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PROCEDURE OF AUDIT & INSPECTION IN BANK WITH SPECIAL REFERENCE TO PRIME BANK LIMITED.

MD. KHALED LATIF Executive Vice President Credit Administration Division Prime Bank Limited Head !!ice" Dhaka.

HISTORY AND A!K"RO#ND OF A#DIT$

#he Do$%&e 'ntr( Bookkeepin) *(stem invented in the +3th cent$r( provided the means !or those en)a)ed in commerce to contro& transactions with s$pp&iers and c$stomers and check the work o! emp&o(ees. Historica& records s$))est that ,nterna& A$ditors were %ein) $ti&i-ed prior to the +.th cent$r(. #hese A$ditors" emp&o(ed %( kin)s or merchants were char)ed with detectin) or preventin) the!t" !ra$d and other improprieties. Contro& techni/$es s$ch as separation o! d$ties" independent veri!ication and /$estionin) 0i.e. A$ditin)1 to detect and prevent irre)$&arities are tho$)ht to have ori)inated d$rin) that time. #h$s" contro& assessment and !ra$d detection have %ecome known as the 23oots4 o! ,nterna& A$ditin). An ind$str( 5 commerce evo&ved" so did contro& methods 5 a$ditin) techni/$es. #hese methods mi)rated to the 6nited *tates !rom 'n)&and d$rin) the ind$stria& revo&$tion. 7ana)eria& contro& thro$)h a$ditin) contin$ed to )ain !avor $p to 5 thro$)h the 20 th cent$r(. 7an( events contri%$ted.

A#DIT$
An A$dit means a critica& e8amination o! Books 5 Acco$nts o! an or)ani-ation or an $nit o! an or)ani-ation inc&$din) necessar( evidences in order to !ind o$t the acc$rac( and e8actness o! the events and to report thereo! witho$t !ear or !avor.

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American *ociet( o! Acco$ntants de!ines A$dit as 2a s(stematic e8amination o! the Books 5 records o! a %$siness o! an or)ani-ation in order to ascertain or veri!( and a report $pon the !acts re)ardin) its !inancia& operations and the res$&t thereo!.

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#h$s the A$ditors )enera&&( see9 a1 %1 c1 Arithmetica& acc$rac(: #ransactions enter into the %ooks o! ori)ina& entr(: #ransactions are correct.

#here!ore" A$dit is an instr$ment o! !inancia& contro& %( e8amination o! Books o! Acco$nts and records o! a %$siness in order to ascertain or veri!( and to report $pon the !acts re)ardin) its !inancia& operation and res$&ts thereo!.

INSPE!TION$
,nspection is the process o! care!$& e8amination o! overa&& activities o! an or)ani-ation on samp&e %asis as a ro$tine work and a&so as 5 when re/$ired. ,t is done in order to ascertain whether the activities are per!ormed accordin) to set r$&es" proced$res" s(stems 5 norms and s$))ested recti!ication on an( discrepanc( !o$nd in the workin) and a&so !or identi!( ca$ses" nat$re and )en$ineness o! certain happenin) and to s$))est remedia& meas$res thereo!.

Present%& Priv'te 'n(s 're 'udited )&$ +. 2. 3. *tat$tor( A$ditors/'8terna& A$ditors/CA ;irms: 3e)$&ator( A$dit/ Ban)&adesh Bank ,nspection #eam: ,nterna& A$dit9 a1 %1 Board A$dit Ce&&: A$dit 5 ,nspection Division.

A$dit 5 ,nspection in the Bank has taken another shape which is ca&&ed 3isk Based ,nterna& A$dit or 3B,A as a re/$irement o! BA*'L Accord<,, .

