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AUDIT POLICY
 2

THE BANGALORE CITY CO.OPERATIVE BANK LTD.

No. 3, Pampamahakavi Road, Chamarajpet, Bangalore-l8.
(oi:ood 28.03.2023 dod> ddo*Dd drdqdoo u$odeo$ iq3o$g dbd.l ooood
29.03.2023 dod> ddobd erded *od9o$ ndo$g auoroSd AUDITPOLICY
foe;oped ao$d'odgild$, do{01e)) a$o@ierond).

AUDIT POLICY
Introduction:

Auclit refers to verification of books of accounts of un Orgurrlsation to get it

confinr-ied that the books of accounts reveals a true and correct statement of affairs
of the Organisation as on a particular date. While verification of books and accounts
it is to be ensured that transactions are done and accounted as per rules stipulated in
regard and deviations are not crept. It is also fact that for any organization to
.that
gro\\' and function smoothly and effectively its top management should be kept
.
infbnned of its tvay of internal functioning and also the areas of weaknesses,
loopholes, lapses and serious irregularities such as frauds along with ways and
rleans to correct such deficiencies.
With this in view, The Bangalore City Co-operative Bank Ltd., Bangalore
evolr,ed and laid dorvn an audit policy comprising of the salient features of
Concurrent audit, Statutor-v Audit and Internal Inspection .

The audit policy is frarned scrupulously following the bye-larvs of the bank,
orders /guidelines issued from time to time by the RBI with a profound hope that
this policy would ensure protection of interest of the depositors, mernbers and all
those connected, so that the Bank can function on prudential lines.

Concurrent Audit:

The concurrent audit system being an integral part of'bank's early warning
system, Chartered Accountants to be entrusted rvith the responsibility of
undertaking the concurrent audit. The Concurrent Auditor shall inter alia detect the
cases of frauds. malpractices. violation of rules and procedures and instances of
sr-rppression of facts and figures required to be submitted to the Administrative
Olfice of the Bank.
 3

This concurrent Audit shall examine in a systematic woy, all the financial
transactions on a regular basis to ensure accuracy, authority, compliance with
rules, procedures and guidelines framed in the organization so that certain serious
irregularities such as non cornpliance of KYC while openirrg a/cs, passing of
payments without authorization of customer, non tallying of schedules, non r
econciliation of bank accounts to the books, improper credit appraisals,
disbursement without observing proper terms of sanction, failures to exercise proper

post disbursement supervision, even suppression of information relating to

unauthorized excess drawls including frauds can be brought tolight and informed to
the top rnanagement.
,

The concurrent audit report shall critically analyses and makes in depth study of the
corruption / fraud prone areas such as appraisal of credit proposals, balancing of
boolis. reconciliation of inter branch accounts, settlement of clearing transactions,
: suspense accounts and stationery accounts leaving no scope for any malpractices /
irre-eularities.

The concurrent auditor should ensure that the off-balance sheet transactions
are properly followed up by all branches and records there for are periodically
balanced, lapses I irregularities in this regard are to be commented upon critically.

Proper inventory of the dead stock articles, stationery should be maintained

at the branch level as also at Administrative Office. so that concurrent audit shall
have proper inspection of these.

The concurrent audit shall set proper functioning of the bank so that the
periodical audit and inspections conducted by the statutory auditor and Reserve
Bank of India respectively do not find any instances of lapses / irregularities.

The concurrent audit shall also comply with statutory' auditor's report and
Reserve Bank of India inspections' reports.
 4

The concurrent auditor shall bring out cases of non-compliance of the

prudential norms relating to income recognition, assets classification and

provisioning for taking suitable action in the matter.

'Ihe concurrent auditor verify the investments of the bank, accounting of
interest realized, confirming the balances and shall cerlify that the investment held
by the bank as on the last reporting Friday of each quarter as reported to the Reserve
Bank of India are actually owned/ held by it as evidenced by physical securities or

the custodians staternent. The ceflificate should be submitted to the Regional

office, RBI within thirty days from the end of the relative quarter.
The concurrent auditor shall specifically veri$, compliance to the instructions
of RBI regarding transactions in Govt. Securities.

The concurrent audit shall strive for strengthening the credibility of the
systern in detecting cases of frauds / malpractices and suggest steps need to be taken

to gear up the internal audit machinery.

