General Account Reconciliation Position of Rupali Bank Ltd

PART- A

FINDINGS ON HEAD OFFICE

FINDINGS # 01

 RUPALI BANK LTD. GENERAL ACCOUNT (INTER BRANCH TRANSACTION ACCOUNT) RECONCILIATION POSITION.

Fact:

Inter branch transaction account has not been reconciled fully. A number of un-reconciled entries remained unadjusted. The total unreconciled debit  balance of Tk. 67261.60 million and unreconciled credit balance of Tk. 66846.57 million resulting net debit balance Tk. 415.04 million. Details given below :

 Implication/Risk:

 It indicates lack of internal control over the management of inter branch transactions and as a result the bank may run the business in the risk of suffering financial loss due to non reconciliation and non adjustment of inter branch transactions.

 Recommendation:

 The bank should exercise proper control over the workings of the reconciliation function and take initiative for reconciliation and adjustment of all outstanding entries on a top priority basis.

FINDINGS # 02

TAX DEDUCTED AT SOURCE REMAIN UNADJUSTED

 Fact:

We found from note. 9.02 that amounting Tk. 3187.14 million remaining unadjusted from 1989. Details given below:

 Recommendation:

Management should take necessary steps to realize the amount from NBR.

FINDINGS # 03

FIXED ASSETS RECORD/REGISTER WERE NOT MAINTAINED PROPERLY

 Fact:

The record/register of all the fixed assets of the bank was not maintained properly as some of the important information related to fixed assets like, location, reference no, identification no, date of acquisition/purchase, condition of assets etc. were not available in the fixed assets register.

 Implication/Risk :

It indicates weakness in fixed assets management.

Recommendation:

Management should record all information related to Fixed Assets in the Fixed Assets Register.

FINDINGS # 04

STATIONERY MANAGEMENT PROCEDURE

Fact:

During our audit we found the following irregularities regarding stationery management:

1. Physical verification of stock of stationery was not conducted by the branch management;
2. Stationery Register was not maintained regularly; and
   1. While conducting our audit, we found some differences between Stock register and physical verification of stationery.

 Implication/Risk:

1. It indicates non-compliance with the policy of the bank regarding stationery management;
2. The existence of stationery on any particular date can not be ensured; and
3. It may enhance scope of misuse of stationeries.

 Recommendation:

The bank should take initiatives to ensure control over stationery management.

FINDINDS # 05

INTERNAL AUDIT

 Fact:

Branch internal audit reports are as usual. This reports are not identified the weakness of branch in application of circulars and orders of Bangladesh Bank and other Regulatory authorities. In many cases we found that there is no recommendation about the classification of loan and advances, eligible security against loan and advances, recovery of loan and advances.

Implication/Risk

Actual situation of branch not disclosed in the internal audit report.

 Recommendation:

 Management should take necessary steps in this regard.

 FINDINDS # 06

MEMORANDUM OF UNDERSTANDING (MoU) ON OPERATING EXPENSES

 Criteria:

As per condition no. 10 of Memorandum of Understanding (MoU) of Board members of Rupali Bank Limited with Bangladesh Bank stated that “Operating expenses for the year 2010 shall be reduced rationally and shall not exceed the year 2009 level.”

Fact:

 Our audit revealed that operating expenses amounting to Tk. 420,681,421 has been over expended the approved limit according to MoU during the year under audit. Details are given below:

 Implication / Risk

It is the non-compliance of Memorandum of Understanding (MoU).

Recommendation:

Management should take necessary steps to follow Memorandum of Understanding (MoU) of Board members of Rupali Bank Limited with Bangladesh Bank specific condition no. 10 regarding operating expenses.

FINDINDS # 07

BUDGET PREPARATION AND MONITORING

Fact:

No specific division for preparing and monitoring budget. This is necessary to achieve the targets and to control the expenses of Bank

 Risk:

This indicates the weakness of internal control.

 Recommendation:

To increase the effectiveness and efficiency of following budget, management should take necessary steps in this regard.

 FINDINDS # 08

 BALANCE OF SUSPENSE ACCOUNT REMAIN UNADJUSTED

 Fact:

Balance of suspense account remains unadjusted for a long time. Details are given below:

 Recommendation:

Management should take necessary steps in this regard.

