CPE Paper_Md. Syful Islam_Fraud & Money Laundering in Banking Sector-BD Perspective_30Nov08

7/28/2019 CPE Paper_Md. Syful Islam_Fraud & Money Laundering in Banking Sector-BD Perspective_30Nov08

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CPE

SEMINAR

ON

Fraud and Money Laundering in the BankingSector- Bangladesh Perspective

AUTHOR-

MD. SYFUL ISLAM, FCA, FCMA

30 November 2008


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STRUCTURE OF THE PAPER

Session TitleObjective of Presentation of the Paper.

1 What is Fraud.

The Circumstances those indicate the possible existence of Fraud.

Fraud prone areas.

2 Conceptual Approach of Money Laundering

3 Case study of Fraud and Money Laundering in the BankingSector- Bangladesh Perspective

4 Economic Affects of Fraud and Money Laundering

5 Current situation in Bangladesh for preventing crime of Fraudand Money Laundering.

6 RecommendationMinistry of Finance

Bangladesh Bank

Management of the Bank

The Institute of Chartered Accountants of Bangladesh


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I being a Professional Chartered Accountant have got plenty of opportunity towork as a Public Accountant in both home and abroad for the last eighteen years,

now I am working as one of the Directors of the state owned Bank (Rupali BankLtd.) and also having the opportunity of working in the Investigation Taskagainst the Grievous Offences of the country with the Legal Agency of the presentGovernment. Through which I have been able to acquire sufficient practicalknowledge and experiences in the field of Accounting, Auditing andInvestigations of the malpractices done by the unscrupulous and vested group of

people of our society particularly in Banking Sector by which our economy aswell as the political situation has come to a very worst condition.

As such I would like to express the intention to share my practical experiencesthrough discussion with the honorable Regulatory Authority, Chairmen andDirectors of the Public and Private Commercial Banks, the Auditors, GeneralMembers of the Institute of the Chartered Accountants of Bangladesh, the Law

Enforcing Authority, the Chief Executives and the other High Official of all theBanks, the High Level Executives of the Trade and Commerce Associations withthe view to identify the defects or the defaulting activities as are being committedin the Banking Sector of the country for creating awareness of the appropriateauthorities of the country to take the Right Steps to Expel and Uprooting of all theFraud, Money Laundering and other Malpractices from the Banking Sector of our

country.

Objective of Presentation of the Paper


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Fraud


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The term "Fraud" refers to an intentional and an unethical act byone or more individuals among the management, those chargedwith the governance, the employees and the third parties toobtain an unjust or illegal advantage causing a material

misstatement in the financial statements.

The term "Fraud" in relation to the Banks generally refers tomanipulation in the Books of Accounts, fraudulent encashmentof negotiable instruments, unauthorized handling of theSecurities pledged or hypothecated to the Banks, embezzlement,misappropriation of funds, pilferage of cash etc by the Bankemployees, account holders and also by third parties.

WHAT IS FRAUD


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FEATURES OF FRAUD

It is Deceitful

It is Intentional

It breaches TrustIt involves Losses

Concealment of Fact

Appearance of OutwardRespectability


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THE CAUSES OF FRAUD

Absence of social Condemnation; Malafide Intention; Willful deviation from Laws and Practices; Degradation of overall Moral Values; Management inefficiency to Withstand Pressure; Procedural Lapses/Bottlenecks; Organized Crime; Corrupt Managers; Employee Scams; Financial Misstatement; False Accounting (e.g., bonus schemes); Financial Frauds; Computer Hackers; Any other significant Corporate Abuse.


