1. Bank Branch Audit under Core Banking System
Hosted by Hyderabad Branch of SIRC of ICAI

2. CA. Kuntal Shah, Ahmedabad
Table of Contents
Softwares used by Banking Industry
Traditional Auditing Approach
Auditing through CBS
What is Core Banking System?
Some basic concepts of CBS
Audit activity through CBS (Case Specific)
Audit through “Finacle” Software
Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification
CA. Kuntal Shah, Ahmedabad

3. Softwares used by Banking Industry
Base Software: Core Banking Software
Add-on Softwares for,
Credit Risk Calculation as per Basel – II Norms
Risk Weighted Assets / Capital Adequacy Computation
Asset Classification and NPA Provisioning computation
Classification of Priority / Non-priority / Sensitive Sector Advances
CA. Kuntal Shah, Ahmedabad

4. CA. Kuntal Shah, Ahmedabad
Table of Contents
Softwares used by Banking Industry
Traditional Auditing Approach
Auditing through CBS
What is Core Banking System?
Some basic concepts of CBS
Audit activity through CBS (Case Specific)
Audit through “Finacle” Software
Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification
CA. Kuntal Shah, Ahmedabad

5. Traditional Auditing Approach
Verification of Documents Physically
Availability of Hard Copies for each transaction
Number of Transactions for Audit
In nutshell
“Computerization does not affect Audit objectives. It only requires change in Audit Methodology.”
CA. Kuntal Shah, Ahmedabad

6. CA. Kuntal Shah, Ahmedabad
Table of Contents
Softwares used by Banking Industry
Traditional Auditing Approach
Auditing through CBS
What is Core Banking System?
Some basic concepts of CBS
Audit activity through CBS (Case Specific)
Audit through “Finacle” Software
Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification
CA. Kuntal Shah, Ahmedabad

7. CA. Kuntal Shah, Ahmedabad
Auditing through CBS
Understand the Core Banking Software
Review Internal Controls in CBS
Carry out Risk Assessment (viz. Manual Interventions in transaction processing, Modification of Master Data without proper documentations, Lack / non availability of Audit Trail)
Review Transaction Flow & Audit Trails
Apply Exception Approach
Determine Sample Size based on review
Carry out substantive procedures in & around CBS
Documentation of Audit Procedures
Prepare report on Audit Findings and prepare final Report
CA. Kuntal Shah, Ahmedabad

8. What is Core Banking System?
Centralised Database
Transactions take place at various locations
Updation of Central Database on Real Time Basis
Report Generation at Back-End
Access Control
CA. Kuntal Shah, Ahmedabad

9. CA. Kuntal Shah, Ahmedabad
What is CBS – An Overview
ATM Switch
Back Office
Mobile Banking
Central Server
Branch
Internet Banking
Data Warehouse
Phone Banking
Credit-Card System
CA. Kuntal Shah, Ahmedabad

10. CA. Kuntal Shah, Ahmedabad
Table of Contents
Softwares used by Banking Industry
Traditional Auditing Approach
Auditing through CBS
What is Core Banking System?
Some basic concepts of CBS
Audit activity through CBS (Case Specific)
Audit through “Finacle” Software
Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification
CA. Kuntal Shah, Ahmedabad

11. Core Banking System - Concepts
Master Level Configuration
Account Level Configuration
Separate series of Account Nos. for different Types of Accounts
E.g. An Account No – is made up of Branch Code i.e. “0099”, Account Type – “05” say Current Account and Account No. – “014678”
Auditor should seek details of formation of Account No. during discussion with Branch Head.
Cont…
CA. Kuntal Shah, Ahmedabad

12. Core Banking System - Concepts
Interest Calculation and Application
Maker – Checker Concept (Different Stages for a Transaction)
Created by, Entered by, Authorised by,
Posted by, Modified by, Deleted by
SOL ID & SET ID Concept
(SOL – Service OutLet ID i.e. Branch, Back Office etc.) (SET ID – Branch / Back Office who initiated the transaction)
Pointing Type Office Accounts
Auto generation of Exception Reports at EOD
Generation of various Tailor-made Reports from Back-End / MIS Server
CA. Kuntal Shah, Ahmedabad