FINDINDS # 09

CAPITAL ADEQUACY RATIO (CAR)

 Fact:

FINDINDS # 10

BOARD DIRECTOR’S FEE

Fact:

As per BRPD circular no – 03 dated 18 January 2010, the above limit of director’s fee of any bank is Tk 5,000 per meeting. But the bank bears Tk.5,000 in cash and VAT Tk. 750 total     Tk. 5,750 for each director per meeting during our audit period.

 Risk:

It indicates the non-compliance of BRPD circular no: 03.

Recommendation:

Management should take necessary steps in this regard.

FINDINDS # 11

INFORMATION TECHNOLOGY (IT) SYSTEM

 Fact:

During our audit we observed that the existing IT system was not up to date as compared to technology based banking systems implemented by various Banks in Bangladesh. In some cases the existing system was unable and insufficient to provide full and correct information.

 Implication / Risk:

1.                               i.          Details analysis is not possible for management decision;

1.                             ii.          It is difficult and time consuming to prepare the statement from register and documents Maintained manually; and

1.                           iii.          Lag behind from competition in modern banking system due to not using online banking system.

 Recommendation:

The bank management should develop the bank’s IT system as required modernization of banking system. The management should also introduce computerized system in those branches where it has not yet been introduced and should increase the number of computers and efficient operators at various branches and Head office.

PART-B

FINDINGS ON BRANCHES

FINDINDS # 12

PROVISION PROCEDURE FOR LOANS AND ADVANCES

Fact:

During our audit we observed that provision for loans and advances not shown in profit / loss account of branches. So the actual position of the branches not found from the Financial Statement.

Recommendation:

Branch should include the amount of provision in the financial statement.

 FINDINGS # 13

BALANCE OF LOANS AND ADVANCES EXCEEDED THE SANCTIONED LIMIT

Fact:

During our audit we found that in some cases loans and advances exceeded the sanctioned limit. Some instances are given below:

 Implication/Risk

1. It indicates non-compliance with relevant BRPD Circular; and
2. Assets have been overstated in the Balance Sheet.

Recommendation:

The bank management should take necessary steps to control over Loans and Advances. So that loan limit does not exceed the sanctioned limit.

 FINDINGS # 14

FIXED ASSETS RECORD IN THE BRANCH NOT MAINTAINED PROPERLY

Fact:

While checking branch accounts we found the following irregularities committed in fixed asset management:

1. Costs of fixed assets are not available in ledger.

1. As per closing circular of the Bank, the branch management should conduct physical verification of fixed assets at least once in a year. We found that no branch has complied with the said circular.

1. In some cases fixed assets register was not prepared / updated regularly.
2. In some cases identification number was not mentioned on fixed assets.

Implication/Risk

1. It indicates non-compliance with the policy of the bank regarding fixed assets management.
2. It may enhance the scope of misuse of fixed assets.

Recommendation:

Necessary steps should be taken to strengthen control over fixed assets and conduct yearly physical verification of fixed assets.

FINDINGS # 15

DAILY CASH BALANCE EXCEEDED THE APPROVED LIMIT

Fact:

During our audit we found that in most of the cases cash in vault exceeded the approved limit as fixed by Head Office. Some instances are given below:                                                                                                                                       Figures in Lac

Implication/ Risk

1. It indicates non-compliance with policies and instructions of the Bank; and
2. It reflects weaknesses in internal control system.

Recommendation:

Bank should ensure compliance with the approved cash holding limit or refix the daily cash holdings according to the need of branches.

FINDINGS # 16

DEMAND DRAFT (DD) PAID WITHOUT ADVICE FOR LONG TIME

 Fact:

While checking payment Demand Draft (DD) we found that, in some cases Demand Draft (DD) paid without advice for long time. But the management of the branch did not take any initiatives for collecting advice.

Implication/ Risk

Payment of Demand Draft (DD) without receiving the advice financial anomalies/complicacy may arise.

Recommendation:

Steps should be taken to collect advice before payment.