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TYPES OF FRAUD

Consumer Fraud Credit Card Fraud

Kickbacks Bid Rigging

Inflated Invoices External Fraud

Inventory Theft Theft of Cash

Basic company Frauds Cheque Fraud

Identity Fraud Banks Fraud

Computer Hacking

Financial Statement Fraud Sundry Frauds


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THE CIRCUMSTANCES THOSE INDICATE THE

POSSIBLE EXISTENCE OF FRAUD

General Circumstances Behavioral Issues Poor Controls Often Ignored the Straight Information Inconsistencies

Banking Sector Limitation of Audit Unusual Circumstances Financial Misstatement

Non Cooperation Non Existence of Good Governance Abnormalities in the Financial Statements Abuse of Information Technology Security


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FRAUD PRONE AREAS

Loans & AdvancesDeposit Accounts

Remittances

Inter-Branch Suspense AccountsClearing

Nominal Accounts

Foreign Exchange Transactions

Lockers & Safe Deposit Vaults

Cash Shortages


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MONEY

LAUNDERING


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Literally Money Laundering is the practice of engaging inspecific financial transactions in order to conceal the identity,source and/or destination of money and is a main operation of

underground economy.

Money Laundering as legal term is, which in fact a process ofMulti steps but interlinked with one another with the aim oflaundering the illegal proceeds.

Now- a- days Money Laundering has become a burning issue foreconomic growth and social security of the nation for the followingfactors.

CONCEPTUAL APPROACH OF MONEY

LAUNDERING


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Criminals need to conceal the real ownership and origin of the

money; They need to control the money;

They need to change the form of money;

It conceals the true sources of the Funds so that they can be used

freely;

The concealment or disguise of the true nature, sources,Location, disposition, movement, rights with respect to theownership of the property.

Illicit money is turned into Legitimate useful Funds;

The conversion of profits of illegal activities in the FinancialAssets, which appear to have Legitimate Origin.


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Placement

Structuring

Layering

Integration

POSSIBLE STEPS OF MONEY LAUNDERING

MoneyLaundering basically involves the followingindependent steps that often occur simultaneously.These are:


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THE POSSIBLE WAYS OF GENERATING

TERRORIST FUNDSDormant Accounts

Telegraphic TransfersFund Generation through Non-profitOrganization

Charitable OrganizationAbnormal Business Facilities


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METHODS OF MONEY LAUNDERING

Establishment of "anonyms" Companies/Firms thatoperate with normal processes like paying Loans andpaying of taxes on profits even though these firms may

be non-existent in its operations. Use of over and under invoiced Exports or Imports and

creating a cache of Foreign Currency.

Cross Boarder Transfers through a set of zigzagpatterns.


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COMMON SOURCES OF MONEY LAUNDERING

Drug Trafficking;

Tax Evasion; Organized Crime e.g. Extortion, Prostitution; Loan Sharking, Kidnapping, Contract Killing,

Gambling, Adulation, Bank Fraud and Corruption etc.; Slush Funds maintained by the big corporations e.g.

Bribery, Payment to the Political Parties, Politiciansetc.;

Terrorisms; International Traffickers in arms; International Trafficking in human beings smuggling; Smuggling.


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The Process Of Money Laundering And Financing Of

Terrorism

Money Laundering Financing of Terrorism

Cash from CriminalAct

Placement &Structuring

Cash is depositedinto Account

LayeringFunds moved to

other Institutions toObscure Origin

IntegrationFunds used to

Acquire Legitimate

Assets

Legitimate Asset orCash from Criminal

Act

Placement &

StructuringAsset deposited intothe Financial System

LayeringFunds moved to

other institutions toObscure Origin

Legitimate Asset ofDistribution

$$$$$$$$

Insurance

Company

Non-Bank

FinancialInstitution

BankSecurities

Firm

Bank Bank

IntegrationFunds used to

Acquire Legitimate

Assets


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CASE STUDY OF FRAUD AND MONEY LAUNDERING INTHE BANKING SECTOR- BANGLADESH PERSPECTIV

Issuing of illegal IBDAs (Inter Branch Debit Advices)

Issue of illegal IBCAs (Inter Branch Credit Advices)Generation/ Creation of the Fund against Benami Accounts byexcessively charging of the Accrued Profit / Interest payment onDeposits Accounts.Creation/ Generation of the fund against Benami Accounts by

excessively charging of the Expenditure Accounts.Illegal Transfer of the Branch Investment Profit to BenamiAccounts of the Bank Officials, which was earned for the timinggap of the illegal Transaction of the IBDAs and IBCAs forrestating the previously Offsetted Loan Liabilities.General Case:

Due to some technical reason without mentioning the name of the person

and any organization some cases have been stated here under for our betterunderstanding that what illegal ways and techniques are applied byunscrupulous group of people of our society to defalcate of money from theBanking Sector.


