Internal audit and shari`ah audit in islamic bank highlighting shari'ah risk rating in light of brpd 3 2016

?.a
internal audit and shariàh audit
in islamic Bank
highlighting shari'ah risk rating
in light of Brpd-3/2016
Presented by:
Muhammad Habibur Rahman (Tarik)
Vice President & Head of
Shariàh Audit & Inspection Deptt.
Shariàh Secretariat, IBBL, HO

topic contents
1. Islamic Banking
2. Audit, Internal Audit and Shariàh Audit in
Islamic Banks (IBs)
3. Fundamental Principles of Audit of IBs
4. AAOIFI Standards for Audit of Islamic Banks
5. BB Guidelines for Shariàh Audit in IBs
5.1 Shariàh non-Compliance Risk Rating
5.1.1 Major non compliance
5.1.2 Minor non compliance
5.1.3 Other non compliance related to
Shariàh as per BB Guidelines
2
6. Assessment of Risk and Risk-Based Shariàh Audit of Islam
Banks

Introduction
The biggest
challenge for
the Banks
3

Introduction
The biggest
challenge for
the Banks
Compliance Issues
4

Introduction(Contd.)
The concept of audit in Islamic Bank (IBs) is much
broaderthan those of conventional banks in relation to
an examination of:
Ø a variety of contracts,
Ø product structures,
Ø transactions reporting,
Ø preparation of financial statements, reports,
Ø circulars and
Ø any other legal documents, which are
pertinent to IBs’ operations
5

1. Islamic Banking
q Banking activity that is consistent with Islamic Law or
Shari’ah.
q “Islamic Bank is a financial
institution whose statutes, rules
and procedures expressly state
its commitment to the principles
of Islamic Shari`ah and to the
banning of the receipt and
payment of interest on any of its
operations.
”
(Foreign Ministers' Conference of Organization of
Islamic Co-operation (OIC), Dakar, 1978)
6

1. Islamic Banking (Contd.)
q Defining the Islamic banking system simply as "interest-free"
does not depict a true picture of the system as a whole.
q It is also supported by other Islamic teachings like
v individuals' rights and duties,
v risk-sharing,
v avoidance of extreme uncertainty and
v the sanctity of contracts etc.
q overall, Islamic banking system is an integral part of the
Islamic economic system which itself is driven by the tenets
of Islamic Shari’ah.
7

2. Audit in Islamic Banks (IBs)
8
ü The general definition of an
audit is an evaluation of a
person, organization, system,
process, enterprise, project or
product.
ü Financial auditing is the
process of examining an
organization's (or individual's)
financial records to determine
if they are accurate and in
accordance with any applicable
rules (including accepted
accounting standards),
regulations, and laws.

2.1 Audit in Islamic Banks (IBs)
Internal vs External Audit
9

2.2 Internal Audit in IBs
10
Ø Internal audit evaluates a company’s
internal controls, including its corporate
governance and accounting processes.
Ø It helps an organization accomplish its
objectives by bringing a systematic,
disciplined approach to evaluate and
improve the effectiveness of risk
management, control, and governance
processes.

2.3 Difference Between Internal and External Audit
Criterion Internal Audit External Audit
Objective To add value and enhance
an organization’s operations
To form an opinion on the true and
fair view of the financial
Statements
Scope of work Determined by management
and Audit & Governance
Committee.
determined by the international
standards
Reporting line to those charged with governance
including BoD, AC
to the shareholders
Appointment / Removal /
Remuneration Board/Management
Shareholders
Status Independent of the
Management but not of the
entity.
Independent of both the
management and the entity.
Relationship with the
entity
usually employees Appointed for one fiscal year.
Qualification Not prescribed Specific requirements (CA, CPA, CIPA)
11

2.4 Internal Shariàh Auditin IBs
12
Ø It is a different and special type of
audit/inspection practiced by Islamic
Banks and financial institutions to
detect the lapses and irregularities
from the viewpoint of Islamic
Shariàh through checking up the
records of day to day transaction.
The Haram/doubtful income, if any
is segregated by this process.
Ø Shariàh Audit refers to the entire
process of unbiased critical
evaluation and examination of all
the policies and operations of an
organization in accordance with the
Islamic Laws for Business

2.4 Internal Shariàh Auditin IBs(Contd.)
13
Ø The need for Shariàh auditing
arises when an organization is
keen on continuing its Shariàh
Compliant products in accordance
with the Shariàh Principles.
Ø The basic principles on which the
Shariàh Audit is based are the
Shariàh Standards and guidelines
as may be prescribed by the
Shariàh advisory board or
Industry bodies such as AOIFI.

