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Audit Report of SDV Mall Road Branch, Rawalpindi (0814) Islamabad Region

Name of Branch Manager: Khawaja Murad Ali

Date of Posting of Branch Manager: 05.04.2010

Name of Auditors: M/s Khalid Mahmud Team Leader,

Munir Ahmed, Fakhar Imam, Usman Abdullah,

Nasir Mahmood & Asma Kayani (Team Members)

Audit Period: 08.12.2010 to 05.07.2012

Audit Category: C-1 (Unsatisfactory with Low Reputational Risk)

Financial Highlights (Rs. in Mn)

Total

Deposits

Finances Imports Exports

Total Classified

As of Audit Date 05.07.2012 4140.215 41.127 5.350 36.478 1.939

As of 31.12.2011 3296.175 49.493 5.441 59.984 0.784

Scope & Objectives Audit covered entire operations of the branch on sampling basis including Cash, ATM, Collections,

Remittances, Deposits, Staff & General, FINCON, Income & Expenditure, Finances and IT operations.

Audit coverage was limited to the transactions that were recorded in books of the branch.

Management & Staff Staff strength of the branch consisted of 18 personnel including Branch / Area Manager, Manager

Operations, Manager Trade, Manager Teller, one CSO, 8 officials supporting operations and Credit Hub

functions, one RBO and three Tellers. Two contractual staff and three outsourced security guards were

also provided to the branch. Four staff members were posted in the branch / airport booth as back as

1997 were not transferred. Staff needs training to enhance their skills for better understanding of

contents of MISYS output reports and standard operating procedures.

Assessment Summary

Based on audit findings and weak supervisory controls exposing Bank to various risks, internal working

of the branch is rated as C-1 (Unsatisfactory, with Low Reputational Risk). Serious irregularities

enumerated below, need immediate attention of the branch management and controlling office for

resolution & non-recurrence:

Two incidents of fraudulent online cash withdrawals totaling Rs.0.910mn took place from the branch

during the period under review. Cases were investigated and two staff members were held responsible

for deviating banks procedure while making payments.

Different anomalies of serious nature were observed in operations of the branch; stop payment

instructions received from three customers as back as 19.04.11 were not marked in the system till date

resulting in payment of one stopped cheque for Rs.66690/- which remained unidentified till pointation

by audit. Credit balance of a deceased account was paid to one legal heir without consent of other heirs.

On 11.05.2012 an O/w clearing cheque for Rs.0.610mn was wrongly lodged twice in OBC as well as

clearing; resultantly proceeds through clearing were received on account on next day and OBC entry was

still outstanding in system the amount of which will be automatically credited in account on completion

of default period of 120 days. During the course of audit it was observed that debit / credit entries

irrespective of amount were being supervised by the supervisors in the system without referring source

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document / cheques. Many LFTs / BCs were issued through various A/cs without verifying customers

signatures on remittance application forms involving risk of unauthorized / fraudulent transfer of funds.

Eight such instances involving funds upto Rs.21.500mn were documented. Stamps on Hand were short

by Rs.5800/- due to non recovery from customers against stamp papers utilized on their behalf. An

amount of Rs.8000/- being the payment made to outsource trainers for staff training on 02.07.11 by

debiting GL Suspense A/c Sundry debtors was still outstanding in that head and branch was totally

ignorant about that debit till pointation by audit due to non monitoring of GLs. A sum of Rs.1.117mn

was paid from 9 different customer accounts through cash debit vouchers on different dates but

confirmatory cheques were yet not obtained.

Rent Rs.1811756/- has become over due on 221 lockers due to lack of follow up which also included

113 lockers where rent was overdue for more than 2 years but break opening process was not yet

initiated. Operation in one locker was allowed to a 3rd

party by linking her account with that locker

without consent of the licensees. SS Card of the locker was also not available.

As on 1st day of audit keys of 8 vacant lockers were not available / shown to audit involving risk of

unauthorized / misuse of the same. ATM cards and PINs were delivered to customers without verifying

their signatures as a matter of practice involving risk of wrong delivery. In case of 236 ATM cards

received by the branch due to incomplete addresses of the customers no information was available that

whether the same were delivered to customers or destroyed after completion of requisite formalities.

Besides 619 undelivered ATM cards were lying in the branch for more than 15 days but not destroyed.

Clearing Operations of the branch were found unsatisfactory as a number of exceptions of serious nature

were noted; Sundry Assets (Clearing) GL was showing excess debit balance of Rs. 36,656,364.33 since

28.06.2012 as the amount pertaining to Sundry Assets (OBC) GL was wrongly debited to this GL. On

various occasions fate of Islamabad clearing received in OBC GL was not transferred to Clearing GL as

per arrangement; resultantly those credits upto Rs.20.616mn were transferred with delay upto 5 days

resulting in mismatch between both the GLs. Four inward clearing cheques involving funds up to

Rs.1Mn were debited to customers accounts with delay upto 8 days after clearance of fate to presenting

banks. One wrong debit of Rs.60K to Sundry Assets GL by CCPU was reversed with delay of 9 days due

to lack of effective follow up. In case of one FDD for Rs.13K paid in I/w clearing but respective GL was

debited in system with delay of 2 days. An I/w clearing cheque for Rs.3.000Mn was wrongly debited as

Rs.0.300mn in customer account and correction was made with delay of 2 days. Similarly another I/w

clearing cheque of Rs. 0.200mn was debited to wrong account and correction was made with delay of 2

days; cheque in question was also not available with the branch. Outward clearing returns were not

marked by using proper system option (ARC) resultantly undue credit remained in customers A/cs up to

12 days. 8 instances involving funds Rs.5.921mn were documented in the working papers.

On ten different occasions undue / excess credit upto Rs.2.500mn (total Rs.3.135mn) was afforded in

customer accounts and corrections were made with delay upto 16 days.

As on 1st day of audit very unusual state of affairs was noted in the branch as various important items /

record were found lying open / in table drawers of staff instead of keeping in safe custody / under dual

controls; undelivered cheque books were found in unlocked table drawer of a staff lying in main

banking hall. 18 packed credit cards were lying in the open drawer of an official. Various items were

lying in table drawer of an official which included 100 leaves cheque book of a customer containing a

blank cheque duly signed and stamped with company stamp, two stale cheques of customer accounts

totaling Rs.0.551mn, a confirmatory cheque for Rs. 1.000mn of a customer account, S.S cards of three

lockers, 8 duly signed S.S cards with CNIC Nos. written thereon without any account number, date or

stamp, duly signed blank letter head pad of a company carrying company stamp, blank cash memos of a

Shell Dealer and a cash memo for Rs.2650/- of a petrol pump. A cheque for Rs.2632/- fvg. a 3rd

party

was credited in the concerned staff without any endorsement.

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Different anomalies were noted in cheque book issuance; 12 cheque books were delivered to 3rd

parties

without obtaining any authority letter. Three cheque books were missing as neither the same were issued

to customer nor was any acknowledgement on record. 10 cheque books were delivered without obtaining

acknowledgements from customers as such it could not be ascertained that the same were issued to

genuine customers. 13 undelivered cheque books were kept beyond the 75 days retention period but not

destroyed as yet. Cheque books were delivered to customers without verification of their signature on

acknowledgment as a matter of practice involving risk of wrong / fraudulent delivery; despite occurrence

of two incidents of fraud due to issuance of cheque book in a customer account against forged / fake

requisition slip. Reminder letters to customers within 15 days of receipt of cheque books were not being

issued as a matter of practice.