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Issuing of illegal IBDAs(Inter Branch Debit Advices)

i) Issuing of illegal IBDAs from the Branch:

Case No - 1

Suppose that 10 unauthorized IBDAs i.e. without the approvalof the Head office for Tk. 10 crore were issued from the MBranch of ABCD Bank Ltd. in favour of 10 benami accountswhich has been withdrawn in cash Tk. 7 crore and issued 3 pay

orders Tk. 3 crore in favour of Mr. Alam Account on OBranch of XYZ Bank Ltd., a beneficiary of the aforesaidOriginating 10 benami accounts from where he withdrawn Tk. 3crore in cash.


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Ultimately in consolidation of the financial statements for clean off thisdefalcated amount from the records, Profit and Loss Appropriation Accounthas been debited for Tk. 10 crore and the Adjustable Blocked Account hasbeen credited for Tk. 10 crore.

Suppose that a fund for Tk. 10 crore was createdunder 10 benami / fictitiousaccounts by issuing 10 unauthorized IBDAs from M Branch of ABCD

Bank Ltd. by debating Head Office General Account for Tk. 10 crore andcrediting Loans and Advance Account for Tk. 10 crore.

Cash was withdrawn for Tk. 7 crore and 3 Pay Orders have been issued for Tk. 3Crore from 10 benami/ fictitious accounts in favour of Mr. Alam Accountmaintained with O Branch of XYZ Bank Ltd. by debiting Loans and

Advance Account for Tk. 10 crore and crediting Cash and Bank Accounts for Tk. 10crore.

For offsetting the Head Office General Account, Adjustable BlockedAccounts has been debited for Tk. 10 crore and Head Office GeneralAccounthas been credited for Tk. 10 crore.

Transaction Profile

Step - 1

Step - 2

Step - 3

Step - 4


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Suppose that 25 unauthorized IBDAs i.e. without the approval of theHead Office for Tk. 100 crore were issued from the L Branch of ABCDBank Ltd. to M Branch of the same Bank for offsetting of theoutstanding Loan Liabilities for Tk. 100 crore of 20 Traceable Accounts of

Mr. Monir of L Branch, which was disbursed him earlier.

ii) Issuing of the illegal IBDAs from One Branch to anotherBranch:

Case No - 2


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Transaction Profile

25 IBDAs with different amount were issued in total for Tk. 100 crore on different dates for

Offsetting the Loan liabilities for Tk. 100 crore by debiting the Head Office GeneralAccounts and crediting the Inter Branch Transaction (M Branch) Account.

Step - 2

For giving the closing entry in L Branch, the Inter Branch Transaction (M Branch)

Account for Tk. 100 crore has been debited and (Traceable 20) Loan & Advances

Accounts (Mr. MonirL Branch) Tk. 100 crore has been credited.Step - 3

For responding of the 25 IBDAs Tk. 100 crore issued from L Branch, the M Branch has

debited Loans & advances (25 benami Accounts) for Tk. 100 crore by crediting InterBranch Transaction (L Branch) Account for Tk. 100 crore.

Step - 4

For giving the closing entry in M Branch, the Inter Branch Transaction (L Branch)

Account for Tk. 100 crore is debited and the Head Office General Accounts for Tk. 100

crore is credited.