14
“Shariàh review is an examination of the extent of an IFI’s
compliance in all its activities with the Shariàh. This
examination includes contracts, agreements, policies, products,
transactions, memorandum and articles of association, financial
statements, reports, (especially internal audit and central bank
inspection), circulars etc.” (Governance Standard No. 2, Shariàh Review,
AAOIFI).

(Contd.)
15
AAOIFI uses the word
“review” instead of the
word “audit”. Scope of
Shariàh Review is quite
limited compared to
Shariàh Audit which
undertakes thorough and
comprehensive checking.
Shariàh Inspection is
much more limited
compared to Shariàh
review.

4. Fundamental Principles of Audit of IBs
q An auditor or accountant of Islamic Banks is
required to work with the highest standards of
professionalism to attain the highest levels of
performance and usually to meet the public
interest requirement.
q The auditor have to follow a number of
fundamental principles. Various principles have
been highlighted by numerous institutions around
the world like
1. IESBA and
2.. AAOIFI
16

4.1 five fundamental principles Set by
The IESBA
17
IO PCP
I. Integrity– To be straightforward and honest in
all professional and business relationships;
II. Objectivity – To not allow bias, conflict of
interest or undue influence of others to
override professional or business judgments;
III. Professional competence and due care – To
maintain professional knowledge and skill and
techniques and act diligently and in
accordance with applicable technical and
professional standards;
IV. Confidentiality
V. Professional behavior – To comply with
relevant laws and regulations and avoid any
action that discredits the profession.

4.2 Seven fundamental principles of
Audit of IBs Set by
18
i. Integrity – This requires individuals to be true to Allah,
themselves and to society.
ii. The principle of vicegerency of humanity on earth – The
principle is based on the concept that supreme authority lies
with Allah and man’s ownership of any property is simply a
means to provide a decent life for him. Thus, an individual’s
property and funds must not be squandered, wasted, used in
prohibited matters, traded unjustly or deny any rights
established in it for Allah.
iii. Sincerity – An accountant/Auditor must always seek to obey
Allah in the performance of their work. They must not turn to
hypocrisy, fame, flattery, boasting or pretension. A sincere
auditor does not subject themselves to external influences or
pressures

4.3 Seven fundamental principles of
Audit of IBs Set by
19
iv. Piety – Piety means the fear Allah in private an in public. An
accountant/Auditor must therefore fear Allah in performing
their professional duties.
v. Righteousnessand makingone’s work perfect– An accountant
must strive to attain academic qualifications, practical
experience and acquisition of religious knowledge.
vi. Allah-fearing conduct in everything –Belief that Allah is
observing the acts of all individuals and instilling this belief
would cause individuals to desist from all things that are not
allowed in Islam.
vii. Man’s accountability before Allah – An accountant/auditor
believes that that they will be held accountable to Allah for
their actions, no matter how big or small, on the Day of
Judgment.

4.4 fundamental principles of Audit of IBs
20
The auditors of IBs must not only have the
auditing skills but also need to have an additional
qualification which is Shari`ah knowledge
specifically in Fiqh Al Muamalat.