FINDINGS # 17

INSURANCE POLICY WAS NOT TAKEN FOR CASH HOLDING

 Fact:

While checking branch accounts we found that no insurance policy was taken by the Branch covering the risk for holding cash on counter and cash in transit.

Implication/Risk

It may enhance the risk of holding cash at branch level.

Recommendation:

Bank should ensure that adequate insurance coverage for cash at branch level is taken.

 FINDINGS # 18

 ACCOUNT OPENING PROCEDURES

Fact:

While checking branch accounts we found that the account opening procedures with regard to current and savings deposits were not followed properly. Instances are given below:

1.                               i.      Photograph & Certificate have not been found;
2.                              ii.      Account has been opened without initial deposits;
3.                            iii.      Tax certificate not found;
4.                            iv.      Nominee Photograph has not been found;
5.                             v.      Photograph & Certificate have not been found;
6.                            vi.      KYC form was not signed / found;
7.                          vii.      Nationality Certificate was not found.

Implication/ Risk

1. It indicates non-compliance with the policy of the Bank regarding account opening procedures;
2. It may encourage money laundering activities; and
3. Account holders identification can not be ensured.

Recommendation:

The bank should take proper initiatives to complete the documentation.

 FINDINGS # 19

 PAY ORDERS AND PAY SLIPS BALANCE REMAINED UNADJUSTED

 Fact:

While checking branch accounts we found that pay orders & pay slips balance in the branch offices of the bank remained unadjusted for a long period of time.

Recommendation:

We suggest that the management should review the status of the unadjusted balances in each month and take necessary steps to settle the issue. Besides this, Head Office should introduce necessary policy & procedure requiring the Branches for its proper controlling, reporting to authority concerned and keeping records as evidence and reference.

FINDINGS # 20

HALF YEARLY BALANCE CONFIRMATION CERTIFICATE

 Fact:

As per BRPD Circular # 6/ 1998, 9/ 1998, 13/1999 and 4/2001 of Bangladesh Bank each branch of the bank is required to issue half yearly balance confirmation certificate to all current and savings depositors. But while checking this in branches we found that in most of the cases branch management did not send balance confirmation certificates to the savings and current deposit account holders. Some instances are given below:

 Implication/Risk

It indicates non-compliance with the Bangladesh Bank circulars.

 Recommendation:

The bank should ensure that the relevant circulars of Bangladesh Bank are complied by each branch.

FINDINGS # 21

MONEY-LAUNDERING ACTIVITIES

Fact:

In some cases, there was no proper system of maintaining separate files for various anti-money laundering related activities and communications.

Implication/Risk

This may result in happening of unwarranted incidence regarding money laundering which may damage reputation of the bank.

Recommendation

The bank management should take proper steps in this regard.

 FINDING # 22

 LOAN SANCTIONING, DOCUMENTATION, DISBURSEMENT AND UTILIZATION PROCEDURES

 Fact:

 We observed some irregularities in sixty selected branches in respect of loan sanctioning, documentation, disbursement and utilization procedures. Instances are given below:

1. Insurance policy for natural disaster was not available;
2. Audited financial statements of the borrowers were not found;
3. Updated trade license of the borrowers were not available;
4. Monthly inspection report was not found;
5. Latest CIB report was not available;
6. In some cases revenue stamp was not affixed on promissory note;
7. Updated tax clearance certificates of the borrowers were not obtained,
8. Credit Risk Grading Score was not available;
9. Third party  valuation report for security mortgage was not available;
10. Updated land development tax receipt was not available;
11. TIN certificate was not found;
12. Updated land development tax receipt no found;
13. VAT registration certificate was not found;
14. Letter of guarantee was not found;
15. “Letter of Disclaimer” not obtained from land lord of godown;
16. Original deed was not obtained;
17. Net worth statement was not found;
18. Stock valuation report was not found; and
19. Charged documents were not filled up properly.

 Implication/Risk

It may create risk in the recovery of given loans and advances.

Recommendation:

The branch management should be vigilant about the aforesaid matters before sanction, documentation, disbursement and utilization of loans and advances in order to ensure that the outstanding amount can be fully recovered in due course of time.

