Banks Auditing Main Project

BANK AUDITING WITH SPECIAL REFERENCE TO BANGALORE CITY CO-OPERATIVE BANK

DECLARATION

I ABHIJITH HR student of central college, hereby declare that this project report

titled “BANK AUDITING WITH SPECIAL REFERENCE TO BANGALORE CITY CO OPERATIVE BANK”, Bangalore is an independent research work carried out by me

during the academic year 2013-2014 under the valuable guidance and supervision of Dr.RAMACHANDRA Dr.RAMACHA NDRA GOWDA faculty of commerce and management, central college Bangalore, submitted for the requirements of Bangalore University for the award of the degree of MASTER OF FINANCE AND ACCOUNTING. This Report is a result of my own Endeavour and has not been presented to any university or institution for the award of any degree or diploma of any university.

Place: Bangalore Date:

MFA, BANGALORE UNIVERSITY, UNIVERSITY, CENTRAL COLLEGE

ABHIJITH HR (Reg.No. 12TUCFA023)

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ACKNOWLEDGEMENT I would like to extend my deep sense of gratitude to M.F.A Co-coordinator, Dr.M.MUNIRAJU , for providing me with necessary facilities for carrying out this

project successfully. successfully. I am also greatly thankfully and indebted to my guide Dr.RAMACHANDRA GOWDA for her valuable guidance and co-operation extended in completion of the project. I also extend my fullest gratitude to Mr. MANJUNATHA N, Manager,The Bangare City Co-operative Bank, Bangalore for granting me the permission to the project and providing me the necessary information whenever required. I also thank my parents and friends for their encouragement and support for the successful successful completion of the project. Finally, I would like to acknowledge all those people who are involved directly or indirectly in this process without which this work would not have been success.



ABHIJITH HR (STUDENT)

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BANGALORE

UNIVERSITY

DEPARTMENT OF COMMERCE CENTRAL COLLEGE CAMPUS, BANGALORE – 560 560 001.

CERTIFICATE

This is to certify that the dissertation titled “BANK AUDITING WITH SPECIAL REFERENCE TO BANGALORE CITY CO OPERATIVE BANK”, Bangalore is based on

an original study conducted by Mr. ABHIJITH HR Reg. No 12TUCFA001 under my guidance for the requirements of the Bangalore University for the Award of Degree in Master of Finance and Accounting. To the best of knowledge and belief the matter presented in this report is not submitted for any degree or diploma of any university. Place : Bangalore Date:

Dr.RAMACHANDRA GOWDA (GUIDE)


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BANGALORE

UNIVERSITY


CERTIFICATE

This is to certify that the dissertation titled “BANK AUDITING WITH SPECIAL REFERENCE TO BANGALORE CITY CO OPERATIVE BANK”, Bangalore is based on

an original study conducted by Mr. ABHIJITH HR, Reg. No 12TUCFA001 under my guidance for the requirements of the Bangalore University for the Award of Degree in Master of Finance and Accounting. To the best of knowledge and belief the matter presented in this report is not submitted for any degree or diploma of any university.


Dr.M.RAMACHANDRA GOWDA (CHAIRMAN)


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BANGALORE

UNIVERSITY


CERTIFICATE 12TUCFA001 student of under This is to certify that , MR. ABHIJITH HR, Reg. No 12TUCFA001 Master of Finance and Accounting , during the academic year 2013-14 of this

college, has successfully completed his project work embodied in this dissertation titled “BANK AUDITING WITH SPECIAL REFERENCE TO BANGALORE CITY CO OPERATIVE BANK”, Bangalore under my guidance for the requirements of the

Bangalore University. This study has not formed the basis for the award of any other degree or diploma of any university. His character and conduct is good during the study and we wish his all the success in his future endeavors. Place: Bangalore Date:


Dr. M.MUNIRAJU (co-ordinator of commerce)

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INTRODUCTION


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ORI ORI GIN OF TH E WORD WORD The word bank was borrowed in in Middle English from Middle from Middle French banque, from Old Italian banca, from Old from Old High German banc, bank "bench, counter". Benches were used as desks or exchange counters during the Renaissance the Renaissance by Florentine Florentine bankers, who used to make their transactions atop desks covered by green tablecloths.

A bank is a financial institution and a financial a financial intermediary that accepts deposits accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital through capital markets. A markets. A bank links together customers that have capital deficits and customers with capital surpluses.

M E A N I N G: A bank is a financial institution which deals with deposits and advances

and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it.

B A NK NK I N G I N I N D I A : Banking in India in the modern sense originated in the last decades of the 18th century. The first banks were. 1} Bank of Hindustan (1770-1829). 2} General Bank of India ( 1786). The largest bank, and the oldest still in existence, is the State Bank of India, India, which originated in the Bank the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, Madras, all three of which were established under charters from the British the British East India Company. The Company. The three banks merged in 1921 to form the Imperial the Imperial Bank of India, which, India, which, upon India's independence, became the State the State Bank of India in 1955. For many years the presidency banks acted as quasi-central banks, as did their successors, until the Reserve the Reserve Bank of India was established in 1935.


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In 1969 the Indian the Indian government nationalized nationalized all the major banks that it did not already own and these have remained under government ownership. They are run under a structure know as 'profit-making public sector undertaking' (PSU) (PSU) and are allowed to compete and operate as commercial as commercial banks. The banks. The Indian banking sector is made up of four types of banks, as well as the PSUs and the state banks, they have been joined since the 1990s by new private commercial banks and a number of foreign banks. Banking in India was generally fairly mature in terms of supply, product range and reach-even though reach in rural India and to the poor still remains a challenge. The government has developed initiatives to address this through the State Bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development with things like microfinance. like microfinance. Indian Banking Industry currently employees 1,175,149 employees and has a total of 109,811 branches in India and 171 branches abroad and manages an aggregate deposit of 67504.54 billion (US$1.1 trillion or €860 billion) and bank bank credit of 52604.59 billion (US$840 billion or €670 billion). The net profit of the banks operating in India was 1027.51 billion (US$16 billion or €13 billion) against against a turnover of of

9148.59 billion

(US$150 billion or €120 billion) for the fiscal the fiscal year 2012-13. The Reserve Bank of India (RBI) is India's central India's central banking institution, which controls the monetary policy of the Indian the Indian rupee. It rupee. It was established on 1 April 1935 during the British the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 .[3] The share capital was divided into shares of 100 each fully paid, which was entirely owned by private shareholders in the beginning beginning.[4] .[4] Following India's independence in 1947, the RBI was nationalized in the year 1949. The RBI plays an important part in the development strategy of the Government the Government of India.


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CLASS CLASSI F I CATION OF BANKS

1} ON ON TH E BA SI S OF OWNERSH OWNERSH I P

A ) Publ ) Publ ic Sector Sector B anks.

These types of banks are operated by the Government. Their main focus is to serve the people rather earn profits. State bank of India, Punjab National bank, State bank of Patiala, Allahabad Bank, etc. are the some of the important examples of Public sector bank. B ) Pr ) Pr ivate Se Sector B ank s.

These banks are owned and operated by the private institutes and are controlled by the market forces. The greater share of the private sector banks is held by private players and not the government. Some good examples of Private sector banks are Kotak Mahindra bank, ICICI Bank, HDFC Bank, Axis Bank, etc C) Co-oper C) Co-oper ati ve sector ector .

Is very much useful for rural people and provide finance to farmers, salaried people, small scale industries, etc. These banks are controlled, owned, managed and operated by the cooperative societies and came into existence under Cooperative Societies Act in 1912.

2} ACCO ACCORDIN RDIN G TO THE LA W


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A ) Sc ) Schedul hedul ed Bank B ank s.

In India In India are those banks which have been included in the Second Schedule of Reserve of Reserve Bank of India (RBI) Act, 1934.[1] 1934.[1] RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30 June 1999, 19 99, there were 300 scheduled banks in India in India having a total network of 64,918 branches. Scheduled commercial banks in India in India include State include State Bank of India and its associates (5), nationalized banks (20), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks.

B ) Non schedul ed bank.

It is a bank which does not come under RBI act 1949.

3} ACCO ACCORDIN RDIN G TO TH E F UNCTI ONS

A ) Ce ) Centr ntr al bank.

The central bank is also called the banker's bank in any country. In I ndia, the Reserve Bank of India is the central bank. The Federal Reserve in USA and the Bank of England in UK function as the central bank. This bank makes various monetary policies, decides the rates of interest, controlling the other banks in the country, manages the foreign exchange rate and the gold reserves and also issues paper currency in a country. The monetary control is the primary function of a central bank in most countries and so they are considered as the lender of last resort to various commercial banks.

B ) Comme ) Commerr cial banks.


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These banks function to help the entrepreneurs and businesses. They give financial services to these businessmen like debit cards, banks accounts, short term deposits, etc. with the money people deposit in such banks. They also lend money to businessmen in the form of overdrafts, credit cards, secured loans, unsecured loans and mortgage loans to businessmen. The commercial banks in the country were nationalized in 1969.

C) F C) F oreign oreign banks: banks:

Are those that are based in a foreign country but have several branches in India. Some examples of these banks include; HSBC, Standard Chartered Bank etc.

: D) Sav D) Savin in gs banks bank s

These banks function with the intention to culminate saving habits among people, especially those who belong to low income groups or those who are salaried. The money these people deposit in the banks are invested in securities, bonds etc. These days, many commercial banks perform the dual functions of savings bank. The postal department is also in a way a saving bank.

E ) Agri ) Agri cultur al banks: banks:

Those banks that gives credit to agricultural sector.

F ) I ) I ndustri ndustri al banks: banks:

Those banks that offer long and medium term loan to industrial sectors and work for their development.


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The fu nctions of banks are bri efl y highl ighted ighted in f ollowin g Di agr agr am or Chart


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1} PRIM PRIM ARY F UNCTI ONS OF B ANKS: ANKS: The primary functions of a bank are also known as banking functions. They are the main functions of a bank. bank. These primary functions of of banks are explained below below . A ) Acce ) Accepti pti ng Deposi Deposi ts

The bank collects deposits from the public. These deposits can be of different types, such as: a. saving deposit. b. fixed deposit. c. current deposit.

B) Gran ti ng of Loans and Advance Advances s.

The bank advances loans to the business community and other members of the public. The rate charged is higher than what it pays on deposits. The difference in the interest rates (lending rate and the deposit rate) is its profit. The types of bank loans and advances are:1. Cash Credits. 2. Loans. 3. Discounting of bill of exchange. 4. Over draft.


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2} SECONDARY SECONDARY FUN CTI ONS OF B ANK S The bank performs a number of secondary functions, also called as non-banking functions. These important secondary functions of banks are explained below. A) Agency Agency F unctions.

The bank acts as an agent of its customers. The bank performs a number of agency functions which includes:1. Collection of Cheques 2. Periodic Payments 3. Portfolio Management 4. Periodic Collections 5. Other Agency Functions 6. Transfer of fund B) General General Util ity F unctions.