The Concurrent auditor is required to audit the books of accounts regularly
and to submit quarter ending reports of concurrent audit to General Manager of the

bank u,ho in turn forrvard them to the concerned branch for getting compliance, if
required and to place such Audit Report with compliance before the Audit Sub
Comrrittee of the bank for furlher scrutinv and necessary action.
Time limit fixed ;sion of Concurrent Audit Report and for its

compliance are as follor,vs:

Particulars Time line for Time line for Time line for review
submission of report submission of by Audit Committee
by concurrent auditor. compliance by branch of the banlt.
Fol Quarter ending Within 30 days from Within 15 days from Within 30 days from
June / Sep i Dec / the date of completion the date of receipt of the date receipt of
Mar of respective quarter concurrent audit concurrent audit
end. repofi. report. fH
Relating to reports Immediately on notice. Immediately on notice. Immediately on
on irregularities, notice. Etr
frauds, malpractices
etc.

The concuffent auditor is also required to report irregularities, frauds,

malpractices, if any, immediately to the General Manager of the bank and the
General Manager is required to take immediate necessary action.
 Internal Inspection:

Beside, concurrent audit system, senior officers of the Bank in the Grade not
less than Assistant General Manager shall be entrusted with the work of HIA
and he shall underlake periodical inspection of all the branches as follor,vs:

a). HIA or his sub-ordinate statf of the Bank shall inspect each branch
invariably once in a month and to ensure transactions are done as per rules
prescribed, books of accounts are properly maintained etc. and to submit
their contrary findings, if any, to the General Manager o,f the bank who in
turn send it to the Audit committee of Board.

b)., Also the General Manager of the Bank shall make surprise checks of all
branches at random to ensure that branch oft-rcials do not indulge in
rnalpractices.

c). HIA of the bank is also required to assess various risks faced by the bank
t und r.vays to mitigate such risks and to report at quarterly rest to the General
Manager of the bank, rvho in turn send it Audit Committee of the Board.

d). HIA is required the adhere to the policy adopted in this regard.
Tirne lirnit fixed for subrnission of HIAs report and for internal audit report are as
fbllows:

Particulars Time line fixed for Time line fixed for Time line fixed for
submission of submission of review by audit
report. compliance. committee.
HIAs report for the Within 30 days Within 15 days Within 30 days
from the date of from the date of from the date of
quarter ending June
/ Sep lDec lMar closure of quarter. receipt of HIAs receipt of HIAs H,i Ia
report. lj
report. ."
Report on Within 30 Within 15
Within 30 days i'
.,!t
':1
any days days i!
matter uncovered in from the date of from the date of from the date of
Concurrent audit by closure of quarter. such report. such report. i#
the internal
inspection for the
,
i
quarter ending June
/ Sep / Dec lMar
 6

Audit for Electronic Data Processing System:

Entire domain of EDP activities shall be brought under scrutiny of Inspection and
Audit Department. The Financial outlay as well as activities to be performed by EDP
department should be reviewed by senior management at periodical intervals.

The EDP audit should be conducted on years basis.

The bank shall make a formal declaration of system development methodology,

programming and documentation standards to be followed, compliance should be
verified by EDP Auditors.

Contingency plan procedures in case of failure of system should be introduced/

tested at,periodic intervals. EDP auditor shall put such contingency plan undertest

during the audit for evaluating the effectiveness of such plans.

While engaging outside computer agencies, bank should ensure to incorporate

- the "clause of visitorial rights" in the contract, so as to have the right to inspect the
process of application and also ensure the security of the data/inputs given to such

outside agencies.

The EDP audit report shall be submitted withi from the date of conclusion
of EDP audit to the General Manager, who in turn place it to Audit Committee of
the board with compliance in next 30 days. lB
Information System (IS) Audit

Bank has adopted technology and has been offering CBS banking, RTGS/NEFT
services, clearing/funds transfer, Rupay Cards, ATM facility etc. to its customers.

In view of the above and having regard to risks emanating from adoption
oftechnology, there is need to introduce IS audit,

The bank has to adopt appropriate systems and practices for conducting IS
audit on annual basis covering all the critically important branches (in terrns of
nature and volume of business).
 Such audits shall be undertaken preferably prior to the statutory audit so that

IS audit reports are available to the statutory auditors well in time for examination
and for incorporating comments, if any, in the auditreports.

IS audit report shall be submitted within 15 days from the date of conclusion IT
{{
of IS audit to the General Manager and he shall place such report with compliance

within next 15 days before Audit Sub-Committee of the bank. tr

The IS Audit is to be conducted on Yearly basis

Audit Sub Committee for Vigilance.