Step - 5

A fund for Tk. 100 crore was disbursed through 20 Traceable Account of Mr. Monir from L

Branch earlier.Step - 1

The illegal Loan liabilities of TK. 100 crore under25 benami accounts are classified in M

Branch as Bad Loss Loans for non finding of the beneficiaries of such benami accountswhich have been offsetted in consolidation of the financial statements with the Adjustable

Blocked Account by debiting the Adjustable Blocked Account and crediting the Loans

and Advances Account for Tk. 100 crore.

Step - 6

Ultimately in consolidation of the financial statements forClean off this defalcated amount

from the records the Profit and Loss Appropriation Account has been debited and

Adjustable Blocked Account has been credited for Tk. 100 crore.

Step - 7


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2. Issue of illegal IBCAs (Inter Branch Credit Advices)

Issuing of illegal IBCAs(Inter Branch Credit Advices)

i) Issuing of the illegal IBCAs from One Branch to anotherBranch:

Case No 3

Suppose that 25 unauthorized IBCAs i.e. without the approval ofthe Head Office for Tk.. 100 crore were issued from the L Branch

of ABCD Bank Ltd. to M Branch of the same Bank for offsettingthe outstanding Loan Liabilities for Tk. 100 crore of 20 TraceableAccounts of Mr. Bashir of M Branch, which was disbursed himearlier.


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Transaction Profile

A fund for Tk. 100 crore was disbursed through 20 Traceable Accounts of Mr. Bashir from MBranch earlier.

25 IBCAs with different amounts were issued from L Branch to M Branch in total for Tk.

100 crore on different dates by debiting Loans and Advances for Tk. 100 crore (against 25benami Account in L Branch) and crediting the Inter Branch Transaction inM BranchAccount for Tk. 100 crore.

For giving the Closing entry in L Branch, the Inter Branch Transaction (M Branch) Accounthas been debited for Tk. 100 crore and the Head Office General Accounts has been creditedfor Tk. 100 crore.

For responding of the 25 IBCAs for Tk. 100 crore issued from L Branch, the M Branch hasdebited Inter Branch Transaction (L Branch) Account for Tk. 100 croreand credited the Loansand Advances Account for TK. 100 crore (20 Traceable Accounts of Mr. Bashir for Offsetting ofthe Loan liabilities of Tk. 100 crore as was given earlier).

For giving the Closing entry in M Branch, the Head Office General Accounts has beendebited for Tk. 100 crore and Inter Branch Transaction, L Branch has been credited for Tk.100 crore.

The aforesaid illegal Loan liabilities for TK. 100 crore under 25 benami accounts in L Branchhave been Classifiedas Bad Loss Loans for non finding of the beneficiaries of such benamiaccounts for which full provisions have been made by debiting the Profit and Loss Accountsfor Tk. 100 Crore and crediting the provisions on Loans and Advances for Tk. 100 Crore.

Ultimately, the said Loans and Advances Tk. 100 Crore has been written off in the Accountsby Debiting Provision on Loans and Advances Tk. 100 Crore and crediting Loans and

Advances Account Tk. 100 Crore.

Step - 1

Step - 2

Step - 3

Step - 4

Step - 5

Step - 6

Step - 7


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3. Generation/ Creation of the Fund against Benami Accounts byexcessively charging of the Accrued Profit / Interest payment

on Deposits.Case No. 4

Suppose that the Actual Interest / Accrued Profit was requiredto be paid Tk. 100 core but the Interest Accounts/ Profit wascharged in the Accounts for Tk. 110 crore by crediting (110-100) Tk. 10 crore to 10 Benami Accounts.

Tk. 10 core was subsequently been withdrawn illegally by thedishonest Bank Officials.

Step - 1

Step - 2

Transaction Profile


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4. Creation/ Generation of the fund against Benami Accountsby excessively charging of the Expenditure Accounts.

Case No. 5

Suppose that the actual Expenditure was Tk. 50 crore butthe Expenditure Accounts were charged for Tk. 60 croreby crediting (60-50) Tk. 10 crore to Benami Accounts.