While reviewing account opening / KYC profiling activity of the branch a number of lapses were noted;

an account of a university endowment fund was opened where AOF was not signed by two authorized

signatories and signature of other two signatories on AOF were not admitted. Specimen signatures of

signatories approved by the competent authority of Foundation University were also not available on

record. A private limited company account was opened without obtaining board resolution. Another

account of a private company was opened without admitting signatures on AOF. A govt. organization

account was opened without obtaining permission from one step above the individual operating the

account. Three accounts were opened without placing on record copies of CNICs of the customers,

signatures on AOFs were not admitted and AOFs not signed by any Branch Official. Two sole

proprietorship accounts were opened without admitting / verifying customers signatures on AOFs / sole

proprietorship declarations. AOFs of many A/cs were not signed by any official; 31 instances including

non individual accounts were documented in working papers. Account opening forms were not signed by

any 2nd

official in almost 70% cases showing non involvement of 2nd

person in account opening. KYC

profiling of 68 accounts having credit balance ranging between Rs.0.500mn to 8.806mn was not fed into

the system. KYC prints were not generated in 30 cases. Four non individual accounts are marked with

low risk category instead of High or Moderate. An account was opened on the strength of unsigned AOF

by the customer. Customers profession was not mentioned on AOFs of 8 accounts.

A number of lapses were noted in customer service of the branch; proceeds of 30 OBCs / HMT up to

Rs.1.164mn were credited in customer accounts with delay upto 17 days after receipt of fate / funds. The

branch was not in practice of sending reminders for OBCs not realized for more than 10 days. 66

instances involving funds up to Rs.0.986mn were documented where proceeds were realized with delay

up to 104 days. Two Advantage A/cs totaling Rs.15.800mn were booked late up to 42 days after receipt

of customers requests. On six occasions standing instructions of a customer to transfer USD 3000/- on

10th of every month were executed with delay upto 8 days. Normal BC / remittance charges were

recovered on remittances favouring educational Institutions instead of charging concessional rates as per

SOBC. Excess FBC charges totaling Rs.5750/- were recovered from customers on 14 occasions.

Inordinate delay was observed in recovery of mark up on finances; in case of a SBF limit Rs.9.500mn,

markup for the quarter ended on June11 was recovered with delay of 41 days and penal markup Rs.53K

was also not recovered. In various other cases mark up was recovered with delay causing opportunity

loss of Rs. 43K to the bank. Mark up totaling Rs.1.262mn for June12 quarter was outstanding in case of

17 finance limits awaiting recovery.

Two issues of last audit including short recovery of auto lease insurance Rs.0.281mn were still

outstanding.

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Short Recovery

Total excess payment/short recovery of Rs.110855/- was detected by audit out of which Rs.99692/- were

recovered and Rs.11163/- were yet to be recovered.

Khalid Mahmud

Team Leader

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High Risk Issues

The observations classified by Audit as High Risk are considered more serious in nature and warrant

immediate attention of Senior Management for resolution.

1. Fraudulent On Line Cash withdrawals Two incidents of fraud & forgery amounting to Rs.2.870mn & Rs.0.930mn were occurred in Jinnah

Avenue Branch Islamabad and Faizabad Branch Rawalpindi, when some unknown fraudsters

managed issuance of cheque books fraudulently and thereafter withdrew the amount through online

cash withdrawals from various branches including the auditee branch from where withdrawals

totaling Rs.0.910mn took place and concerned staff was found negligent while allowing

withdrawals. Refer below detail.

a. One cheque for Rs.0.450mn of A/c # 08617900224503 maintained by Syed Khalid Ali Warsi at Landhi Town Branch (0861), Karachi in which the funds were fraudulently transferred was paid

by this branch on 24.02.12. Mr. Muhammad Asif Mir-Cash Teller (UA5801), P # 459022

Inputter and Syed Qasim Hussnain Shah, Manager Teller (HQ01) P # 216442 supervisor were

held responsible for allowing withdrawals without observing banks laid down procedure

regarding online payments. Disciplinary action was recommended against both the staff,

however, final decision of the enquiry was yet to be received. P-104

b. One cheque for Rs.460000/- drawn on CD A/c # 1301-79000733-03 of Mr. Muhammad Kamran Abbasi of Faizabad Branch, Rawalpindi was fraudulently got encashed from this branch on

02.02.2012. Mr. Muhammad Asif Mir-Cash Teller (P# 459022) and Mr. Syed Qasim Hasnan-

Manager Teller (P # 216422) supervisor of transaction were again held responsible as Inputter

and Supervisor of the transaction for allowing withdrawals without observing banks laid down

procedure regarding online payments. Disciplinary action was recommended against both the

staff for fraudulent transactions and staff was reprimanded. P-105

Risk: Occurrence of such type of incidents involved financial and reputational risks.

Recommendations: Management should adhere to bank procedure to avoid such type of lapses in

future.

Management Response:

a. All the precautionary measures were observed at the time of payment. Enquiry was completed but the decision is still awaited.

RHQ Comments: While checking the branch record we observed that laid down procedure was

followed by the branch and all possible care was taken despite the fact that there remains rush at

our branch. Moreover, Final decision of enquiry has been received and case stands closed by the

enquiry committee Mr. Qasim Hasnain was just warned while Mr. Muhammad Asif Meer was

totally absolved from the charges.

b. All the precautionary measures were observed at the time of payment, however the staff was reprimanded.

RHQ Comments: Also, in this case it is observed that laid down procedure was observed and

required documents were obtained which are on record. Similarly report of enquiry committee

has been received and staff was reprimanded.

2. Weak Operating Levels i. Stop payment instructions received from three customers maintaining A/c # 08140018822603,

08140016947101 and 08147900030701 as back as 19.04.11 were not marked in the system till

date resulting in payment of one stopped cheque # 2166290 for Rs.66690/- on 12.05.11

pertaining to A/c 1882-26. P-37,38

ii. Mr. Lal maintaining A/c # 08140017587901 died on 12.03.2011 by leaving 7 legal heirs and entire credit balance Rs.5591.45 of the A/c was paid to his widow Ms. Jamil Begum through

Bankers cheque on 20.04.11 without obtaining consent of the other legal heirs. CNIC copy of

Ms. Jamil Begum was also not on record. P-59

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iii. On 11.05.2012 an O/w clearing cheque for Rs.0.610mn pertaining to A/c # 5454-36 was wrongly lodged twice in OBC (value date 14.05.2012) as well as in clearing; resultantly

proceeds through clearing were received in account on next day and OBC entry was still

outstanding in system the amount of which will be automatically credited in account on

completion of default period of 120 days. P-15

iv. During the course of audit it was observed that debit / credit entries irrespective of amount were being supervised by the supervisors in the system without referring source document / cheques.

Six instances of paid cheques totaling Rs.1.303mn were documented in the working papers. P-9

v. Many LFTs / BCs were issued through various A/cs without verifying customers signatures on remittance application forms involving risk of unauthorized / fraudulent transfer of funds. Eight

such instances involving amount upto Rs.21.500mn were documented. P-20,21

vi. Stamps on Hand were short by Rs.5800/- due to non recovery from customers against stamp papers utilized on their behalf as the GL-901273 was showing balance of Rs.38600/- whereas

the stamps worth Rs.32800/- were physically available in the branch. P-79

vii. An amount of Rs.8000/- being the payment made to outsource trainers for staff training on 02.07.11 by debiting GL # 901215 Suspense A/c Sundry debtors was still outstanding in that

head and branch was totally ignorant about that debit till pointation by audit due to non

monitoring of GLs. P-64

viii. A sum of Rs.1.117mn was paid from 9 different customer account A/cs through cash debit vouchers on different dates but confirmatory cheques were yet not obtained. P-10

Risk: Weak controls leading to operational and financial risks.

Recommendation: Management should follow bank procedure and resolve the pointed out issues.

Management Response: i. Stop payment instructions withdrawn by account holder in one case, revocation now shown to

auditor. RTD 14.09.2012 for 2nd

case.

