CB issues circular on account reconciliation to banks
The Central Bank (CB) has sent a circular to commercial banks on April 16, on strengthening the account reconciliation process of banks in the wake of the massive Rs. 13.2 billion fraud at NDB Bank.
“We have observed deficiencies in the account reconciliation processes in several licenced banks in recent times, primarily arising from weak internal controls, lack of oversight by the Board of Directors and board subcommittees, delays in timely reconciliations, inadequate monitoring and supervision by the respective key management personnel, and gaps in staff training and awareness. These lapses have increased the risk of fraud, errors, misstatements, and potential irregularities remaining undetected, thereby undermining the accuracy and reliability of financial reporting of licenced banks. Accordingly, the board of directors, board sub-committees and senior management should exercise effective monitoring mechanisms to ensure that account reconciliation practises in licenced banks are robust, timely, and effectively conducted under sound internal controls,” the circular said.
It requested the bank to decide to ensure that all accounts are reconciled accurately and on a timely basis, with appropriate supervisory review and prompt clearance of outstanding items. The banks also need to provide necessary training and awareness for relevant staff, especially focusing on reconciliation procedures, use of systems, and identification of unusual or long-standing unreconciled items.
The banks will also need to set up a mechanism to conduct periodic reviews on systems, audit trails, and modification logs, to ensure that breaches and violations do not occur in relation to the established procedures. “At least biannually, the banks need to conduct periodic reviews by the internal audit department to assess the adequacy, timeliness, and effectiveness of account reconciliation processes and related internal controls. They need to ensure sound internal controls are in place for segregation of duties and staff rotation and take disciplinary action for violation of internal controls as per the established procedure of the bank,” the circular added.
By May 7, the banks are requested to take prompt action and provide written assurances from the internal or external auditor confirming the adequacy and effectiveness of the bank’s internal controls over the account reconciliation process.
“Overall, they have asked the banks to be careful in terms of executing the duties,” a bank manager told the Sunday Times Business.
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