Tk. 10 crore was subsequent illegally been withdrawn bythe dishonest Bank Officials from the aforesaid BenamiAccounts.

Step - 1

Step - 2

Transaction Profile


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Withdrawal of the Investment Income Tk. 2 crore from the Benami

Accounts by the dishonest Bank Officials by debiting "X' Benami

Accounts and crediting the Cash Account.

5. Illegal Transfer of the Branch Investment Profit to Benami Accounts of the BankOfficials, which was earned for the timing gap of the illegal Transaction of the

IBDAs and IBCAs for restating the previously Offsetted Loan Liabilities.

Case No. 6

Suppose that 20 IBDAs were issued for Tk. 30 crore on 1st January

2008 and 25 IBCAs were issued for Tk. 32 crore on 29th January

2008 for the time gap of 29 days.

Accounting Entries were made on 29th January 2008

When IBCAs were issued

Dr. Loans and Advances Tk. 32 croreCr. Head Office General Accounts Tk. 30 crore

Cr. "X" Benami A/c (instead of Branch Income Account) Tk. 2 crore

Accounting Entries were made on 1st January 2008When IBDAs were issued

Dr. Head Office General Accounts Tk. 30 crore

Cr. Loans and Advances Tk. 30 crore

Transaction Profile

Step - 1

Step - 2

Step - 3

Step - 4


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i. Illegal Loan FacilitiesProviding of Loans and Advances to the Entrepreneurs through legalmethods of the Bank is one of the regulated Banking OperationalFunctions of the Commercial Banks. But it has been experienced throughsome investigations that the influential and the vested group of people of

our society and the dishonest Bank Officials jointly defalcate money fromthe Bank through disbursement of Loans and Advances committing thefollowing irregularities:

Payment of Loans before the Sanctioning;

Overvaluation of the Property;

Overvaluation of the Collateral Securities; Accepting of the Inadequate Securities;

Accepting no Securities;

Having False Particulars;

Improper Documentation;

6. General Case:

Case No. 7


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Inexistence of the Proper Introduction; Unauthorized Cash Payments; Sanctioning of the Loans without the approval of the

Competent Authority; False Mortgage of the Property; Accepting of the False Deed Documents of the Property and

etc.

ii) Other possible ways of Fraud and Money Laundering.

Use of Over and Under Invoiced Exports or Imports andcreating a Cache of Foreign Currency;

Cross Boarder Transfers through a set of zigzag patterns;

False Pay-Order, Demand Draft, Telegraphic Transfer; False Letter of Credit (Import); False Import & Export Bills; Through Capital Flight; Through Nostro Accounts.


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A Simple Example of Transaction of Money Laundering

Transferred fromY Br. Tk. 25 crore

Transaction Profile for Tk. 90 crore which was defalcated through Money

Laundering by issuing of 90 illegal IBDAs from X Branch of DD Bank Ltd.

Y Br.

Transferred from Z Br. Tk. 10 crore

Transferred from X Br. Tk. 90 crore

Total 100 crore

Withdrawn & transferred

by Y Branch Tk. 75 crore

to overseas account

DD Bank Ltd. CC Bank Ltd.

BANGLADESH OVERSEAS ACCOUNT

Tk. 100 (25+75) crore

X Br.Issued 90 IBDAs for creatingTk. 90 crore by crediting 25

fictitious CD A/Cs

Z Branch

Issued pay ordersfor Tk. 10 crore


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ECONOMIC

AFFECTS


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ECONOMIC AFFECTS OF FRAUD AND MONEY

LAUNDERING

The Bad money can gradually turn out the good money.

There are other negative Micro Economic Consequences forexample, It could compromise Bank soundness with potentiallylarge fiscal Liabilities lessen the ability to attract the ForeignInvestment, and increase the volatility of money flows andexchange rates. In this era of Technological Development in almostall the aspects and very high capital mobility, financial crimemakes National Tax Collection and the Law Enforcement more

difficult. the Financial system abuse the Financial Crime andMoney Laundering may also be distorted the allocation of wealthand can be costly to detect and eradicate.