RHQ Comments: Stop Payment Marked on 12-07-2012 against account Number

08147900030701 and against account Numbers 08140016947101 & 08140018822603.In one

case cheque had already been paid and in other two cases stop payment request withdrawn by

the customers.

ii. CNIC copy of Ms. Jamil begum and signature of Mr. Muhammad Shakoor obtained on 12.07.2012. For remaining RTD 14.09.2012.

RHQ Comments: Copy of CNIC of Mst Jamil begum and signature of Muhammad Shakoor

obtained on 12-07-2012. Consent of other legal heirs also obtained.

iii. Regretted, now entry reversed. iv. Now correct practice started. v. Regretted, non Repetition assured. Signatures are now verified. vi. Now balanced on 13.07.12

RHQ Comments: Rs. 4700/- recovered on 06-07-2012 and remaining recovered on 10-07-2012

& 12-07-2012

vii. Two staff of credit hub attended this course, amount was debited by CDA branch, RTD 14.09.12.

viii. Regretted, RTD 14.09.2012. RHQ Comments: Three confirmatory cheque were obtained for remaining RTD 14-09-2012

3. Lockers / ATM Operations a. Rent Rs.1811756/- has become over due on 221 lockers due to lack of follow up. Moreover rent

on 113 lockers was overdue for more than 2 years but break opening process was yet not

initiated. P-4,5,6

b. As per AOF locker # 358 was allotted to Mr. Shahid Rehman Khokhar & Miss. Rehana maintaining A/c 0814-00143791-01 on 23.12.1996, operational instructions for the locker was

either or survivor but A/c # 0814-00550091-01 title Abida Jabeen was linked with the locker

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and Mrs. Abida Jabeen operates the locker instead of locker holders. SS Card of the locker was

not available at branch record. P-7

c. As on 1st day of audit (06.07.2012) keys of 8 vacant lockers # 10,157,352,401,929,977,981 & 982 were not available / shown to audit involving risk of unauthorized / misuse of the same. P-1

d. ATM cards and PINs were delivered to customers without verifying their signatures as a matter of practice involving risk of wrong delivery. P-2

e. While reviewing disposal / delivery of ATM cards received by the branch due to non receipt of the same by the customers at their given addresses it was noted that in case of 236 cards no

information was available that whether the same were delivered to customers or destroyed after

completion of requisite formalities. Besides 619 undelivered ATM cards were lying in the

branch for more than 15 days but not destroyed as yet. P-1,2

Risk: Weak supervisory controls and non meeting of laid down criteria involved financial and

operational risks.

Recommendation: Management should look into the matter and resolve the pointed out issues and

ensure proper control.

Management Response: a. Reminders were already sent to customers two times, Break opening of overdue lockers more

than 2 years is under process RTD 14.09.2012.

RHQ Comments: Cautioned marked and operation stopped. Reminder letters sent by HOK.

Second reminders were already served. Break opening is under process.

b. RTD 14.09.2012. RHQ Comments: Mr. Shahid Rehman Khokhar is employee of HBL presently he is posted in

Bahrain. He is maintaining locker 358 joint with Rehana Shahid and Abida Jabeen (his aunt)

with the instructions E/S Locker account opening form and SS card are available in our record.

We have talked to Mr. Shahid Khokhar and he provided us his staff account # 06097900095801.

Now staff account tagged with locker for recovery of rent.

Auditors further comments: As per available record locker was in the name of two persons

excluding Abida Jabeen. The matter should be properly handled and resolved accordingly.

c. Keys of locker#, 352, 401 &977 were found and shown to auditors for remaining RTD 14.09.2012.

RHQ Comments: Out of 8 lockers, locker #10 was rented, keys of locker # 157, 977, 352 and

401 were found. We are trying our best to locate the remaining 3 keys. We have marked caution

and further there is no chance of any misuse. RTD 15.09.2012

d. Regretted, now correct practice started. RHQ Comments: All the signatures of ATM card delivery and PIN code delivery register are

now verified.

e. Now undelivered cards destroyed. RTD 14.09.2012 for location of missing cards. RHQ Comments: All undelivered ATM card destroyed and sent to card operation for

cancellation. 236 missing card are located and destroyed. We assure, in future extra care will be

exercised while delivering ATM cards to customers through branch.

4. Clearing Operations Clearing Operations of the branch were found unsatisfactory as a number of exceptions of serious

nature were noted:

a. Sundry Assets (Clearing) GL-884200 was showing excess debit balance of Rs. 36,656,364.33 since 28.06.2012 as the amount pertaining to Sundry Assets (OBC) GL 884300 was wrongly

debited to this GL. P-65

b. As per procedure lodgment of Islamabad clearing is to be done by debiting Sundry Assets GL -884200 while fate is received from NIFT in Sundry Assets GL-884300. Therefore, branch has to

transfer credit received in GL-884300 to Clearing GL-884200 but it was noted that on various

occasions those credits upto Rs.20.616mn were transferred with delay upto 5 days resulting in

mismatch in those GLs. 13 instances pertaining to June 2012 were documented. P-65

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c. 4 inward clearing cheques involving funds up to Rs.1Mn were debited to customers accounts with delay of 1 & 8 days after clearance of fate to presenting banks. P- 66

d. On 01.02.2011 CCPU wrongly debited an amount of Rs. 60,000/- to Sundry Assets GL -884200 of this branch and reversal was got done on 10.02.2011 with delay of 9 days due to lack of

effective follow up with CCPU. P-67

e. A FDD for Rs.13000/- was paid in I/w clearing on 14.09.11 but amount was debited to respective GL in the system on 16.09.2011 with delay of 2 days.P-67

f. An I/w clearing cheque for Rs.3.000Mn was wrongly debited as Rs.0.300mn to A/c # 0814-00214688-01 on 28.11.2011 and difference amount Rs. 2.700mn was debited on 20.11.2011

with delay of 2 days; however, funds remained intact. Another I/w clearing cheque of Rs.

0.200mn pertaining to A/c # 08140020914601 paid in I/w clearing on 23.07.2011 was debited to

A/c on 25.07.2011 with delay of 2 days; cheque in question was also not available at branch. P-

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g. Outward clearing returns were not marked by using proper system option (ARC) resultantly undue credit remained in customers A/cs up to 12 days. 8 instances involving funds Rs.5.921mn

were documented in the working papers.P-68,69

Risk: Weak controls / procedural deviations may lead to operational and financial risks.

Recommendation: Management should follow bank procedure and resolve the pointed out issues.

Management Response: a. This amount pertaining to Islamabad clearing was credited in GL-884300 but lodged in sundry

asset GL-884200 now reversed and balanced.

b.-g. Regretted, non repetition assured.