The bank also performs general utility functions, such as:1. Locker Facility 2. Issue of draft, letter of credit 3. Underwriting of Shares 4. Dealing in Foreign Exchange 5. Project Reports 6. Social Welfare Programmes 7. Other Utility Functions.


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CO-OP CO-OPERATI ERATI VE BA NKS The Co operative banks in India started functioning almost 100 years ago. The Cooperative bank is an important constituent of the Indian Financial System, judging by the role assigned to co operative, the expectations the cooperative is supposed to fulfill, their number, and the number of offices the cooperative bank operate. Though the cooperative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative banks in India play an important im portant role even e ven today in i n rural financing. The businesses of cooperative bank in the urban areas also have increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. While the cooperative banks in rural areas mainly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc. Co operative Banks in India are registered under the Co-operative Societies Act The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

DEFINITION OF CO-OPERATIVE BANKS:

In the words of Henry Wolff “Co -operative banking is an agency which is in a position to deal with the small means on his own terms”


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I NTRODUCTI NTRODUCTI ON OF OF TH E TOPI TOPI C The audit of banking companies plays a very important role in India as it help to regulate the banking companies companies in right manner. manner. In audit of banks includes includes various types of audit which which are normally carried out in banking companies such as statutory audit, revenue/income expenditure audit, concurrent audit, computer and system audit etc. the above audit is mainly conducted by the banks own staff or external auditor. However, the rules and the regulation relating to the conduct of various types of audit or inspections differ from a bank to bank expect the statutory audit for which the RBI guidelines is applicable. In this, I have given more importance on the overall bank audit system. In today’s competitive world audit is very much necessary as well as

compulsory , because investor investing decision is depend on that particular concept if auditor has expressing his view about particular organization is true and fair then investor can get his ideas about how much he should invest in particular companies.

ORI ORI GIN AND EVOLUATI EVOLUATI ON OF AUDI TI NG 1) Origin of term term :

The term audit is derived from the Latin term “audire” mean to hear. In early days, an auditor

used to listing to the accounts read out by the accountant accountant in order to check them. 2) Ancient Ancient origin :

Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Egypt, Greece, Rome, U.K., and India. The Vedas, Ramayana, Mahabharata contain references to accounting and and auditing. Arthashasastra Arthashasastra by Kautilya gives detailed rules for accounting accounting and auditing of public public finances. The Mauryas, Mauryas, the Guptas and the the Mughals had developed developed and accounting and auditing system to control state finances. Thus, basically, accounting and auditing had their origin in the need for the government to control the income and expenditure of the state and the army. The original object of auditing was to detect and prevent errors and frauds.


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3) Compul sory au dits of compani compani es:

With increasing number of companies, the companies’ acts indifferent countries began

providing for compulsory audit of accounts of companies. Thus U.K. audit of accounts of limited l imited companies became compulsory in 1900. In India, the companies act, 1913 made audit of company accounts compulsory. With increase in size of companies, the object of audit also shifted t o ascertaining whether the accounts were “true and fair” rather than “true and correct”. Thus, the emphasis was not arithmetical accuracy but on fair representation of

financial affairs. 4) Deve Development of accoun accoun ti ng and audit in g standard: standard:

The international accounting standards committee and the accounting standards board of institute of chartered accountant of India have developed standard accounting and auditing practices to guide the accountants accountants and and auditor in their day-to-day work. work. 5) Computer Computer technol technol ogy: ogy:

The latest development in auditing pertains to the use of computers in accounting as well as auditing. Really, auditing has come a long way from “hearing” the accounts in the ancient day

to using computers to examine computerized accounts of today.


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D E F I N I T I O N OF OF A U DI DI T I N G Various persons such as the owners, shareholders, investors, creditors, lenders, government etc. use the final account of business concern for different purposes. All these users need to be sure that the final accounts prepared by the management are reliable. An auditor is an independent expert who examines the accounts of a business concern and reports whether the final accounts are reliable or not. Different authorities have defined auditing as follows.

Defini Defini tion of of 'A udit' udit'

An unbiased examination and evaluation of the financial statements of an organization. It can be done internally (by employees of the organization) or externally (by an outside firm). M autz

Define the auditing as “auditing is concerned with the verification of accounting data, with determining the accuracy and reliability of accounting statement and reports”. I ntern ntern ational auditin g guideli guideli nes

Defines the auditing as “auditing is an independent examination of financial information of any entity with a view to ex pressing an opinion thereon”. thereon”.


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BASI BASI C PR PRI NCI NCI PAL OF AUDI TI NG: 

I ntegrit y, objectivity objectivity an d i ndepe ndepende ndence nce::

The auditor should be honest and sincere in his audit work. He must be fair and objective. He should also be independent. 

Confidentiality:

The auditor should keep the information obtained during audit, confidential. He should not disclose such information to any third party. He should, keep his eyes and ears open but his mouth shut. 

Skil l and competence competence::

The auditor should have adequate training, experience and competence in Auditing. He should have a professional qualification (i.e. be a Chartered Accountant) and practical experience. He should be aware of recent developments in the field of auditing such as statement of ICAI, changes in company law, decisions of courts etc. 

Work in g pape paperr s:

The auditor should maintain working papers of important matters to prove that audit was conducted with due care according to the basic principles. 

Planning:

The auditor should plan his audit work. He should prepare an audit programmed to complete the audit efficiently and in time. 

Au dit evidence vidence::

The report of the auditor should be base on evidence obtained in the course of audit. The evidence may be obtained through vouching of transactions, verification of assets and liabilities, ratio analysis etc.


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

Evalu ation of accoun accoun tin g sys syste tem m and internal contr ol:

The auditor should ensure that the accounting system is adequate. He should see that all the transaction have been properly recorded. He should study and evaluate the internal controls. 

Opinion and r eport: port:

The auditor should arrive at his opinion on the account based on the audit evidence and submit his report. The opinion may be unqualified, qualified or adverse. The audit report should clearly express his opinion. Law should require the content and form of audit report.

NEW PRINCI PRINCI PLES F OR AUDI TI NG BANKS The Basel Committee published a “ consultative consultative document on the external audit of banks ” on on 21 March 2013. It proposed 16 principles and set out supervisory expectations on how: 

external auditors can discharge their responsibilities more effectively



audit committees can contribute to audit quality in their oversight of the external audit



an effective relationship between external auditors and supervisors can lead to regular communication of mutually useful information



regular and effective dialogue between banking supervisors and relevant oversight bodies can enhance the quality of bank audits.

The Basel Committee also published a letter to the International Auditing and Assurance Standards Board calling for more authoritative guidance relating to bank audits, and setting out specific areas where International Standards on Auditing should be improved. This guidance would supersede existing Basel Committee material on the relationship between banking supervisors and bank’s external auditors (2002) and external audit quality and banking

supervision (2008). The consultation closes on 21 June 2013.


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A U D I T CO COM M I T T E E In pursuance of RBI circular September 26, 1995, a bank is required to constitute an Audit Committee of its Board. The membership of the audit committee is restricted to the Executive Director, nominees of Central Government and the RBI, Chartered Accountant director and one of the non-official directors. One of the functions of this committee is to provide direction and oversees the operations of the total audit function in the bank. The committee also has to review the internal inspection function in the bank, with special emphasis on the system, its quality and effectiveness in terms of follow up. The committee has to review the system of appointment and remuneration of concurrent auditors. The audit committee is, therefore, connected with the functioning of the system of concurrent audit. The method of appointment of auditors, their remuneration and the quality of their work is to be reviewed by the Audit Committee. It is in this context that periodical meeting by the members of the audit committee with the concurrent auditors help the audit committee to oversee the operations of the total audit function in the bank

Considering the coverage of this audit assignment and the specialized nature of work there is also a need for training to be imported to the staff of the auditors. This training has to be given in specialized field such as foreign exchange, computerization, and areas of income leakage, fraud prone areas, determination of credit rating and other similar specialized areas. The bank can organize such training programmed at various places so that it can ensure the quality of audit.


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ADVANTAGES, ADVANTAGES, DISADVANTAGES DISADVANTAGES AND L I M I TATI ONS OF AUDIT It is mandatory mandatory for public companies to have statutory statutory financial statements audit. audit.

Many

business stakeholders have embraced auditing. So today we will look at the advantages of having financial statements audit and the disadvantages disadvantages .

ADVANTA GES OF AUDI T 1.

Audited accounts accounts are are readily accepted by Government authorities authorities like Tax Tax authorities authorities and

Central banks. 2.

By auditing auditing the accounts accounts Errors and and frauds frauds can be detected and rectified in time.

3. Audited accounts accounts carry carry greater authority than the the accounts accounts which have not been audited. 4.

For accessing accessing finance finance from financial institutions institutions like Banks, previous years audited accounts

are evaluated for determining repayment capability. 5.

Regular audit of of account account create fear among the employees employees in the accounts accounts department and

exercise a great moral influence on clients staff thereby restraining them from commit frauds and errors. 6.

Audited accounts facilitate settlement settlement of claims on the retirement/death retirement/death of a partner.

7. In the event event of loss loss of property property by fire or on happening of the event insured against, against, Audited Audited accounts help in the early settlement of claims from the insurance company. 8.

In case of Public Public Company Company where ownership ownership is separated separated from management, management, auditing of

accounts reassure the shareholders that accounts have been properly maintained, funds are utilized for the right r ight purpose and the management have not taken any undue advantage of their position. 9.

To determine the the value of of the business business in the event of purchase purchase or sales of the business,

audited account will be the treated as the base for the evaluation.


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10. The audit of accounts by a qualified auditor also help the management to understand the financial position of the business and also it will help the management to take decision on various matters like report in internal control system of the organization or setting up of an internal audit department etc. 11. If the accounts have been audited by an independent person, disputes between the management and labor unions on payment of bonus and higher wages can be settled amicably. 12. In the event of admission admission of a new partner, audited audited accounts will facilitate the formation of terms and conditions for joining the new partner. Last 3 years audited accounts will give a general idea about the growth and financial position of the business to the new partner.

DI SADVANTAGES OF AUDI T 1.

The payment of audit fees brings extra cost burden to the organization.

2.

During an an audit the auditor requires the attention attention several company staff and therefore

causes disruption.

LI M I TATIONS OF AUDIT 1. An audit audit does does not not assure assure future viability of of the organization audited 2. An audit audit does does not not assure assure the effectiveness and efficiency of management. 3.

Auditors express express opinion opinion and therefore does not give total assurance assurance of the true fair

presentation of annual annual reports. 4. An auditor cannot check each and every transaction he has to check only the selected areas and transaction on a sample basis.


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TYP TYPES OF AUDI T I N A BANK

1. STATU TORY AUD I T. 2. I NTERNAL NTERNAL AUDI T. 3. CONCURRENT CONCURRENT AUDI T. 4. SYSTEM YSTEM AUD I T. 5. REVENUE REVENUE AUDI T.

1 STATUT STATUT ORY AUDI T Statutory auditor is a title used in various countries to refer to a person or entity with an auditing role, whose appointment is mandated by the terms of a statute. In the United Kingdom, Kingdom, the term "statutory auditor" refers to an external auditor whose appointment is mandated by law. A "statutory audit" is a legally required review r eview of the accuracy of a company's or government's financial records. The purpose of a statutory audit is the same as the purpose of any other audit - to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions. The European Union has also made efforts to mandate statutory audits and statutory auditors auditors on an EU-wide EU -wide level .

