National Bank of Pakistan—Chest/Sub-Chest Examination Report

THIS REPORT OF INFORMATION IS STRICTLY CONFIDENTIAL

This examination has been conducted by SBP Banking Services Corporation (Bank) as
authorized under Rule 121 of Federal Treasury Rules, Volume I and Clause 5 of Agency
Agreement between State Bank of Pakistan and National Bank of Pakistan dated December
22, 2006. It is the property of the SBP for use in its supervisory responsibilities. This report
is furnished to the examined branch for its confidential use and compliance. This report is
strictly confidential and the SBP forbids its disclosure in any manner without its prior
permission. Under no circumstances should the bank/branch or any of its board members,
directors, officers or staff disclose or make public in any manner this report or any portion
thereof.

The bank management in keeping with their responsibilities should become fully informed
regarding the contents of this report. In making this review, it should be kept in mind that an
examination is not an audit and this report should not be considered an audit report.

CURRENT EXAMINATION
Name and Address: NBP, Sub-Chest Moro
Status (Chest/Sub-chest): Sub-Chest
Examination cut-off date: 28-10-2019
Examination commenced: 28-10-2019 To: 28-10-2019
Name and Designation of Mr. Ahsan Ali,
Examiners (Members): Senior Officer (Treasury)
Name and Designation of Mr. Syed Jawad Raza Shah,
Examiner In-charge: Officer

PREVIOUS EXAMINATION-Report Not Available

Examination cut-off date: 09-04-2019
Examination commenced: 09-04-2019 TO 09-04-2019
Name and Designation of Mr. Toufique Hussain Shah, Senior Officer Treasury
Examiners (Members):
Name and Designation of Mr. Abdul Rafi, Officer
Examiner In-charge:

State Bank of Pakistan Banking Services Corporation Page - 1 -

 National Bank of Pakistan—Chest/Sub-Chest Examination Report

SCOPE OF EXAMINATION:
The examination of chest/sub-chest branches of National Bank of shall be conducted in
terms of Rule 121 of the Federal Government Treasury Rules, Volume I and Clause 5 of the
Agency Agreement between State Bank of Pakistan and National Bank of Pakistan dated
December 22, 2006, as extended from time to time and further instructions issued on the
subject.

MAIN OBJECTIVES:
a) To verify that the Chest Balance is kept and used as per instructions contained in Para
13, Part XIV, Federal Government Treasury Rules, Volume I;
b) To verify the quantity, quality and value of currency notes and coin balances held with
the chest branches as per the returns submitted by the chest/sub-chest to SBPBSC issue
offices;
c) To check the physical condition of their strong room/vault with regard to its structural
soundness and availability of enough space for storing chest balances (banknotes and
coins)as per prescribed instructions laid down in Federal Government Treasury Rules;
d) To make sure that the chest vault has been properly secured, strict security measures
have been exercisedalong-with availability of required police guards and their positions
as per prescribed procedures;
e) To ascertain that the latest cash related equipment (note counting/banding and coin
counting machines, counterfeit note detector etc) are available in the chest in proper
working condition for smooth operation of the chest/sub-chest branch;
f) To judiciously check and examine the approved holding capacity with regard to the
entrusted agency business of the chest and the cash needs of the area;
g) To ensure that the exchange and remittance facilities have been provided to stakeholders
as per instructions issued by SBP/BSC from time to time;
h) To ensure strict compliance of the instructions issued by SBPBSC with regards to
maintenance of proper record of chest balances in the prescribed formats;
i) To evaluate the internal control systems put in place with regards to management of
chest balances as per laid down procedure under FTR and Agency Agreement between
NBP and SBP.

METHODOLOGY:
The examination involved a percentage verification of chest balances, checking of bank’s
books, records, maintenance of chest balances/strong room, critical review of internal
controls and operational risk coverage linked with management of chest/sub-chest in terms
of the Federal Government Treasury Rules and Agency Agreement between State Bank &
National Bank of Pakistan.

State Bank of Pakistan Banking Services Corporation Page - 2 -

 National Bank of Pakistan—Chest/Sub-Chest Examination Report

INCHARGE EXAMINER’S OVERALL COMMENTS

Brief Description of Branch Affairs:

1. NBP, Sub-Chest, Moro opened at 8:30 a.m. Joint Custodian and Head Cashier reached on
time, whereas vault was opened at 8:45 a.m. Whereas, counter operations were started
timely. Security incharge/ Head constable was present at the time of opening of vault.
The holding capacity of the said Bank is Rs. 45 Million, however physical balance
amounting to Rs. 782,968,000/- exceeds the mentioned limit by 737,968,000/-and is
covered under additional insurance. Some of the balance was not placed properly in the
almirahs whereas it was found lying beside the almirahs and on the ground. Soiled
balance was mixed with re-issuable balance. SOPs pertaining to Currency Management
Strategy (CMS) were not followed.

