Professional Documents
Culture Documents
The activities of large organizations are complex. It is not possible for the management, in many
cases, to monitor and controls those activities directly to ensure accuracy and reliability in
accounting records as well as to ensure efficiency. This situation requires an effective tool. This
is where internal control comes into action.
Internal control is best regarded as indicating the whole system of control, financial and
otherwise, established by the management in the conduct of business, including internal check,
internal audit and other forms of control.
One of the most reputed Banks of Bangladesh, Al- Arafah Islami Bank, maintains much
decorated internal control systems. The overall internal control system of Al Arafah Islami
Bank has been discussed in this report.
Objective:
The main objectives of the report are:
1) To collect and present information of the overall internal control system and its practices
in Al- Arafah Islami Bank of Bangladesh;
2) To present the features, principles and objectives of internal control system;
3) To present the information if there are any lacking in the practice of internal control
system of Al- Arafah islami Bank Ltd;
4) To provide recommendations for any weakness.
Methodology:
Both primary and secondary data are used in this report.
To gather primary data, vice president (Head) of the department of audit and inspection division
of Al arafah islami bank ltd was interviewed. Also consultation and discussion with other
officials of the same bank were done.
Secondary data were collected from books and other online sources.
Organizations Profile:
Al-Arafah Islami Bank Ltd is the second largest Islamic bank of Bangladesh. Al-Arafah Islami
Bank Limited is a sharia compliant bank in Bangladesh founded on 27 September 1995. A sharia
council of the bank is responsible for ensuring the bank activities meet sharia requirements. The
headquarters are located in Motijheel, Dhaka.
Al- Arafah bank is a public limited company, specialized in commercial banking under sharia
compliant. The authorized capital of the Bank is Tk.15000.00 million and the paid up capital is
Tk. 9469.58 million as on 31.12.2015. Renowned Islamic Scholars and pious businessmen of the
country are the sponsors of the Bank. 100% of paid up capital is being owned by indigenous
shareholders.
As on 21 September of 2016, the number of employee of the bank was 2978. As on 10 April of
2016, the number of shareholder of the bank was 41,053. As of 2015 report, the banks net
income stood tk.6.49 billion.
All around the country the bank has been operating 137 branches, of which 23 are AD, tailored
to contribute on socio economic development by providing multiple financial services as the
Bank is committed to contribute significantly to the national economy.
The vision of the bank is to be a pioneer in Islami Banking in Bangladesh and contribute
significantly to the growth of the national economy.
Internal Control:
Internal control is a process designed to provide reasonable assurance regarding the achievement
of objectives related to operations, reporting, and compliance. In more detail, it consists of all the
related methods and measurers adopted within an organization to safeguard assets, enhance the
reliability of accounting records, increase efficiency of operations and ensure compliance with
laws and regulations.
To prevent anomalies and to present reliable financial reports to stakeholders so that they can
undertake right decisions based on right information having effective internal control in the
organizations is mandatory.
Internal control systems have five primary components as listed below:
Human resource controls. It includes bond employees who handle cash, rotate
employees duties and required employees to take vacations and conduct thorough
background check.
4. External Auditor: ICAB accreditation and Bangladesh banks listed external auditor does
the auditing periodically.
5. Duties and responsibilities are segregated among divisions and officials.
6. The officials of the bank who records transactions are different from the officials who
verify transactions. The recording division is in separate location. Similarly,HR division
is in separate location from ICC division.
7. Technologies like RCC, CCTV, restricted internal server, UVP machine, etc are
implemented to maintain internal control of the bank.
8. Access to account records is highly restricted. Only some authorized officials from ICC
and finance division can access those. Accounting records, which are yet to be presented
in external financial statements, are kept in highly restricted and secured place.
9. Officials of the bank are accountable for the anomalies and mistakes under their
observation and duties.
10. Transactions are maintained in regular basis with maintaining relevant documents for all
transactions.