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RISK ASED INTERNAL A#DIT *R IA+$

#he 3isk Based ,nterna& A$dit 03B,A1 approach seeks to improve a$dit e!!ectiveness and e!!icienc( %( shi!tin) the !$nction !rom a po&icin) activit( to one that contri%$tes e!!ective&( to mana)in) risk and achievin) wider or)ani-ationa& )oa&s. #raditiona& A$dits !oc$s primari&( on comp&iance with r$&es 5 proced$res and their recommendations ma( not )ive mana)ement eno$)h in!ormation a%o$t the achievement o! or)ani-ationa& )oa&s. 3B,A invo&ves hi)h<&eve& risk pro!i&in) o! the a$dit port!o&io over time: th$s it !aci&itates strate)ic $se o! scarce a$dit reso$rces" a&i)ns a$dit e!!orts with 7ana)ement o%=ective" !aci&itates instit$tiona& deve&opment and red$ces risk e8pos$re %( !oc$sin) attention o! areas o! weakness. ,n 3B,A" risk is meas$red %( assessin) the ethica& c&imate" competence o! personne&" si-e o! assets and o! operations" materia&it( and res$&ts o! previo$s a$dits. Direct pro%a%i&it( estimates" normative ta%&es and comparative risk rankin) are then converted !rom concept$a& and s$%=ective 0/$a&itative1 data into /$antitative data. An overa&& risk score is derived %( scorin) and wei)hin) the risk !actors. #he res$&t is a risk<%ased en)a)ement p&an that )$ides the dep&o(ment o! a$dit reso$rces to hi)h<risk areas.

O ,E!TIVES OF A#DIT & INSPE!TION$

-. S.eci/ic 0)1ective$ i. to ens$re that the operations o! the Bank are cond$cted within the !ramework o! princip&es" proced$res and instr$ctions &aid down in di!!erent man$a&s and circ$&ars iss$ed %( the Bank itse&! and Centra& Bank !rom time to time and &oca& 5 internationa& &aws: ii. iii. to keep the Banks" their personne& and the c$stomers !ree !rom risk as !ar as possi%&e: to provide proper )$idance !or train $p the personne& o! the Banks on the %asis o! the common errors 5 &apses that are committed them in their da( to da( operations:

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iv.

to s$))est adoption o! new po&ic( to cope with the vario$s sit$ation and !or e!!icient %$siness operations:

v. vi.

to provide proper )$idance to the h$man reso$rces o! the Banks to per!orm we&&: to provide the 7ana)ement with detai& in!ormation re)ardin) %$siness a!!airs o! the Bank to ena%&e the 7ana)ement to cha&k o$t !$t$re co$rse o! %$siness p&an !or the Bank:

vii. to provide the 7ana)ement with the in!ormation whether there is an( deviation !rom the set princip&es" po&icies and o%=ectives. 2. "ener'% 0)1ective$ i. to !ind o$t a!ter )oin) thro$)h the Books o! Acco$nts whether the Ba&ance *heet and Pro!it 5 Loss A/C are proper&( drawn $p in accordance with the &oca& &aws and ,nternationa& Acco$ntin) *tandards 5 Practices: ii. iii. to detect and prevent error and &apses: to detect and prevent !ra$d and !or)eries.

INTERNAL A#DIT$
A common&( $sed de!inition !or ,nterna& A$dit is 2An independent" o%=ective ass$rance and cons$&tin) activit( desi)ned to add va&$e and improve an or)ani-ation>s operations. ,t he&ps an or)ani-ation accomp&ish its o%=ectives %( %rin)in) a s(stematic" discip&ined approach to eva&$ate and improve the e!!ectiveness o! risk mana)ement" contro& and )overnance processes. #his de!inition reco)ni-es 20#wo1 ro&es !or ,nterna& A$dit9 to provide an independent ass$rance service to the Board" A$dit Committee and 7ana)ement" !oc$sin) on reviewin) the e!!ectiveness o! the )overnance" risk mana)ement 5 contro& process that mana)ement has p$t into p&ace. to provide advice to mana)ement on )overnance risks 5 contro&s. ;or e8amp&e9 the contro&s that wi&& %e needed when $ndertakin) new %$siness vent$res.