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CURRENT SITUATION IN BANGLADESH FOR

PREVENTING CRIME OF FRAUD AND MONEY

LAUNDERING

Bangladesh Penal Code, Foreign Exchange Regulations Act- 1947 (FERA)Income Tax Ordinance- 1984 Money Laundering Prevention Act- 2002(MLPA) and Anti- Corruption Commission (ACC) Act- 2004, the BankCompanies Act- 1991 and The Companies Act - 1994 are the suitable Lawsto prevent such crimes. While there is always scope for improvement in the

Legal Framework, the blame cannot be impute squarely on those Acts andRegulation.

We do not have a functioning Financial Intelligence Unit (FIU) that cancollect information, the capability to analyze the same and identify specificcases and trend of committing Fraud,Money Laundering, Defalcation andother Financial Crimes.

Our Investigation Agencies are not well trained with adequate knowledgeand procedures to investigating Financial Crimes/ Corporate Corruptionsand File Cases.Our Prosecutors and the Legal System look understanding of thecomplexities involved in the Financial Crimes.


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However, since 1/11 Anti-Corruption Drive in BangladeshGot Momentum

The Corrupt People are Under Legal Scrutiny

The Financial Intelligence Unit (FIU) in Bangladesh Bank isworking with the help of US Embassy

The Cooperation Agreement with the Other Central Banksare Needed to carry out the investigation work against

money laundering.


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RECOMMENDATION


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Effective Anti Money Laundering Mechanismsinvariably include co-operation between the Bank

Management, Regulators (i.e. the Central Bank) andthe Law Enforcement Agencies. Therefore it is inthe best interest to develop the interaction and co-ordination among the above parties.


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The Banking Wing of the Ministry of Finance need to be strengthened

with the Independent Professionals for Research and DevelopedStandard Operating Procedures, Monitoring and Compliances;

Constitute an Independent Body to monitor Debt Management,Recovery, Bad Debt, Written Off Loans and Advances and involvementof the Financial Scam of the Banks and other Financial Institutions;

A 3 Member High Power Committee may be formed in the Bank forevaluating the performances of the Board of Directors. The Members ofthe Committee shall be one from the Bangladesh Bank holding theposition of at least Executive Director, one member from the Director ofthe Board and one from the Ministry of Finance holding the position ofat least Joint Secretary;

Further amendment of the Bank Companies Act (amendment act of2003) and the Bangladesh Bank (nationalization) order (2003) so that theGovt. owned Banks come under the sole supervision and regulation ofBangladesh Bank instead of the Ministry of Finance, and strengtheningoversight through Appropriate Reformation of the Bangladesh Bank.

MINISTRY OF FINANCE


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BANGLADESH BANK

Organizational Issues

Functional and Operational Issues

Accounting and Financial ReportingIssues


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Induction of the Professionals in the Board of Directors of

Bangladesh Bank from the Private Sector to ensure that at leastone each from Business, Economics, Chartered Accountants,Legal and Engineering background discouraging theappointment of the Retired Bureaucrats.

Ensure that Cash Dividend/Bonus shares and Incentive Bonus

to employees not paid / issued out of Artificial Profit created byundercharging of the Expenditure and/or under -provision ofthe Classified Loan Loss and over accruing of the InvestmentIncome or other Operating Income;

The terms and conditions of the Board of Directors of theBangladesh Bank shall be Redefined emphasizing of closemonitoring on the present state of Malpractices, MoneyLaundering and Defalcation of money from the Banking Sectorin Bangladesh;

Organizational Issues


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Bangladesh Bank should be kept free from all Politicalpressures.