Major Finding of Examination Team:

1. Chest balance and banking balance were maintained separately
2. TE-2 matched with physical balance held at the branch.
3. Unsorted Balance was treated as reissuable.
4. Physical balance exceeds the holding capacity of bank however it is covered under
insurance coverage.
5. Packet and bundle binding SOPs were not followed as instructed by SBP under CMS.
6. Register F-157 was not maintained by the Bank.
7. Coin counting and shrink wrapping machines were not available. Whereas, packet
binding and note counting machines were available and Bundle binding machine was out
of order
8. PP-35 is maintained and intimated to Main Branch Khairpur.

Details of Irregularities:
Strong Room:
1. Seal embossed on the lock of vault gate did not contain any text or script. Therefore it
could not be identified which authority has embossed the seal.
2. There were twelve Almirahs, all of them were fire proof and dam-proof
3. Balances were found lying beside the almirahs and on ground.
4. CCTV coverage was available to monitor opening and closing of Strong room.
5. Stationary and other material was kept in strong room.

Chest Balances:
1. Unsorted chest balances were found mixed with reissuable cash.
2. Chest balance and banking balance were maintained separately.
3. When Chest balances were matched with TE-2, no mismatch was found between TE-2
dated 26-10-2019 and physical chest balance.
4. Soiled notes were found in re-issuable balance in various denoms. Unsorted balance was
treated by the bank as re-issuable.
State Bank of Pakistan Banking Services Corporation Page - 3 -
 National Bank of Pakistan—Chest/Sub-Chest Examination Report

5. All denomination coins were available and were taken out to meet the public demand.

Security Measures:
1. Security personnel was found at the time of opening of vault.
2. Walk-through gate was installed and found active.
3. CCTV surveillance was found in order.
4. 6 Security personnel were deputed while 3 were on duty during inspection.

Remittance/Exchange Facility:
1. Remittance and exchange facility was provided to the public.

Record Keeping:
1. Record was readily available and record was found satisfactory.

Internal Control:
1. Internal control arrangements were found satisfactory, security alarms were installed
and found in order.

Recommendations:
1. The bank may be instructed to follow SoPs regarding timely opening of vault.
2. Balances should be sorted properly to ensure clean note circulation as per clean note
policy and more instructions.
3. The bank may be advised to follow CMS guidelines of SBP regarding note sorting and note
packing meticulously.
4. Matter should be taken up with controlling office regarding provision of coin counting
note sorting and shrink wrapping machines.

Details of Repeated Irregularities (Observed During Last Examination):

1. Cash was not properly placed in the almirahs
2. Cash balance was not sorted as per instructions i.e unsorted cash was mixed with
reissuable balances.
3. Stationary and other material was kept in vault.
Reasons/Justification Submitted by NBP for Repetition:
1. Cash could not be sorted due to shortage of the staff
2. Note handling machines were not provided yet. However, indent has been placed with
controlling office.
3. Stationary is placed in the vault due to lack of space in the branch.

State Bank of Pakistan Banking Services Corporation Page - 4 -

 National Bank of Pakistan—Chest/Sub-Chest Examination Report

IRREGULARITIES MITIGATION PROGRAMME (IMP)

Officers
Suggested
Irregularities Reasons Responsible for Time Frame
Measures
Compliance
Cash is kept on Shortage of staff & The control office Branch Manager Immediate
poor sorting Unavailability of may be advised to
standards. SoPs note sorting provide required
regarding note machines personnel
sorting were not strength to the
being followed branch

Non-compliance Matter has been Reminder should Branch Manager/ Immediate

of packet and taken up with be sent to Controlling
bundle binding controlling office controlling office office/Head
SOPs for provision of and should be Cashier
required notified about
stationary and noncompliance of
machines. CMS SoPs
Register F-157 Concerned The guidelines Head Cashier 10 days
was not officials were should be sought
maintained by unaware about F- from Controlling
branch 157 and no Office
practice as such is
maintained in
past.
Stationary was Shortage of staff Administration of Branch manager 15 Days
placed inside the the branch should
vault arrange separate
space for
stationary and
other material

State Bank of Pakistan Banking Services Corporation Page - 5 -

 National Bank of Pakistan—Chest/Sub-Chest Examination Report

ACKNOWLEDGMENT

By signing this document, we acknowledge having carefully reviewed the contents, allied
annexures and comments of this on-site examination report of the currency chest in terms
of Rule 121 of the Federal Government Treasury Rules, Volume I and Clause 5 of the Agency
Agreement between the State Bank of Pakistan and National Bank of Pakistan dated May 23,
2001 as extended from time to time and further instructions issued on the subject and
observations relating to the internal controls and fully understand its comments and
conclusions. We also fully agree to rectify the irregularities pointed out by SBPBSC Examiner
and will send the compliance report within the timelines mentioned in the Irregularities
Mitigation Programme (IMP).

Sd/- Sd/-

Name: Muhammad Saddique Daheri

Name: Abdul Salam Memon (OM)
(Custodian)

State Bank of Pakistan Banking Services Corporation Page - 6 -