5. Undue / Excess Credit a. Cash Rs. 22,660/- deposited in A/c # 08140000536303 title P.I.A.C Collection A/c was

wrongly credited to A/c # 08140021304703 Title CAA Collection A/c on 27.04.2011. The

entry was reversed on 29.04.2011 with delay of 2 days. P-7

b. Cash receipt voucher for Rs. 117,795/- of A/c # 08140041516003 title Pakistan Handicrafts was wrongly posted in A/c # 08140015785103 title PIA Islamabad on 03.05.2011 and entry

was reversed on 21.05.2011 with delay of 16 days. P-8

c. Cash Rs. 100,000/- deposited in PIA Islamabad A/c # 08140015785103 was wrongly credited to A/c 08147900218001 title Mr. Adnan Razaq on 16.01.2012 and entry was reversed on next

day. P-8

d. Cash Rs. 200,000/- deposited in A/c # 08140015682601 title Mubashir Abbas Malik was wrongly credited to A/c # 08140015785103 in the name of PIA on 25.02.2011 and entry was

reversed on next day.P-8

e. Cash Rs. 32,500/- deposited in A/c # 13420010843601 title Muhammad Arif Mahmood was wrongly credited to A/c # 13420013682901 title Tanvir Ahmad Malik on 22.12.2011 and

entry was reversed on 26.12.2011 with delay of 4 days when the customer approached the

branch. P-8

f. An O/w clearing cheque for Rs.59070/- deposited in A/c 08140020284701 title Mazhar Ali Khan was wrongly lodged in A/c # 08140000536303 PIAC Collection on 27.01.2011 which

was reversed on 02.02.2011 with delay of 5 days. P-67

g. A cheque for Rs. 25,000/- deposited in A/c # 13017900046303 title Sabat Qadam Security SVS Pvt. Ltd. was wrongly credited to A/c # 13017900064303 titles Good Way Enterprises on

27.12.2010 and entry was reversed on 30.12.2010 with delay of 3 days. P-8

h. Two O/w clearing cheques of Rs.2.5Mn pertaining to PTDC A/c # 22060050009501 were wrongly lodged in A/c # 08140050009901 Title M Raza Khan on 05.04.11 and amount was

reversed on 07.04.2011 with delay of 2 days. P-67

i. On 18.04.2011 a cheque # 08610781 for Rs. 69,885/- drawn on CAA Disbursement A/c # 08147027145201 was deposited in A/c # 08147900084603 title Muahmmad Ayaz but

beneficiarys A/c # 08147900084603 was wrongly debited by overriding the cheque series

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option instead of debiting CAA account and reversal of the entry was made when the customer

approached the branch on 25.04.2011 with delay of 7 days. P-7

j. An OBC of Rs. 8000/- was lodged in normal clearing in A/c # 5394-51 on 02.03.2011 and account was credited on 03.03.3011 with normal clearing but A/c was again credited on

realization of OBC on 07.03.2011, wrong credit of clearing was reversed on 08.03.2011 with

delay of 5 days. P-68

Risk: Weak controls leading to operational and financial risks.

Recommendation: Management should follow bank procedure and resolve the pointed out issues.

Management Response: Regretted, non repetition assured.

6. Unusual State of Affairs As on 1

st day of audit various important items / record were found lying open / in table drawers of

staff instead of keeping in safe custody / under dual controls; refer below detail.

i. Undelivered cheque books were lying in unlocked table drawer of Mr. Nasir Taqi Ali lying in main banking hall. P-34

ii. 18 packed credit cards were lying in the open drawer of Mr. Raza Shah, AM. P-33 iii. Following items were found lying in locked table drawers of Mr. Raza Shah AM. P-31 to 35

a. 100 leaves cheque book pertaining to M/s Aman Traders A/c # 04897000251003, first 25 leaves were already used from the cheque book, blank cheque # 3765126 duly signed and

stamped with company stamp, cheques # 3765127 42 were stamped with company stamp,

cheque # 3765143 was used and remaining cheques # 3765144 200 were blank.

b. Duly signed & crossed stale cheque # 6874026 dated 19.12.11 for Rs.500000/- favouring Haider Ali pertaining to A/c # 0814020338803.

c. Duly signed stale cheque # 4885426 for Rs.51000/- dated 04.10.2007 of A/c # 04890083987403.

d. Confirmatory cheque # 5861905 for Rs. 1,000,000 dated 10.09.11 of A/c # 08147900224203 e. Duly signed cheque # 0638152 for Rs.2632/- dated 24.03.2011 of University of the Punjab

A/c # 01330000182203 favouring Ms. Farah Naz Rawalpindi Cantt (suptt MA/MSc). The

cheque was signed by Farah twice at the back and her signature was also verified with

instructions to credit A/c # 04890031600801 in the name of Mr. Raza Shah without any

endorsement and amount was credited in his A/c on 08.04.2011.

f. S.S cards of lockers # 114, 271 & 325 were lying in the drawer of Mr. Raza Shah. Moreover, signature on S.S card of locker # 271 was not verified.

g. S.S cards of lockers # 117,496 & 1082 surrendered in 2007-08 instead of attaching the same with the respective locker AOFs.

h. 8 duly signed S.S cards with CNIC Nos. written thereon without any account number, date or stamp.

i. Duly signed blank letter head pad of M/s Saeed & Company along with company stamp. j. Blank cash memos of Javaid Brothers Shell Dealers. k. A cash memo for Rs.2650/- dated 07.06.12 of PSO Service Station 20, The Mall

Rawalpindi.

Management Response: i. Lapse regretted. Lock was out of order which is now repaired. Cheque books now kept in dual

control. Non repetition assured.

ii. These are undelivered cards received. Informed the customers to collect the same and now placed in dual control.

iii. a. While visiting the branch by my cousin, Cheque book remained with branch due to bad weather. However, the same handed over to account holder against proper acknowledgement

receipt and shown to auditor. b. Stale cheque pending due to signature difference. Customer

informed to collect the same. RTD 14.09.2012. c. Lapse regretted. Stale cheque of 2007.

Informed the customer to collect the same. RTD 14.09.2012. d. Omission regretted.

Confirmatory cheque attached with the voucher. e. Regretted, the cheque pertained to the teacher

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of my daughter who does not have account in HBL so I paid her the amount and credited the

cheque in my account. Now endorsement done at back. f. Omission regretted. Cards verified and

placed in box. g. Lapse regretted. Non repetition assured, now attached with AOFs. h. Extra card

obtained while opening of account. However account number mentioned/admitted. i. Letter pad

was forgotten by the company worker which was kept safe in the drawer, returned back to him

on 10.07.2012. j. While depositing clearing cheque, the same were left by customer on table.

However the same handed to representative of Javaid Bros on 10.07.2012. k. While filling of

fuel by family member receipt obtained which kept in drawer. Its personal expenses.

7. Anomalies in Cheque Book Issuance Following anomalies were noted in cheque book issuance. P-60 to 62

a. 12 cheque books were delivered to 3rd parties without obtaining any authority letter. b. 3 cheque books were missing as neither the same were issued to customer nor was any

acknowledgement on record.

c. 10 cheque books were delivered without obtaining acknowledgements from customer as such it could not be ascertained that the same were issued to genuine customers.

d. 13 undelivered cheque books as old as of 01.03.12 were kept beyond the 75 days retention period but not destroyed as yet.

e. Cheque books were delivered to customers without verification of their signature on acknowledgment as a matter of practice involving risk of wrong / fraudulent delivery. It is

pertinent to mention here that two incidents of fraud has also occurred in the branch due to

issuance of cheque book in a customer account against forged / fake requisition slip.

f. Reminder letters to customers within 15 days of receipt of cheque books were not being issued as a matter of practice.

Risk: Weak controls involve operational and financial risks.

Recommendation: Management should follow bank procedure and resolve the pointed out issues.

Management Response: a. RTD 14.09.2012

RHQ Comments: Authority letters obtained from all customers and placed in branch record,

b. RTD 14.09.2012 RHQ Comments: Proper acknowledgment obtained

c. RTD 14.09.2012 RHQ Comments: Acknowledgement obtained in register.

d. Destroyed as on 12.07.2012 by 2 attorneys e. Regretted. Correct practice maintenance assured. f. Regretted. Correct practice maintenance assured.