 FINDING # 23

CLASSIFICATION OF LOANS AND ADVANCES AT BRANCH LEVEL

 Fact:

In some cases to classify loans and advances the branches did not fully follow the related BRPD Circular No. 05 dated 05 June 2006.

Recommendation:

The branch management should classify the loans and advances as per BRPD Circular No. 05 dated 05 June 2006.

FINDING # 24

ACCOUNTS BALANCE FALL BELOW THE PRESCRIBED LIMIT

Fact:

We observed that in some cases the accounts balance came down the prescribed limit i.e. below Tk.500 and Tk. 1,000 for saving deposit and current deposit respectively. Some examples are given below:

 Implication/Risk

i. It indicates non-compliance with the circular issued by the bank; and

ii. It indicates weakness in internal control system.

Recommendation:

The branch management should take initiative so that account balances do not fall below the prescribed limit and the accounts showing nil balance should be closed.

FINDING #  25

 STATIONERY MANAGEMENT PROCEDURE

Fact:

We observed the following irregularities regarding stationery management:

1. Physical verification of stock of stationery was not conducted by the Branch Management; and
2. Stationery register was not updated regularly.

Implication/Risk

1. It indicates non-compliance with policy of the Bank regarding stationery management; and
2. It may enhance scope of misuse of stationery items.

Recommendation:

The branch management should take initiatives to enhance control over stationery management.

FINDING # 26

ABOVE 10 YEARS INOPERATIVE ACCOUNT BALANCE NOT TRANSFERRED TO BANGLADESH BANK

 Fact:

In course of our audit period we observed that there were many inoperative account balances above 10 year but not transferred to Bangladesh Bank. . Some examples are given below:

 Recommendation:

Steps should be taken to transfer above 10 years account balances to Bangladesh Bank.

 FINDIND # 27

DEPRECIATION CHARGE ON FIXED ASSETS

 Fact:

During the period under audit we observed that some branches were not properly charge depreciation on fixed assets.

 Implication / Risk

1. It indicates non-compliance with the circular issued by Rupali Bank Limited;

1. It indicates non-compliance with the depreciation policy of the bank;

1. It may overstate/understate in the financial statements of the Rupali Bank Ltd;

Recommendation:

Necessary steps should be taken to comply with the depreciation policy of Rupali Bank Limited.

FINDIND # 28

TRANSFER POLICY

Fact:

During the period under audit we observed, in some branches employees are being working for more than three years. Some examples are given below:

Implication / Risk

1. It indicates non-compliance with the circular issued by Rupali Bank Limited.

1. Employees might feel monotony to work in same place for years together;

1. Employees of the bank are being deprived of getting adequate training and experience of different work; and

1. Control over employees may be hampered.

Recommendation:

The bank management should strictly follow transfer policy in order to ensure proper utilization of employees and to have a well trained up workforce.

 FINDINGS# 29

 Loans remaining as Bad/Loss over 5 years but not written off.

 Fact:

Bangshal Branch, Dhaka500000064M/s. Motiur Rahman1,149,455.08CC (Hypo)

–

12.11.20037 Years &

1 MonthBhairab Bazar Branch, Mymensingh.

460000157M/s Sourav General Store32839Overdraft27/01/198727/07/198723 Years and 5 months460000175M/s Hajee Kashem Ali Miah8927Overdraft01/12/196931/05/197040 Years and 7 months

We observed that in following loan and advances were classified as bad for more than five (5) years but not written off as required by BRPD circular # 02 dated 14 January 2006. Details are  given below:

TCB Bhaban Branch, Dhaka.500000218AX-TRADE1395736.00Cash Credit(Hypo)03.05.200110.12.20037 Years.500000268M.N Corporation.6577034.00Cash Credit(Hypo)19.10.200219.02.20046 Years and 11 Months.500000278M/S Urmi Traders.1394388.62Cash Credit(Hypo)13.03.200305.09.20046 Years and