13. What is CBS – Auditors’ Checklist
Document list of Softwares, Applications and interface details associated with CBS
Review Usage Manual (if available at Branch) or Document Software navigation options and Menu Codes.
Document list of Reports available in CBS and its menu codes.
Review Exception Reports / MIS Reports generated by Data Center.
CA. Kuntal Shah, Ahmedabad

14. CA. Kuntal Shah, Ahmedabad
Table of Contents
Softwares used by Banking Industry
Traditional Auditing Approach
Auditing through CBS
What is Core Banking System?
Some basic concepts of CBS
Audit activity through CBS (Case Specific)
Audit through “Finacle” Software
Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification
CA. Kuntal Shah, Ahmedabad

15. Audit Activity through CBS
Customer Master Level and Account Level Updations for Loans / CC Accounts
What to verify?
Interest Parameters (Regular & Penal Interest)
Repayment Instructions
Standing Instructions (SI) Parameters
DP / SL monitoring
Customer wise Limit Lookup
Stock / Debtors Statements Tracking and calculation of DP
When to verify?
At the time of verification of Documents for Advance
CA. Kuntal Shah, Ahmedabad

16. Audit Activity through CBS
Analysis of Advance Accounts
What to verify?
Turnover of CC Account based on Borrower’s Business profile
In case of Loan accounts ACTUAL recovery of Installments and Interest
When to verify?
After / during verification of Advances Documentation
CA. Kuntal Shah, Ahmedabad

17. Audit Activity through CBS
NPA Analysis
What to verify?
Reports on NPA and Probable NPA generated (if any) from CBS or CIS (Credit Information System)
NPA Account, Probable NPA Account, Other Advance Accounts with some irregularities: Transactions & Account Scrutiny for Correct Classification
When to verify?
After / during verification of Advances Documentation
CA. Kuntal Shah, Ahmedabad

18. Audit Activity through CBS
NPA Account Verification
What to verify?
Classification of NPA
Date of NPA
Calculation of Provisioning (out of System)
Reversal of Revenue charged
When to verify?
After / during verification of Advances Documentation
CA. Kuntal Shah, Ahmedabad

19. Audit Activity through CBS
Security details updation
What to verify?
Whether Lien is marked in System for Fixed Deposits Accounts?
Whether details of security obtained are mentioned in Master Details?
When to verify?
After / during verification of Advances Documentation
CA. Kuntal Shah, Ahmedabad

20. Audit Activity through CBS
Office Accounts (Inter Branch) Accounts
What to verify?
Entries outstanding in Office Accounts as on date.
Long Outstanding entries.
Improper reversal of Office Account entries
When to verify?
During verification of LFAR Compliance
CA. Kuntal Shah, Ahmedabad

21. Audit Activity through CBS
TDS Related Records
What to verify?
Debit to Charges Accounts and relevant entries to TDS Account.
Reversals in TDS Account. Whether by Constructive Payment or otherwise?
Account Code List / Name of Expense (charges) accounts Liable for TDS should be obtained from BM
When to verify?
During verification of Income Tax Compliance
CA. Kuntal Shah, Ahmedabad

22. Audit Activity through CBS
Fixed Assets & Depreciation Entries
What to verify?
Verify Calculation of Depreciation (mostly done out of the system)
Entries passed in FA Accounts
Check Repairs & Maint. A/c and other relative account for entries pertaining to Purchase of New Fixed Asset
When to verify?
During verification of Income Tax Compliance
CA. Kuntal Shah, Ahmedabad

23. Audit Activity through CBS
Logical Access Controls:
Creation / Deletion / Amendment in User Profile, Powers done centrally. If not, verify the compliances as follows.
Records for User – ID Creation properly maintained?
Records for Deletion of user-ID with proper authorisation available?
Other issues like security of password, compulsory change of password, Transaction Limit for employees etc.
CA. Kuntal Shah, Ahmedabad

24. Audit Activity through CBS
Output Controls:
Whether Hard copies of Accounts available?
Whether such reports are signed?
Security of Data:
Whether the encryption software is available in Server / Backup Server (If data is stored)
Whether the computers are having Antivirus Software?
Whether the AV Software is updated on regular basis?
CA. Kuntal Shah, Ahmedabad