2 INTERNAL INTERNAL AUDIT The examination, monitoring and analysis of activities related to a company's operation, including its business structure, employee behavior and information systems. An i nternal audit is designed to review what a company is doing in order to identify potential threats to the


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organization's health and profitability, and to make suggestions for mitigating the risk associated with those threats in order to minimize costs. Regulations, such as the Sarbanes-Oxley Act of 2002, have increased corporate requirements for performing internal audits. They are important components of a company's risk management, as they help companies identify issues before they become substantial problems. They also help identify risky behavior by individual employees and threats posed by outside parties, such as attempts to steal intellectual property.

3 CONCURR CONCURRENT ENT AUDI T Concurrent audit is a systematic and timely examination of financial trascation on a regular basis to ensure accuracy, compliance with procedure and guidelines. The concept of concurrent audit has been introduced to reduce time gap between occurrences of transaction and is overview or checking. It serves the purpose of effective internal control. Concurrent audit is an examination, which is contemporaneous with the occurrence of transactions or is carried out as near thereto as possible. The main focus while conducting concurrent audit it to ensure that transactions are not dealt with in routine but in adherence with the systems and procedures laid down. We ensure that the transaction or decisions are within the policy parameters laid down, they do not violate the instructions or policy prescriptions, and that that they are within the delegated authority and in compliance compliance with the terms and conditions for exercise of the delegated authority

4 SYS SYSTEM TEM AUD I T In today’s technology advancement banking are using a well organized computer system to

perform their transaction. So it is very necessary to conduct system audit in order to evaluate computer system for effectiveness.


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System audit is the audit of such computer environment/system and comprise of following internal control over Electronic Data Processing (EDP) activities and with application controls over accounting applications/assuring that all transaction records are authorized completely, accurately, timely processed manner which in turn are verified by computer .

5 REVENUE REVENUE AUDI T Revenue audit refers to the audit audit of revenues/ incomes. In revenue audit audit of banking companies, companies, auditors go through the various sources of revenues from which bank earn income. In revenue audit of banks, the auditor inspects that all the records are showing true and fair picture of revenues or not.

STAGES I N AUD I TI NG 1 prelimi prelimi nary work: A ) The auditor should acquire knowledge of the regulatory environment in which the bank

operates. Thus, the auditor should familiarize himself with the relevant provisions of applicable laws and ascertain the scope of his duties and responsibilities in accordance with such laws. He should be well acquainted with the provisions of the Banking Regulation act, 1956 in the case of audit of a banking company as far as they relate of preparation and presentation of financial statements statements and their audit.

B ) The auditor should also acquire knowledge of the economic environment in which the

bank operates. Similarly, the auditor needs to acquire good working knowledge of the services offered by the bank. In acquiring such knowledge, the auditor needs to be aware of the many variation in the basic deposit, deposit, loan and treasury services that are offered and continue to be developed by banks in response to market conditions. To do so, the auditor needs to understand the nature of services rendered through instruments such as letters of credit, acceptances, forward contracts and other other similar instruments.


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C) The auditor should should also obtain obtain and understanding understanding of the the nature of books and records

maintained and the terminology used by the bank to describe various types of transaction and operations. In case of joint auditors, it would be preferable that the auditor also obtains a general understanding of the books and records, etc, relating to the work of the other auditors, In addition to the above, the auditor should undertake the following:



Obtaining internal audit reports, inspection reports, inspection reports and concurrent audit reports pertaining to the bank/branch.



Obtaining the latest report of revenue or income and expenditure audits, where available.



In the case of branch auditors, obtaining the report given by the outgoing branch manager to the incoming branch in the case of change in incumbent at the branch during the year under audit, to the extent the same is relevant for the audit.

D ) RBI has introduced and offsite surveillance system for commercial banks on various

aspects of operations including solvency, liquidity, asset quality, earnings, performance, insider trading etc., and has indicated that such reports shall be submitted at periodic intervals from the year commencing 1-04-1995. It will be appropriate to be familiar with the reports submitted and to review them to the event that they are relevant for the purpose of audit. audit.

E ) In a computerized environment the audit procedure may have to appropriately tuned to

the circumstances, particularly as the books are not authenticated as in manually maintained accounts and the auditor may not have his in-house computer facility to taste the software programmer. The emphasis would have to be laid on internal control procedure related to inputs, security in the matter of access to EDP system, use of codes, passwords, passwords, data inputs being prepared by person independent of key operators and other build-in procedure for data validation and system controls as to ensure


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completeness and correctness of the transaction keyed in. system documentation of the software may be obtained and examined. F ) One set of tests that the auditor at both the branch level and head office level may apply

for audit of banks banks in analytical procedure.

2 Evalu ation of i nternal contr contr ol sys syste tem: m: It may be noted that transaction in banks are voluminous and repetitive, and fall into limited categories/heads of account. It may, therefore, be more appropriate that the evaluation of the internal control is made for each class/category of transaction. If the exercise of internal control evaluation is properly carried out, it assist the auditor to determine the effectiveness or otherwise of the control systems and accordingly enable him to strengthen his audit procedures, and lay appropriate emphasis on the risk prone areas. Internal control would include accounting control administrative controls . A ) Acco ) Accounti unti ng controls: controls:

Accounting controls cover areas directly concerned with recording of financial transactions and maintenance of such registers/records as to ensure their reliability. Internal accounting controls are also envisaging such procedures as would determine responsibility and fix accountability with regard to safeguarding of the assets of the bank. It would not not be out of place of mention that that there is a distinction between accounting system and internal accounting controls. Accounting system envisages the processing of the transaction and events, their recognition, and appropriate recording. Internal controls are techniques, method and procedures so designed and usually built into systems, as would enable prevention as well as detection of errors, omissions or irregularities in the process of execution and recording of transaction/events. The internal accounting controls as would ensure prevention of errors, omissions and irregularities would include following: 

No transaction can be registered/recorded unless it is sanctioned/approved by the designated authority.


Page 28




Built- in dual control/supervisory procedures ensure that there is an independent automatic check on input/vouchers.



No single person has authority to initiate transaction and record through all stages to the general ledger. Each day transactions are accurately and promptly recorded, and the control and subsidiary records are kept balanced through personnel independent of each other.

The auditor would be well advised to look into other areas may lead to detection of errors, omissions and irregularities, inter alias in i n the following 



Missing/loss of security paper, stationery forms. Accumulation of transactions/balances transactions/balances in nominal heads of accounts like suspense, sundries, inter-branch accounts, accounts, or other nominal nominal head of accounts accounts particularly if there accounts particularly if these accounts are extensively used to balance books, despite availability of information.



Accumulation of old/large unexplained/unsubstantiated unexplained/unsubstantiated entries in accounts with Reserve Bank of India and other banks and institutions.



Transaction represented by mere book adjustments not evidenced/substantiated or upon non-honoring of contracts/commitments.





accounts/inter-branch accounts. Analytical review procedure.



Serious irregularities pointer out in internal audit/inspection/special audit/inspection/special audit



Complaints/matters pending in the vigilance/grievances cell, as regards discrepancies in accounts of constituents, etc.



Results of periodic analytical review, if observed as adverse.

B ) Admin ) Admin istrative istrative control :

These are broadly concerned with the decision making process and laying down of authority/delegation of powers by the management. It may be noted that in the normal course, the head office use the zonal/regional offices do not conduct any banking


Page 29


business. They are generally responsible for administrative and policy decisions which are executed at the branch level.

3 Pre Pr eparati on of au dit pr ogram f or substanti substanti ve tes testi ng and i ts executi xecuti on : Having familiarized him the requirements of audit, the auditor should prepare an audit programme for substantive testing which which should adequately cover the scope of his work. In framing the audit programmers, due weigh age should be given by the auditor to areas where, in his view, there are weaknesses in the internal controls. The audit programmers for the statutory auditors would be different from that of the branch auditor. At the branch level, basic banking operation is to be covered by the audit. On the other hand, the statutory auditors at the head office (provisions for gratuity, interoffice accounts, etc.). The scope of the work of the statutory auditors would also involve dealing with various accounting aspects and disclosure requirements arising out of the branch returns.

Preparation and submi submi ssion of audi t r eport : 4 Preparation The branch auditor forwards his report to the statutory auditors who have to deal with the same in such manner, as they considered necessary. It is desirable that the branch auditors’ reports are adequately in unambiguous terms. As far as possible, the financial

impact of all qualification or adverse comments on the branch accounts should be clearly brought out in the branch audit report. It would assist the statutory auditors if a standard pattern of reporting, say, head wise, commencing with assets, then liabilities and thereafter items related to income income and expenditure, expenditure, is followed. In preparing the the audit report, the auditor should keep in mind the concept of materiality. Thus, items which do not materially affect the view presented by the financial statements may be ignored. However, in the judgment of the auditor, an item though not material, is contrary to accounting principles or any pronouncements of the Institute of Chartered Accountants of India or in such as would require a review of the relevant procedure, it


Page 30


would be appropriate for him to draw the attention of the management to this aspect in his long form audit report. In all cases, matters covering the statutory responsibilities of the auditor should be dealt with in the main report. The LFAR (long form audit report) should be used to further elaborate matters contained in the main report and as substitute thereof. Similarly while framing his main report, the auditor should consider, wherever practicable, the significance of various comments in his LFAR, where any of the comments made by the auditor therein is adverse, he should consider whether qualification in his main report is necessary by using his discretion on the facts and circumstances of each case. In may be emphasized that the main report should be selfcontained document.


Page 31


RESEARCH RESEARCH D ESI ESI GN TI TLE OF TH E STUDY STUDY A PROJECT REPORT ON THE BANK AUDITING WITH SPECIAL REFERENCE TO “BANGALORE CITY CO-OPERATIVE BANK AT CHAMRAJPET, BANGALORE”

M EANI NG OF OF RESEARC RESEARCH H DE SI GN:

A detailed A detailed outline outline of how an investigation will take place. A research design will typically include how data is to be collected, what instruments will be be employed, employed, how the instruments will be used

and

the

intended

means

for

analyzing

data

collected

There are two type of research design. 1 Qualitative. 2 Quantitave.

STATEMEN T OF TH E PROBLEM PROBLEM Auditing is the most important part of banking organization. The success and failure of any bank or company company solely depends upon upon auditing and process of auditing. auditing. Due to misappropriation in the accounts and finance of banking industry the audit of the banking play a vital role on the bank. Every banking industry however small or big, public or private or co operative banks has to as it mandatory. In this project the study is focus on BANGALORE CITY CO-OPERATIVE BANK. A banking companies are requires maintaining the books of account in accordance with control section 209 of the companies’ act 1 956. Banking generally a sound internal control


Page 32


system. The auditor has to evaluate such system carefully. The fundamental requirement of an audit, as regards reporting on statement of account can be discharged from the examination of the internal checked and verification of assets and liabilities by making a comparison and reconciliation of balance with those in the year and that of amount of income and expenses by application of test checks. The banking regulation act casts greater responsibilities on the directors of banks as compared to those of other companies in the matter of supervision over their working. Therefore, they exercise, or are expected to exercise greater supervision over the affairs of bank. The auditor is entities to rely on such supervision and to limit his checking to test checks. The financial position of a bank is depended on the condition of assets, loan, investment, cash balanced and those of its liabilities and fund. Their verification forms an important part of the balance sheet. Most of the banks have their own internal audit or inspection department entrusted with the responsibilities of checking the account of various branches. The statutory auditor may not, therefore duplicate work.