8. Account Opening While reviewing account opening / KYC profiling activity of the branch following irregularities of

serious nature were observed.

a. A/c # 08147900560803 titled Foundation University Endowment Fund was opened with following anomalies: P-40

i. Signature of two out of four signatories namely Professor Dr. Aftab Ahmed and Air Cdre Tanwir ul Islam were not available on AOF and signature of other two signatories on AOF

were not admitted by Branch Manager or Manager Operations.

ii. Specimen signatures of signatories approved by the competent authority of Foundation University were also not available on record.

iii. Copies of CNIC of signatories of the account were not compared and matched with original from both sides.

b. A/c # 08147900608403 titled Rafi Builders (Pvt.) Ltd. was opened without obtaining the Board Resolution, signature on list of directors were not admitted by Manager Operation or A/c

11

opening Official, copy of NTN certificate was not obtained and an application form for freedom

account appended along with AOF was not signed by any concerned bank officer. P-41

c. A/c # 08147900465803 was opened in the name of M/s IBEX Engineering (Pvt.) Ltd without attesting the copies of CNICs of directors and signature of the signatories were also not admitted

on AOF. P-41,42

d. A/c # 08147900432701 was opened in the name of HQ Frontier Works Organization (FWO) but permission from one step above the individual operating the account was not obtained, instead

the signatory himself requested to open the account, copies of CNICs of signatories were not

attested and AOF was not signed by any branch official.P-42

e. A/c # 08147900560501 & 08147900560303 were opened without obtaining copy of CNIC, KYC was not printed and attached with AOFs, customers signatures were not admitted on

AOFs and AOFs were not signed by any Branch Official. P-40

f. A/c # 08147900433803 & 08147900557603 were opened in the name of M/s The Uni Reflection & GOA Outreach (sole proprietorship concerns) without admitting / verifying the sign on AOF /

Sole Proprietorship Declaration and AOF was not signed by any official. Copy of CNIC of

account holders was not compared and matched with original from both sides. P-42,41

g. AOFs of many A/cs were not signed by any official; 31 instances including non individual A/c # 79004494, 4500, 4719, 6253, 6427, 6429 were documented in working papers. P-46

h. Account opening forms were not signed by any 2nd official in almost 70% cases showing non involvement of 2

nd person in Account opening. 28 instances were documented in working

papers. P-43

i. KYC profiling of 68 accounts having credit balance ranging between Rs.0.500mn to 8.806mn was not fed into the system. P- 49 to 51

j. KYC prints were not generated in 30 cases and not signed by any official in 4 cases. P-44 k. 4 non individual accounts are marked with low risk category instead of High or Moderate as per

SBP instructions for separate legal entities. P-52

l. CD 50 forms were not got signed by the illiterate A/c holders in case of A/c # 79004133, 4717, 4802 & 4832. Form CD-50 of six photo accounts were not signed by any branch official in token

of having read the photo A/c instructions before the customers for their understanding. P-45,47

m. A/c # 08147900483903 was opened on the strength of unsigned AOF by the customer.P-45 n. Customers profession was not mentioned on AOFs of 8 accounts. P-45 o. Copy of CNIC for A/c # 08147900505910 was not obtained and attached with the AOF for

record. P-47

p. Student ID card or proof of similar nature was not obtained regularly, 4 accounts were pointed out in working papers.P-47

Risk: Chance of opening of unscrupulous accounts. Weak controls involved operational, financial

and regulatory risks.

Recommendation: Management should follow banks laid down procedure and resolve the pointed

out issues.

Management Response:

a. No transaction after opening of account. We have now marked the account closed. b. Signature and Freedom account application form signed. For remaining ambiguities RTD

14.09.2012

c. Copies of CNIC verified. Signatures now admitted on AOF. d. For obtaining permission letter RTD 14.09.12. CNIC now verified/matched and AOF now

signed by both officers.

e. Needful done. f. Needful done now. g. Now signed. h. Omission regretted. Now AOF signed. i. Lapse regretted. RTD 14.09.12 j. KYC now printed and attached with AOF and signed.

12

k. Omission regretted. Now marked high risk. l. Omission regretted. Now CD-50 signed by Manager. RTD 14.09.12 m. RTD 25.07.12

RHQ Comments: AOF now signed by the account holder.

n. Now profession of the customer on AOF mentioned through KYC. o. RTD 15.09.12

RHQ Comments: Copy of CNIC now obtained and attached for Br record.

p. Out of 4 accounts, 3 ID/ proof obtained and attached with AOF for one RTD 14.09.12

9. Customer Service i. Proceeds of OBCs up to Rs.1.164mn were credited late after receiving fate in Sundry Asset GL-

884200 in customers A/c 18 instances of delay ranging between 5 to 7 days were noted. P-14,15

ii. Branch was not in practice of sending reminders for OBCs not realized for more than 10 days. 66 instances involving funds up to Rs.0.986mn were documented where proceeds were realized

with delay up to 104 days. P-12 to 14

iii. Proceeds of HMTs involving funds up to Rs.0.662mn were credited in the respective customers A/cs with delay of up to 17 days after receipt of funds. 18 instances were noted. P-16,17

iv. Two Advantage A/cs totaling Rs.15.800mn were booked late up to 42 days after receipt of customers requests as per the dates on AOFs.P-23

v. Standing instructions of A/c # 0814-00605850-11 to transfer USD 3000/- on 10th of every month to A/c # 1305200413057118728 (Canada) were not followed as delay ranging between 2 to 8

days was noted on six different occasions. P-58

vi. Normal BC / remittance charges were recovered on remittances favouring Educational Institutions instead of charging concessional rates as per SOBC.P-20

vii. Excess FBC charges totaling Rs.5750/- were recovered from customers on 14 occasions.P-96 Risk: Lapses in customer service may adversely affect the bank business.

Recommendations: Branch needs to endeavor for excellent customer service.

Management Response:

i. Regretted, non repetition assured. ii. Regretted, now correct practice started. iii. Omission regretted. iv. In case of Rs.1.500Mn the issuance was withheld on the verbal instructions of depositor, non

repetition assured.

v. Lapse regretted. Non repetition assured. vi. Regretted, Non repetition assured. vii. Regretted, non repetition assured.

10. Delay in Mark Up Recovery Inordinate delay was observed in recovery of mark up on finances; refer below delay.

a. In case of SBF A/c # 0814-79002497-03, title M/s. Razia Kidwai, limit Rs.9.500mn, markup for the quarter ended on June11 was recovered on 11.08.11 with delay of 41 days, and penal

markup amounting Rs.53341/- was not recovered from the customer.

b. Quarterly mark up servicing was not done timely i.e. within 7 days from due date as delay up to 42 / 87 days was noted in case of 6/3 SBF/ RF limits.19 & 15 instances totaling Rs.3.235mn &

2.034mn were reported respectively resulting in opportunity loss of Rs. 43K to bank income. P-

80 to 82

c. Mark up totaling Rs.1.262mn for June quarter was outstanding in case of 17 finance limits as of audit date and not recovered as yet. The branch was advised to recover the outstanding markup.

P-83

Risk: Delay in recovery of Mark up leading to financial risk / loss.

Recommendation: Branch was advised to recover the mark up on timely basis.

Management Response:

13

a. Rs.53341/- recovered on 13.07.12. b. Regretted, non repetition assured. c. RTD 14.09.12

RHQ Comments: Rs. 1,194,549.52 recovered for remaining i.e. Rs. 67071.38 RTD 14.09.12

11. Short Recovery Total excess payment/short recovery of Rs.110855/- was detected by audit out of which Rs.49304/-

were recovered and Rs.61551/- were yet to be recovered as per detail given below. P-21,39,53-

56,58-60, 87,88,90,91,93,95,98,99

Page # Amount Detail

39 150.00 Stop Payment Charges

53,54 12243.00 ATM Annual Charges

55,56 19600.00 A/c Service Charges

58,59 1692.00 Standing Instructions Charges

59,60 1160.00 Deceased A/c processing Charges

66 1160.00 Special Clg Chgs

87,88 20010.00 Limit Processsing Charges

90,91 2320.00 Handling Charges

90,91 232.00 EDS Commision

95 2984.00 FBC Charges

Risk: Leakage of income is direct loss to the bank.