5. BB Guidelines for Shariàh Audit in IBs
21
Bangladesh Bank issued two guidelines:
1. “GuidelinesFor Islamic Banking”vide BRPD Circular no. 15 dated
09.11.2009 and
2. GUIDELINES ON INTERNAL CONTROL & COMPLIANCE IN BANKS’
vide BRPD Circular no. 03 dated 08.03.2016 (where a separate
chapter no. 8 on Shariàh Audit is incorporated).
The above guidelines (BRPD 3)
stated that “… in respect to
Shariàh compliance in
banks/windows of banks operating
based on Islamic Shariàh needs to
be ensured separately through
Shariàh audit”

Risk based
Shari'ah Audit
Traditional
Shari'ah Audit
22
5. BB Guidelines for Shariàh Audit in IBs (Contd.)
New Approach of Shariàh Audit
As per BB Guidelines (BRPD 3) , Shariàh
inspectionshould be conductedbased on the
Shariàh non-compliance risk rating to
mitigate the Shariàh non-compliance risk.

5.1 Objectives of Shariàh Audit/Inspection
as per BB Guidelines
23
Shariàh inspection to be conducted for achieving the following
objectives:
q To increase monitoring and mentoring
the Shariàh violating branches.
q To introduce Shariàh rating of the
branches.
q To rectify the lapses and irregularities
from the viewpoint of Shariàh
q To create awareness regarding Shariàh
compliance
q To filter the income of the bank.

5.2 Areas of Shari`ah Audit
as per BB Guidelines
24
As per BRPD Circular No. 3 dated 08.03.2016, the areas of Shari`ah
Inspection presently covers the following activities of the bank branches
q All Contract, Transaction, Policy, Product,
Memorandum and Articles of Association,
Other Manuals, Financial Statement and
Circulars issued by Head Office from time to
time.
q Investment activities
of the branches.
q Foreign Exchangeactivities of the branches.
q General Bankingactivities of the branches.
q Personnel Management
.
q Others
.

5.3 Shariàh non-Compliance Risk
“The Shariàh Compliance Risk refers to the
risk that arises from the bank's failure to
comply with the Shariàh rules and principles
determined by the relevant Shariàh regulatory
councils”
The Risk Management Guidelines (December 2014) of IFSB
25

5.3.1 Major & Minor non compliance
Bangladesh Bank vide their BRPD Circular
no. 3 dated 16.03.2016 marked 7 types of
irregularities as major and 18 types of
irregularities as minor Shari`ah non
compliance. Mentionable here all of those
irregularities are related to investment.
26

27
1.
Providing Cash
Facility in Bai
Murabaha and
Bai-Muajjal

28
2.
Obtaining Cash
memo in the name
of the investment
client

29
3.
Adjustment of
old investment
liability by
creating new
investment deal

30
4.
Allowing
Investment to
the fake
supplier

31
5. Allowing Investment on the Shari`ah
prohibited item(s)

32
6. Charging of rent on the asset
before it becomes usable/rentable

33
7. Amount of cash memo is less than
the investment

34
1. Receiving the goods
by the client instead of the Branch from the
buyers directly
2. Having no records of acquiring possession of goods by the branch.
3. Unavailability of cash memos
or voucher for purchasing goods.
4. Obtaining of backdated cash Memos
.
5. Unavailability of Letter of Authority in case of MPI
6. Unavailability of Letter of Authority in case of Dealership
.
7. Unavailability of post purchase inspection report by the Branch
8. Disagreement of the amount
of disbursement with that of Cash
memo.
9. Charging of profit at agreement stage in case of Bai Salam

35
10) Selling of Bai Salam goods through the client without engaging
him as selling agent
11) Obtaining Post dated cash memo
12) Engagement of buying agentin Bank's unapproved item
13) Being the client instead of the bank is the applicant of PO/DD
.
14) Delivery of asset was not made
to the client in case of HPSM.
15) Disbursement of investment client’s account without
engagement of buying agent
16) Engagement of buying agent in case of local and single
supplier
17) Cash memo not taken from actual seller or supplier
18) Keeping the agreement blank and undated unsigned
.