25. Audit Activity through CBS
Backups
Important Activity for Non CBS Branches
Backup should be stored on Off-site Location
Backup should have been tested at periodical intervals
Backup Register should be maintained
CA. Kuntal Shah, Ahmedabad

26. Audit Activity through CBS
Auto Generated Reports
Exception Report:
Reports for the month end and two days prior and after month end should be verified.
Exceptions of following natures should be closely verified.
Balance exceeded Account Limit
Manual debits to Income Account
Value Dated Transactions
Manual entry for SI Failure cases
Instrument passed against Clearing
CA. Kuntal Shah, Ahmedabad

27. Audit Activity through CBS
Irregularity Report:
Reports for the month end and two days prior and after month end should be verified.
Report contains details of Accounts where Balance in Accounts are greater than the Limits Sanctioned. Check whether the same is due to,
Application of Interest
Granting of Intra Day TOD
Passing of Instruments against Clearing Effects
CA. Kuntal Shah, Ahmedabad

28. Audit Activity through CBS
Accounts where Interest Code is ‘0’:
Interest will not be charged from Accounts where Interest Code is selected as ‘0’. Hence, a detailed checking is required. Possible reasons can be,
Whether NPA Account
Accounts with Moratorium?
Interest Collection Flag as “No”:
If Interest Collection Flag is selected as “No”, Software will not consider the account for calculation and entry for Debit Interest.
CA. Kuntal Shah, Ahmedabad

29. Audit Activity through CBS
Debit Interest SI Failed Report:
Failure of Standing Instruction for Debit Interest should be closely verified. If the SI is failed the Account will not be debited for Interest. SI Failure can be for any reason like
Non availability of Balance in Account (In case of TOD in Operative Account)
Non availability of Limit in Account
Technical Snag in execution
Whether Branch has manually passed the entry for all such cases should be verified.
Loan Installment SI Failed Report:
Same as above
CA. Kuntal Shah, Ahmedabad

30. Audit Activity through CBS
Report containing all Advance Accounts with Limits:
Generally, CBS Software generate a Report wherein details of all Advance Accounts are listed.
Excel can be used to verify cases of DP > SL, Margin Requirement etc.
CA. Kuntal Shah, Ahmedabad

31. CA. Kuntal Shah, Ahmedabad
Table of Contents
Softwares used by Banking Industry
Traditional Auditing Approach
Auditing through CBS
What is Core Banking System?
Some basic concepts of CBS
Audit activity through CBS (Case Specific)
Audit through “Finacle” Software
Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification
CA. Kuntal Shah, Ahmedabad

32. Finacle – Core Banking Software
Overview and Implementation Structure
Some features of Transaction processing
Audit Procedures and Menu Codes
Generation of Reports through Finacle
CA. Kuntal Shah, Ahmedabad

33. CA. Kuntal Shah, Ahmedabad
Finacle in IDBI Bank
CA. Kuntal Shah, Ahmedabad
Source:

34. CA. Kuntal Shah, Ahmedabad
Finacle - Overview
Some of the Banks using Finacle are
Bank of Baroda
Bank of India
Union Bank of India
Canara Bank
Federal Bank
IDBI Bank
ICICI Bank
Axis Bank
ABN Amro
Vijaya Bank
UCO Bank
CA. Kuntal Shah, Ahmedabad

35. Finacle – Core Banking Software
Overview and Implementation Structure
Some features of Transaction processing
Audit Procedures and Menu Codes
Generation of Reports through Finacle
CA. Kuntal Shah, Ahmedabad

36. Finacle - Features in Transaction Processing
Each Transaction has unique Tran ID.
Combination of Tran ID and Date of Transaction is required to locate a Tran
Tran Type, Sub Type are useful to Identify Nature of Transaction (like Cash Deposit, Withdrawal)
Facility of exploring a Tran during Account Scrutiny [Drill Down Approach] - press CTRL + E on a Tran during scrutiny of Account.
Driven by various Inter-linked menus
Cont…
CA. Kuntal Shah, Ahmedabad

37. Finacle - Features in Transaction Processing (Cont…)
Pointing Type Office accounts (Useful in review of outstanding / part reversed Office Account entries)
CA. Kuntal Shah, Ahmedabad

