RURAL BANK OF CABADBARAN, INC.
INTERNAL AUDIT DEPARTMENT
INTERNAL AUDIT REPORT
REAL AND OTHER PROPERTIES OWNED OR ACQUIRED
Members:
GIANNE CIELO V. MONDANO
HONEY JANE M. CAINGCOY
KRIZZIA MAE LIPIO
JANE HART DAGTING
HARVEY KLENT DE VEYRA
RAZEL JERLIANGAO
February 2015
REAL AND OTHER PROPERTIES OWNED OR ACQUIRED AUDIT
EXECUTIVE SUMMARY
This audit addresses internal controls over the Real and Other Properties owned
or acquired (ROPA) as stated in the mandate imposed by Rural Bank of Cabadbaran,
Inc. We conducted the internal audit in line with our Auditing Program. Our audit
disclosed significant issues for which corrective actions are needed. The matters raised
in this report are only those, which have come to our attention arising from our audit that
we believe they need to be brought to your attention. These significant issues are
discussed in this executive summary and the body of this report. Other issues identified
for which we have given recommendations to improve internal controls and enhance
accountability are also discussed in this report.
The team conducted audit activities that will evaluate and test the efficiency of
these controls such as interview with the head accountant and bookkeeper,
observations of personnel and validation, reviewing and verification of documents. The
audit team also assessed samples of subsidiary record which contains the list of real
properties owned or acquired to verify that the information required as the controls
stated. The audit team found that there are effective and efficient regulatory processes
and procedures in support of achieving the internal controls mandate being imposed.
The audit evidence gathered is sufficient to provide management with reasonable
assurance of the results derived from this audit.
PURPOSE
The ROPA Internal audit we performed focused on the internal controls stated on
the Manual of Operations and Procedures provided by the management. The audit was
conducted to evaluate and ensure that the internal controls were complied with by the
relevant departments. Internal control audit objectives relate to ROPA management
plans, methods, and procedures used to meet its mission, goals and objectives.
SCOPE OF THE AUDIT
This internal audit covered audit activities conducted in the Rural Bank of
Cabadbaran, Inc. The audit period for which information was collected and reviewed
was from December 22, 2014 through January 27, 2015. Significant data was reviewed
to provide knowledge and background regarding current systems and processes.
The audit was conducted to the following areas: Policies and Procedures;
Documents relevant to the ROPA listing (subsidiary ledgers, memorandum papers);
Personnel Responsibilities; and Board of Directors Authority and Approval. Discussions
were held with management and staff members. Audit work was conducted on the basis
of questionnaire, enquiry, observation, confirmation and verification of supporting
documentation and identified processes.
Specific audit activities performed to evaluate and test each area of the scope to
satisfy the audit opinion are the following: Determination of the Internal Controls under
ROPA; Evaluation and testing of the controls during the audit; Inquiry to the head
accountant regarding the document process workflows; Sampling of relevant
documents to provide sufficient and adequate evidence.
AUDIT OBSERVATIONS
The audit was conducted in accordance with the Internal Controls as stated in
the provided Manual of Operations and Procedures set out by the bank. The Audit Team
followed the submitted audit program. The following are the internal controls with the
corresponding audit teams observation:
A detailed subsidiary record for each item should be maintained showing
the following minimum information:
a.
From acquired
b.
Date acquired
c.
Acquisition cost
d.
Description of property
e.
Location of property
Through the audit activities conducted, the audit team developed the findings and
observations that there were few foreclosed real assets that lack the information
(location of the property) on the sample subsidiary record. Based on the obtained ROPA
Listing documents dated October 31, 2014, we have observed that there are some
items without its corresponding location of the assets.
There should be an organizational unit responsible for the administration
and disposition of
all such assets and, also for the performance of the
following functions:
a.
Maintain proper accounting for all income and all expenses for
each asset held;
b.
Make periodic reports to the board of directors as to new
acquisitions, sale and status of outstanding assets;
c.
Conduct periodic appraisals of asset values to update records
with current or market prices;
d.
Maintain adequate insurance coverage of assets.
There is lacking in communication between the Board of Directors with the
management and personnel in terms of disposal and acquisitions arises.
A physical inventory of all items held should be conducted at least once a
year by the internal auditor or control officer.
As mandated in internal controls being imposed by the management for the
ROPA, there should be a physical count of all items at least a year. However, during
the interview conducted, the head accountant mentioned that the internal auditor
failed to do so for this period.
The board of directors or its committee should review all acquisitions and
dispositions of these assets monthly.