Recommendation: Management should strengthen controls to avoid leakage of income and recover

the pointed out amount.

Management Response: RTD 14.09.12

RHQ Comments: Out of remaining recovery Rs.61551/- a sum of Rs.50383/- further recovered.

RTD 14.09.12 for the rest amount

14

Medium Risk Issues

The observations classified by Audit as Medium Risk are considered less serious in nature and need to

be resolved early by the management of auditee branch under close supervision and monitoring of Senior

Management.

12. Last Audit Issues a. Mr. Naseeb Ali Khan SM-1 posted at Air Port Booth, Islamabad Airport since 31.05.1997 was

not transferred / rotated despite of repeated audit exceptions.

b. Auto Lease Insurance Charges Rs.281383/- were not recovered as yet. Management Response:

a. Matter pertains to RHQ. b. Out of 18 cases 10 cases for Rs. 218,804 are NPL cases (Loss). In 5 Cases for Rs. 36,303 NOC

had already been issued in the year 2007 customers are not traceable. For remaining 3 Cases of

Rs. 26,276 Rs. 18362/- already recovered. We have also raised the memorandum for waiver of

remaining auto insurance. RTD 14.09.12

13. NPL Portfolio 39 Personal loans and 11 Auto loans having PDB totaling Rs.2.915 + non accrual markup

Rs.1.658mn and PDB totaling Rs.2.388 + non accrual markup Rs.1.114mn respectively were main

part of the classified portfolio. No follow up for recovery of stuck up funds was available with the

branch. In few cases, small amounts up to Rs.24K were outstanding. P-84,85

Management Response: We will make follow up for recovery of outstanding Auto finances, follow

up for personal loan is being made.

14. Expenditure i. A sum of Rs. 187,423/- pertaining to 6 different GLs was wrongly debited to Maintenance

Charges GL 917510 as per following details. Similarly expenditure vouchers totaling Rs.3K

were also posted in wrong GLs of expenditure.P-70 to 74

No. of

Instances

Amount

Actual

GL Head of A/c On A/c of

36 103470.00 917508 Other Incl Gas Drinking water charges

06 28350.00 917508 Other Incl Gas Diesel Charges

37 20445.00 917901 Printing & stat P/ S including Photocopies

11 10625.00 918026

Maint Off

Equip

Maintenance of Office

Equipment

04 7040.00 917186 F&F < Rs.10K F &F items costing < 10K

01 1288.00 917701 Postages Postal Charges

01 16205.00 916035 Data Cabling Power cabling

ii. Expenditure on diesel for generator is on quite higher side as a budget of Rs.436,363.40 was allocated for GL 917508 (Others Incl Gas) for the year 2012 but branch has already incurred a

sum of Rs. 452,145/- during the half year (Rs. 320,325 by debiting GL 917508 and Rs. 131,820

mis posted in GL 917510) exceeding the annual budget by Rs. 15,782/- in half year. P-74

iii. Cash sorting charges Rs.11060/- were paid on 31.05.2012 without obtaining the approval from competent authority.P-7

iv. Bills of following expenditure totaling Rs. 0.823mn debited on 42 occasions through cross branch transactions were not available in the branch. P-75 to 78

15

Instances Amount GL On A/c of

21 0.478 918018 Cash Transportation Charges

19 0.326 917901 Printing & Stationery

01 0.003 916035 Debited by IT Deptt

01 0.016 917510 Maintenance Charges

v. Surrendered locker keys are no more to be replaced as per P/Inst 3197 dated 23.02.2011, but an amount of Rs.1500/- was paid for replacement of 3 lockers keys on 24.02.11 against the

instructions. P-74

vi. The branch is paying Rs. 2,000/- per month to Mr. Iqbal Masih for cleaning charges at Airport Booth and Rs. 12,000/- have been debited to GL 916040 in this regard in year 2012 but approval

of the same is not available. Moreover, charges for May 2012 were not disbursed to him as yet

and Charges for the month of April 2012 were disbursed from GL 917510 Maintenance Charges.

P-74,75

vii. Although the branch is having a photo copy machine but photo copy charges amounting to Rs. 5,171/- were incurred by debiting Maintenance Charges GL 917510 during audit period. P-76

viii. Cost of SIM Rs.600/- (purchased for security alarm) was wrongly debited to Income GL 912303 on 11.01.2012 instead of debiting GL 918035.P-70

Management Response: i. Regretted for entries pertaining to year 2011. Entries pertaining to year

2012 reversed into correct GLs on 12.07.2012. ii. We were trying our best to curtail these expenses but

were unable to do that due to increase in diesel prices and load shedding timings. Regretted, RTD

14.09.2012 for excess over limit budgets approval. iii. iv. v. vi. RTD 14.09.2012. vii. The photocopy

machine of the branch remained out of order during those periods which is now working perfectly. viii.

Regretted, now reversed in correct GL.

15. Other Issues in Cash / ATM a. Cash exceeding the safe in limit of Rs.110.00mn was not reported for Insurance on regular basis,

12 instances of excess cash to the tune of Rs.48.790mn were found unreported while checking

the aspect on test basis. P-6

b. Branch did not adhere to instructions of keeping required FCY cash on hand i.e. up to 1% of the FC deposits. FCY cash on hand was kept up to 2.41 % of the FCY deposit, 5 instances were

noted while checking the aspect on sampling basis. P-100

c. Handing / taking over the charge of cash by branch staff and relievers was not documented during the audit period. P-6

d. Cash Shortage GL-901211 was frequently debited by Kashmir Road branch (pool branch) but no documentary evidence of shortage was sought from that branch, 10 instances involving a sum of

Rs.2K were pointed out. P-9,10

e. FC accounts maintained at the branch comprise of 3 currencies i.e. USD, GBP and EURO whereas SAR 4149/-, CAD 3852/-, CHF 200/- & AED 5015/- were also kept without any

purpose. Furthermore, denomination wise details of foreign currency notes was not prepared for

these currencies instead lump sum figure was mentioned on cash position. P-98

f. Record of ATM applications not processed for one reason or the other was not maintained, some of the latest applications found in the drawer of ATM Cards custodian show that the same were

returned due to difference in contact number with MISYS on AAE screen. 13 instances of last

month were documented in the working papers. P-3,4

g. Branch was not in practice to obtain the copy of CNIC of customers while delivering the ATM cards.P-3

h. Branch was not in practice to round off the amount of deposits / withdrawals and coins GL showing the paisas and branch made the paisas entries regularly in violation of HOK circular #

P-INST-3357 dated 08.03.2012; branch is advised to follow the HOK circulars.P-6

Management Response: a. b. Regretted, non repetition assured. c. d. g. h. Regretted, now correct

practice started. e. For disposal of this FC, RTD 14.09.12. All the above mentioned FC is now

16

denomination wise mentioned on cash position. f. Now and onward record will be maintained

properly and now application will be sent after proper scrutiny.

16. TRFs a. An I/w clearing cheque for Rs.6833/- was debited to A/c # 08140021453101 on 24.05.2012

against the credit balance of Rs. 530.24 hence TRF of Rs. 6302.76 was created. The fate was

given to HBFCs CMD account, fate was recalled from HBFCs CMD account into sundry

assets GL 884200 in order to adjust the TRF which was received on 30.05.2012 and the TRF

was adjusted. The cheque was not returned as yet. P-35

b. A LFT for Rs.10000/- pertaining to A/c # 08047900093303 was wrongly executed in A/c # 08147900093303 on 20.08.2011 by Karachi Vegetable Market Branch (1213). The amount was

withdrawn by customer through ATM on 20.08.2011 and 24.08.2011 leaving a balance of Rs.