Strengthening Features of the Internal Control System of Al- Arafah islami Bank LimitedAl- Arafah bank has avoided and prevented many frauds and attempted frauds because of its
formidable control system. Recording mistakes are very low because of it. The officers and
employees of ICC division work and implement their ideas and plans rigorously to ensure that
the bank can secured itself from anomalies and present reliable financial reports to stakeholders
so that they can undertake right decisions based on right information.
Some key strengthening features of the Banks internal control system are The bank follows three lines of defense in their control system:
o 1st: Front desk. They are assigned to deal with customers. They are equipped with
some security measures.
o 2nd: Second line of defense includes Risk management division, IT support
division, Logistic supports division etc.
o 3rd: Internal audit The officials of banks internal audit division analyse
operations, recommend controls, review compliance and assure safeguards to
ensure reliable and fair environment within the organization and to ensure the
reliability of organizations reports.
Multiple trained security personnel are enlisted to all the branches and offices of the bank
24/7 hours to maintain the security of all of the banks units.
The bank use pre number documents for all of its transactions to prevent fraud.
Cash deposit confirmation: Auto and instant SMS to main server.
Fake currency note identifying machines are assigned to count currency notes. As per
Bangladesh banks instruction, expert tellers are assigned to count and identify fake
currency.
To ensure better control of funds transfer among banks, Al- arafah Bank ltd uses
Electronic funds transfer (EFT). It is the electronic transfer of money from one bank
account to another, either within a single financial institution or across multiple
institutions, through computer-based systems and without the direct intervention of bank
staff.
Check honoring: The person who verifies check is different from the person who gives
cash from that check. All verifications, signature, bar code, check number etc. are done
by one person and cash is given by another person.
UVP machine: Bank uses UVP machine to verify checks.
Bar code in checks: Verify printed name on check, i.e. double checks account holders
name. Bank uses separate bar codes in all of its check papers. The checks papers are
manufactured by Singaporean company Secura Bangladesh Ltd, which has a very
credible reputation in manufacturing the papers of check book. Few months ago the bank
prevented an attempted fraud in its Uttara branch because of the bar code system in check
papers.
The bank also carries out surprised audit to ensure better control and to increase
reliability of its records.
Audit reports are sent to Board and Managing director. The managing director sends
those to compliance division.
Officials of cash in charge and tellers are different.
Cash receipts verification: Teller of front desk receives cash and keeps the entry on the
computer. After the end of cash transactions of any day, cash-in-charge confirms cash
receives with documents. At last operation managers verify the cash receipts with given
documents.
Documents are maintained for cash payment. Tellers have limited cash. Extensive records
are kept for cash payment. Regularly after transaction it is verified by cash in charge.
Tellers are liable if any cash are missing or do not match with documents.
Original copies are used as documents for evidence and photocopy is used in case
original copies are missing.
Auto lock for office computers: Passwords are installed in computers from first desks to
the table of top executives. If the authorized personnel leaves his/her computer open, the
computer gets locked by itself. The whole screen goes to sleep mode at that time. Only
particular passwords are used to open that lock. If password is leaked, the holder will
become accountable for this. It is mandatory for all officials to change the passwords
periodically on continuous basis.
Force holiday are provided to employees to verify their desks and positions to prevent
anomalies. At that time, specific employees or officials are not permitted to the office
premises. Normally, Al- Arafah Islami Bank provides 15 days force holiday to all of its
employees annually.
Electronic alarm system known as RCC is maintained in all vaults of the bank.
Authorized officials are allowed to enter in vault. In the cell phones of authorized
officials, identifying software is installed. If anyone enters the banks vault without that
particular software installed cell phone, the alarm will ring. The vault is certified by
authorized engineer.
3 keys are used sequentially to open vault. Manager, second man and cash in charge are
entitled to carry different and separate keys to open vault. Again at the time of closing
vault 3 keys are used sequentially. Without the absence of any key, vault cannot be
opened.