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INTERNAL A#DIT VS. E3TERNAL A#DIT

,nterna& A$ditors do $ti&i-e some o! the ana&(tica& techni/$es %e&on)in) to ind$stria& en)ineers %$t do not !oc$s them. ;$rther ,nterna& A$ditors do not desi)n and insta&& s(stem. ,nterna& A$ditors and '8terna& A$ditors %oth a$dit %$t have di!!erent o%=ectives. ,nterna& A$ditors )enera&&( consider operations a who&e re&ative to o%=ectives. '8terna& A$ditors !oc$s primari&( on !inancia& s(stems that have a direct" si)ni!icant" waste and a%$se as s(mptoms o! $nder&(in) iss$es #he '8terna& A$ditors considers =$st what materia&&( a!!ects the ;inancia& *tatements since that is the nat$re o! their en)a)ement. *aw(er>s ,nterna& A$ditin) s$mmari-es the di!!erences in the !o&&owin) wa(9 7ana)ement contro&s over !inancia& activities have %een )reat&( stren)thened over the (ears. #he same cannot a&wa(s %e said o! contro&s e&sewhere in the enterprise. 'm%e--&ement can h$rt a corporation: the poor mana)ement o! reso$rces can %ankr$pt it. #herein &ies the %asic di!!erence %etween '8terna& A$ditin) and 7odern ,nterna& A$ditin): the +st is narrow&( !oc$sed and the 2nd is comprehensive in scope. #r$e" the '8terna& A$ditor per!orms services !or mana)ement 5 s$%mits &etters to mana)ement" which recommend improvement in s(stems 5 contro&s. B( and &ar)e" however" these are !inancia&&( oriented. A&so" the '8terna& A$ditor>s occasiona&&( sa&&( into non<!inancia& operations ma( not %ene!it !rom the same depth o! $nderstandin) as does the resident ,nterna& A$ditor" who is intimate&( !ami&iar with the or)ani-ation>s s(stems" peop&e and o%=ectives.

TYPES OF A#DIT$
?ario$s t(pes o! A$dits are $sed to achieve partic$&ar o%=ectives. #he t(pes o! A$dits %rie!&( descri%ed %e&ow i&&$strate a !ew approaches interna& a$ditin) ma( take. O.er'ti0n'% Audit An perationa& A$dit is a s(stematic review 5 eva&$ation o! an or)ani-ationa& $nit to determine whether it is !$nctionin) e!!ective&( 5 e!!icient&(" whether it is accomp&ishin) esta%&ished o%=ectives 5 )oa&s" and whether it is $ti&i-in) a&& o! its reso$rces appropriate&(. 3eso$rces in this conte8t inc&$de !$nds" personne&" propert(" e/$ipment" materia&s" in!ormation" inte&&ect$a& propert( or space. perationa& A$dits o!ten inc&$de eva&$ations o! the work !&ow 5 propriet( o! per!ormance meas$rements. #hese A$dits are tai&ored to !it the nat$re 5 o%=ectives o! the operations %ein) reviewed.

