdictions. In the U.S. these regulations are specifically

established by Sections 404 and 302 of the Guidance on auditing these controls is specified in

Auditing Standard No. 5 and SEC guidance, further discussed in . To provide reasonable

assurance that internal controls involved in the financial reporting process are effective, they are

tested by the external auditor (the organization's public accountants), who are required to opine

on the internal controls of the company and the reliability of its financial reporting.

Limitations of internal control

Internal control can provide reasonable, not absolute, assurance that the objectives of an

organization will be met. The concept of reasonable assurance implies a high degree of

assurance, constrained by the costs and benefits of establishing incremental control procedures.

Effective internal control implies the organization generates reliable financial reporting and

substantially complies with the laws and regulations that apply to it. However, whether an

organization achieves operational and strategic objectives may depend on factors outside the

enterprise, such as competition or technological innovation. These factors are outside the scope

of internal control; therefore, effective internal control provides only timely information or

feedback on progress towards the achievement of operational and strategic objectives, but cannot

guarantee their achievement.

Describing Internal Controls

Internal controls may be described in terms of:

a) The objective they pertain to; and

b) The nature of the control activity itself.

Objective Categorization


http://en.wikipedia.org/wiki/Financial_reporting

http://en.wikipedia.org/wiki/Information_technology_controls


Internal control activities are designed to provide reasonable assurance that particular objectives

are achieved, or related progress understood. The specific target used to determine whether a

control is operating effectively is called the control objective. Control objectives fall under

several detailed categories; in financial auditing, they relate to particular financial statement

assertions, [5] but broader frameworks are helpful to also capture operational and compliance

aspects:

• Existence (Validity): Only valid or authorized transactions are processed (i.e., no invalid

transactions)

• Occurrence (Cutoff): Transactions occurred during the correct period or were processed

timely.

• Completeness: All transactions are processed that should be (i.e., no omissions)

• Valuation: Transactions are calculated using an appropriate methodology or are

computationally accurate.

• Rights & Obligations: Assets represent the rights of the company, and liabilities its

obligations, as of a given date.

• Presentation & Disclosure (Classification): Components of financial statements (or other

reporting) are properly classified (by type or account) and described.

• Reasonableness-transactions or results appear reasonable relative to other data or trends.

For example, a control objective for an accounts payable function might be: "Payments are only

made to authorized vendors for goods or services received." This is a validity objective. A

typical control procedure designed to achieve this objective is: "The accounts payable system

compares the purchase order, receiving record, and vendor invoice prior to authorizing

payment."

Management is responsible for implementing appropriate controls that apply to transactions in

their areas of responsibility. Internal auditors perform their audits to evaluate whether the

controls are designed and implemented effectively to address the relevant objectives.



Activity categorization

Control activities may also be explained by the type or nature of activity. These include (but are

not limited to):

Segregation of duties

Separating authorization custody and record keeping roles to limit risk of fraud or error by one

person.

Authorization of transactions - review of particular transactions by an appropriate person.

Retention of records - maintaining documentation to substantiate transactions.

Supervision or monitoring of operations - observation or review of ongoing operational

activity.

Physical safeguards - usage of cameras, locks, physical barriers, etc. to protect property,

such as merchandise inventory.

Top-level reviews-analysis of actual results versus organizational goals or plans, periodic

and regular operational reviews, metrics, and other key performance indicators (KPIs).

IT Security - usage of passwords, access logs, etc. to ensure access restricted to

authorized personnel.

Top level reviews-Management review of reports comparing actual performance versus

plans, goals, and established objectives.

Controls over information processing-A variety of control activities are used in

information processing. Examples include edit checks of data entered, accounting for

transactions in numerical sequences, comparing file totals with control accounts, and

controlling access to data, files and programs.

Control precision

Control precision describes the alignment or correlation between a particular control procedure

and a given control objective or risk. A control with direct impact on the achievement of an

objective (or mitigation of a risk) is said to be more precise than one with indirect impact on the

objective or risk. Precision is distinct from sufficiency; that is, multiple controls with varying

degrees of precision may be involved in achieving a control objective or mitigating a risk.