36
5.3.3 Other non compliance related to Shariàh as per
BRPD Circular no. 3 dated 16.03.2016.
Besides above non compliance the some other issues related to
Shariàh are covered by the auditors in light of BRPD Circular no. 3
dated 16.03.2016. Such as:
1. Lacking in Shariàh motivational program for the employees
2. Lacking in Shariàh motivational program for the clients
3. Lacking in Offer and Acceptance with the Supplier
4. Lacking in sending officials to the spot (outside of the branch) to
receive/ inspect (in case of buying agency) the goods and handover to
the client
5. Lacking in collecting Cash Memos directly by the branch from the
suppliers

37
6) Lacking in giving or/and taking Inter-branch
cooperation
7) Lacking in establishing separate queue or counter for
the Woman Clients
8) Lacking in establishing an effective and efficient
purchase cellin the branch
9) Lacking in conducting dars regularly
10)Lacking in housekeeping & discipline
11)Lacking in performing salat in congregation timely
5.3.3 Other non compliance related to Shari`ah as per
BRPD Circular no. 3 dated 16.03.2016.

5.3.4 Shari`ah non-Compliance
Risk Rating Process
 To determine the individual branch’s Shari`ah
non-compliance risk position based on
operational performance, 100 marks may be
allotted as per the categories mentioned in the
BRPD Circular no. 3 dated 08.03.2016. On the
basis of the score obtained, the branches may
be divided into the following three categories
in every year:
38

Category of Branches
Ø High Shariàh non-
compliance risk bearing
branches;
Ø Medium Shariàh non-
compliance risk bearing
branches ; and
Ø Low Shariàh non-compliance
risk bearing branches.
39
Risk Rating Process (Contd.)

 High: Primarily the branches which obtained a
score of 30 or above, may be treated as High
Risk Branch,
 Medium: Score from 15 to 29.99 may be treated
as Medium Risk Branch, and
 Low: The branches obtained score from 0.00 to
14.99 may be treated as Low Risk Branch.
40

These risk indicator slabs of considering a
branch as High/Medium/Low Shari`ah
non-compliance risk bearing may be
changed from time to time, if necessary.
The ICCD of the banks may conduct a
Shari`ah audit as per the following
frequency on the basis of their calculated
score as High/ Medium/ Low risk:
41

Frequency of Shari`ah Audit
Sl. No. Risk Rating Frequency of inspection
01 High Half yearly
02 Medium Once a year
03 Low As decided by the SSC
42

(Annexure-C, BRPD-3)
Sl
No
Category of Risk Factor Allocated
Marks
1 For 2 types Major Violations (16x2/2)=16
2 For 5 types other Major Violations (6x5)=30
3 For 18 types Minor Violations (2x18)=36
4 For 2 types (Employee /Client) lacking of
motivational activities
(3x2)=6
5 For 3 types lacking of other activities related to
Shari'ah
(2x3)=6
6 For 6 types lacking of other activities 6 (1x6)=6
Total 100
Allocated Marks (Negative Score)
43

1. Negative Score for 2 Major Shari'ah violations (See Table-
1 for scoring )
Sl.
No. Types of Shari`ah non-
Compliance
Allocated
Marks for
violation
Allocated
Marks as per
doubtful
income
Allocated
Marks as per
volume of
violation
Score
Score out of 16
(always full marks)
Score out of 16 Score out of 16 Average
1 Cash Facility Provided in Bai
Murabaha and Bai-Muajjal.
[Except BuyingAgency]
2 Old investment liability
adjusted by creating new
investment A/C. [Including
Conversion]
Total
44

Sl.
No. Types of Shari'ah non-Compliance
Allocated
Marks for
violation
Allocated
Marks as per
doubtful
income
Allocated
Marks as per
volume of
violation
Score
Score out of 6
(always gets full
marks)
1 Cash memo obtained in the name of the
investment client
2 Existence of the supplier not found
3 Investment given on the Shari`ah
prohibited item
4 Charging of rent on the asset before it
becomes usable/rentable
5 Amount of cash memo is less than the
investment
Total
2. Negative Score for 5 Major Shari'ah violations
(See Table-2 for scoring )