530.60 only. On 26.08.2011 the amount was reversed by Karachi Vegetable Market branch

without any intimation to this branch creating a TRF of Rs. 9469.40 which was adjusted in

piecemeal i.e. Rs.6000/- 1800/- & 2090/- on 29.08.2011, 01.02.2012 & 17.04.2012 by

depositing cash, online credit and by debiting Routing A/c of that Branch respectively but Post

Facto confirmation of the TRF was not sought. P-35,36

c. Post facto approval of following TRFs totaling Rs. 55,864 was not obtained.P-36

Management Response: RTD 14.09.12 for returning the cheque and post facto approval.

17. Stop Payments a. Stop payment applications in respect of 21 stop payments marked in the system were not

available on branch record. P-36,37

b. Stop payments instructions pertaining to A/c # 5413-77, 18518-3 & 79002955 were marked with the delay of up to 2 days.P-38

c. The branch is not in practice to record date and time of stop payment received from the customer, instead date and time of stop payment marked is recorded against the instructions

which may result in dispute in case a stopped cheque is paid. Refer A/c # 14635-9, 48479-5,

9622-5, 79006179 P-38,39

d. Customers signatures on stop payment requests were not verified refer A/c # 48479-5, 55298-8 & 79004398 P- 38,39

e. Stop payments of A/c # 52-82 & 16762-7 were marked on the strength of fax copy of stop payment request dated 24.05.11 & 16.12.11but original letters were not obtained as yet. P-39

Management Response: a.RTD 14.09.2012 b. Regretted. Non repetition assured. c. Date and Time

now mentioned on Stop Payment letters, noted for future. d. Customers signatures verified now. e.

Requested the customers to provide us original letters RTD 14.09.2012

18. Remittances a. Bankers Cheque (# 7061712) for Rs.20Mn was issued in favor of Mr. Tallet Zareef Satti A/c #

08140054218703 on 03.07.12 on the strength of photocopied/scanned remittance form without

receiving original remittance form; moreover, KYC profiling & signature verification was also

not done. P-19

b. Source of funds/purpose of remittance was not mentioned on foreign outward remittance forms. 4 instances totaling $ 0.474mn up to $0.250mn were reported in working papers while checking

the aspect on test basis.P-99

A/c # TRF Reason Dated Adjusted on Adjusted through

7900524703 3,672.80 Transfer debit 04.07.12 05.07.12 Salary

7900290401 17,717.70 Cash 01.11.11 02.11.11 Transfer - Credit

5904-4 34,293.57 Transfer debit 30.12.10 14.01.11 3 Cash deposits

17

c. Remittance Application forms were not completely filled as to meet AML / KYC requirements i.e. purpose of remittance, source of funds and relationship with beneficiary etc. was not

mentioned on a number of application forms. P- 17,18

d. The branch was not maintaining any record of inward foreign remittances for audit review. P-100

e. Branch copies of Banker Cheques were not initialed as a matter of practice while issuing the bankers cheque. P-18,19

Management Response: a. He is our very valued customer, now a days he is in Saudi Arabia for

Hajj & Umra arrangements. He requested for the issuance of bankers cheque on scanned copy of

remittance form & promises to provide original form very soon. RTD 14.09.12 b. Now mentioned. c.

d. e. Regretted, noted for future compliance.

19. Advantage A/c Deal Booking a. No system was in place for delivery of Confirmation of Deposits to the depositors as such it

could not be ascertained that whether CoDs were delivered to the respective depositor or not.

Confirmations of Deposits were either not delivered to the depositors or acknowledgement for

the delivery was not obtained. CoD of Advantage A/c # D1M/11/02 for Rs.0.100 was delivered

to 3rd

party in absence of any authority letter. P-22

b. Branch management was not regular in verifying the depositors signature on AOFs for booking of Advantage A/c as 22 instances totaling Rs.15.650mn were pointed out in working papers.

Many of such Advantage A/cs were also paid. P-22

c. Applications for premature encashment of Advantage A/cs were not filed properly (with the relevant AOFs) as such the same pertaining to many Advantage A/cs were not available on

branch record. P-23

d. Account Opening forms of 4 Advantage A/cs totaling Rs.5Mn were not available on record. P-23

e. Advantage A/cs were booked with rollover option without getting the instructions checked by the depositors. 6 instances totaling Rs.4.600mn were pointed out in working papers. P-23

f. Branch management was not in practice of writing the date on AOF on the date of receipt as many AOFs were still undated. P-23

g. Advantage A/c No. is not being mentioned on AOF as a matter of practice. P-24 h. AOFs of Advantage A/cs were not being filled properly i.e. in chronological order. P-24 Management Response: a. Correct practice started from now onwards, RTD 14.09.12. b. Signature

verified in all the cases, non repetition assured. c. d. RTD 31.07.12. e. All these Advantage A/cs

were issued on the instructions of customers, we assure to get the instructions checked invariably in

future. f. Practice started. g. h. Non repetition assured.

20. Trade a. Export documents valuing USD 14000/- pertaining to M/s. Valor Pharma were sent on

collection basis on 18.05.12, however while reviewing the documents it was noted that the copy

of Airway bill was not available with the branch.P-89

b. The branch was not in practice to verify customer signatures on E forms. P-89 c. Branch stamp was not affixed on the E form stock available with the branch. P-90 Management Response: a. Copy of Airway bill now obtained. b. Now verified and noted for

compliance. c. Now affixed.

21. Clearing / Collection a. Two cheques amounting to Rs. 23.123mn favoring PTDC A/c 0814-79002498-01 were lodged

in special clearing on 02.02.2012 but charges Rs. 1160/- were recovered by debiting GL-884200

instead of partys A/c, which were reversed on 14.03.2012 with delay of 40 days by debiting the

GL-912083. P-66

b. NIFT scrolls were not entry wise checked by the Officer In Charge as a matter of practice. P-69

18

c. Branch was not in practice to printout the OBC lodgment register on daily basis. P-15 d. Lodgment vouchers were not being passed in the system in case of FBCs. P-97 e. 2 FBCs of $ 3194/- sent on collection basis on 06.06.12 were not realized for even more than a

month but follow up was not made for realization. P-97

Management Response: a.. Regretted, now charges recovered from party account. b. Regretted,

now correct practice started. c. Regretted, now correct practice started. d. Noted for compliance. e.

Both the FBCs stand realized on 09.07.12

22. Letters of Guarantee a. A sum of Rs.0.227mn was outstanding in 6 margin accounts but no funded/non funded facilities

were outstanding in the system there against. P-92

b. Contra liabilities of outstanding L/Gs appearing in Equation and TI were showing a difference of Rs.2262343/- i.e. balance as per Equation is Rs.66982559.43 but TI is showing a balance of Rs.

64,720,216.43 as of 06.07.12. The branch was advised to balance both the figures. P-91

c. Shadow files of the L/Gs were not maintained for audit review in respect of LGs issued during the period under review. P-92

Management Response: a. The above amounts lying in margin accounts would be refunded against

indemnity from customers. RTD 14.09.12. b.RTD 14.09.12 c. Noted for compliance.

23. IT Operations Following anomalies were noted in IT Operations: P-101 to 103

a. Branch staff was not in practice to check back end reports entry wise i.e. Daily Posting List, Auto Transaction Reports etc.

b. Branch staff is not in practice to disable their Misys IDs when going on leave. Refer

c. Branch staff was not in practice to temporarily sign off their system when leaving their seats. d. CCTV DVR is not password protected. e. Recording of CCTV cameras was not available from 4 to 11 July, 2012. f. CCTV camera coverage of strong room & ATM entrance was not proper due to which clear face

coverage of person entering both sites was not visible.

g. Duty of CCTV management was not assigned to any staff member. h. Antivirus utility was out of date on five systems, which may result in data loss / system

breakdown.

i. Computer hardware malfunctioning/maintenance log and software updating record was not maintained by the branch.