In order to ensure and enhance the effectiveness of internal auditiinspection as

a inanagement tool, it is considered necessary to constitute Audit Committee

for audit vigilance for overseeing and providing direction to the internal audit /
inspection rnachinery and other executives of the bank.

The Audit Committee for Audit & Vigilance shall review the implementation
of the guidelines issued by RBI and appraise the Board at quarterly intervals.

The other duties/ responsibilities of the Audit Committee fbr Audit & vigilance
are as tbllows:

The Audit Committee shall provide direction and oversee the operations ofthe total
audit function in the bank. The total audit function will imply the organization,
operationalisation and quality control of internal audit and inspection within the bank
and follow1up on the statutory audit of the bank and inspection of the Reserve Bank.

As regards internal inspection, Standing Committee shall ,review the internal

inspection function in the bank - thesystem, its quality and effectiveness in terms of
follow up. It shall review the follow up action on the internal inspection reports.
The Audit committee should follow upon:

I Inter-branchadjustmentaccounts.

I Un-reconciled long outstanding entries in inter-branch accounts and

inter-bank accounts.

I Arrears in balancing of books at various branches.

I Frauds.

I All other major areas of housekeeping.

I Compliance r,vith the Statutory Audit Report, Co.r..rrr"nt Audit Report

& RBlinspection reports.

[] r Omission on the part of internal inspecting officials to detect

seriousirregularities should be viewed seriously.

Periodical review of the accounting policies / systems in the bank with

a vierv to ensuring greater transparency in the bank's accounts and

adequacyof accounting controls.

The Audit Committee shall revierv on quarterly basis.

Statutory Autlit :

1. Appointment of Statutory auditor.

The bank shall appoint one audit firm (Partnership firm/LlPs) for conducting
statutory audit. The procedure fbr appointing Statutory auditor is mentioned herein
thepolicy.

For appointrnent of statutory Auditor, the Bank shall take prior approval of
RBI (Department of Supervision) on an annual basis as per guidelines issued by
1tBl.
For this purpose, the Bank shall apply to the Regional o'f RBI (Department of
Supervision) before 31" July of the reference year.

2. Etigibility Criteria of Auditors.

Ths Bank is required to appoint audit firm(s) as its SA(s) flulfilling the eligibility
norms as prescribed by RBI.
 9

3.Independence of Auditors.

3.1.The Board of Directors shall monitor and assess the independence of the
auditors. Any concerns in this regard may be flagged by the Board to the concerned
RO of RBI.

3.2.In case of any concern rvith the Management of the Banks such as non-
availability of infbrmation/non-cooperation by the Management, r,vhich may hamper
the audit process, the SAs shall approach the Board/ACBi of the Bank, under
irrtimation to the concerned RO of RBI.
3.3. Concurrent auditors of the bank should not be considered fbr appointment as

SAs of the sarre bank.

3.4. The restrictions as detailed above, should also apply to an audit firm under the
same network of audit f-rlms or any other audit firm having common partners.
l'rof'essional Standards of SAs.

The SAs shall be strictly guided by the relevant professional standards in

clischarge of their audit responsibilities with highest diligence.

The Board of the Bank shall review the perfonnance of SAs on an annual
basis. Any serious lapse/negligence in audit responsibilities or conduct issues on
part of the SAs or any other matter considered as relevant shall be reported to RBI
u'ithin trvo tnonths fiorn completion of the annual audit. Such reports should be
sent r,viththe approval/recommendation of the Board r,vith the full details of. the
audit tirrn.

In the event of lapses in carrying out audit assignments resulting in

misstatement of Bank's financial statements, and any violation/lapses vis-d-vis the
RBI's direction/guidelines regarding the role and responsibilities of the SAs in
relation to Banks, the SAs would be liable to be 'dealt with suitably under the
relevant statutory/regulatory framework.
 10

Tenure and Rotation.

In order to protect the independence of the auditor audit firms, Banks will
have to appoint the SAs for a continuous period of three years, subject to the firms

satistying the eligibility nonns each year. Further, bank can remove the audit firms
during the above period only rvith the prior approval of RBI Regional oftlce

(Departrnent of Supervision).

An auclit t-rrm rvould not be eligible tbr reappointment in the same Bank for
six years (trvo tenures) after completion of full or part of one term of the audit
tenure. In case an audit firm has conducted audit of any Bank forpart-tenure (1 year

or 2 years) and then not appointed for remainder tenure, they also would not be
eligible tor reappointment in the same Bank for six years tiotn completion of part-
tenltre.

Audit Fees and Expenses.