OBJECTI OBJECTI VES OF TH E STUDY STUDY



To study how the banks will do auditing.



To identify the internal control in selected area.



To study the steps involved in bank auditing.



To understand the type of banks auditing.



To analysis the efficiency and effectiveness of bank auditing.



To make suggestion if there is i s a problem with regard to the banks auditing.


Page 33


SCOPE COPE OF TH E STU STU DY 

An introduction to Bangalore city co operative bank. bank.



The scope of the study is limited limi ted to Bangalore city co operative bank.



The scope of the study of bank auditing is very wide so I have done as possible as my concern.



An attempt is made to identify how the auditing will takes place in the Bangalore city cooperative bank.

RESEARC RESEARCH H M ETH ODOL ODOL OG OGY Y : This is the case study and an index study of audit of bank with special reference to the BANGALORE CITY CO-OPERATIVE BANK .The research methodology based on primary data and secondary data. The various data is collected by adopting two main methods. They are

 PRI PRI M ARY DATA:

The primary data has been collected from the concerned authority through direct interview .



SECONDARY DATA:

The secondary data has been collected from the various sources including audit report, company profile, financial statement of company, and published periodical annual report of the company. It has also been collected through website www.google.com. website www.google.com.


Page 34


LI M I TATION OF OF THE STUDY STUDY



The published information used in the study may not be accurate and may be biased.



The study is conducted only on the main branch of the company.



The research may not contribute to overall performance of the BANGALORE CITY CO-OPERATIVE BANK LTD.



The study was undertaken for less than one month that to in year ending, so information gathering during that period may not sufficient.



To collect data about auditing was quite difficult due to year ending and non co operation of some respondent. This proved to be the major limitation of the study.



Due to secrecy maintenance in the bank some data could not included in the project report.


Page 35


BANGALORE CITY CO OPERATIVE BANK HEAD OFFICE CHAMRAJPET BAGALORE

HISTORY Sri.K.Ramaswamayya was the main architect of the Bank. The Bank started its operation in the year 1905 and was recognized as the Urban Credit Co-operative society on 6th April 1907. The bank was awarded awarded grade-1 by RBI.


Page 36


The Bangalore City Co-operative Bank Ltd was established under the Cooperative Society Act bearing registration number 314/CS, dated RBI NO granted 08.04.1907 from the Registration of Co-operative Societies in Karnataka and License. UBT/KA/642, dated 11.11.1986 for conducting the “Banking Business”. The bank has 12

branches along with one administration office and all branches have been computerized under the jurisdiction of Bangalore City Co-operative Bank, Bangalore Development Authority and Bangalore Urban and peripheral areas. The operation of the bank is throughout Bangalore Co-operative Limited. Section 3(F) of the multi-state Co-operative societies Act 1984 defines Co-operative principles are as: Membership of multi-state co-operative society should be voluntary an open without any social, political or religious discrimination, to all persons who can in a society other than with institutional membership. Individual member should enjoy equal rights of voting one member, one vote. Surplus of savings, if any arising out of the operation of the society belongs to the society as a whole and no individual members has a claim to the surplus. The bank has been making steady and consistent progress on all spheres having established on 6th April 1907 with head office at Pampamahakavi Road, Chamarajapete, and Bangalore. With an intention to provide loan and give high interest on deposit to the customer’s and members. The bank was established under the co-operative society Act Bearing registration on number 314/CS, on 8th April 1907 from the registrar of cooperative societies in Karnataka and license was granted by RBI vide no, UBD/KA/642 dated 11th November 1986 for conducting banking business. The Bangalore City Co-Operative Bank Ltd is one among the top urban co-operative banks in the country. The banks were honored as the best urban co-operative bank in the period of 1926, 1927, and 1928 by the Mysore province. During 2002 and 2004 Karnataka state government has honored the bank as best urban co-operative bank. The bank has been extending credit facility and also including the habit of savings among the small traders, foot path vendors, hawkers coming under priority sector. The bank has made advances to large number of 3 wheelers, self-employed owners and thus


Page 37


has extended self-employed owners and thus has extended self-employment opportunities to large number of people. Bank completing 100 years in 2007.

NATURE OF TH E BU SI NESS NESS CARRIED CARRIED

The Bangalore City Co- Operative Bank’s nature of the business carried is as following under under the points. 

Issuing of gold coins.



Cash receipts/deposit.



Cash withdrawals.



Sanction and disbursement of loans.



Locker facilities.



Updating and issuing of new pass books and cheque books.



Issuing demand drafts.



RTGS facilities.

QUALITYPOLICY Following are some of the rules and regulations provided by the bank for the benefit of customers: 

Avail nomination facilities to a/c holders including savings bank a/c and current a/c holders.



Bank will exchange mutilated currency notes as per RBI guidelines.



Bank will give standing instructions for the payment of bills, interest, insurance etc.



Bank provides required and important guidelines to the locker l ocker holders.


Page 38


VI SI ON, M I SSI ON AND QUAL QUAL I TY POL POL I CY VISION As per the laws of the banks: banks: 

Accepting deposits for the purpose of promoting saving habits habits in the minds of public and the members.



Providing various types of loans facilities to members.



To open new branches with permission from RBI and register of co-operative co- operative societies.



To provide short term and medium term credit worthy farmers.



To carry out banking business.



To serve as balancing center in the state.



To function as a leader of co-operative in Karnataka.



To raise the deposits of the bank more than 550 cores.

MISSION



To meet the growing aspiration of the customers of the bank in particular and other in the general in the changing environment.



To bring about total customers satisfaction by providing quality services



To promote socio economic development and employment as national and social objectives.



To meet the economic and career aspirations of the employees of the bank.



To promote the effectiveness of credit and to reduce the risk in getting a credit through careful and continuous supervision.

FUNCTIONS



Provisions of short term loans to carry out seasonal agriculture and for the purpose of sale of agriculture products.


Page 39


 

Provisions for medium term loans for irrigation, poultry farming, animal husbandry etc. Acceptance of deposits deposits



Provision of remittance and payment facilities.



Collection of cheques, drafts etc. for the customers.



Acceptance of valuables valuables for safe custody .

OWNERSNI OWNERSNI P PATTE PATTE RN

Bangalore City Co-operative Bank Ltd is city co-operative bank providing its services to business people and to the general public. The bank issued all its shares to its members only and it issued equal shares for each member of the bank. The number of members in the year 2010-11 was 47698, The number of members in the year 2011-12 was 54139, The number of members in the year 2012-13 was 58218.

BOARD OF DI RECTORS RECTORS::

Name

Designation

Dr. Devaraju T.M.

President

Sri. Anjanappa

Vice President

Smt.C.M.Bhagyalakshmamma,

Directors

Sri N. Manjunatha

General Manager


Page 40


STRUCTURE TRUCTURE OF OF CO-OP CO-OPERATI ERATI VE BANKI NG IN I NDI A

RBI

NABARD

SLDBs

SCBs

CCBs

CLDBs

PACs

PLDBs

UCBs(PCBs

BRANCH OF SLDBs

RBI

:

Reserve Bank of India.

NABARD

:

National Bank of Agriculture and Rural Development.

SCB’S :

State Co-operative Bank.

SLDB’S :

State Land Development Bank.

UCB’S :

Urban Co-operative Bank.

DCCB’S

:

PAC’S :

Primary Agricultural Credit Societies

CLDB’S

:

Central Land Development Bank.

PLDB”S

:

Primary Land Development Bank

District Central Co-operative Bank.


Page 41


STRUCTURE OF CO-OP CO-OPERATI ERATI VE ORGANI ORGANI ZATI ON: STATE CO-OPERATI CO-OPERATI VE BAN K (BCCO(BCCO- BANK):

Agricultural Credit Cooperative Bank

Non- Agricultural Co-operative Bank

Short term Lending

Long term Lending

STATE LEVEL

State land bank

Urban Credit Cooperative Bank

Industrial cooperative

CREDIT

Customer cooperative

NON-CREDIT

(BCCOB)

District Central Cooperative Bank Schemes

ESS

Primary Land Developme

MP co-operative Societies

Land Mortgage

Grain bank


Housing Banks Urban Banks -Bank Employee’s -Specialized cooperatives Primary co- operative bank

Page 42


TH E M AI N OPERATIONS OPERATIONS OF TH E BAN K: (CUSTOME (CUSTOME R SERVICES SERVICES)) 

Withdrawals.



Cash receipts.



Sanctions and disbursements of loans.



Locker facilities.



Clearing cheques.



Updating pass book.



Issuing new cheque book.



Issuing demand draft.



Pay order.



Mail transfer.



Telegraphic transfer.



Opening of fixed deposits.

THE BANKAS PROVI ROVI DES NOMI NATI ON FACI LI TI ES : 

Savings Bank Account Holder.



Current Account Holder.



Term Deposit Account Holder.



Safe Deposit Account Holder.



Individual/Joint Account Holder.



Housing Loan Holder (return of original document.


Page 43


AREA OF OPERATI OPERATI ON: The providing banking services to its members and depositors, nearby their residence only the bank along with its head office and administration offices at Chamarajapete, have started 13 or its branches at various areas in the city. The following table shows you the area of operation of Bangalore City Co-Operative Bank and its establishment of several branches in different differe nt years at many areas or ci ty.

YEARS

AREA/CITIES

1907

Head office Chamarajapete, Bangalore.

1980

Vijayanagara, Bangalore.

1981

Jayanagar, Bangalore.

1983

Indira agar, Bangalore.

1988

Chamarajpete west, Bangalore.

1992

Shanthinagar, Bangalore.

1994

Mahalakshmipuram, Bangalore.

1994

Sanjaynagar, Bangalore.

1995

Padmanabhanagar, Padmanabhanagar, Bangalore.

1996

Koramangala, Bangalore.

2002

Avalhalli Bangalore.

2002

R.T.nagar, Bangalore.

2009

Jananajyothi nagar Bangalore.

2012

H.R.B.R. Kammana Halli, Bangalore.

2012

Krishna raja puram, Bangalore.

2012

Ramanagara town, Ramanagar.