Management Response: a. Regretted, correct practice started henceforth. b. We have sent the Form

C along with application. Matter pertains to HOK. c. Regretted, correct practice started henceforth.

d. Company is contacted for updating of system. e. Regretted, while concealment of system the

recording cassette was unplugged. f. We have contacted the company for adjustment of cameras. g.

Now duty assigned for CCTV management. h. Requested the IT Department to upgrade the antivirus

system. i. Regretted, now log book maintained.

24. Leakage of Income a. Service charges amounting to Rs. 19,600/- were recoverable from 58 current accounts in the

names of individuals marked with condition 085 meant for service charges waiver where

User ID Name

User

Class On leave(date)

HJ13 Mr. Abid Hayat SSP 26.06.12-10.07.2012

MQ22 Miss Maria Qibtia ENQ On 90 days leave w.e.f.02.07.12

MU31 Mr. Murad Ali SSP 29.06.12-06.07.12

SM96 Mr. Sohail Mazhar TEL 02.07.12-16.07.12

19

average balance in certain months remained less than Rs. 5,000/-. Branch also needs to remove

the condition to avoid further leakage of income. P-55,56

b. ATM fee amounting to Rs. 12,243/- were recoverable in 35 cases as the A/cs were wrongly marked with condition 086 meant for ATM Fee Waiver. 53,54

Management Response: RTD 14.09.2012

25. Air Port Booth a. Air Port Booth at Islamabad Intl Air Port is working under the branch, cheques of PIA, CAA

and individuals A/cs maintained at the branch were being paid at Air Port Booth without

signature / balance verifications as observed on checking date i.e. 11.07.2012 when the MYSIS

system was not working but 3 cheques totaling Rs. 0.227mn of CAA were paid.

b. All the cash receipts / exchange related dealings are dealt singly by Mr. Naseeb Ali Khan since 12.04.2012. P-11

Management Response: a. CAA is our valued client we are compensating their executives at

Airport Booth. b. Matter already taken up with RHQ. RTD 14.09.2012

26. Tax Evasion Three individual accounts were marked with condition 093 meant for waiver of withholding tax on

cash withdrawal, branch needs to remove this condition from these accounts. Refer A/c # 20051-1,

203477 & 79002312. Withholding tax Rs.906/- is also recoverable from 1st A/c.P-54

Management Response: RTD 14.09.2012

27. Special Conditions: a. 10 active accounts opened as back as in September 2011 were still marked with condition 092

meant for Provisional Account. P-57

b. 748 & 130 accounts having an aggregate balance of 26.763mn & 2.091mn were running with condition 095 & 096 meant for incorrect CNIC & incorrect address respectively. Branch needs

to view these accounts and endeavor to regularize the same. Details provided separately.P-57

c. 30 Joint Accounts were not marked with condition 127 meant for joint accounts. P-52,53 Management Response: RTD 14.09.2012

28. Furniture & Fixture 5 items of Furniture Fixture < Rs.10K totaling Rs.10890/- were purchased without obtaining

approval of competent authority. It was further noted that required record for previously purchased

such items as pedestal fan, chairs, insects killer was not maintained.P-63

Management Response: Last one approval shown for rest RTD 14.09.12 entries made in register.

29. GL Review a. As per office order # ISL/4212/9/1/Com/15620 dated 13.12.2008 of CAA the only cash security

deposited with CAA Islamabad for HBL booth was Rs.687602/- where as a sum of Rs.791296/-

was outstanding in GL 901275 Advance deposit but detail / receipt of difference amount of

103694/- was not available in the branch. P-64

b. Credit balance Rs.200/- outstanding in GL # 924963 Stamp on Hand L/G since Jan 2011 was not settled as yet. P-64

Management Response: RTD 14.09.12

30. Term Deposits Two Term Deposits totaling Rs.1.150mn were lying in overdue without effective follow up for

encashment / reinvestment. Furthermore, 77 CDRs totaling Rs.0.128mn as old as of 1974 are also

outstanding without any effort for payment.P-24

Management Response: We could not contact the depositors despite of several efforts, RTD

14.09.12

20

31. Other Issues in Account Opening a. CNIC copies obtained for account opening were not attested by affixing stamp Original seen

and compared as the required stamp for the purpose is not available in the branch. 10 cases

were pointed out in working papers. P-46

b. Copies of CNICs were not attested in five cases. P-48,49 Management Response: a. Omission regretted. Now practice started. b. Omission regretted, CNIC

copies attested.

32. Non A/c holders Lockers 106 lockers A/cs were still running with A/c type CY (Suffix 69) but neither customer account

opened nor were the lockers got surrendered, as per P/INST/2922 dated 30.04.2009.P-4

Management Response: RTD 14.09.2012

21

Low Risk Issues

The observations classified by Audit as Low Risk are of routine and procedural in nature and need to be

resolved by the management of auditee branch.

33. Staff Matters a. Following staff members working in branch for more than 3 years were not yet rotated /

transferred. Refer: P-29,30

b. Manual leave record was not maintained and system based record was also not available for the months of Dec, 2010, Jan, April, May, 2011 & Mar, May, 2012.P-25

c. Muster roll was not being supervised on daily basis by the Manager Operations. A number of instances were noted in the working papers. P-26,27

d. Car finance documents of 4 staff transferred out of this branch were kept in the branch instead of sending the same to their respective branches.P-87

e. Power of attorney documents of Miss Shagufta Aslam Officer Trade Deptt & Qasim Hasnain Manager Teller were not available in the branch.P-28

f. Personnel files of Mr. Sharjeel Ahmed CSO, Mr. Shahzad Malik AM II and Mirza Aqeel Baig Officer I were not available in the branch. P-29

g. Branch Staff was not in practice to initial the circulars in token of having read the same for implementation.P-28

Management Response: a. Matter pertains to RHQ. RTD 14.09.12 b. Regretted, Record now

updated. c. Omission regretted, now checked & verified. d. f. RTD 14.09.12 e. No power of attorney

allotted to Miss Shagufta Aslam, RTD 14.09.12 for Qasim Hasnain attorney. g. Regretted, correct

practice started now.

34. Key Charge Change of hand was not documented / updated in key charge register when the staff possessing main

safe keys / ATM combination Code availed leave. 4 instances were referred in working papers. P-25,

26

Management Response: Record updated now & non repetition assured.

35. Security Matters a. Cash counter door leading to strong room remained open overnight. P-34 b. Training certificate and verification of CNIC of security guards were not available on branch

record. P-27,28

c. Copies of renewed licenses of guns provided to security guards by their company were not provided.P-27,28

Management Response: a. Lapse regretted. Non repetitions assured. b. Company is requested to

provide the documents. c. Company is asked to provide copies of valid license.

36. Security Stationary Security stationary memo file was not up to date, due to which it was difficult to ascertain that how

much stock of security stationery was received from HOK. P-26

Management Response: Regretted, correct practice started now.

37. Courier Register Branch Staff was not in practice to supervise the entries of courier register. P-26

Management Response: Regretted, correct practice started now.

Name Designation P.No. Posted since

Mr. Nasir Taqi Assistant Manager 401554 10.03.2009

Mr. Sharjeel Ahmed AM-II 444507 04.04.2009

M. Asif Meer Officer-I 459022 26.01.2009

22

38. Vouchers

Vouchers were not kept in sealed envelopes and number of debit / credit vouchers was not being

written on the vouchers covers / envelopes.P-63

Management Response: Correct procedure since adopted.

39. Account Type 6 organizational/institutional accounts were marked with wrong account type EA meant for

individual accounts. P-51

Management Response: Lapse regretted, RTD 14.09.12

40. Old Record Register Old record register was not maintained by the branch. P-27

Management Response: Now maintained.