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Pr04r'5 Audit A Pro)ram A$dit eva&$ates whether the stated )oa&s or o%=ectives !or a pro=ect or initiative have %een achieved. ,t ma( inc&$de an appraisa& o! whether an a&ternative approach can achieve the desired res$&ts at a &ower cost. #hese t(pes o! A$dits are a&so ca&&ed Per!ormance A$dits or 7ana)ement A$dits. Fr'ud Audit A ;ra$d A$dit investi)ates whether the or)ani-ation has s$!!ered thro$)h misappropriation o! assets" manip$&ation o! data" omission o! in!ormation or i&&e)a& acts. ,t ass$mes that deceptions were intentiona&. Et6ic'% usiness Pr'ctices Audit An 'thica& B$siness Practices A$dit determines the e8tent to which the or)ani-ation" mana)ement and emp&o(ees s$pport esta%&ished codes o! cond$ct and standards o! ethica& practices. #opics that ma( !a&& within the scope o! s$ch A$dits inc&$de proc$rement po&icies" con!&icts o! interest" )i!ts and )rat$ities" entertainment" po&itica& &o%%(in)" patents" cop(ri)hts and &icenses 0inc&$din) so!tware $se1 or !air trade practices. !05.%i'nce Audit A Comp&iance A$dit determines whether a process or transaction is or is not !o&&owin) app&ica%&e r$&es. *$ch r$&es can ori)inate interna&&( as corporate %(&aws" po&icies and proced$res or e8terna&&( as &aws 5 re)$&ations. Characteristic o! Comp&iance A$dits are the (es/no aspects o! the eva&$ation. ;or each process or transaction e8amined" the A$ditor m$st $&timate&( decide whether it comp&ies with the r$&e or not. 3eachin) that conc&$sion is not necessari&( simp&e in domains )overned %( comp&e8 re)$&ations 0e.). occ$pationa& hea&th 5 sa!et(" environmenta&" !edera& )rants 5 contracts" emp&o(ee pensions 5 %ene!its or !edera& ta81. Comp&iance A$ditors 5 attorne(s specia&i-in) in these !ie&ds ma( %e en)a)ed to assist with eva&$ations i! s$ch specia&ists are not part o! the ,nterna& a$dit sta!!. S&ste5s Deve%0.5ent & Li/e !&c%e Revie7 A *(stem Deve&opment 5 Li!e C(c&e 3eview is an ,n!ormation *(stems A$dit cond$cted in partnership with operatin) personne& who are imp&ementin) a new in!ormation s(stem. #he o%=ective is to appraise and independent&( test the s(stem at vario$s sta)es thro$)ho$t the desi)n" deve&opment and insta&&ation. #he approach intends to identi!( iss$es and correct pro%&ems ear&( %eca$se modi!ications made d$rin) deve&opment sta)es are &ess cost&( and some o%=ectivit( thro$)h e8tended participation in the s(stem desi)n and insta&&ation.

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!0ntr0% Se%/8Assess5ent Audit A Contro& *e&!<Assessment A$dit en&ists mana)ement to share a$dit responsi%i&it( %( eva&$atin) 5 reportin) on the state o! contro&s 5 &eve&s o! risks $nder their s$pervision. ,nterna& A$ditors provide trainin) 5 act as !aci&itators. ,n e!!ect this %ecome a pro%&em so&vin) partnership 5 can %e a cost<e!!ective. ,ts inherent risk is that mana)ement>s se&!<eva&$ation ma( %e %iased. A&tho$)h" the ,nterna& A$ditor can retain the ri)ht to independent&( veri!( an( reported conc&$sions.

Fin'nci'% Audit A ;inancia& A$dit is an e8amination o! the !inancia& p&annin) and reportin) process" the cond$ct o! !inancia& operations" the re&ia%i&it( and inte)rit( o! !inancia& records and the preparation o! ;inancia& *tatements. *$ch a review inc&$des an appraisa& o! the s(stem o! interna& contro&s re&ated to !inancia& !$nctions. M'n'4e5ent Audit #he 7ana)ement A$dit ma( %e descri%ed as the investi)ation o! a %$siness in a&& its mana)eria& aspects !rom the hi)hest )overnin) e8ec$tive downwards and the makin) o! 3eport as to its e!!ectiveness or otherwise !rom the point o! the pro!ita%i&it( and e!!icient r$nnin) o! the %$siness. !0st Audit Cost A$dit ma( %e de!ined as A$dit o! cost inc$rred with a view to cost %ene!it ana&(sis and comparison with pre<determined %$d)et. ,t ma( %e Branch<wise" Division<wise" Prod$ct<wise etc. i! cost 5 %ene!it o! the concerned can %e se)re)ated.

The End

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