Page 44


COM COM PETI TORS TORS I NF ORM ORM ATI ON The Bangalore City Co-operative Bank is one of the leading co-operative banks in the Bangalore city operating its activities with several branches in and around Bangalore it is facing many competitors in the market. The list of competitors is as given below:



Apex Bank



State Bank of India



State Bank of Mysore



Canara Bank



ICICI Bank



Karnataka Bank



Syndicate Bank

I NFRASTR NFRASTRUCT UCTURAL URAL FACI LI TI ES :

The bank has 160x134 sq. feet site. The building is built in 100x100 sq. feet of the site. A ground floor and first floor is built to carry carry out the banking activities. activities. It is built for own use. In the ground floor, there is a head office branch of the bank and in the first floor, there is an administrative offece. The head office of the bank is located in Chamarajapete. It has 13 other branches. All the branches have computer facilities. Each branch has its own department which are fully furnished and well equipped equipped for smooth functioning functioning of the banking activities. activities. Proper lighting, ventilation, drinking water facilities is arranged.


Page 45


AWARD AWARD AND ACHI EVEM ENT:

The Bangalore City Co-operative Bank has got “Best urban co -operative bank in the state award on the time of Shriman Maharaja Shree Kanteerava Narassimharaja Odeyar and it also got -08. The bank for its excellent “Good Co-Operative bank in state” in the year 2002, and 2007 -08. series in the year 1926, 1927, and 1928 in the year 2002 and 2004 the bank got the “BEST URBAN CO-OPERATIVE BANK” from state government. YEARS

AWARDS

2002

The best urban co-operative bank in Karnataka

2004

The best urban co-operative bank

2007

100 years completed co-operative bank in Karnataka

2008

The best urban co-operative bank in Karnataka

WORK WORK FLOW M ODEL:

Different types of activity carried on by the bank. 

Loan activity



Deposit activity



Clearing activity



Shares activity


Page 46


L OANS AND ADVA NCES OFF ERED BY TH E BANK: Business loans to traders, workshop, hotels and other business ventures. Vehicle loans 75% loans against the cost of vehicle (two, three and four wheeler) with repayment span as per payment capacity. Personal loans for petty, trade, education, housing, marriage and other ceremonial purposes. Housing loans for construction/acquisition of homes repairs, renovation etc. Consumer loans for purchase of house hold articles like TV, fridge, furniture, computer etc. for graduates, and educational loans professional courses.

FUTURE GROWTH AND PROSPECTS: 

The bank wants to increase its operations by setting up its branches all over the Karnataka.



There are planning to enter core banking.



Mobilization Mobilization of saving, deposits, loans etc.



Installation of ATM facility in all the areas.



Opening of branches at all direct headquarters and minorities concentrated centers.



Introduction of more added services such as home banking, networking services, E-banking and E-sampling.



Launching of mobile banking and teller banking  Foreign exchange business. 

Opening of currency chest and small coin depot.



To increase deposits.



Improve the customer services by adopting latest technology.



Taking permission from RBI to start branches in T. Dasarahalli, Banasavadi, Banasavadi, Krishnarajapura and Yelahanka.



To raise deposits up to 500 crore and loans and advances up to 370 core.



To increase net profit up to 9 crore.



To reduce non-performing assets at 0%.



To make all branches to core banking facilities and help to customers.



To acquire own building for all branches.

 To provide training for employees to acquire more knowledge about the


bank work.

Page 47


BANK GROW GROWTH TH – A B I RD VI EW (31.03 (31.03.2 .201 013) 3)

Paid up share capital

43,16,59,372-00

Reserves and surplus

71,44,23,015-53

Deposits

975,96,47,834-74

Cash at bank

26,53,83,552.00

Loans and advances

692,55,27,605-00

Investment

3,82,97,12,243.00

Net profit

11,09,28,872

Number of members

58218

Net NPA (%)

1.61

RBI classification

Grade “1”

Audit classification

“A”


Page 48


SWOT A NAL YSI YSI S:

SWOT analysis is done for a company to find out overall strength, weaknesses, threats, and opportunities, lending to gauging the comparative potential of the company. The SWOT analysis enables a company at recognizes its market standing and adopts strategies accordingly. Hare SWOT analysis of the Bangalore city co-operative bank is made to understand the positioning of the bank better:

STRENGTHS:

1. BRAND NAM E:

The Bangalore city co-operative bank has earned a reputation in the market for extending quality services to the market visa-a-visa is competitors. I have earned a strong Brand name in co-operative banking.

2. VAST EXPERIE NCE:

The Bangalore city Co-operative bank has a vast experience of hundred years in banking business.

3. DI VERS VERSI FI ED PORTFOLI PORTFOLI O:

The Bangalore city co-operative bank has the entire product under its belt, which helps it to extend the relationship with existing customer. The bank has umbrella of product to offer their customers, if once customer has relationship with the bank. Some product, which bank offering are:

Retail banking.



Business banking.



Merchant Establishment Services.



Personal loans & car loans.



Insurance.


Page 49


4. AGGRESS AGGRESSII VE M ARKETI NG:

The Bangalore city co-operative bank is known for its aggressive marketing of its products. Recent strategy strategy to push its product product is, it the sole sponsored sponsored of a Kannada Kannada music show which is telecasted in ETV Kannada channel. channel.

5. F OCUSON OCUSON AL L K I NDS OF OF CUSTOMERS:

The bank targets not only the top bracket of clients but even cater to the needs of small customers. Due to this reason the bank may retain good clients cli ents effectively.

6. AGGR AGGRES ESS SI VE A PPRO PPROACH ACH I N L ENDI NG:

Bank has an aggressive approach in lending. Because Bec ause of this policy companies prefer this bank when to other nationalized bank.

WEAKNESS:

1. TECH NOLOGY:

From its inception, bank has not adopted a policy of selecting internationally proven and specialized packaged systems for its technology. Banks technology platform has not been acknowledged globally which as a competitive advantage for any bank

2. NO PRES PRESENCE ENCE OUTSI OUTSI DE I NDI A:

Bank is having any presence outside India, because of which companies prefer MNC Bank, mainly City bank. So if the bank tries to emerge outside India then it has a huge potential of customers.

3. POOR CUSTOME R CARE/SERVI CARE/SERVI CE:

With its aggressive marketing this bank is rapidly increasing its customer base. They are not however; increase the number of employees accordingly. This is leading to


Page 50


deterioration of the standard the number of employees accordingly. This leading to detonation of the standard of customer services.

4. M ARKET SHA SHA RE:

Bank has not got market share in the industry in according to our survey. This is a great setback for any business .

OPPORTUNITIES:

1. NEW I T & I TES COM COM PANIE S:

IT & ITES sector is on boom in the Indian market context, with new companies mushrooming in the market; it opens the door for bank to capture the huge untapped market.

2. DI SSATI SF I ED CUSTOM CUSTOM ERS OF OTH ER BANKS:

The groups from its survey and analysis of companies have found out that there are many companies which are not satisfied its current bank, so the bank with its superior service quality long working hours can capture those customers.

3. BUSIN ESS ADVI SI NG FOR SM SM AL L PL AYERS: AYERS:

The analysis has also indicated that the concept of business advising through very popular with the higher end players is virtually nonexistent in the lower end of the market. It should take this opportunity to provide business advising to the smaller companies at competitive rate and try to take the first mover advantage.


Page 51


THREATS:

1. ADVENT OF M NC BANK:

Large numbers of MNC banks are mushrooming in the Indian market due to the friendly policies adopted by the the government. This can increase the level of competition and prove a potential threat for market share of the bank.

2. DI SSATI ESF ESF I ED CUSTOM CUSTOM ERS: ERS:

The analysis indicated that through most of the companies are satisfied with the product offer by this bank but the poor customer support/services is creating a lot of dissatisfaction among among the customers, this can prove to be a serious problem as far as the market reputation of the bank is concerned and can be a major threat in future business accusation.

3. EVER IM PROVING PROVING NATI ONALI ZED BANKS: BANKS:

With PSU banks like SBI going all out to compete with the private banks and government giving them a freehand to do so, it can prove to be serious threat for the bank like the Bangalore City Co-Operative Bank.


Page 52


DATA ANAL YI S AND I NTERPR NTERPRETATI ON

Analysis of data is a process of o f inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggestion, and conclusion and supporting decision making. Data analysis has multiple fact and approaches, encompassing diverse techniques under a verity of name, in a different business, science, and social domains.

TOOLS TOOLS USED USED FOR ANAL YSI YSI S AND I NTRPRETATI NTRPRETATI ON OF OF DATA AT BANGAL ORE ORE CITY COOP COOPERATIVE ERATIVE BANK:

 GROWTH OF DEPOSIT.  GROWTH OF LOANS.  GROWTH OF NET PROFIT.


Page 53


TH E F OLL OWING TABL E SHOWS SHOWS GROWTH GROWTH OF DEPOSI DEPOSI T

TABL E NO 1

.

YEAR

AMOUNT(in crores)

% OF CHANGES

2009

378.63

23.64

2010

486.88

22.23

2011

597.62

18.46

2012

736.10

18.80

2013

975.96

24.57


Page 54


CHA RT NO 1.

GROWTH OF DEPOSIT YEAR

2013

2012

2011

2010

2009

AMOUNT(in crores)

975.96 736.1 597.62 486.88 378.63

1

2

3

4

5

ANALYSIS

From the above table and chart we can observe that how growth of deposit took place in 2009 the deposit was Rs378.63 and in 2010 it was increase to Rs486.88 nearly 22.23%change has taken place. In 2011 the deposit has move from 486.66 to 597.62 (18.46%). in 2012 the deposit has increase lit from 597.62 to 736.1(18.80%). In 2013 it has increase to975.96 from 736.1 (24.57%).


Page 55


THE FOL LOWI NG TABLE SH OWS GROWT GROWTH H OF L OANS

TABL E NO 2.

YEAR

AMOUNT(in cr)

%CHANGES

2009

294.85

20.74

2010

352.98

16.46

2011

444.12

20.52

2012

526.50

15.64

2013

692.55

23.97


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CH ART NO 2.

GROWTH OF LOAN YEAR

2011

2010

2009

AMOUNT(in cr cr)

2013

2012

692.55 526.5 444.12 294.85

1

352.98

2

3

4

5

ANALYSIS

From the above table and chart we can observe that how growth of loan took place in 2009 the loan was Rs294.85 and in 2010 it was increase to Rs352.98 nearly 16.46%change has taken place. In 2011 the loan has move from 444.12 to 526.5 (20.52%). in 2012 the loan has ha s increase lit from 444.12 to 526.5(15.64%). In 2013 it has increase to 692.55from 526.5 (23.97%).


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TH E FOL LOWI NG TABLE SHOWS GROWT GROWTH H OF NET PROFI PROFI T

TABL E NO 3.

YEAR

AMOUNT(Cr)

%CHANGES

2009

5.17

17.40

2010

5.34

3.18

2011

7.96

32.91

2012

10.35

23.09

2013

11.00

5.9


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CHA RT NO 3.

NET PROFIT YEAR

2010

2009

2

2013

2012

2011

10.35

7.96

5.34

5.17 1

AMOUNT(Cr)

3

4

11 5

ANALYSIS

From the above table and chart we can observe that how growth of net profit took place in 2009 the net profit was Rs5.17cr and in 2010 it was increase to Rs5.34cr nearly 3.18% change has taken place. In 2011 the net profit has move from 5.34cr to 7.96cr (32.91%). in 2012 the net profit has increase lit from 7.96cr 7.9 6cr to 10.35 (23.09%). In 2013 it has increase to 11 from 10.35 (5.9%).


