Annexure – 3

Scope of Audit

A. Cash transactions –Verify

i) Surprise physical verification of cash at branch and ATM along with safekeeping
and custody.

ii) Daily cash transactions, particularly any abnormal receipts & payments.

iii) Surprise verification of cash by an officer other than the joint custodian.
iv) Proper accounting of and availability of insurance cover for inward and outward
cash remittances.
v) Accounting of currency chest transactions and delays/omission in reporting to
RBI.

Reporting of Counterfeit Currency.

vi) All cash transactions of Rs. 10 lakh and above reported in CTR.
vii) That all cash transaction of Rs. 50,000 and above invariably indicate Pan
No./Form 60.

B. Clearing transactions –Verify

i) Reconciliation with bank’s account at Clearing House and review of old
outstanding entries for reconciliation.
ii) Drawings allowed against uncleared instruments - sanction by the controlling
authority.

C. Remittances/Bills for Collection –Verify

i) Remittance of funds by way of DDs/TTs/MTs/TC/NEFT/RTGS any other mode in

cash exceeding the prescribed limit.
ii) Documents of title (lorry receipts, railway receipts, etc.) obtained in favour of the
bank and the concerned transporters are on the IBA approved list.
iii) Outstanding balance in DP and other transit accounts pending payment beyond
prescribed period.

D. Deposits –Verify
i) Adherence to KYC/AML guidelines in opening of fresh accounts and monitoring of
transactions in such accounts.
ii) Large term deposits received and repaid including checking of repayment of term
deposit in cash beyond permissible limit.
iii) Accounts opened and closed within a short span of time i.e., accounts with quick
mortality.

iv) Activation and operations in inoperative accounts.

v) Value dated transactions.

Page 1 of 6
vi) Settlement of claims of deceased customers and payment of TDRs against lost
receipts and obtention of indemnities, etc. To check revival of dormant accounts and
accounts with minimum activities.

vii) Examination of multiple credits to single accounts.

E. Treasury operations –Verify

I) If branch has acted within HO instructions for purchase and sale of securities.

ii) Periodic confirmation of Derivative contracts with counterparties.

iii) Adherence to regulatory guidelines with respect to Treasury deals/structured
deals.

iv) Controls around deal modification/cancellation/deletion, wherever applicable.

v) Cancellation of forward contracts and passing/recovery of exchange gain/loss.

vi) Gaps and OPL maintained in different currencies vis-à-vis prescribed limit for the
same.

vii) Reconciliation of Nostro and Vostro accounts-balances in Nostro accounts in

different foreign currencies are within the limits prescribed by the bank.
viii) Collection of underlying documents for Derivative & Forward contracts. Delays,
if any.
ix) Instances of booking and cancellation of forward contracts with the same
counterparty within a span of couple of days or a few days.

x) Sample check some of the deals and comment on the correctness of computation.

xi) Checking of application money, reconciliation of SGL account, compliance to RBI

norms.
xii) Checking of custody of unused BR Forms & their utilization in terms of Master
Circular on Prudential Norms on Classification, Valuation and Operations of
Investment Portfolio by banks.

xiii) To ensure that the treasury operations of the bank have been conducted in
accordance with the instructions issued by the RBI from time to time.

F. Loans & Advances-Verify

i) Report Bills/cheques purchased, if in the nature of accommodation bills.

ii) Proper follow-up of overdue bills purchased/discounted/negotiated.

iii) Fresh loans and advances (including staff advances) have been sanctioned
properly and in accordance with delegated authority.

iv) Reporting of instances of exceeding delegated powers to controlling/head office

by the branch and have been confirmed or ratified by the competent authority.

Page 2 of 6
v) Securities and documents have been received as applicable to particular loan.

vi) Securities have been properly charged/ registered and valued by competent
person. Whether the same has been entered in the bank’s system.

vii) All conditions of sanction have been complied with.

viii) Master data relating to limit, rate of interest, EMI, moratorium period details have
been correctly entered and updated/modified in the system.

ix) Value dated entries passed in advances accounts.

x) Post disbursement supervision and follow-up is proper, such as timely receipt of
stock and book debt statements, QIS data, analysis of financial data submitted by
borrower, verification of securities by third parties, renewal of limits, insurance, etc.

xi) Whether there is any misutilization of the loans and whether there are instances
indicative of diversion of funds.
xii) Compliance of prudential norms on income recognition, asset classification and
provisioning pertaining to advances.

xiii) Whether monthly updating of drawing power in the computer system on the
basis of stock statements/book debt statement/ other financial data received from
the borrowers.

xiv) Recovery in compromise cases is in accordance with the terms and conditions
of the compromise agreement.

xv) To check review and renewal of loans.

G. LC/BG –Verify

i) LC/BG issued/amended as per the approved format/model guarantee prescribed

and standard limitation clause incorporated. Whether counter indemnity obtained as
prescribed.
ii) Any deviation from the terms of sanction in regard to margin, security, purpose,
period, beneficiary, collection of charges, commission/fee, etc.

iii) Whether payment is made to the debit of party's account on due date without
creating overdraft/debiting suspense, in case of deferred payment guarantee.