Sl.
No.
Types of Shari'ah non-Compliance
Allocated Marks
for violation
Allocated Marks
as per doubtful
income
Allocated Marks
as per volume of
violation
Score
Score out of 2
(always gets full marks)
1 Client received the goods instead of the
Branch from the sellers directly
2 No record of possession of goods by the
branch
3 Cash memo/Bill/Challan/Transport
receipt not found
4 Letter of Authority not taken in case of
MPI
5 Letter of Authority not taken in case of
dealership
6 Post purchase inspection report by the
Branch not found
3. Negative Score for 18 Minor Shari'ah violations
46

7 Delivery of asset was not
made to the client in case of HPSM
8 Charging of profit at agreement stage in case of Bai Salam
9 Selling of Bai Salam goods through the client without engaging him as selling
agent
10 Amount of cash memo exceeds the investment
11 Agreement kept blank
12 Post dated cash memo obtained
13 Investment Client himself is applicant of TT/DD/PO
14 Engagement of buying agent in Bank's unapproved item
15 Investment made to the client without engagement of buying agent
16 Engagement of buying agent in case of local and single supplier
17 Cash memo not taken from actual seller or supplier
18 Back dated cash memo obtained
Total
3. Negative Score for 18 Minor Shari'ah violations
(See Table-3 for scoring ) Contd.
47

Sl
No
Types of Shari'ah non-
Compliance
Allocated Marks
for violation
Allocated Marks as per
number of program
Allocated Marks
as per attendee of
program
Obtained
score
Score out of 3
(always gets full marks)
1 Lacking in Shari`ah motivational
program for the employees
2 Lacking in Shari`ah motivational
program for the clients
Total
4. Negative Score for 2 Lacking in Motivational Activities
48

Sl.
No. Types of Shari'ah non-Compliance
Allocated Marks
for violation
measure of violation
Obtained
score
Score out of 2
(always gets full
marks)
Score out of 2 Average
1 Lacking in Offer and Acceptance with the
Supplier
2 Lacking in sending officials to the spot
(outside of the branch) to receive/ inspect
(in case of buying agency) the
goods and handover to the client
3 Lacking in collecting Cash Memos
directly by the branch from the suppliers
Total
5. Negative Score 3 other Shari'ah Activities
49

Sl.
No.
Types of Shari`ah non-Compliance
Allocated Marks
for violation
measure of violation
Obtained
score
Score out of 1
(always gets full
marks)
Score out of 1 Average
1 Lacking in giving or/and taking Inter-branch
cooperation
2 Lacking in establishing separate queue or
counter for the Woman Clients
3 Lacking in establishing an effective and efficient
purchase cell in the branch
4 Lacking in conducting dars regularly
5 Lacking in housekeeping & discipline
6 Lacking in performing salat in congregation
timely
Total
6. Negative Score for 6 other Shari`ah Activities
50

Sl.
No Amount of doubtful income
Score Number of Shari'ah
violation (No. of
Investment deal)
score
1 Tk 1-50,000 2 1-3 2
2 Tk 50,001-100,000 4 4-6 4
3 Tk 100,001-300,000 6 7-9 6
4 Tk 300,001-500,000 8 10-12 8
5 Tk 500,000-1,000,000 10 13-15 10
6 Tk 1,000,001-1,500,000 12 16-18 12
7 Tk 1,500,001- 2,000,000 14 19-21 14
8 Tk 2,000,001 and above 16 22 and above 16
Table-1
51
Scoring for 2 types major Shari`ah Lapses (SL.NO -1)

Sl.
No.
Amount of doubtful income Score Number of Shari'ah violation
(No. of Deals)
Score
1 Tk 1-50,000 2 1-5 2
2 Tk 50,001-100,000 4 6-10 4
3 Tk 100,001 and above 6 11 and above 6
Table-2
52
Score 30 (5x6) @ 6 for 5 types other major Shari`ah Lapses
(SL.NO -2)

Sl.
No.
Amount of doubtful income Score No. of Shari'ah violation
(No. of Deals )
Score
1 Tk 1-50,000 1 1-5 1
2 Tk 50,001-100,000 1.5 6-10 1.5
3 Tk 100,001 and above 2 11 and above 2
Table-3
53
Score 36 (18x2) @ 2 for 18 types other minor Shari`ah Lapses (SL.NO
3)