3 Months.500000298Chorus Fashions Ltd.1180050.00Cash Credit(Hypo)20.03.200415.03.20055 Years and

9 Months.450000041Saiful Ahmed444982.00Overdraft12.09.199601.10.200010Years and 2 Months450000053M/S Rafi Engineering.521162.00Overdraft25.09.199401.10.200010Years and 2 Months450000095Benajir Ahmed3539505.78Overdraft12.09.199701.10.200010 Years and 2 Months450000105Sharif Hossain963359.50Overdraft10.09.199701.10.200010 Years and 2 Months450000176Md. Nazrul Islam401458.40Overdraft07.12.199701.10.200010 Years and 2 Months450000207M/S Rocks & Rocks.60454.00Overdraft30.12.199901.03.20019Years and

9 Months

6 Months.

Kustia Branch, Kustia.490000014M/s Mohini Mills Ltd.297415.00C C ( Pledge)01.01.199501.01.199615 Years and 2 Months.500014553M/s Gulam Mostafa563261.70C C ( Hypo)21.09.199721.09.199812 Years and 5 Months.500015755M/s Afjal Hossain150000.00C C ( Hypo)19.11.200319.12.20046 Years and

2 Months.500022258M/s Jesa Enterprise171714.00C C ( Hypo)08.02.200308.08.20037 Years and

6 Months.500023991M/s Abhijat Garments81721.00C C ( Hypo)03.08.200403.08.20055 Years and 6 Months

Tangail Branch, Tangail.

450018712M/s Hasan Store8394.00Overdraft21/08/199021/08/199121 Years and 4 month450022971Mr. Gour Chandra Bosak5120.00Overdraft27/10/199327/10/199418 Years and 4 month

Thana Road Branch, Bogra.680000016Dr.Nani Gopal Ghosh113,892Project Loan19.02.198619.02.198723Years and 9 Months.680000023M/s Shishir Shilpa817,740Project Loan04.09.198604.11.198723Years.450000669M/s Hafiz & Brothers52,365Overdraft02.10.198302.04.198624Years and 7 Months.450000087M/s Taj Brothers204,097.45Overdraft20.05.198320.11.198525 Years.450000358M/s Monira Enterprise424,717Overdraft21.05.198721.11.198723 Years.490000144M/s New Music Cornar1,188,565C C (Pledge)11.06.198805.12.198822 Years.500000258M/s Sakawat Hossain1,358,288C C (Hypo)14.12.198715.06.198822Years and 5 Months500000534M/s R Q Chemical Industries2,436,666C C (Hypo)23.02.200323.02.20046 Years and 9 Months500000573M/s S R Bricks Manufacturing Co.1,311,273C C (Hypo)27.12.198730.06.198822 Years and 5Months

Market Branch,

Moulvibazar.

700000011Kazi Kashem10759.00Rural Credit03.11.200203.11.20037 Years & 1 Month.700000023Konok Lal Dhar3922.00Rural Credit19.02.200219.08.20037 Years & 4 Months.700000036Anukul Dhar4812.00Rural Credit19.02.200219.08.20037 Years & 4 Months.700000048Chan Moni Dhar5628.00Rural Credit19.02.200219.08.20037 Years & 4 Months.700000052Orbindo Datto(2002/05)5192.00Rural Credit19.02.200219.08.20037 Years & 4 Months.700000062Erash Lal Deb(2001/7)3584.00Rural Credit26.08.200126.02.20037 Years & 10 Months.700000073Md. Hannan Miah(2001/9)5337.00Rural Credit26.08.200126.02.20037 Years & 10 Months.

Recommendation:

Management should take necessary steps to write off the lying Bad/ Loss for more than five (5) years as per the instructions of BRPD circular.

 FINDINGS#30

Cash payment through invalid cheques :

 Fact:

We found that in some cases the Branch has made some payments of cheques which lost their valid period. Some instances are given below.

 Recommendation:

We strongly recommend that the Branch Management should be very careful so that these types of mistakes never recur.

FINDINGS#31

Cash payment through advanced dated cheques :

 Fact:

It also came to our attention that in some cases the Branch made some payments against advanced dated cheque. Some instances are given below.

Joydebpur Branch.

Recommendation :

We strongly recommend that the Branch Management should be very particular in payment of cheque. So that these type of irregularities may not recur in future.