The audit fees for SAs shall be decided in terms of the relevant
- statLttory/regulator,vprovisions.

The audit fees for SAs of all the Banks shall be reasonable and
colllllensurate with the scope and coverage of audit, size and spread of assets,
accounting and administrative units, complexity of transactions, level of
cornputerization, identified risks in financial reporting, etc.
The Board of Bank shall make recommendation to the Annual General
Meeting(AGM) tbr fixing audit fees of SAs.
Eligibility Criteria for Appointment as Statutory Auditor.
Basic Eligibility
Asset Size of Bank AS Minimr-rur No. Out of total Minimum Minimum Minimum
ou 31st March of of Full-Time FTPs, Minimum No. of Full No. of years No. of
PreviousYear paftners (FTPs) No. of Fellow Time of Audit Professiona
associated with Chartered Partner Paid. Experience I staff
the firm for a Accountant CAs with of the firm
period of at least (FCA) Partners CISA/ISA Note 4
three (3) years associated with Qualification Note 3
the firm for a Note 2
Note 1 period ofat least
three (3)years

Upto Rs 1,000crore 2 1 1* 6 8

* Not mandatory for UCB with asset size of up to Rs. 1,000 crore.
 11

Note 1: There should be at least one-year continuous association of partners with

the firm as on the date of empanelment (for PSBs)/ short listing (for other Banks)
for considering them as full time partners.

Note 2: CISA/ISA Qualification:

For UCBs with asset size upto Rs 1,000 crore, there is no minimum
requirement in this regard. However, such Banks may give priority to firms with
fulltime partners or full time CAs having CISA/ISA qualification. There shall be at
least one-year continuous association of Paid CAs with CISA/ISA qualification with

the firm as on the date of empanelment for considering thern as Paid CAs with
CISA/ISAqualifi cation for the purpose.

Note 3:,Audit Experience:

Fol UCBs, audit experience shall mean experience of the audit firm as

Statutorl, Central/Branch Auditor of Commercial Banks (excluding RRBs)i

UCB/NBFC/ AIFIs.
Note 4: Profcssional Staff:

Professional stalf includes audit and article clerks with knowledge of book-
keeping and accountancy and rvho are engaged in on-site audits but excludes
typist/steno/corr"tputer operator / secretaries/subordinate staff etc. There should be at

least one-year continuous association of professional staff with the firm as on the
datc of empanehnent for other Banks for considering them as professional staff for
the purpose.

Additional Consideration

i). The audit firm, proposed to be appointed as sAs for Bank, should be duly
qualified for appointment as auditor of a company in terms of Section 141
ofthe Companies Act, 2013.

ii). The audit firm shall not be under debarment Uy uri Government Agency,
National Financial Reporting Authority (NFRA), the Institute of Chartered
Accountants of India (ICAI), RBI or Other Financial Regulators.

iii) The Bank shall ensure that appointment of SAs is in line with the ICAI's
Code of Ethics/any other such standards adopted and does not give rise to
any conflict of interest.
 t2

iv). If any partner of a Chartered Accountant firm is a director in any Bank,

the said firm shall not be appointed as SA of any of the group banks of that
Bank.
v). For audit of UCBs, the SA of the firm should have a fair knowledge of
the functioning of the cooperative sector and shall preferably have working
knowledge of the language of the state in which the UCBibranch of the UCB
is located.

Continued Compliance with basic eligibilify criteria:

In case any audit firm (after appointment) does not comply with any of the

eligibility norms (on account of resignation, death etc. of any of the partners,
employees, action by Government Agencies, NFRA, ICAI, RBI, other Financial
Regulators, etc.), it may promptly approach the Bank with full details. Further, the
t
audit firm shall take all necessary steps to become eligible within a reasonable time
and in any case, the audit firm should be complying with the above noflns before
commencement of Annual Statutory Audit for Financial Year ending 31't March
and till the completion of annual audit.
In case of any extraordinary circumstance after the commencement of audit, like
death of one or more partners, employees, etc., which makes the firm ineligible with

respect to any of the eligibility norrns, RBI will have the discretion to allow

the concerned audit firm to complete the audit, as a special case.

Procedure for Appointment of SAs:

1. The Bank shall shortlist minimum of 2 atdit firms for every vacancy of SAs
so that even if firm at first preference is found to be ineligible/refuses
appointment, the firm at second preference can be appointed and the p.o..tt
of appointment of SAs does not get delayed. However, in case of
reappointment of SAs by UCBs till completion of tenure of- continuous term

of 3 years, there would not be any requirement of short listing and sending
names of multiple audit flrms to RBI while seeking approual to appointment.