Legal and Operational Independences of Bangladesh Bank

should be ensured;

Establish an Ethical Standards Committee (ESC) in every Banksfor ensuring of -

The Ethical Standards are carefully developed and are firmly inplace;

The Ethics Officer and other key players have well-defined rolesand are discharging their responsibilities properly;

The Employees are behaving in an Ethical Manner as defined bythe Organization;

The organization is complying with all the Laws, Regulations, andRules that affect it;

There is a system in place for resolving Ethical Dilemmas;

There is an effective and Robust System of compliance checks inplace and all Significant Problems are reported to the ESC.


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Functional and Operational Issues The tools and instruments used by the Department of the Offsite

Supervision (DOS) and the Department of Banking Inspection (DBI)

shall have to be upgraded and new effective Tools and Instrumentsi.e. new Measures to be introduced which are very capable toControlling and finding out the Fraudulent Activities as are now

being Committed in the Banking Sector;

A Separate Management Audit Cell (MAC) may be established

headed by the Governor of the Bank for checking and verification ofthe performance of the DBI and DOS Personnel on Regular Basis;

Departmental Head, Dealing Boss and the other officers and staff ofthe DBI, DOS and the proposed Management Audit Cell should bechanged with in 2 years.

Accountability of all officers and staff of the Bank shall have to beestablished through necessary Amendments in the existingBangladesh Bank Order-1972 (President's Order no.127 of 1972) andthe Bangladesh Bank's (Nationalizations) Order 1972 (PresidentsOrder no. 26 of 1972)


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Accounting and Financial Reporting Policy as outlined in the BRPDCircular no. 14 dated 25 June 2003 issued by the Bangladesh Bank shall

be redefined in line with the IASs, as adopted by the ICAB; Bangladesh Bank shall redefine the Accounting and Financial Reporting

Policies of all the Banks and the Financial Institutions in line with thebest practices and ensure the Public Disclosure;

Establishing an Ethical Standards Committee (ESC) for adopting the

Corporate Code of Ethics for the Board and the Management andensuring the compliance thereof as part of their Employment Contract;

Ensuring induction of at least 2(two) independent Directors in theBoard of Directors in every Banks and Financial Institutions (except theborrower, political allegiance and those who held office of profit from

the Bank) one of them should have Economic back ground and anothershould be a Chartered Accountant having sufficient knowledge of theBanking and the other Financial Institution affairs ;

Adopting the policy of submitting quarterly Classification of Loans (CL)Statements to Bangladesh Bank along with the External Auditorsreviewing Report thereof.

Accounting and Financial Reporting Issues


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Board of Directors The Board of Directors shall morally be obliged to carry out their

responsibilities as outlined by the Regulatory Authority and theControlling Authority.

Managing Director

Ensure the preparation of the Accounts and the Financial Reporting of

the Bank which in compliance with all the BASs and the BFRSs asadopted by the ICAB and as per the BRPD Circular no. 14 dated 25June, 2003;

Ensure of the Inter Branch Transaction Accounts which to bereconciled every week;

Ensure that the Rules of the Money Laundering Prevention Act-2002which have been complied accurately in all the Branches of the Bank;

The Internal Audit Department should be kept free from the control ofthe Management. They should be allowed to report their actualfindings to the Audit Committee;

MANAGEMENT OF THE BANK


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One (1) Chartered Accountant should be appointed in every Bank asthe Head of the Internal Control and Compliance Department forcarrying out the Internal Audit in compliance with the Bank CompaniesAct- 1991, Rules, Regulations and Circulars issued by the Bangladesh

Bank and the Office Circulars as issued by the Management from timeto time;

Confirm that of the Internal Audit Department which makes theirreport on the following Core Risks Management: Credit Risk Management;

Assets Liabilities Risk Management; Prevention of Money Laundering; Internal Control and Compliance Management; Foreign Exchange Risk Management; Information and Communication Technology Management

One (1) Chartered Accountant should be appointed in every Bank as

the Head of the Financial Control Department for maintaining theBooks of Accounts, preparation of Financial Statements and Reportingin compliance with the BASs and BFRSs adopted by the ICAB and incompliance with the Bank Companies Act-1991, Companies Act-1994,the Securities and Exchange Commission Rules-1987, Rules, Regulationand Circulars issued by Bangladesh Bank.


