Long Form Audit Report – LFAR

The Long Form Audit Report (LFAR) focuses on identifying deficiencies in the operations and internal control systems of banks. Unlike the Statutory Audit Report, LFAR communicates this aspect comprehensively.

Key points to consider in LFAR:

1. Cash Balance Management:

   • Ensure cash balance remains within prescribed limits.
   • Report excess cash balance regularly.

2. Insurance for Cash Handling:

   • Verify insurance coverage for cash-in-custody and cash-in-transit, usually at the head office level.

3. Balances with Reserve Bank, SBI, and Other Banks:

   • Verify balance confirmation certificates and reconciliation statements.
   • Analyze pending entries and explain discrepancies.
   • Report pending revenue entries older than 6 months.

4. Investments:

   • Physically verify branch-level investments if any.
   • Ensure regular income from investments and timely encashment of matured investments.

5. Advances:

   • Assess credit appraisal, sanctioning, disbursement, documentation, and monitoring.
   • Verify compliance with RBI requirements, evaluation of financial data, and security valuation.
   • Examine sanction procedure, limits, and post-disbursement inspections.
   • Ensure proper execution of loan documents and registration of securities.
   • Monitor periodic review, overdue accounts, and end-use of funds.
   • Assess control over stationery items and management of sundry debit items.

6. Liabilities – Deposits:

   • Verify compliance with KYC norms and operation guidelines for dormant/inoperative accounts.
   • Investigate unusual movements in deposit accounts, overdue/matured deposits, and provision for interest.

7. Other Liabilities:

   • Examine pending entries in bills payable and sundry deposit accounts.
   • Identify unusual items and suggest disposal of outstanding entries.

8. Contingent Liabilities:

   • Review contingent liabilities and discuss legal matters and potential losses with the branch.

9. Profit and Loss Account:

   • Verify interest and commission income, rate changes, and income recognition norms.
   • Analyze trends in revenue and expenditure through comparison and ratio analysis.

10. Audits/Inspections:

    • Review previous audit reports, observations, and non-compliances.
    • Report any frauds discovered during the audit and suggest preventive measures.

11. Miscellaneous:

    • Check fixed asset records, depreciation calculation, and possibility of window dressing.
    • Address any other matters pertinent to the management or central statutory auditors.

Annexure to LFAR:

• Obtain detailed information from branch management for branches dealing with large advances or asset recovery branches, based on outstanding balances.

The LFAR aims to provide a comprehensive overview of the bank’s operations, internal controls, and compliance status, helping identify areas for improvement and risk mitigation