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I NTERNAL CONTRO CONTROL L I N CERTAI CERTAI N SEL SEL ECTED AREAS

GENERAL



The staff and officer of a bank should lift form one position to another frequently and without prior notice.



The work of one person should always be checked by another person in the normal course of business.



All arithmetical accuracy of the book book should be proved independently independently every day.

 All bank form (e.g. books, demand draft book, ‘travellers’ cheque, etc.) should be

kept in the possession of an officer, and another responsible officer should occasionally verify the stock of such stationary. 

The mail should be opened by responsible officers. Signature on all the letters and advice received from other branches of the bank or its correspondence should be checked by an officer with signature book.



The signature book of the telegraphic codebook should be kept with responsible officers, used, and seen by authorized officers only.



The bank should take out insurance policies against loss and employees i nfidelity.



The power of officers of different grade should be clearly defined.



There should be surprise inspection of office and branches at periodic interval by the internal audit department. The irregularities pointed out in the inspection reports should be promptly rectified.


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CASH:



Cash should be kept in the joint custody of two responsible people.



In addition to normal checking by the chief cashier, cash should be test checked daily and counted in full occasionally by responsible officers unconnected with the balanced shown the balanced shown by the daybook every day.



The cashier should have no access to the ledger account and the daybook. This is an important safeguard. Bank management are often tempted to used cashier because of their shorter working hours as a ledger clerks in the absence of regular staff on leave, etc. This cash can be a very expensive price of economy.

CLEARINGS:



Cheques received by the bank in clearing should with the list accompanying them independent list should be prepared for cheques debited to different customers account and those return unpaid and these should be checked by officers.



The total numbered and amount of cheques sent out the bank for clearing should be agreed with the total of the clearing cle aring pay-in-slip, by an independent person.



The unpaid cheques received back return clearing should be checked in the same manner as the cheques received.

CONS CONSTI TI TUENT LE DGER:



Before making payment, cheques should properly checked in respect of signature, date, balanced in hand etc. and should be passed by an officers and entered into constituent’s

account. 

No withdrawal should normally be allowed against cheques deposited on the same day.


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

An officer should check all the entries made in the ledger with the original document particularly nothing nothing that the correct account account have been debited or credited. credited.



Ledger keeper should not have access to voucher summary sheet after they have been checked by an officer and to the daybook.



Interest debited or credited to constituent account should be independently checked .

BI LL OF COLL COLL ECTION: ECTION:



All documents accompanying the bill should be received re ceived and entered in the register by a responsible officer. All the time of dispatch, the officer should also see that all document sent along with the bills.



The account of customers or principals should be credited only after bills have been collected or an advice to that effect received form the branch or agent to which they were sent for collection.



It should be ensured that bills sent by one, branch for collection to another branch of the bank, are not in the collection twice in the amalgamated balance sheet of the bank. For this purpose, the receiving branch should reverse the entries such as bills at the end of the receiving branch at the end of the year fir closing purposes .

BI LL PURCH URCH ASED: ASED:



At the time of purchased of bill, bill, an officer should verify that all the document document of titles are properly assigned to the bank.



Sufficient margin should be kept while purchased or discounting a bill to cover any decline in the value of the security etc.



If the bank is unable to collect a bill on the due date, immediately step should be taken to recoveries the amount form the drawer against the security provided.



All irregular outstanding account account should be reported to the head office.


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

In the case of purchased outstanding at the close of the year discount received thereon should thereon should be properly apportioned between years.

L OAN AND ADVANCES: ADVANCES:



The bank should make advances only after satisfying itself as to the creditworthiness of the borrowers and after obtaining sanction from the proper authorities of bank.



The entire necessary document (e.g. agreement, demand promissory note, letter of hypothecation etc.)



Sufficient margin should be kept against securities taken to cover any decline in the value thereof and also to comply with proper authorities of directives. Such margin should be determined by the proper authorities of the bank as a general policy or for particular account. account.



All the securities should be received and returned by responsible officer. They T hey should be kept in the joint custody of two such officer



In the case of good in possession of the bank, content of the package should be test checked at the time of receipt.



Surprise check should be made in respect of hypothecated goods not in the possession of the bank.



Market value of good should be checked by officer of the bank by personal enquiry in addition to the invoice to the invoice value given by the borrowers.



As soon as any increased or decreased takes take place in the value of securities proper entries should be made in the drawing power book and daily balance book. These entries should be checked by an officer.



All account should be kept within both the drawing power and the sanctioned limit at all times.


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

At the account, which exceed the sanctioned limit or drawing power or are against unapproved securities or are otherwise irregular, should be brought to the notice of the management/head office regularly.

DEM AND DRAFT: DRAFT:



The signature on demand draft should be checked by an officer with signature book.



All the best demand draft sold by should be immediately confirmed by the advice to the branches concerned.



If the branches does not receive does not received proper confirmation of ant demand draft form the issuing branch or does not received credit in its account with that branches, it should take immediate step to ascertain the reason.

I NTER BRANCH BRANCH ACCOUNT: ACCOUNT:



The account should be adjusted only on the basis of application with reasonably good credit assessment.



Prompt action should be taken preferably by central authorities, if any entries are not reasonably time.


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CREDI CREDI T CARD OPERATI OPERATI ON:



There should be effective screening of application with reasonably good credit assessment.



There should be strict control over storage and issues of card.



There should be at system whereby a merchant confirm the statues of utilized limit of a credit card holder form the bank before accepting the settlement in case the amount to be settled exceed a specified percentage of the total limit of the credit holder.



There should be system of prompt reporting by the merchant of all settlement accepted by them through credit cards.



Reimbursement to merchants should be made only after verification of the validity of merchant acceptance of card.



All the reimbursement should be made immediately charged to the customers account.



There should be a system to ensure that statements are sent regularly and promptly to the customers.



There should be a system to monitor and follow up customer payment.



Items overdue beyond a reasonable period should identification and attended to carefully. Credit should be stopped by informing the merchant through periodic bulletin, as early as possibly to avoid increased losses.



There should be a system of periodic review of credit card holder account. On the basis, the limit of customer may be revised; it necessary, the review should also includes determination of doubtful amount and the provisioning in respect thereof.


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BOOKS OF ACCOUN ACCOUN TS OF BA NK S

A banking company is required to maintain the books of accounts in accordance with sec.209 of the companies act. There are, however, certain imperatives in banking business they are the requirements to maintain accurate and always up to date account. Banks, therefore, device their accounting system to suit these requirements. The main characteristics of a banks system of book keeping are as follows: Entries in the personal ledgers are made directly from vouchers instead of being posted from the books of prime entry.

A. The vouchers entered into different personal ledgers each day are summarized on

summery sheet; the totals of each are posted to the control accounts in the general ledger.

B. The general ledger trail balance is extracted and agreed every day. C. All entries in the detail personal ledgers and the summary sheet are check by

person other than those those who have made the entries, with the general results that most clerical mistakes are detected before another day begins. D. A trial balance of the detailed personal ledgers is prepared periodically, usually

every two weeks, and agreed with the general ledger control accounts. E. Expecting for cash transactions, always two vouchers are prepared for each

transaction, one for debit and the other for credit. This system ensures double entry at the basic level and obviates the possibility of errors in posting.


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PRINCIPAL BOOKS OF ACCOUNT 

GENERAL LEDGER:

It contains control accounts of all personal ledgers, the profit and loss account and different assets and liabilities accounts. There are certain additional accounts known as contra accounts, which is unique feature of bank accounting. These contra accounts are maintained with a view to keeping control over transactions, which have no direct effect on the banks positions. For e.g. letter of credit opened, opened, bills received for collection, guarantee guarantee is given etc.



PROFIT AND LOSS LEDGERS:

Some banks keep one account for profit and loss in this general ledger and maintained separate books for the detailed accounts. These are columnar books having separate columns for each revenue receipt and expense head. Other banks keep separate books for debits and credits posted are entered in to the profit and loss account in the general ledger.


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SUBSIDIARY BOOKS OF ACCOUNTS



PERSONAL LEDGERS:

Separate ledgers are maintained by banks for different types of accounts, i.e. current account, saving account, etc. As has been maintained earlier, these ledgers are posted directly from vouchers and the entire voucher entered in each ledger in a day is summarized in to Voucher Summary Sheets. 

BILL REGISTERS:

Details of different types of bills are kept in separate registers, which have suitable columns. For e.g. bill purchased, inward bill for collection, outward bills for collection etc are entered serially day to day in separate registers. Entries in these registers are made by reference to the original documents. 

OTHER SUBSIDIARY REGISTERS:

There are different registers for various types of transaction. Their number, volume and details, which differ according to the individual needs of each bank. For example, there will be registers for: A. Demand drafts, telegraphic and mail transfers issued on branches or agencies. B. Demand drafts, telegraphic and mail transfers received from branches and agencies. C. Letters of credit. D. Letter of guarantee.


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

DEPARTMENTAL JOURNALS: JOURNALS:

Each department of bank maintains a journal to note the transfer entries passed by it. These journals are memoranda book only, as all the entries made there are also made in the daybook, through voucher summary sheets. The purpose is to maintain a record of all transfer entries originated by each department. 

Other memoranda books:



Besides the book mentioned above, various departments of a bank have to mention a number of memoranda books to facilitate their work. Some of the important books are described below: o

Receiving cashiers cash book.

o

Paying cashiers cash book.

o

Main cash book.

o

Cash balance book.

The main cashbook is maintained by a person other than cashier. Each cashier keeps a separate cashbook. When cash is received, it is accompanied by pay-in-slips or other similar documents. The cashier makes entry in his book, which is check by the chief cashier.  Outward clearings:

A person checks the vouchers and list with the clearing cheques received books. The vouchers are then sent to appropriate departments, where customer’s accounts are immediately credited. Normally no drawings are allowed against clearing cheques deposited the same day but exceptions are often made by the manager in the case of established customer.


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 Inward clearing:

Cheques received are check with the accompanying list. These are then distributed to differed department and number number of cheques given to each each department is noted in a memo book. When the cheques are passed and posted in to ledger, there number is independently agreed with the memo book. If the cheques are found unpayable, they are return to clearing house.



Loans and overdrafts departments:

a) Registers for shares and other securities held on behalf of its customer b) Summary books of securities give in details of government securities. c) Godown registers maintained by the Godown keepers of bank. d) Overdraft sanction register e) Drawing power book. f) Delivery order books. g) Storage books. 

Deposit department:

a) Account opening and closing registers. b) Fixed deposits rate register. c) Due date dairy. d) Specimen signature book. 

Establishment department:

a) Salary and allied registers.


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b) Register of fixed assets. c) Stationary registers d) Old record registers 

General:

a) Signature books of bank officers b) Private telegraphic code and ciphers 

Statically books:

Statically records kept by different books are in accordance with their individual needs. For example, there may be books for recording: 

Average balances in loans loans etc.