Sl.
No.
Number of the
program
Score No. of Attendance Score
1 0 (zero) 3 1-49% 3
2 1 2 50-80% 2
3 2-3 1 81-95% 1
Table-4
54
Score 6 (3x2) @ 3 for 2 types of lacking in motivational activities
(Sl. No. -4)

Sl.N
o
Percentage of Shari'ah violation Score
1 50% and above 2
2 1-49% 1
Table-5
55
Score 6 (2x3) @ 2for 3 types of lacking in other Shari`ah activities (Sl.
No. -5)

Sl.No Percentage of Shari`ah violation Score
1 50% and above 1
2 1-49% 0.5
Table-6
56
Score 6 (1x6) @ 1 for 6 types of lacking in other Shari`ah activities (Sl.
No -6)

Branch Name:XYZ
1. For 2 major violations @ 16 marks for each (16x2/2=) 16. (As per table-1)
Nature of Violations
Score for nature of
violation
Score in terms of
amount of
violation
Score in
terms of
frequency
of violation
Obtaine
d Score

Obtained out of 16marks
(Always full marks)
Obtained out of
16marks
Obtained out
of 16 marks
Average
1. Cash Facility Provided in Bai
Murabaha and Bai-Muajjal.
[Except Buying Agency] 16
6 8 10
2. Old investment liability
adjusted by creating new
investment A/C. [Including
Conversion]
Total 16 6 8 10.00
Shari`ah Risk Rating :
Marking/Scoring process of a Sample Branch
57


Score for nature of
violation
Score in terms of
amount of violation
Score in terms of
frequency of
violation
Obtained
Score
Obtained out of 6
marks
(Always full marks)
Obtained out of 6
marks
Obtained out of 6
marks Average
1. Cash memo obtained in the name
of the investment client. 0 0 0 0.00
2. Existence of the supplier not
found. 0 0 0 0.00
3. Investment given on the Shari`ah
prohibited item. 0 0 0 0.00
4. Charging of rent on the asset
before it becomes usable/ rentable. 0 0 0 0.00
5. Amount of cash memo is less than
the investment. 0 0 0 0.00
Total 0 0 0.00
Marking/Scoring process of a Sample Branch (Contd.)
Marking/Scoring process of a Sample Branch (Contd.)
58
1. For 5 major violations @ 6 marks for each (6x5=) 30. (As per table-2)

3. For 18 minor violations @ 2 marks for each (2x18=) 36. (As per table-3)

Score for nature
of violation
Score in terms of
amount of
violation
Score in
terms of
frequency of
violation
Obtained
Score
Obtained out of 2
marks
(Always full
marks)
Obtained out of 2
marks
Obtained out
of 2 marks
Average
1. Client received the goods instead of the Branch
from the sellers directly. 0 0 0 0.00
2. No record of possession of goods by the branch. 0 0 0 0.00
3. Cash memo/Bill/Challan/ Transport receipt not
found. 0 0 0 0.00
4. Letter of Authority not taken in case of MPI. 0 0 0 0.00
5. Letter of Authority not taken in case of dealership. 0 0 0 0.00
6. Post purchase inspection report by the Branch not
found. 0 0 0 0.00
7. Delivery of asset was not made to the client in case
of HPSM. 0 0 0 0.00
8. Charging of profit at agreement stage in case of Bai
Salam. 0 0 0 0.00
9. Selling of Bai Salam goods through the client without
engaging him as selling agent. 0 0 0 0.00
10. Amount of cash memo exceeds the investment. 0 0 0 0.00
59

3. For 18 minor violations @ 2 marks for each (2x18=) 36. (As per table-3) Contd.
Score for nature of
violation
Score in terms of
amount of violation
Score in terms
of frequency
of violation
Obtained
Score