Precision is an important factor in performing a SOX 404 top-down risk assessment. After

identifying specific financial reporting material misstatement risks, management and the external

auditors are required to identify and test controls that mitigate the risks. This involves making

judgments regarding both precision and sufficiency of controls required to mitigate the risks.

Risks and controls may be entity-level or assertion-level under the PCAOB guidance. Entity-

level controls are identified to address entity-level risks. However, a combination of entity-level

and assertion-level controls are typically identified to address assertion-level risks. The PCAOB

set forth a three-level hierarchy for considering the precision of entity-level controls.[6] Later

guidance by the PCAOB regarding small public firms provided several factors to consider in

assessing precision.[7]

Fraud and internal control

Internal control plays an important role in the prevention and detection of fraud.[8] Under the

Sarbanes-Oxley Act, companies are required to perform a fraud risk assessment and assess

related controls.[9] This typically involves identifying scenarios in which theft or loss could

occur and determining if existing control procedures effectively manage the risk to an acceptable

level.[10] The risk that senior management might override important financial controls to

manipulate financial reporting is also a key area of focus in fraud risk assessment.[11]

Internal Controls and Improvement

If the internal control system is implemented only to prevent fraud and comply with laws and

regulations, then an important opportunity is missed. The same internal controls can also be used

to systematically improve businesses, particularly in regard to effectiveness and efficiency.[13]

Continuous Controls Monitoring

Advances in technology and data analysis have led to the development of numerous tools which

can automatically evaluate the effectiveness of internal controls. Used in conjunction with

continuous auditing, continuous controls monitoring provides assurance on financial information

flowing through the business processes.



Internal Monitoring Unit and Internal Audit Department of BSC (Bank)

Internal Audit Department is replaced by Internal Monitoring Unit in 2008-09 during the major

restructuring/reorganization by the State Bank of Pakistan

Introduction of Internal Audit Department

The Internal Audit Department was established for the purpose of providing management and the

Audit Committee of the State Bank of Pakistan Banking Services Corporation with reasonable

assurance that the management control systems throughout the SBPBSC (Bank) are adequate and

operating effectively. Internal Audit provides an independent and objective appraisal of activity

for management and assuring them that risks are held at bay. To this end the Internal Audit

provides the management with analysis, recommendations, counsel, and information concerning

the activities reviewed. To accomplish its threefold mission of Banking, Currency Management

and Customer Service, the Bank must maintain the confidence of its Stake Holders, Executives,

Staff, Public and SBP. Confidence in the institution is paramount if the Bank is going to achieve

its stated objectives. The Internal Audit Department provides valuable support in maintaining the

public's confidence by performing independent and objective reviews and reporting to the Audit

Committee and Managing Director on their findings so that corrective actions or enhancements

can be initiated. The Internal Audit Department has 17 Audit Units across the SBPBSC. Out of

these 17 Internal Audit Units, 16 Units exist at 16 Offices of SBP BSC and One Unit exists at

Head Office, Karachi for ongoing auditing the various offices / departments. The Internal Audit

Department assists operating management in achieving Banks financial and operating goals by

evaluating controls to ensure systems function adequately, by identifying weaknesses, and by

providing recommendations. Through complete and unrestricted access to records, property, and

personnel, Internal Audit provides the Bank with an additional resource in meeting these goals.

With the support of Bank management and the Audit Committee, the Internal Audit Department

provides the highest quality of auditing services, thus enhancing control at the Bank

Reporting Structure



The Internal Audit Department reports to the Office of the Managing Director and the Audit

Committee of the Board of Directors. This reporting structure allows the Internal Audit

Department to remain independent and report all items of significance to the Managing Director

and the Audit Committee. The Director of Internal Audit attends all Audit Committee meetings

and brings appropriate matters to the Committee's attention.