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Each and every big Branch of the Bank should have a "Audit Cell." TheAudit Cell at the end of the Transaction hours of each and every day willcheck the Vouchers/ Transaction of all the Risky Sectors such as;

Credit related Transaction and Vouchers; Cash Payment Vouchers;

Out ward Clearing

Special Monitoring Cell regarding the big amount of Loans to be createdin each and every Branch / Regional Office / Head Office. Special care forregular monitoring to be taken at the Regular Interval. Board Audit

Committee may over see the Monthly Report of this Cell.

The Beneficiaries of the Bank Guarantees (up to certain amount) may besent to the Head Office for verification / reconfirmation;

Cheque Frequency Machinery must be available in the big Branches;

Verification of the Land and Building Documents to be done by the

Government approved Surveyor. A certificate from the Surveyor / Branchshould be obtained stating that the properties are in the possession of theMortgagor;

Ensure of the decentralization of the Inter Branch Clearing Work; Ensure of the Reconciliation of the Nostro Accounts timely etc.


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Being the member of the IFAC the ICAB shall take necessary stepsimmediately to adopt the following pending issues for keeping the Memberswith the up to date knowledge of the present requirement of the IFAC:

ISA (International Standards on Auditing)ISAs - 701 Modifications to the Independent Auditors Report.

IAPS (International Auditing Practice Statements)IAPS - 1006 Audits of the Financial Statement of Banks

IAPS - 1012 Auditing Derivative Financial StatementsBeing the Regulatory Body of the Chartered Accountants the Institute shallensure that its members have been rendering their ProfessionalResponsibilities in compliance with its By-laws and the Council Directives.The Institute shall also ensure that its members have been rendering theirProfessional Responsibilities in compliance with BASs and BFRSs and BSAsand BAPSs and in compliance with the section 39(3) Kha of the BankCompanies Act-1991 and the other applicable section of the Bank CompaniesAct-1991, the Rules, Regulations and the Circulars issued by the BangladeshBank, the Companies Act- 1994, the Securities and Exchange CommissionRules-1987, the Income Tax Ordinance-1984 and the other applicable Rules

and Regulations.

The Institute of Chartered Accountants of Bangladesh (ICAB)


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Quality Control Department

The Institute shall have a Quality Control Department through which it

can exercise to Close Monitoring, Supervising, Reviewing, Controllingand maintaining the quality of audit of Banks and Financial Institutions asaudited by its auditors.

Investigation and Disciplinary Committee

The Institute should strengthen its Investigation and DisciplinaryCommittee for taking proper action against the Auditors those who havefailed to conduct the Audit of the Banks and the Financial Institutions incompliance with the Bangladesh Standards on Auditing (BSAs), BFRS,BAPS and in compliance with the applicable section of the BankCompanies Act -1991, the Rules and Regulations issued by the

Bangladesh Bank, the Companies Act-1994, the Securities and ExchangeCommission Rules 1987, the Income Tax Ordinance 1984 and the otherapplicable Rules and Regulations and those who have also violated theBy- laws of the Institute of Chartered Accountants of Bangladesh and theCoun1cil Directives.


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Before conclusion, I would like to express my sincere thanks andgratitude to some of the middle level and high officials of the

present Govt. and also to some high officials and auditors of DBI& DOS of Bangladesh Bank for their kind cooperation and supportin discharging my professional responsibilities successfully as

mentioned at the out set of my speech.


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Thanks to Every Body

CPE Paper_Md. Syful Islam_Fraud & Money Laundering in Banking Sector-BD Perspective_30Nov08

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Transcript of CPE Paper_Md. Syful Islam_Fraud & Money Laundering in Banking Sector-BD Perspective_30Nov08