38. Finacle – Core Banking Software
Overview and Implementation Structure
Some features of Transaction processing
Audit Procedures and Menu Codes
Generation of Reports through Finacle
CA. Kuntal Shah, Ahmedabad

39. Finacle – Audit Procedure
Verification
Menu Code
Account Scrutiny
ACLI
Customer Master
CUMM
Account Level Inquiry
ACM / ACI
Transaction Inquiry
TI / TM
Fin. Tran. Inquiry – Criterion Search
FTI
Inquire on Transaction (Office Accounts)
IOT
Bills Module (Inland) BM
Foreign Bills Module – Single Case
FBM
Foreign Bills Inquiry – Criterion Search
FBI
CA. Kuntal Shah, Ahmedabad

40. Finacle – Audit Procedure
Verification
Menu Code
Guarantee Inquiry GI
Query on Documentary Credits - Criterion Search
DCQRY
Docu. Credits (LC) Maintenance Module
ODCM
Account Search based on predefined Criteria – (May not be available or Slow)
ACS
TDS Inquiry
TDSIP
Pending Installment List
PLIST
Loan Overdue Position Inquiry
LAOPI
Account Turnover Report
ATOR
CA. Kuntal Shah, Ahmedabad

41. Finacle – Audit Procedure
Verification
Menu Code
TOD Inquiry – Account specific
ACTODI
List of Pending and Dishonored Bills
FBPADB
The list is only for guidance and the menu codes may not be applicable in all the banks.
CA. Kuntal Shah, Ahmedabad

42. Finacle – Core Banking Software
Overview and Implementation Structure
Some features of Transaction processing
Audit Procedures and Menu Codes
Generation of Reports through Finacle
CA. Kuntal Shah, Ahmedabad

43. Finacle – Audit Procedure
Report Generation
Menu Code
Printing of Office Accounts
ACLPOA
Bill Balancing Report – Based on GL Code BR
All Bills Balancing Report
BRBPR
Foreign Bills Balancing Report
FBBR
Exception Report
EXCPRT
CA. Kuntal Shah, Ahmedabad

44. CA. Kuntal Shah, Ahmedabad
Table of Contents
Softwares used by Banking Industry
Traditional Auditing Approach
Auditing through CBS
What is Core Banking System?
Some basic concepts of CBS
Audit activity through CBS (Case Specific)
Audit through “Finacle” Software
Capital Adequacy / Risk Weighted Assets and Credit Risk Calculation Certification
CA. Kuntal Shah, Ahmedabad

45. Credit Risk / Risk Weighted Assets Computation
Various softwares for computation of Credit Risk / Risk Weighted Assets
CRisMAC by D2K Technologies
The software is used by
Bank of Baroda
Bank of Maharashtra
Punjab National Bank
The Bank of Rajasthan
SBICI
Vijaya Bank
Dena Bank
Deutsche Bank
(Details as per Company’s website)
CA. Kuntal Shah, Ahmedabad

46. Features of Credit Risk / Risk Weighted Assets computation softwares
Asset classification and provision computation as per IRAC Guidelines
Sectorwise Asset Classification
Credit Risk Calculation
Risk Weighted Assets / Capital Adequacy Calculation
CA. Kuntal Shah, Ahmedabad

47. Inconsistencies generally observed
Data as per one statement do not agree with the other statement
E.g. Total amount of Advance figure as per Balance Sheet do not agree with Sectorwise or Classification of Advancewise Report
Change in Date of NPA leading to incorrect Provisions
Borrowerwise Asset Classification not followed.
Manual Intervention between CBS and Risk Computation Software
E.g. Security obtained for Advance Account needs to be entered manually
CA. Kuntal Shah, Ahmedabad

48. Inconsistencies generally observed
Long Outstanding entries in Office Account / Sensitive Accounts
Routing of cash shortages / other manipulation through Office Account / Inter Branch / Sensitive Accounts
Improper reversal of entries of Sensitive Account leading to loss of Audit Trail
E.g. Partial Reversal / Doubly reversal / Reversal exceeding entry amount etc.
Restructured (other than CDR) proper updation not carried out in CBS / Risk Comp. Software
CA. Kuntal Shah, Ahmedabad

49. Thank You