 FINDINGS # 32

Different dates were found on a single cheque :

 Fact :

From our verification, we noticed that cash payment was made through cheque which contained two different dates having no initial. Detail is given below:

 Recommendation :

We strongly recommend that the Branch Management should be careful so that these types of mistakes never recur.

FINDINGS # 33

Cash Payment by overwriting cheque:

Fact :

From our observation we found that following cash payments were made through  chaques which contained overwriting.

Recommendation:

We suggest that the Branch Management should stop payment through this type of cheques in future.

 FINDINGS # 34

 Cash payment against defective cheques:

Fact :

 During our audit we notified that in some cases the Branch made some payments through cheques which were not written in proper manner. Some instances are given below.

Recommendation:

We strongly recommend that the Branch Management should be very particular in payment of cheque. So that these type of irregularities may not recur in future.

FINDINGS # 35

Outstanding pay order Balance:

Fact :

During our audit we observe a difference between the cumulative balance of individual ledger and balance shown in statement of affairs in respect of outstanding Pay orders. Details are shown below:

Difference Amount

1,050.00Madaripur Br. Faridpur.Balance as per statement of affairs

2392340.00Balance as per ledger

5634797.00

Difference Amount

   3242457.00

G L Roy Road Br. Rangpur.Balance as per ledger

1049076.31

Balance as per statement of affairs

910096.01

Difference Amount

138980.30

Recommendation:

The Management should take immediate steps to reconcile the Balance of Pay Order and rectify the accounts accordingly.

 FINDINGS # 36

Outstanding Demand Draft Balance:

Fact :

During our audit, we observed a difference between the cumulative balance of Individual Ledger and balance shown in statement of affairs of Demand Draft. That is the balance of Demand Draft as per statement of affairs has been overstated.

Some instances are given below.

 Recommendation:

The Management should take proper steps to reconcile the balance of the Demand Draft and rectify the accounts accordingly.

 FINDINGS # 37

Balance of overdraft

Fact :

During our audit, we observed a difference between the cumulative balance of Individual Ledger and balance shown in statement of affairs of Overdraft. That is the balance as per statement of affairs has been overstated.

Some instances are given below.

Recommendation:

The Management should take immediate steps to reconcile the balance on the Overdraft and rectified the accounts accordingly.

 FINDINGS # 38

Balance of Loan

Fact :

During our audit, we observed a difference between the cumulative balance of Individual Ledger and balance shown in statement of affairs of Loans. That is the balance as per statement of affairs has been understated. Some instances are given below.

 Recommendation:

The Management should take immediate steps to reconcile the balance of the Loans and rectified the accounts accordingly.

FINDINGS # 39

Rupali Deposit Pension Scheme Two (RDPS-2)

Fact :

During our audit, we observed a difference between the cumulative balance of Individual Ledger and balance shown in statement of affairs of Rupali Deposit Pension Scheme-2 (RDPS-2).As per statement of affairs balance has been understated

Some instances are given below.

 Recommendation:

The Management should take proper steps to reconcile the balance on the Rupali Deposit Pension Scheme-2 and rectified the accounts accordingly.

FINDINGS # 40

Statement of Non-existent Borrowers:

Fact :

During our audit, we found that a large number of loan sanctioned to various untraceable parties. Now those parties have no more existence. Some instances are given below. A list of non-existence parties are given below:

                                                                                                               Figure in Lac

Recommendation :

We recommend that Bank Management should take a step to realize this amount from the officers concern involved in sanctioning the Loans.

 FINDINGS # 41

Pay Orders remained unclaimed for10 years:

Fact :

Pay Orders remained unclaimed for10 years and above but not transferred to Bangladesh Bank as per Section 35(i) Banking Companies Act, 1991.

Some instances are given below.

 Recommendation:

We recommend the branch to transfer the outstanding balance of pay order to Bangladesh Bank as per rule.

FINDINGS # 42

Demand draft remained unclaimed for10 years:

Fact:

Demand draft remained unclaimed for10 years and above but not transferred to Bangladesh Bank as per Section 35(i) Banking Companies Act, 1991.

 Some instances are given below:

 Recommendation:

 We recommend the branch to transfer the outstanding balance of Demand Draft amount to Bangladesh Bank as per rule.