H. Foreign Exchange Transactions-Verify

i) Recovery of charges as per HO Guidelines.

ii) Packing credit released, whether backed by LC or confirmed export order.

Page 3 of 6
iii) Availability of ECGC cover and compliance with ECGC terms.

iv) Submission of statutory returns on export/ import transactions, like BEF

statements, XOS, write off of export bills, etc. Follow up of outstanding export bills
and exchange control copy of bill of entry.
v) Irregularities in opening of new accounts and operation in NRO, FCNR, NRE,
EEFC, etc., and debits/credits entries permissible under the rules.

vi) Whether operations in FCRA accounts are as permitted by MHA and FCRA
guidelines.

vii) Booking, utilization, extension and cancellation of forward contracts.

I. House Keeping –Verify

i) Exceptional transaction reports are generated and verified by branch staff as
prescribed.

ii) Review of all balance sheet heads and outstanding entries in accounts, e.g.,
suspense, sundry and inter-bank accounts. Review of follow up of entries pending
for reversal.

iii) Scrutiny of daily vouchers with more emphasis on high value transaction including
high value expenses and debit entries in Suspense account.

iv) Debits in accounts where signatures are pending for scanning.

v) Whether records related to KYC/vouchers and other critical areas are sent to
specific places like archival center, record room as per stipulated periodicity.
vi) Adherence to KYC/AML guidelines in opening fresh account and subsequent
modifications of records and monitoring of transaction.

J. Verification of Merchant Banking Business-Verify

i) Whether the instructions given by the controlling branch are properly followed
where the branch acts as a collecting branch for issue business.

ii) Whether daily collection position is advised to the controlling branch.

iii) Whether recovery of the commission/fees and out of pocket expenses as agreed
with the respective companies and whether the competent authority has duly
authorized any waiver or reduction of such charges.
iv) Whether the prescribed preventive vigilance measures are observed by the
branch.

Page 4 of 6
v) Where data entry or data processing work is entrusted to outside agencies, the
competent authority duly approves these and the prescribed stamped indemnity has
been obtained from such agencies.
vi) Whether dividend interest warrants/refund payment accounts of companies are
funded prior to dispatch of the relative warrants by the companies and there is no
misuse of the facility.
vii) Whether Claims for reimbursement of amounts of paid warrants received from
paying branches / CPCs / special outfits are processed and debited to the concerned
company's account promptly.

viii) Whether charge on security has been created, wherever debenture trustee
activity is undertaken by bank.

K. SWIFT Transactions - Verify

i) Inward & Outward messages to be verified from CSIG / daily reports

ii) Whether the amounts of financial messages / transactions are debited/ credited
in the respective customer accounts / contra accounts.

L. Transaction Verification

i) Verify the genuineness and authenticity of the vouchers uploaded

ii) Verify whether transactions are correctly reflected in the respective customer
accounts in CBS.

M. Others –Verify

i) Compliance of provisions relating to Tax Deducted at Source, service tax, trade

tax, other duties and taxes.
ii) Physical verification of inventory, control over issue of inventory, safe keeping and
custody of security forms. Report any loss of such items.

iii) Physical verification of other deliverable items, control over issue, safe keeping
and custody.
iv) Physical verification of Gold coins, control over issue, safe keeping and custody.
Checking of Gold sale transactions.

v) Custody and movement of branch keys.

vi) Locker keys and locker operations-linking of FDR as security for locker/operation
of locker/inoperative lockers/ nomination/other issues.
(vii) Safe custody of branch documents like death claim cases, issuance of duplicate
DD/PO/FDR, checking of indemnities, etc. and verification of documents executed
during the period under audit.

(viii) Reporting of frauds

Page 5 of 6
(ix) Certification of documents / claims / Pre-disbursement check, compliance
certificate etc

N. Currency Chest Verification Audit (CCV audit under Cluster Approach)

i) Concurrent Auditors have to verify the opening Balance, closing balance and
transactions of Currency Chest, Transactions related Registers, Currency Chest
BGL ac with that of e-Kuber of RBI and confirm that they are tallying.
ii) The verification at present is to be done at weekly intervals as on Friday, on next
working day.
iii) The Concurrent Auditor shall issue a Yearly certificate of balance as on last
working day of Feb and Last working day of March each year.
iv) Number of days of working will be 4-5 per month with a maximum 6 days in the
months of Feb and March.
v) As RBI has not yet provided the access to e-Kuber, the Branch joint custodians
shall provide the printout of the e-Kuber to the Concurrent Auditor along with a
printout of BGL account transactions and other Currency Chest transaction registers.
No enquiry rights in CBS will be necessary nor provided to the Concurrent Auditors.
vi) Access to WBCAS will be provided and separate screens for recording the data
and generation of certificates is under progress. Relevant value statements have
already been provided for recording observations.

P. Miscellaneous:

i) Any other need-based work related to audit which may be entrusted by

the bank from time to time.
ii) Looking Beyond Value Statements

Page 6 of 6