Deposits received and amounts paid out each month in the various departments.



Number of cheques paid.



Number of cheques, bills and other items collected.



INCOMPLETE RECORDS:

In some situations, the auditor may find that certain accounting and other records are not up to date. In such a situations, the auditor should first ascertain the extent of arrears in housekeeping and the areas in which accounting and other records are not up to date. It may also be noted that in Long Form Audit Report (LFAR0), the auditor has to make detailed observation on such arrears.


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VERIFICATION OF ASSETS AND LIABILITES CAPITAL AND LIABILITIES: 1) CAPITAL

The following particulars have to be given in respect of share capital in the balance sheet The capital owned by central government as on the date of balance sheet including i ncluding contribution from government, if any, for participation participation in world bank bank project should be shown. shown. 2) RESERVES AND SURPLUS:

The fol lowing lowing are required to be disclosed in the balance sheet under the head ‘Reserves and Surplus’.

a) Statutory reserves. b) Capital reserves. c) Share premium. d) Revenue and other reserves. e) Balance in profit and loss account. The auditor should verify the opening balances of various reserves with reference to the audited balance sheet of the previous year. Addition to or deductions from reserves should also be verified in the usual manner, e.g. with reference to board resolution. In the case of statutory reserves and share premium, compliance with legal requirements should also be examined. Thus, the auditor should specifically examine whether the requirements of governing legislation regarding transfer of the prescribed percentage of profits to reserve fund have been complied with. In case the bank has been granted exemption form such transfer, the auditor should examine the relevant documents granting such exemption. Similarly, it should be examined whether the appropriations from share premium account conform to the legal requirements.


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3) DEPOSITS:

Deposits are required to be classified in the balance sheet under the following heads. A.

I. Demand Deposits a) from banks b) from others II. Saving Bank Deposits a) From banks. b) From Others.

THE AUDITOR MAY VERIFY TYPES OF DEPOSITS IN THE FOLLOWING MANNER. I. current account:

The auditor should verify the balances in individual accounts on a sampling basis. He should also examine whether the balances as per subsidiary ledgers tally with the related control accounts in the general ledger. The auditor should consider the debit balances in current account are not netted out on the liabilities side but appropriately included under the ‘advances’.

Inoperative accounts are a common area of frauds in banks. While examining current account, the auditor should specifically cover in his sample some of the inoperative account revived during the year. The auditor should ascertain whether inoperative are ‘revived’ only with proper

authority. For this purpose, the auditor should identify cases where there has been a significant reduction in balances compared to the previous year and examine the authorization for withdrawals.


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ii. Saving bank deposits:

The auditor should verify the balances are individual account on a sampling basis. He should also examine whether the balances as per subsidiary ledgers tally wit the related control accounts in the general ledger. The auditor should also check the calculations of interest on a sampling basis. It is not usual for branches to interest saving bank up to a date close to the end of the accounting period for e.g.25th March based on the actual balances with interest of the remaining period on an estimated basis at the head office level iii. Term deposits:

Term deposits are deposits repayable after a specified period. They are considered time liabilities of the bank. The auditor should verify the deposits with reference to the relevant registers. The auditor should also examine, on a sampling basis, the registers with the counter-foils of the receipts issued and with the discharged receipts returned to the bank.

IV. Deposits designated in foreign currencies:

In the case of deposits designated in a foreign currency, for e.g. foreign currency non-resident deposits, the auditor should examine whether they have been converted into Indian rupees at the rate notified in his behalf by the head office. V. interest accrued but not due:

The auditor should examine that interest accrued but not due on deposits is not included under the deposited but is shown under the head ‘other liabilities ad provision’ 4) BORROWING:

Borrowings of a bank are required to be shown in balance sheet as follows: f ollows:


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I. Borrowing in India.

a. Reserves Bank of India. b. Other banks. c. Other institution and agencies. Borrowing from RBI, other banks/financial institution etc. should be verified by the auditors with reference to confirmation certificated and other supporting document such as agreements, correspondence etc. The auditor should also examine whether a clear distinction has been made between ‘rediscount’ and ‘refinance’ for disclosure of the amount under the above head since rediscount

does not figure under this head. The auditor should examine whether borrowing of money at call and short notice is properly authorized. The rate of interest paid/payable on as well as duration of , such borrowing should also be examined by the auditor. 5) OTHER CURRENT LIABILITIES:

The third schedule to the banking Regulation act, 1949, requires disclosure of the following items under the head ‘other liabilities and provision’ The auditor may verify the various items under the head other liabilities and provision in the following manner. Bills payable

Bills payable represent instrument issued by the ranch against money received from customers, which are to be paid to the customers or as per his order. These include Demand Draft, Telegraphic Transfer, and Mail transfer and Mail Transfer, Traveller cheques, Pay order, Banker cheques, and similar instrument issued by the bank but not presented for payment until the balance sheet date.


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Inter office adjustment:

The balanced in inter office adjustment account, if in credit, is to be shown under this head. Interest accrued:

Interest accrued but not due on deposit is to be shown and borrowing is to shown under this head. The auditor should examine this with reference to terms of various type of deposits and borrowings. It should be specially examined that such interest has not been clubbed with the deposits and borrowing shown under the deposits and borrowing. 6) OTHERS.

According to the notes and instructions for compilation of balance sheet and profit and loss account, issued by the Reserve Bank of India, the following items are to be included under this head. 

Net provision for income tax and other taxes like interest tax, less advances payment and tax deducted at source.



Surplus in aggregate in provision for bad and doubtful debts provision account.



Contingency funds, which are actually in the nature of reserved but are not disclosed as such.



Provision towards standard assets. These are to shown separately as contingent standard assets.



Proposed dividend/transfer to government.


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ASSETS: 1) CASH, BANK BALANCED AND MONEY AT CALL AND SHORT NOTICE:

The third schedule to the Banking Regulation act, 1949, requires following disclosure to the be made in the made in the balance sheet regarding cash, balances with Reserve Bank of India., balance with other bank, and money at call and short notice. Cash and balance with Reserve Bank of India.

I. Cash in hand II. Balance with Reserve Bank of India Balanced with banks money at call and short notice A) Balanced with banks

1. In current account 2. In other deposits account. B) Money at call and short notice

1. With banks 2. With other institutions

2) CASH RESERVED:

One of the determinants of cash balance to be maintained by banking companies and other schedule is the requirement for maintenance of certain minimum cash reserve. While the requirement for maintenance of cash reserve by banking companies companies is contained in the the banking regulation act,1949 corresponding requirements for schedule bank is contain in the Reserve Bank of India.


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3) STATUTORY LIQUIDITY RATIO:

Section of 24 the act requires that every banking company shall maintain in India in cash, gold or unencumbered approved securities an amount which shall not, at the close of business on any day, be less than twenty five percent, or such other percentage not exceeding forty, as the RBI bank form time to time, of total demand and time liabilities in India as on last Friday of the second preceding fortnight. 4) INVESTMENT:

The auditor should verify the investment scripts physically at the close of business on the date of balance sheet. In exceptional cases where physical verification of investment scripts on the balance sheet date is not possible the auditor should carry out the physical verification on a should take in to consideration any adjustment for subsequent transaction of purchase, sale etc. he should take particular care to see that only genuine investment are produced before him. 5) ADVANCES:

In carrying out of audit of advances, the auditor of advances, the auditor is primarily concerned with obtaining evidence about following a) Amount included in balance sheet in respect re spect of advances are outstanding at the

date of balance sheet. amount due to the bank. bank. b) Advances represent amount c) There are no unrecorded advances. d) The stated basis of valuation of advances is appropriate and properly applied,

and that the recoverability of advances is recognized in their valuation. e) The advances are disclosed, classified and describe accordance with recognized

accounting policies and relevant statutory and regulatory requirements.


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f) The auditor should ascertain the statues of balancing of subsidiary ledger

relating to advances. g) The auditor should review the operation other advances accounts.

6) FIXED ASSETS:

In carrying out an audit of fixed assets, the auditor is concerned primarily with obtaining evidence about their existence and valuation. The branch auditor should ascertain whether the accounts in respect of premises and/or other fixed assets are maintained at the branch branch or centrally. Similarly, he should ascertain the location of documents of title or other documents evidencing ownership of various items of fixed assets. The auditor should verify the opening balance of premises with reference to schedule of fixed assets, ledger or fixed asset register. In respect of fixed assets sold during the year, a copy of the sale deed and receipt of the salve value should examined by the auditor. 7) OTHER ASSETS:

The auditor should see that whether there are any reversals entries indicating the possibility of irregular payments or frauds in case of interoffice adjustments. The auditor should also pay attention towards interest-accrued part from the banks point of view. The auditor should see that internal control over stationery items. The auditor should verify the stationery and stamps.

The auditor should examine the non-interest bearing advances to the staff with reference to the relevant documentation. The auditor should also see that the entries under the head ‘suspense account’. The auditor should also verify prepaid expenses in the same manner as in the case o f

entities.


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N.P.A.GUIDELINES The guideline requires the banks to classify their advances in four broad categories as follows:1. STANDARD ASSET:-

A standard asset is i s one, which does not disclose any problems, and which does not carry more than normal risk attached to the business such asset is not a non-performing asset. 2. SUB-STANDARD ASSET:

It is one, which has been classified as N.P.A. for period not exceeding not more than 18 months. 3. DOUBTFUL ASSET:

It is one, which remained has N.P.A for period exceeding 18 months. 4. LOSS ASSET:

It is one where the loss has been identified by the bank or the internal or external auditors or the RBI inspection, but the amount has not been written off wholly or partly in other words such asset is considered uncollectible and of such little value that its continuous as bankable asset is not warranted through although there may be some salvage or recovery value.

With the view to moving towards international based practices and to ensure greater transference it has been decided to adopt the 90 days overdue norms for identification. Of N.P.A. from the year ending 31st March 2004, according with effect from 31st march 2004, a non-performing asset shall be a loan or advances where,

i.

Interest and installment of principle remains overdue for the period of more than 90 days in respect of term loan.


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ii.

The account remains out of order for period of more than 90 days. In respect of overdraft or cash credit limit.

iii.

The bill remains overdue for period of more than 90 days in the case of bills purchased and discounted. discounted.

iv.

Interest and installment of principle remains overdue for two harvest season but not exceeding 2.5 years in the case of advanced granted for agriculture purpose.

v.

Any amount to be received remains overdue for a period of more than 90 days in of other account.

The identification of N.P.A. is to be on the basis of the position as on balance sheet day if an account has been regularized before the balance sheet day by payment of overdue amount through genuine sources and not by sanction of additional facilities or transfer of funds between accounts, the accounts need not be treated as N.P.A. the bank should however ensured that the accounts remains in order subsequently. If the account is out of order or deficient for a temporary period due to non-availability of adequate drawing power. Non-submission of stock statement, non-renewal of due date, will not classify as N.P.A.

