Audit of Banks

Regienald G. Obiña, CPA

Nature of Business - BANKS

• Banks basically earn income through the spread

between the cost of its funds (interest paid and the
expenses of acquiring and investing funds) and the
yield it can obtain by investing funds in securities or
loans and income form fees charged for other
services – which is becoming an increasingly
important part of bank’s income.
• Banks have three ways in serving the public, the
community, and the government
Nature of Business - BANKS

• First, they accept deposits generally in the form of:

• Savings deposit (allows the depositor to earn money thru interest)
• Demand Deposits (bank account that can be withdrawn anytime)
• Fixed Deposits (Deposits with predetermined maturity dates e.g., time deposits)
• Second, they extend loans. The various type of loans are:
• As to borrower/purpose:
• Commercial Loans (used to finance the commercial operations of the business)
• Consumer (personal loans)
• Director, officers, stockholders, and related interests (DOSRI) Loans.
• As to Security
• Clean Loans (it requires a guarantor)
• Secured Loans (it requires a collateral)
• Others
• Housing
• Retail Loans
Who Regulates and Monitors the Banks in the Philippines?

• BANGKO SENTRAL NG PILIPINAS (BSP)

LOGO MEANING:
• Golden Philippine Eagle – signifying the strength of leadership and foresight that
the BSP provides in the financial sector and the economy.
• Eagle’s Outstretched wings and tails – symbolizes BSP’s Balances Inclusive
approach to growth and development.
• Eagle’s head and eyes face east – BSP’s Vigilance and readiness to seize
challenges
• Talons – represent the strong will, resolve and the monetary and financial
tools that the central bank uses in discharging its mandates.
Who Regulates and Monitors the Banks in the Philippines?

• BANGKO SENTRAL NG PILIPINAS (BSP)

SHAPE:
• Perfect Circle – without sides, a beginning or an end. To convey the singular and
integrative nature of the BSP and its impartial approach to holistic growth and
development.
GOLDEN STARS – represents the three pillar of central banking
• Price Stability
• Stable Banking System
• Safe and efficient payments and settlements.

Corporate Text – signify the Bank’s operational efficiency, clarity of vision and
single-mindedness of purpose.

Dominant Colors
• Yellow Gold – Aims to promote economic growth and prosperity
• Two-Tone Midnight Blue – evocative of the honor, dignity and noble character
of the Filipino people and the BSP’s unwavering commitment to serve the
nation.
Types of Banks

• Commercial Banks
• Universal Banks (UB)
• Thrift Banks
• Rural and Cooperatives
• Islamic Banks
• NBQBs (Non-banks with quasi-banking)
Commercial Banks

• Financial Institutions that offer a full range of traditional

banking services such as:
• Deposit Products
• Loan Products
• Payment Services
• Universal Banks are authorized to engage in functions of
investment and invest in equities of non-allied undertakings.
Commercial Banks

• Example of Commercial Banks

Universal Banks

• A Universal bank often referred to in some markets as a full –

service bank, provides both COMMERCIAL BANKING
SERVICES and INVESTMENT BANKING SERVICES. This means
they can engage in activities associated with saving, loan
services, financial consulting, underwriting, brokerage services
and investment banking, among others.
Universal Banks

• Example:
 Thrift Banks

• Thrift banks, according to Thrift Banks Act of 1995 (R.A 7906), are banking
institutions organized typically for the purpose of accumulating savings of
depositors and investing them. They include savings and mortgage banks,
private development banks, stock savings and loan associations and
microfinance thrift banks. They are primarily concerned with providing financial
assistance, particularly for home building and improving finance and for small
and medium-scale industries.
• Caters Individuals and SMEs
 Thrift Banks

• Examples of Thrift Banks

 Cooperative Bank

• A cooperative bank shall primary provide financial, banking and credit services to
cooperatives and their members, although it may provide the same service to NON-SERVICES
or the general public. In addition to the powers granted to Coop Banks under existing laws, any
COOP BANK may perform all of the banking services offered by rural banks as well as any or
all of the banking services offered by other types of banks, subject to prior approval of the
Bangko Sentral.
• Example of Cooperative Banks in the country are:
• First Isabela Coop Bank (FICO Bank)
• Coop Bank of Cotaboto
• Ilocos Consolidated Cooperative Bank
• Mindanao Consolidated Cooperative Bank
• Consolidated Cooperative
 Cooperative Bank

• Examples of Cooperative Banks

First Isabela Cooperative Bank

(FICO)
 Rural Bank

• These Banks are organized to promote comprehensive rural development given the equitable
distribution of opportunities, income, and wealth. In the Philippines. Rural Banks are banking
institutions that provide necessary financial services to the rural populations (usually in the
province), primarily the farmers, fisherfolk and micro and small to medium enterprises.
• Example of Rural Banks in the country are:
• BDO Network Bank Inc.
• East West Rural Bank Inc.
• Card Bank Inc.
• General Rural Bank Inc. (GBBank)
• Seabank Philippines Inc.
 Rural Bank

• Examples of Rural Bank:

 Islamic Banks

• Islamic Banking, as described in Republic Act No. 11439 approved in 2019 in the Philippines. Is
a banking system in accordance with Islamic Law (Sharia Law). In this system, banks are
prohibited from paying or collecting interest and must instead arrange profit and loss sharing
arrangements with their depositors and borrowers.
• Islamic Banks also cannot invest in businesses that are considered lawful under sharia. Such
as those that trade alcohol or pork, or those that produce un-Islamic content. Islamic Banks
Provide Services including profit-sharing investment accounts, sharia-compliant loans and
various other banking services that are in accordance with Islamic law.
• Examples of Islamic Banks in the Country:
• Al-Almanah Islamic Investment Bank
•HOW TO
AUDIT
BANKS?
Things To Remember and be Cautious in the Bank Industry

• 3 Separate Duties
• Bank Reconciliation
• Cash Count
• Test of Control
• Substantive Testing
3 Separate Duties (CAR)

• Custody (treasurer)
• Authorization (Authorizing Officer/Processor)
• Recording (Accounting)
Bank Reconciliation

BANK RECONCILING ITEMS (use of Bank

Statements)
• Deposit In Transit (DIT)
• Outstanding Checks
• Errors
Cash Count

• Cash is the most susceptible asset in the Bank!!

• As an auditor, we need to know when and who
count the cash in the vault.
• We need to accurately count the BILLS and
COINS.
Test of Control

• Is the Control of the Bank sufficient to prevent

the theft or fraud in the bank?
• Examples of TOC in the Bank:
• Proper Segregation of Duties (CAR)
• Counterfeit Money Detector
• IT Security (Hacking and Phishing)
Substantive Testing

• Comparing the FS Balances in the amount of

Assets in the Bank.
Fraud Related to Banks

• As to Cash
• Kiting (uses of float, example: Depositing the P5,000 check from BPI to
BDO on Friday 5PM)
• Lapping (Delayed Accounting) (Example: Clerk steals 1st payment and
applies the 2nd collection on the first payment, so on and so forth)
• Window Dressing – done to mislead investors from the true company or
fund performance (Example: The PY Balances is remained open, and the
January transaction is reflected in the PY Balances)
• As to Investments and Insurance
• Misinterpretation (Ex: Insurance Misinterpretation)