Types of Audits Performed

The Internal Audit Department is expected to perform the following wide range of audit services

including financial audits, compliance audits, operational audits, information technology audits,

and consulting services. Currently compliance audit is being done however very soon IT audit

will start operating

Financial Audits

Address questions regarding accounting and the propriety of financial transactions. Compliance

Audits determine the degree of adherence to laws, regulations, policies, and procedures



Operational Audits

Review operating information and procedures to determine if any modifications of the operations

could result in greater efficiency and effectiveness.

Information Technology Audits

Evaluate system processing controls, data security, physical security, systems development

procedures, contingency planning, and systems requirements.

Management Audit

Review an independent and objective of management capability. It is used when institution is

planning for change and to evaluate executives’ skills and potential.

Consulting Services

Encompass a wide range of services, which allow the Bank community to utilize the

Department's financial and information technology expertise to address a known problem or

need.

The Internal Audit Process

When an audit is scheduled, an announcement letter is sent to the responsible parties. An

entrance meeting is scheduled to discuss the objectives and scope of the audit. At the entrance

meeting, any concerns or questions about the audit process are discussed. A typical audit is

comprised of three stages: planning, fieldwork and reporting. The audit team will collect data

and document the procedures, controls and/or activities being reviewed. During the audit and at

the conclusion of the fieldwork, the audit team discusses with the appropriate staff of an area

being audited any findings and recommendations noted during the audit process. A formal exit

conference is held to discuss the audit findings and recommendations with the Chief Manager/

Departmental Head of the area being audited. Next the audit team will issue a draft report

summarizing the findings and recommendations. The draft report has limited distribution, and

the management of the audited department is provided approximately one week to draft written

management responses as to how they plan to address the recommendations. The management



responses are incorporated into the draft report along with any agreed upon changes, thus

becoming a final report. The final report is distributed to the appropriate Bank management. All

audit information is treated as confidential and is reported only to those within the Bank who

need to know.

Meet the Internal Audit Staff

The Internal Audit Department tries to regularly participate in professional development

programs to maintain and enhance their professional skills. Certified members of the staff

complete the required continuing professional education each year to maintain their professional

licenses. To find out more about audit, please contact any of the following. All other mail should

be sent to the Director of Internal Audit

Restructuring of Internal Audit Department

During 2008-09, the IAD has undergone a Major restructuring/ reorganization. It was realized

over the recent years that the Internal Audit Units (IAUs) had lost their effectiveness Due to

overlapping and duplication of work Between Internal Monitoring Units (IMUs) and IAUs,

automation of business processes and Administrative problems in supervision of these Units. The

existing set up of IAD was Accordingly revisited during the year and the 17 IAUs housed at field

offices and one at BSC HOK were consolidated into two Audit Hubs, One each at Karachi and

Lahore. Each Audit Hub has been allocated departments of HOK and field offices as given in to

periodically carry out audit, Enforcement and other functions as assigned to them from time to

time. The new Structure is aimed at improving monitoring, expanding efficacy of internal

controls and Enlarging breadth, width and timeliness of reporting to the senior management. The

Newly created Audit Hubs headed by the Joint Directors (OG-5) will functionally &

administratively report to the Director IAD. These Audit Hubs will also assist the Audit Teams

in carrying out Annual Audit of the departments/ field offices of BSC.



Internal Monitoring Unit (IMU)

Internal audit and control is a critically important function for large and operations intensive

organizations like BSC. It involves an objective and independent review of the year. The Internal

Audit Units (IAUs) operative at the BSC offices have been abolished business processes, the

control systems in place, and the compliance environment in various organs and departments of

BSC. The BSC’s Internal Audit Department went through major restructuring exercise during as

they had lost their effectiveness due to overlapping/ duplication of work between IMUs and

IAUs, automation of business processes and administrative problems in supervision of IAUs at

field offices. The IAUs have been replaced by two Audit Hubs at Lahore and Karachi. The Audit

Hubs to be headed by an officer of not less than joint director level will functionally and

administratively report to Director IAD of BSC. Each of the two Hubs has been allocated the

departments of HOK and field offices as given in Table 8.5 to periodically carry out audit,

enforcement, and other functions as assigned to them from time to time. The Audit Hubs are

likely to improve efficacy of internal controls, remove duplications and increase administrative

efficiency in the internal audit and control function of the BSC.