N.P.A. classification will be as per borrower wise and not facility wise. It means that if any of the credit facilities granted to a borrower becomes non-performing all the facilities granted to a borrower will have to be treated as N.P.A. without having any regard to performing status of other facilities. Some of the Exemptions are there as follows, A) PROJECT FINANCE: FINANCE:

In the case of bank, finance given for industrial project or for agricultural status where moratorium period is available for payment of interest, payment of interest becomes due after the moratorium period is over and not on the date of debit of interest.


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2) ADVANCE TO STAFF:

As in the case of project finance in respect of housing loan all similar advances granted to staff members where interest is payable after recovery of principle. The overdue status should be recognized from the date when there is default in payment of interest on due date of payment.

3) AGRICULTURAL ADVANCES AFFECTED BY NATURAL CALAMITIES:

In terms of RBI instruction where Natural calamities in fairs the repayment capacity of agricultural borrower the bank can convert short term production loan, in to term loan or reschedule the repayment and sanction them short term loan loans in such cases the term loan as well as fresh short term may be treated as current dues and need not be classified as N.P.A.

4) LOANS AND ADVANCES BACKED OR SUPPORTED BY GOVERNMENT:

Any loans and advances provided by the bank under any scheme introduced by GOVT. like PMRY. Scheme will not be treated as N.P.A. though the account in overdue or outstanding for more than 90 days. 5) ADVANCES SECURED AGAINST CERTAIN INSTRUMENTS:

Advances secured against Term Deposits, National Saving Certificate eligible for surrender, Indira Vikas Pattra and Life Insurance Policies have been exempted from the above guidelines thus interest on such advances may be taken to income account on due provided adequate margins available in respect of such accounts. In respect of consortium advances each bank may classify the borrower accounts according to the own record of recovery and other aspect. Having a bearing on the recoverability of the advances.


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PROVISIONING PROVISIONING FOR LOANS AND ADVANCES:

The guidelines require provisions for different differ ent classes of advances to be made as follows:

Standard Asset:

A general provision of minimum of of 0.25% on total standard standard asset should should be made. 

Sub-standard Asset:

A general provision of minimum of of 10% on total Standard Standard Asset should be made. 

Doubtful Asset:

Full provision to the extend of unsecured portion should be made in doing so the realizable value of the security available to the bank should be determined on a realistic basis additionally 20% to 50% of the secured portion should also be provided for depending upon the period for which the advances has been considered as a doubtful are as follows 

Loss Asset:

The entire amount should be written off or full provision should be made for the mount outstanding.


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FINDINGS During the course of the project following observation were made at Bangalore city co operative bank.

The Bangalore city co operative bank has successfully completed 108 year of excellence in the field of banking industry. The performance of the bank since last 5 year is good. The internal and external auditors are doing their job effectively and efficiently. The Bangalore city co operative bank is very efficient banking organization. The bank has been publishing their annual report and maintaining their account in kannada. There is dress code for employees in the bank. Every employee from low level to high level is following the dress code. The co ordination between the internal auditor and external auditor was really good. There is a good co ordination among the employees. Though it is a cooperatives coo peratives bank it is fully computerized. The top officials of the bank are highly educated and knowledgeable. Bangalore city co operative bank has 12 branches in the Bangalore. Bank has taken RBI classification GRADE- 1 Banks’ auditing classification is ‘A’ Deposit, loans, and net profit of the Bangalore city co operative bank has been increasing from year to year. Bank provides coffee and tea to the employees. The profit position of the bank has raised 11.09cr during the 2012-2013.


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SUGGESTIONS

From the above analysis it is clearly shows that bank’s profitability is is good and financial position is good however the following some recommendation are given towards bank can pay more attention.

Since the overall performance of the bank is good ant bank should maintain the good performance in the future also.

The bank has to concentrate more on the marketing strategy like advertisement in media and news papers. Attractive and effective new scheme should be introduce to attract new customer. Since the ATM culture has picked up in the banking sector, diversification of the ATM should be encouraged. The bank should adopt more computerized system than manual. Bank should publish its annual report and maintain its financial reports in English along with kannada.


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CONCLUSION The project the position of Indian banking system as well as the principal laid down by the Basel Committee on banking supervision. This assessment was done in seven major areas Which are core principals, concurrent audit, internal audit, loan, loan accounting and Transparency of transaction. The project concluded that, given the Complexity and development of Indian banking sector, the overall level of compliances with the standards and codes is of high order. This project gives the correct ideas about how the major areas can be found by way of effective auditing system i.e. errors, frauds, manipulations etc. form this auditor get the clear ideas how to recommend on the banks position. Project also contain that how to conduct of audit of the BCCB banks, what are the various procedure through which audit of banks should be done. Form auditing point of view, there is proper follow up of work done in every organization whether it is banking company or any other company or any other company there no misconduct of transactions is taken places for that purpose the auditing is very important aspect in today’s scenario form company and point of view.


Page 86



Page 87


AUDITOR’S REPORT (BANGALORE CITY CITY CO OPERATIVE BANK) YEAR ENDED M ARCH ARCH 2013

1. We have audited the accompanying financial statements of Bangalore city co operative bank

as at 31stmarch 2013, which comprise the Balance Sheet as at March 31, 2013 and Profit and loss accounts, cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

. Management is responsible for the preparation of these financial statements in accordance 2 with Banking Regulation Act 1949. This responsibility includes the design, implementation and Maintenance of internal control co ntrol relevant to the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. error.

Auditors' Responsibility 3 . Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical

Requirements and plan and perform the audit to obtain reasonable assurance about about whether the financial statements are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the amounts and

Disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments; the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies


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used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide

a basis for our audit opinion.

6. In our opinion, as shown by books of bank, and to the best of our information and according

to the explanations given to us: (i) The Balance Sheet, read with the notes thereon is a full and fair Balance Sheet containing all The necessary particulars, is properly drawn up so as to exhibit a true and fair view of state of Affairs of the Bank as at 31st March 2013 in conformity conformity with accounting principles generally Accepted in India; (ii) The Profit and Loss Account, read with the notes thereon shows a true balance ba lance of profit, in Conformity with accounting principles generally accepted in India, for the year covered by the Account; and (iii) The Cash Flow Statement gives a true and fair view of the cash flows for the year ended on That date.

The Balance Sheet and the Profit and Loss Account have been drawn up in Forms A and B 7 The Respectively of the Third Schedule to the Banking Regulation Act, 1949.

8 Subject Subject to the limitations of the audit indicated in paragraph 1 to 5 above and as required by

the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and subject also to the limitations of disclosure required therein, we report that: (a) We have obtained all the information and explanations which to the best of our knowledge and belief, were necessary for the purposes of our audit and have found them to be satisfactory. (b) The transactions of the Bank, which have come to our notice, have been within the powers of The Bank.


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(c) The returns received from the offices and branches of the Bank have been found adequate for the purposes of our our audit.

9. in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement comply

With the applicable accounting standards

P. CHANDRSHEKR CHARTERED ACCOUNTANTS NO S, 512-14 MANIPAL CENTAR NO.47. DIKENTION ROAD, BANGALORE-560042


Page 90


BA L ANCE SH EE T A S ON ON : 01-04-2 01-04-200 008 8 TO 31/03/20 31/03/2009 09

LI ABI LI TI ES

AM OUNT

ASS ASSESTS ESTS

AM OUNT

Share capital

17,33,63,267

Cash in hand

3,43,68,746

Reserves &

44,98,27,118

Cash at bank

10,01,13,012

Loans

378,63,09,868

Investments

140,58,20,493

Suspense

47,56,009

Loans & advances

294,84,43,869

15,16,46,024

Other assets

13,23,88,764

160,25,34,828

Branch accounts

160,31,68,942

2,81,97,948

Furniture

79,51,791

5,17,00,057

Building

91,43,74

Generator cost

6,67,687

Vehicle cost

2,39,903

Computer cost

60,08,168

Total

624,83,35,122

Other Funds

accounts Other liabilities Branch accounts Interest payable on loans Profit for the current year

Total

624,83,35,122


Page 91



LI ABI LI TI ES

AM OUNT

ASS ASSESTS ESTS

AM OUNT

Share capital

21,84,53,827

Cash in hand

3,12,62,897

Reserves &

48,25,77,806

Cash at bank

13,13,73,812

Loans

489,58,18,010

Investments

199,13,74,743

Suspense

31,66,749

Loans & advances

352,98,19,370

17,48,68,047

Other assets

15,44,37,682

206,47,87,656

Branch accounts

206,62,25,845

3,77,02,976

Furniture

1,21,91,561

5,33,77,802

Building

89,15,151

Generator cost

8,10,238

Vehicle cost

1,19,952

Computer cost

42,21,352

Total

793,07,52,606

Other Funds


Total

793,07,52,606


Page 92



LI ABI LI TI ES

AM OUNT

ASS ASSESTS ESTS

AM OUNT

Share capital

28,71,12,907

Cash in hand

3,35,90,290

Reserves &

54,26,10,058

Cash at bank

17,50,07,942

Loans

597,62,10,335

Investments

229,13,05,825

Suspense

30,27,360

Loans & advances

444,12,12,211

21,66,40,368

Other assets

17,18,64,798

2,429,618,505

Branch accounts

2,428,803,838

4,51,09,375

Furniture

1,28,68,259

7,95,66,288

Building

2,01,72,212

Generator cost

10,17,846

Vehicle cost

6,48,328

Computer cost

20,81,688

Total

957,92,34,219

Other Funds


Total

957,92,34,219


Page 93



LI ABI LI TI ES

AM OUNT

ASS ASSESTS ESTS

AM OUNT

Share capital

35,01,79,012.00

Cash in hand

3,58,56,397.00

Reserves &

63,16,96,730.73

Cash at bank

20,98,59,934.51

Loans

7,36,09,92,441.27

Investments

299,84,93,046.21

Suspense

58,17,015,88.00

Loans & advances

526,50,17,038.03

26,54,98,271.57

Other assets

22,61,45,149.57

15,64,64,246.75

Branch accounts

295,10,12,581.66

5,25,74,318.00

Furniture

1,32,04,352.43

10,34,96,563.80

Building

1,99,54,905.49

Generator cost

8,36,094.10

Vehicle cost

5,04,255.40

Computer cost

9,68,164.56

Total

1187,82,97,319. 1187,82,97,319.71 71

Other Funds


Total

1187,82,97, 1187,82,97,319.71 319.71


Page 94



LI ABI LI TI ES

AM OUNT

ASS ASSESTS ESTS

AM OUNT

Share capital

43,16,59,372.00

Cash in hand

5,60,01,034.00

Reserves &

71,44,23,015.00

Cash at bank

26,53,83,552.00

Loans

9,75,96,47,834.00

Investments

3,82,97,12,243.00

Suspense

19,39,810.00

Loans & advances

6,92,55,27,605.00

33,68,28,381.00

Other assets

28,43,65,118.00

3,97,30,46,165.00

Branch accounts

3,97,26,31,532.00

6,39,39,024.00

Furniture

2,87,59,609.00

11,09,28,872.00

Building

1,97,43,031.00

Generator cost

6,54,341.00

Vehicle cost

23,66,495.00

Computer cost

67,49,867.00

Other Funds


Total


Total

Page 95

Banks Auditing Main Project

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