CA. Garvit has been appointed as the auditor of Liv Bank, a nationalised bank. During the audit, he observes that the bank has recently expanded its…

Evaluation of the Internal Control System in the area of credit card operations of the bank: There should be effective screening of applications with reasonably good credit assessments.There should be strict control over storage and issue of cards.There should be a system whereby a merchant confirms the status of unutilised limit of a credit-card holder from the bank before accepting the settlement, in case the amount to be settled exceeds a specified percentage of the total limit of the card holder.There should be a system of prompt reporting by the merchants of all settlements accepted by them through credit cards.Reimbursement to merchants should be made only after verification of the validity of merchant's acceptance of cards.All the reimbursement (gross of commission) should be immediately charged to the customer's account.There should be a system to ensure that statements are sent regularly and promptly to the customer.There should be a system to monitor and follow-up customers' payments.Payments overdue beyond a reasonable period should be identified and attended to carefully. For defaulting customers, credit should be stopped by informing the merchants through periodic bulletins, as early as possible, to avoid increased losses.There should be a system of periodic review of credit card holders' accounts. On this basis, the limits of customers may be revised, if necessary. The review should also include determination of doubtful amounts and the provisioning in respect thereof.