Inter Office Transactions :
Inter-office transactions mostly take place at branches. The balances can be debit balance or credit balances in Balance Sheet of the branches. Branches have number of transactions of lakhs of rupees with the other branches and head office, hence it becomes very important to monitor the same. It is the responsibility of the bank to reconcile their transactions on a daily basis and keep a track on un-reconciled transactions.
Followings are the major transactions which occur between branches and Head office.
a. Issue of remittance instruments like drafts/TTs/MTs on other branches.
b. Payment of remittance instruments like drafts/TTs/MTs drawn by other branches.
c. Payment to / receipts from other branches of the proceeds of instruments received/sent for collection /realization/clearing.
d. Payments made under LCs of other branches.
e. Cash sent to/received from other branches.
f. Payment of instruments like gift cheques/ banker’s cheques/ interest warrants/ dividend warrants/repurchase warrants/refund warrants / travelers cheques, etc. which are paid by the branch on behalf of other branches which have received the amount for payment of these instruments from the customers concerned.
g. Head office interest receivable and payable by the branches.
h. Profit/loss transferred by the branch to head office.
i. Government receipts and payments handled by the branch either as the nodal branch or as an agent of the nodal branch.
j. Operations by the authorised branches on the bank’s NOSTRO accounts.
k. Foreign exchange transactions entered into by the branch for which it has to deal with the nodal forex department of the bank for exchange of rupees with foreign currency
l. Deposits into and withdrawal of money, by branches into currency chest
maintained by another branch.
m. Gold Banking Transactions at the branch on behalf of nodal branches.
n. Transactions through NEFT, ECS and RTGS.
o. ATM transactions of the customer either at ATM linked with other branches
or with merchant establishments.
p. Internet based transactions other than inter-account transfers with the same branch.
q. Credit card related transactions of the customers.
r. Nostro Accounts of Indian Branches maintained with Overseas Branches of the bank.
s. Capital Funds with the Overseas Branches.
t. Head Office balances with the overseas branches including subordinated debt lent to the overseas branches.
u. Service Tax transactions advises to Nodal branches where Service Tax remittance is made where Service Tax is remitted on behalf of other branches within their fold.
Following are the most common types of error in inter branch transactions.
Wrong identification of the nature of transaction.
Recording of particulars in incorrect fields.
Wrong accounting of bank charges, commission, etc.
Errors in writing the amounts.
Incorrect branch code numbers
Incorrect schedule numbers.
Recording the same transaction twice.
Difference between the closing and opening balances in successive daily statements.
Squaring off the transaction by same amount without checking the transactions.
Every bank has its separate department which works on the reconciliation of the inter branch transactions. Following is the generally followed reconciliation process.
Each branch submits the transaction statement in the prescribed format. RBI had advised the banks (vide its circular dated April 28, 1993) to segregate inter-branch transactions relating to demand drafts from other inter-branch transactions. Further, vide its circular no. DBS.CO.SMC.BC No. 28/22.09.001 dated 20th August, 1998, RBI has directed the banks to introduce the system of segregating DD/TT/MT transactions, with reconciliation at weekly intervals and close monitoring of large amounts.
On receipt of the statement, reconciliation department scrutinizes the data like opening balance, account heads etc. and rectify the same for any error in data.
After rectifying the error, the same are fed into the system.
As and when the other branch settles the funds transfer transaction in its books (by way of payment of draft/traveller’s cheques, etc. or by acting on the advices received under the inter-branch account mechanism), it advises the details of these transactions like the netting reference number, account currency, foreign currency amount, local currency amount, event, reporting branch code no., date of transaction at the reporting branch, type of transaction, draft no., etc., to the reconciliation department.
Some of the transactions do not reconcile due to incorrect data entry or non-accounting of transactions by other branch, which might indicate fraud if debit transaction in one branch does not have corresponding credit effect in other branch.
The total number of inter-branch transactions makes their reconciliation a tedious task. Lack of reconciliation causes this account to be susceptible to frauds. Recognizing this, RBI has taken a number of measures to achieve an expeditious reconciliation of these transactions by the banks concerned.
Non-reconciliation results in a ‘fraud risk factor’ as defined in SA 240, “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements”. This Standard further provides that in such situation, auditor needs to modify his audit procedures to reduce the effect of the constituents of fraud risk.
In all inter-office transactions, one branch originates a transaction (called the ‘reporting branch’ or the ‘originating branch’) and the other branch (called the ‘responding branch’) settles the transactions at its end.
Now many banks have implemented the ‘service branches’ for inter branches transactions. These branches do not maintain any accounts of the public like deposits or loans. They merely provide the following services:
a. They act as agents for the other branches of the bank for collection of instruments drawn on local branches of other banks.
b. To centralise the payment of drafts drawn by other outside branches. For example, if New Delhi branch of bank ‘A’ is the service branch, all other branches of the bank will be under instructions to issue drafts on this service branch only if any customer asks for a draft payable at New Delhi.