Risks Register for 22 business processes of field offices including Deposit Accounts, Public

Accounts, Export Refinance and Treasury Cash Units were developed during the year. The Risks

Register will identify the processes’ risks, their ranking as high, medium or low risk and their

mitigating controls.

On operational side, annual financial/operational audit of 16 field offices and 4 HOK

departments was carried out and the Audit Briefs containing major observations was submitted

to Deputy Governor/ Managing Director. A compliance officer attached with each Audit Team

ensures compliance of the Audit Reports and timely resolution of issues highlighted in Audit

Briefs. IT Audit of 15 field offices of BSC was also carried out and the internal controls

weaknesses in the system highlighted in the IT audit reports were sent to ISTD of SBP. Further,

the system audit of Globus System, Oracle and HRIS was also conducted to assess the risk

exposures and control weaknesses, etc. and the report was shared with ISTD.

The Off-site Surveillance Wing (OSW) of IAD monitors the adequacy and effectiveness of

internal control systems, operational efficiency and adherence to relevant policies and procedures



based on the reports/ monthly returns of IAUs. During FY09, 286 significant irregularities were

reported by IAUs in their monthly returns. The OSW analyzed the irregularities in depth and

categorized 188 of them as major irregularities. These irregularities along with the IAD’s

recommendations were sent to respective chief manager and head of department for initiating

necessary corrective and/or preventive measures.

The Audit Sub-committee of BSC Board also monitors the performance of IAD; the committee

met twice during the year to discuss the management letter issued by the External Auditors,

Business Plan of IAD and quarterly progress report on Audit Briefs of BSC.

Some qualities of effective IMU

An internal monitoring unit should be explicitly designated within the project agency.

Internal monitoring should be conducted against detailed, specific terms of reference

The staff of the internal monitoring unit should be familiar with the design of the

resettlement program.

Staff from the internal monitoring unit should be adequately trained in the framework and

methodology of internal monitoring.

Internal monitoring unit should regularly receive information and data updates from field

offices.

IMU staff should participate in the project launch workshop where the key monitoring

benchmarks as well as the process of reporting should be discussed and agreed.

Resettlement data should be available by household, categories of impact and should be

computerized to facilitate processing.

Reports from internal monitoring should be submitted regularly, preferably semi-annually

to the project agency and the lending institution.

The process by which monitoring reports would be factored into decision making at the

senior level should be explicitly agreed.



Common objective

Internal Monitoring Unit exit meant for monitoring all operational transactions and payment

cases of the Office and that office work is in accordance with prescribed manuals, instructions,

circulars issued from time to time and to provide guidelines and recommendations where

required

Key work areas of IMU

To check attendance and punctuality of staff of the bank through attendance registers and

conducting surprise checks periodically in the morning and evening.

To insure that all transactions, cases and related documents emanating from all

Units/Departments are audited before review/approval/sanction thereof and ascertain

rectification of irregularities if identified to safe guard the Bank interest.

Monitor and check all expenditures of the office as per expenditure regulations 1993, SBPBSC

(Bank) and prescribed rules.

Main duties and responsibilities of IMU

To arrange periodical checking of Security Badges of all staff and uniform/liveries of

eligible staff and submit report thereof to the Chief Manager.

To scrutinize admissibility of all bills to make sure that those are sanctioned by the

authorities with in prescribed limit and under prevailing rules and provisions.

To ensure that the expenditure in any head is within budgetary allocation and recordation

thereof in the proper Head of Account.

To keep eye on purchases that the expenditure incurred thereupon is made after following

prescribed drill and their entries are properly recorded in the appropriate Head of

Account.