The audit team obtained Extra-Judicial Foreclosure Documents during the audit, we
inspected whether the board of directors review the acquisitions and dispositions of
assets monthly. We observed that this internal control has been complied with by the
RBCI.
No asset should be disposed of without prior authority from the board of
directors or its committee.
The audit team evaluated the obtained Extra-Judicial Foreclosure Documents
and found out that the banks Board of Directors has their assigned representative.
He/she has been given the task to sign the said documents in behalf of the BOD.
This internal control has been complied with by the RBCI.
Instruments showing ownership of assets should be held under joint
custody and segregated from loans collateral instruments.
The audit team has determined that the instruments showing ownership of the
assets such as joint custody and loan collateral instruments in the vault of the bank.
There is a restriction rules in viewing the vault (Cashier and Filing Clerk access only), so
we obtained information by consulting and inquiring the head accountant of the bank.
AUDIT RECOMMENDATIONS
The audit team would like to recommend that the period of reviewing for the
information in the ledgers should be enhanced. There should also be more open
communication between the Board of Directors relating to the disposal and acquisitions
of assets to keep everybody in the loop. We recommend also that all policies and
procedures should be stricter and be monitored because that may affect other
departments as well as the procedures for reviewing and updating policies and
procedures be established. And lastly, we recommend that the disposal of the ROPA
assets should be coordinated with the accounting department.
Coordination would
include reviews of the agreements in meetings that pertains asset disposals as was
done by board of directors.
SUMMARY OF AUDIT FINDINGS
Requirement
Audit Activity
References
Done
Remarks
Used
Managemen
Assessment
t Comment
Internal Controls :
1. Obtain detailed
ROPA Listing
Few Items
Partial
1. A detailed subsidiary
subsidiary record of the
Subsidiary
Jan. 9,
does not
Compliance
record for each item should
real properties owned or
Ledger.
2015
contain
be maintained showing the
acquired.
information
following minimum
2. Checking whether
about the
information:
each property in the
location of
a. From acquired
subsidiary record showed
the
b. Date acquired
specific information that
property.
c. Acquisition cost
the control requires.
d. Description of property
e. Location of property
2. There should be an
1. Inquire the bookkeeper
organizational unit
about the personnel
Jan. 14,
responsible for the
responsible for the
2015
administration and
respective functions as
disposition of
stated on the control.
all such
assets and, also for the
performance of the following
functions:
Bookkeeper
Compliance
a. Maintain proper
accounting for all income
and all expenses for each
asset held;
b. Make periodic reports to
the board of directors as to
new acquisitions, sale and
status of outstanding
assets;
c. Conduct periodic
appraisals of asset values to
update records with current
or market prices;
d. Maintain adequate
insurance coverage of
assets.
3. A physical inventory of all
1. Inquire from the Head
Head
items held should be
Accountant whether
Accountant
conducted at least once a
physical count of the
year by the internal auditor
properties was made at
conduct
or control officer.
least one year.
physical
Internal
Non-
Jan. 16,
auditor
compliance
2015
failed to
inventory
for the
current
period.
4. The board of directors or
1. Obtain monthly
Extra Judicial
its committee should review
records about all
Foreclosure
Jan. 16,
all acquisitions and
acquisitions and
Documents
2015
dispositions of these assets
dispositions from head
monthly.
accountant.
Compliance
2. Obtain proof
documents with
signatures that can verify
the monthly review by the
5. No asset should be
board of directors.
1. Inquiry whether the
Head
disposed of without prior
disposition of the assets
Accountant
authority from the board of
was properly authorized
directors or its committee.
by the board of directors
ate with
or its committee by
the Board
checking if the signatures
of
of the board of directors
Directors.
We were
Not
Jan. 17,
not able to
determined
2015
communic
or its committee exist.
6. Instruments showing
1. Determine whether the
Head
ownership of assets should
instruments showing
Accountant
be held under joint custody
ownership of the assets
We were
Not
Jan. 17,
not allowed
determined
2015
to access
and segregated from loans
are segregated from
the vault
collateral instruments.
loans collateral
that
instruments by inspecting
contains
the designated vault of
the
the said documents.
documents
.
CONCLUSIONS AND OPINION
The audit team concludes that the internal controls mandated by the management Rural Bank of Cabadbaran, Inc.
are in place and effective. This was demonstrated by strong strategic planning that is aligned with Manual of Operations
as provided by the management. Although there are small shortcomings, it could be solved by the cooperation and
coordination of the management and as well the staffs. The significant issues raised by this audit report are seen in a mild
light and can be attributed to a lack of sufficient control measures. Comments by management would be noted and the
steps taken to improve the deficiencies should be considered.