2. The Bank shall place the name of shorttisted audit firms, in order of
preference, before the Board for selection as SA. Upon selection of SAs by
the bank in consultation with the Board and veriffing their compliance with
the eligibility norms prescribed by RBI, the UCBs shall seek RBI's prior
approval for appointment of SAs.
l
13

3. The Bank shall obtain a certificate, along with relevant information as per
Form B, from the audit firm(s) proposed to be appointed as SAs by the Bank
to the effect that the audit firm(s) complies with all the eligibility norms
prescribed by RBI for the purpose. Such certificate should be signed by the

main partner/s of the audit firm proposed for appointment of SAs of the
Banks, under the seal of the said audit firm.

4. The bank shall verify the compliance of audit firrn(s) to the eligibility norms
prescribed by RBI for the purpose and after being satisfied of their eligibility,
recolllrlend the names along with a certificate, in the format as per Form C,
stating that the audit firrn(s) proposed to be appointed as SCA/SA by thern
iomply r,vith all eligibility norrrs prescribed by RBI lbr the purpose.

5. While approaching the RBI for its prior approval for appointment of SAs,
bank shall indicate their total asset size as on March 31't of the previous year
(audited figures), forrvard a copy of Board Resolution recommending names

of audit firms for appointment as SAs in the order of preference and also
furnish information as per Form B and Form C as mentioned above, to
facilitate expeditious approval of appointment/re-appointment of the
concerned auditfirm.

F'ORM B

Illigibility Certificate from (Name and Firm Registration Nurnber of the finn)

A. Particulars of the finn:

Asset Size of Number of Full- Out of

total Number of Number of Number of
Bank as on 31't Iime partners FTPs, Number Full Time .Years of Professional
March of iFTPs) of FCA Partner Paid Audit staff
Previous Year associated* with Partners CAs with Experience#'
he firm for a associated CISA/ISA
period of three with the firm Qualification
(3) years for a period o1
three (3)
years

# Details may be furnished separately for experience as SAs.

 1.4

I]. Additional Information:

(i) : Copy of Constitution Certificate.

(ii): Whether the firm is a member of any network of audit firms or any
partner of the firm is a partner in any other audit firm? If yes, details thereof.

(iii): Whether the firm has been appointed as SA by any other Commercial
Bank (excluding RRBs) and/or A11 India Financial Institution
(AIFI)/RBI/NBFC/UCB in the present financial year? If yes, details thereof.

(iv): Whether the firm has been debarred from taking up audit assignments
by any regulator/Government agency? If yes, details thereof.

(v): Details of disciplinary proceedings etc. against firm by any Financial

Regulator/Government agency during last three years, both closed and
pending.

C. Declaration from the firm:

it is certif-red that neither I nor any of our partners / members of my / their

families (farnily rvill include besides spouse, only children, parents, brothers,
sisters or any of them rvho are wholly or mainly dependent on the Chartered
Accountants) or the firrn / company in u,hich I am / they are partners / directors
have been declared as willful defaulter by any bank / financial institution.
It is confirmed that the information provided above is true and correct.

Signature of the Partner (Name of the

Partner):Date:
 t5

FORM C

Ccrtificate to be submitted by the UCBs regarding eligibility of audit

firmproposed to be appointed SA

The bank desirous of appointingM/s_, Chartered Accountants (Firm

Registration Number ) as Statutory Central Auditor (SCA)/
Statutory Audjlq_1, SA) for thefinancial year for their yt12rtc113rd term and
therefbre has sought the prior approval of RBI as per the section 30(1,{) of the
Bankin-e Regulation Act, 1949 Section 10 (1) of the Banking Companies
(AcqLrisition and Transfer of Undertakings) Act. 1970119801 Se'ction 41(1) of SBI
Act, 1955.

,
The banlJUCB has obtained eligibility certificate (copy enclosed) from (name and
F-imr Registration Number of the audit firm) proposed to be appointed as Statutory

Auditor of the bank / UCB for FY along with relevant inforrnation (Copy
enciosed), in the fbrmat as prescribed by RBI.

The firm has no past association / association for years with the bank/UCB as
SA.

The bankruCB has verified the said firm's compliance with alt eligibility
normsprescribed by RBI for appointment of SAs of UCBs.

Signature:

(Name and Designation)

Date:
 This Subject May be plne*d
WW!,
before tiie tsi
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