To check preparation of proper salaries of the staff and that necessary changes viz. leave

without pay, transfer, stop payments and have been incorporated therein by the Salary

Unit.Sukkur Institute of Business Administration: Muhammad Sarwar Shah 29


To check overtime bills and conveyance charges cases of officers to ascertain that they

approved by the concerned authorities and that calculations thereof is O.K.

To ensure that different accounts of various Units/Divisions are maintained according to

the prescribed instructions and manuals.

To audit all cases regarding staff loans, T.A/D.A Advances, GPF/PF/BF/GTA/BF Bank’s

maintenance, liveries, promotions, transfer/posting/export refinance and medical facilities

e.t.c.

To check monthly basis, the balances of various unit i. e Exchange Branch, Defective

Notes, e.t.c. and periodical surprise check of hand held balances of petty cash, postage

stamp account and other related accounts.

To ensure compliance of irregularities pointed out by Annual Inspection Team (offices)

and provided feedback to the authorities concerned in this regard as and when required.

Perform any other assignment being assigned time to time by the superiors

Decision Making Authority of IMU

IMU make decision with consultation and without consultation.

Decision with Consultation: Conduct surprise checks of Note Verification Unit and attendance

of Cash Staff in the morning in consultation with superior s.

Decision without Consultation: Depute Officials for surprise checks of uniform of Liveries

Staff/Security Badges/Attendance of entire Staff of Office/ Movement Registers/Cash Counters

and Examination Hall of Treasury (Cash) Division/Prize Bonds Counters e.t.c



Contacts/Work Relationships of IMU

IMU have relationship with all concerned Units/Divisions of Sukkur Office. The purpose of this

relationship with other Units/Divisions is Pre-audit of all cases emanating all Units/Divisions

which are under the audit or monitoring of IMU.



Conclusion

Internal Monitoring is continues process and it is safe guard against the various risks (financial,

reputational, security e.t.c ), the Internal Monitoring Unit in SBP BSC (Bank), Sukkur was

started in the year 2008-09 after the restructuring of Internal Audit Department by the Head

Office Karachi (HOK) in which post audit was conducted of every transaction or process. Before

Internal Monitoring Unit (IMU), Internal Audit Department (IAD), people who were conducting

Internal Audit was experts, and they were conducting Audit according to instruction of HOK,

they were preparing the Audit program and receiving records from the Units through the

requisition letter and they were checking the records according to the manuals or instructions

given by the HOK, Internal Audit in the SBPBSC (Bank), Sukkur was conducted every month

but the Internal Audit system/process was not good due to improper distribution of percentage

(%) given to the different records for Audit purpose, all Units were not Audited every Month,

manual system, they were informing the ACM of the concerning Unit regarding the records

which comes under the Audit through the requisition letter and was possibility that the concern

person can make the correction only of those records which comes under the process that person

knows which record will be Audited through the requisition letter, most of the records were not

audited 100% and if they found any irregularity in the records they are informing to ACM

through the AU-1 register and give suggestion for the correction of that mistake or error but they

were checking very late.

SBP BSC (Bank) has established IMU in the Field Offices, so that above mistakes or errors

which done by the IAD should be removed. IMU check each and every transaction before

happening or occurrence of those transactions. IMU follow manuals and instructions which are

given time to time by HOK. In Field Office Sukkur staff which is working in IMU less than the

need of Unit.



Reference

1- Mr. Sajid Ali Shah Chief Manager SBP BSC (Bank), Sukkur

2- Mr. Muktiyar Ahmed Ansari OG-2 SBP BSC (Bank), Sukkur

3- Mr. Munawar Assistant Chief Manager (IMU) SBP BSC (Bank), Sukkur

4- Mr. Muneer Ahmed Bhatti Assistant Chief Manager (Admin) SBP BSC (Bank), Sukkur

5- Internet

www.google.com

www.sbp.org.pk

www.wikipedia.com


http://www.wikipedia.com/

http://www.sbp.org.pk/

http://www.google.com/

internal monitoring unit (imu)

Documents