Page 282 - CA Final PARAM Digital Book.

This is an example of window dressing. The branch is resorting to window dressing by artificially boosting
its advances and deposits. Utilization of advances and placing of fixed deposits at end of year in branch
and again liquidation of deposits early next year indicate that branch is resorting to window dressing to
inflate its advances as well as deposits artificially.

The auditor has to verify whether the unavailed portion of the credit facilities (overdraft, cash credit) are
used to boost the loans and deposits which might tantamount to window dressing.

The relevant regulatory guidelines also prohibit such type of practices and these might involve penal
action in terms of Banking Regulation Act, 1949.

The same needs to be suitably reported in audit report and commented in LFAR also. In appropriate
cases, making a suitable qualification in the main audit report has also to be considered

QNO Credit Card (ICS) Old Course – (M04E, N09E, M15R, PM17, N19E, N20M, SM21, M22R, N22E)
473.000 TITANIUM CNO—BA.260 New Course – (SM23)

How will you evaluate the Internal Control system in the area of Credit Card operations of a Bank?
OR
You have been appointed as an auditor of LCO Bank, a nationalized bank. LCO Bank also deals in

providing credit card facilities to its account holders. The bank is aware of the fact that there should be
strict control over storage and issue of credit cards. As an auditor of the bank, how will you evaluate the
Internal Control System with respect to Credit Card operations maintained byte LCO Bank?
Answer ➢ Credit Card Operations

• Storage
There should be strict control over storage and issue of cards.

• Screening Before Issue
There should be effective screening of applications with reasonably good credit
assessments.

• Available Card Limit
There should be at system whereby a merchant confirms the status of unutilised limit of a
credit-card holder from the bank before accepting the settlement in case the amount to
be settled exceeds a specified percentage of the total limit of the card holder.

• Settlement Confirmation
There should be a system of prompt reporting by the merchants of all settlements
accepted by them through credit cards.

• Reimbursement
Reimbursement to merchants should be made only after verification of the validity of
merchant’s acceptance of cards.

• Charge to Customer
All the reimbursement (gross of commission) should be immediately charged to the
customer’s account.

• Statements
There should be a system to ensure that statements are sent regularly and promptly to the
customer.

• Monitoring
There should be a system to monitor and follow-up customers‟ payments.
• There should be a system of periodic review of credit card holders‟ accounts. On
this basis, the limits of customers may be revised, if necessary. The review should
also include determination of doubtful amounts and the provisioning in respect
thereof.
• Items overdue beyond a reasonable period should be identified and attended to

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