Obtained out of 2 marks
(Always full marks)
Obtained out of 2 marks
Obtained out
of 2 marks
Average
11. Agreement kept blank. 2 1 1 1.33
12. Post dated cash memo obtained. 0 0 0 0.00
13. Investment Client himself is applicant of
TT/DD/PO. 0 0 0 0.00
14. Engagement of buying agent in Bank's
unapproved item. 0 0 0 0.00
15. Investment made to the client without
engagement of buying agent. 0 0 0 0.00
16. Engagement of buying agent in case of
local and single supplier. 0 0 0 0.00
17. Cash memo not taken from actual seller
or supplier. 0 0 0 0.00
18. Back dated cash memo obtained. 0 0 0 0.00
Total 2 1 1 1.33
60

4. For lacking in 2 motivational activities @ 3 marks for each (3x 2=) 6 (As per table-4)
Nature of Lacking
Score for nature
of Lacking
Score in terms
of Frequency
of Lacking
Score in
terms of
presence of
participants
Obtain
ed
Score

Obtained out of 3
marks
(Always full
marks)
Obtained out
of 3 marks
Obtained out
of 3 marks
Averag
e
1. Lacking in Shari`ah motivational
program for the employees 3 2 1 2.00
2. Lacking in Shari`ah motivational
program for the clients 3 1 3 2.33
Total 6 3 4 4.33
61

5. For lacking in other 3 activities @ 2 marks for each (2 x 3=) 6. (As per table-5)
Nature of Lacking
Score for nature of
Lacking
Score in terms of
percentage of non
Compliance
Obtained
Score

Obtained out of 2
marks
(Always full marks)
Obtained out of 2 marks Average
1. Lacking in Offer and Acceptance with
the Supplier 2 1 1.5
2. Lacking in sending officials to the
spot (outside of the branch) to
receive/inspect (in case of buying
agency) the goods and handover to
the client 0 0 0
3. Lacking in collecting Cash Memos
directly by the branch from the suppliers 2 1 1.5
Total 4 2 3
62

6. For lacking in other 6 activities @ 1 mark for each (1 x 6=) 6. (As per table-6)
Nature of Lacking
Score for nature
of Lacking
Score in terms of
percentage of non
Compliance
Obtained Score

Score obtained
(Always full
marks)
Score obtained Average
1. Lacking in giving or/and taking Inter-
branch co-operation 0 0 0
2. Lacking in establishing separate queue
or counter for the Woman Clients 0 0 0
3. Lacking in establishing an effective and
efficient purchase cell in the branch 0 0 0
4. Lacking in conducting dars regularly 0 0 0
5. Lacking in housekeeping & discipline 0 0 0
6. Lacking in performing salat in
congregation timely 0 0 0
Total 0 0 0
63

Summery of the Score
SL No. Category of Risk Factor Allocated Marks
The Score of the
branch
1 For 2 Major violations
(16 marks x2/2=)
16 10.00
2 For 5 Major violations (06 marks x5=) 30 0.00
3 For 18 Minor violations (02 marks x18=) 36 1.33
4 For lacking in 2 types of motivational activities (03 marks x2=) 6 4.33
5 For lacking in Shari`ah related other 3 activities (02 marks x3=) 6 3.00
6 For lacking in Shari`ah related other 6 activities (01 mark x6=) 6 0
Total 100 18.67
Risk Grade Obtained Grade
High
Medium Medium
Low

Shariàh compliance is the soul of Islami Bank.
Internal audit and Shariàh Audit ensures the
Shariàh compliance by filtering the incomes
earned by the IBs. Therefore every Islamic Bank
is required either by custom or by law to
introduce Shariàh audit under active
supervision of Shariàh Council/Shariàh
Supervisory Board to ensure that Islamic Banks
do not involve in any activity which infringes the
Shariàh provisions.
65

Internal audit and shari`ah audit in islamic bank highlighting shari'ah risk rating in light of brpd 3 2016

Recommended

Recommended

More Related Content

What's hot

What's hot (18)

Similar to Internal audit and shari`ah audit in islamic bank highlighting shari'ah risk rating in light of brpd 3 2016

Similar to Internal audit and shari`ah audit in islamic bank highlighting shari'ah risk rating in light of brpd 3 2016 (20)

Recently uploaded

Recently uploaded (20)

Internal audit and shari`ah audit in islamic bank highlighting shari'ah risk rating in light of brpd 3 2016