Resources inside the vaults are fully insured.
CCTVs (closed-circuit television camera) are installed in front desk as well as other
important offices of the banks nearly all units. The bank runs a large number of CCT
cameras in its branches front desk to record keeping offices to other operating offices to
ensure that no fraud is taking place. Human resources are employed to monitor
everything 24/7.
Depositors get SMS in their cell phone for any cash transaction in their accounts.
For the payment of salary, information about employees such as their works and their
salaries are gathered by HR division. HR create an excel sheet of this. That excel sheet
goes to the CFO (Chief Financial Officer). CFO then approves it and after the CFOs
approval it goes back to the HR division. Afterwards, HR division approves it. Next, it
goes to ICT. The separate division pays cash after all the approvals. Based on the
documents from that payment and documents from HR, accounts department maintain
the records of it.
The officials of the bank who records transactions are different from the officials who
verify transactions. The recording division is in separate location. Similarly, HR division
is in separate location from ICC division.
At least double checking exists for all documents of the bank to ensure no mistakes or
fraud take place.
The officer who approve loan to a client and the officer who sanction loan money to the
client are different.
6. Internal audit service is yet to be considered as value added service of the bank. It is
necessary for better internal control system.
7. Account opening system: sometimes bank employee fills out the form on behalf of
account opener. This is not right. Not all required docs are checked and/or collected from
account opener.
8. In remote branches same Teller do both cash receipts and cash payment. In many cases
both the Teller and the cash-in-charge is the same individual.
9. No password system is installed to get inside the vault in distant branches.
10. Forced holiday to employees are not properly maintained in many cases.
11. Some bank officials are complacent and approve loans based on experience, i.e. without
checking clients documents.
12. Sometimes bank accepts verbal personal guaranty by any influential company or
personnel or public figure who seek loan.
13. The goodwill of the borrower sometimes is not checked.
14. Sometimes bank doesnt verify the Property Valuation Report issued by an independent
surveyor firm.
The bank should implement up to date technologies to all of its branches. Branches of the
remote areas of the country must have same technological control support like branches
of dhaka and other populated cities. As economic activities are rising in Bangladesh,
activities are rising in all other areas of the country. To ensure batter control in all of
banks units, batter technologies must be implemented on all of the branches.
The bank should ensure that all mail receipts be opened in the presence of at least two
officials.
Bank should emphasize in the control of investment activities. To ensure batter control on
investment activities bank can increase the manpower in control and monitoring division.
Although the security of vault is very strong, it needs to be improved. It is recommended
to bank to implement more electronic systems in vault for batter protection.
Control of HR should be improved. More rigorous process must be implemented in the
process of recruitment. It is necessary for the bank to have batter verification in
recruitment.
Bank must recognize internal audit as a value added service of the bank, which will
motivate management to develop internal auditing division. Good internal audit can
enhance the return on equity for stockholders.
It will be highly beneficiary for the bank if the bank increases the power of the officials
of ICC (Internal Controls and Compliance) over all of its branches.
To open account for depositor, front desk officers must collect all the necessary
documents and check those documents meticulously.
Even in remote areas branches of the bank taller for cash receipts and taller for cash
payment must be different individual. Taller and cash in charge also must not be same
person.
Bank should install password system, which will be change continuously, in the entry of
vault for batter security. Three keys system will also be there.
The bank should implement forced holiday to all of its employees properly to check their
desk and position in their absence. The bank must ensure that the subject employee must
not enter the office at that time.
Bank should always accept written guaranty before approving loan to any applicant,
despite of their reputation and position.
Documents should be checked thoroughly before sanctioning any loan to applicant.
Valuation of mortgaged property must be undertaken by using skilled human resources
and technologies.
Decision making power to ICC (Internal Controls and Compliance) should be increased
over various sensitive and important issues of bank.