Internal Controls

Internal Controls

The Company follows the general rules and accounting principles for banks defined by the Central Bank of Brazil in the standard chart of accounts required for financial institutions by Brazil’s National Financial System (COSIF). Since Banrisul is a publicly traded corporation, our financial statements follow the rules set by the Brazilian Securities Commission (CVM). The Institution also follows the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) in compliance with National Monetary Council (CMN) Resolution 3786/09.

Our bookkeeping routine systematically registers all events following the structure of the standard chart of accounts. Entries possess fields for ledger updates following the double-entry system and they originate from bookkeeping departments in the Bank, bank branches and General Management units through a system; entries may also be automatically generated by other operating systems interfacing with the accounting system. A basic control mechanism for ledger entries posted consists of an account system application that supplies reports to corroborate posts for search and reconciliation purposes.

Accounting data comprise the basis for the Bank’s trial balances and balance sheets. The accounting system’s daily updates includes cross check routines (current account and ledger), instructions for bookkeeping documents and steps for reconciling accounting entries. If a discrepancy is found in the records, and cannot be identified, the event is reported to Internal Audit.

The internal trial balance, with daily records, is used to monitor bookkeeping for the purpose of updating daily interim balances, enabling any corrections required to obtain correct balances on closing out each day’s books. The Company ’sjournal and ledger bookkeeping retains posts and entries down to the lowest level so that account balances may be compiled at any time.

Monthly interim balances and balances are generated automatically by the accounting system, based on balances from the bookkeeping accounts of each branch and data from the General Management area. The accounting system has functionalities to check monthly interim balances and balances from each branch and General Management to then merge all data from branches to obtain the Company’s consolidated numbers.

To close out interim balance and balance sheets, the Company has an automated system for verifying the integrity of ledger entries posted for business related events; an automatic lock (24h, 48h and 96h) restricts retroactive accounting entries; adjusting and balancing routines are run at the Accounting Unit, which also centralizes the management of provisioning posted against loans, provisions for guarantees provided, provisions for employee profit-sharing program payouts, provisioning for labor/employment claims and civil liability contingencies, PP&E depreciation, amortization of deferred items, valuation for losses on investments, managing tax calculation bases and payments, and structuring financial statements as such.

The accounting controls system automatically executes routines to check for discrepancies between the accounting system and operational systems for current accounts, registration and settlement of securities and registration and settlement of commercial loans, as well as other entries posted in the branch network. The Company systematically executes routines to reconcile operational systems’ balances against ledger recognition conducted by Internal Audit, based on analytical and ancillary interchange between funding/credit operating systems with the accounting systems and periodic examination of other accounts (revenues and expenses).

In the accounting area, the preparation of trial balance sheets, balance sheets and consolidated financial statements is conducted by means of a specific tool - financial application - a systemic procedure which allows an interface with the corporate accounting system to generating structured views, including under the IFRS, as per standards defined by regulatory authorities, with tracking trails and breaks down synthetic data into analytical as a tool that speeds the return of information requested for External Audit verifications.

The Company also uses management processes for future earnings forecasts that are structured in order to support decision-making while complying with legal requirements. The budgeting process uses a methodology referenced from accounting data and has monthly routines to check estimated v. actual amounts or values; this activity together with the accounting controls comprises the support mechanism for closing out interim balances thus enabling discrepancies to be identified through synthetic and analytical views of the principal groups of accounts.

The Company also has non-ledger based internal controls structured to ensure that its financial statements reflect transactions that are accepted under Brazilian banking practices. The institution’s money laundering prevention policy uses specific processes and systems to identify and monitor the activities of its clients, maintaining a team dedicated to performing activities focused on money laundering prevention, law review and the development of staff training programs. These initiatives are designed to ensure that the activities are carried out in a control environment appropriate to the prevention of risks related to money laundering and in compliance with the current law and effective standards.

In line with the Money Laundering Prevention process, the Company applies the "Know your Customers and their Activities" policy, which defines rules and procedures to help identify and gain insight on the customers’ profiles and the origin of their funds in order to reduce the risks of the institution being used to legitimate funds arising from illegal activities.

Likewise, the "Know your Employee" policy establishes, indistinctly, at all hierarchical levels, the responsibility to comply with the guidelines against corruption and money laundering, as well as the duty to promote ethical values, thus preserving the integrity of the accounting events and the Company’s image and reputation. The Prevention against Corruption policy establishes procedures and controls, as well as preventive measures that avoid, within the Company’s scope of operations, the practice of the illegal corruption and fraud actions provided for in the Criminal Code, Laws 8666/93 and 12846/13, and other rules of Brazil’s anticorruption system by its employees and third parties.

Another instrument used to support correct practices for transaction is the Code of Ethical Conduct, which provides guidelines for the Company’s teams in relation to their personal and professional behavior. Its purposes is to have ethical conduct become the standard for internal relations and for relations with the Company’s stakeholders: shareholders, customers, employees, unions, suppliers, competitors, the community and government. Any breaches of the Code are examined by Ethics Committee, whose procedures are governed by specific regulations.

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Internal Controls Structure

At the Company, involvement with accounting routines is decentralized, in other words bookkeeping data for accounts originate from the Company’s different departments, with specialist professionals responsible for those activities. The Accounting Unit, which consolidates the data used to prepare financial reports, is managed by the Superintendent who is also the balance sheet accountant and is hierarchically subordinates to the specific Office. As part of this management structure, the Accounting Unit is attached to the Financial and Investor Relations Office.

In order to prepare financial statements to standards considered reliable, there are control points in place for activities and segregating duties, so that the two sides together - processes and people - favor correct bookkeeping and posting, adjusting and reconciling balance with traceability and accountability for accounting events at all different levels of aggregation.

Branches and General Management bodies proceed to update ledgers from accounting routines. The accounting processes run within the scope of General Management bodies are the responsibility of the units’ managers. Accounting routines are defined by business managers with assistance from Accounting Unit and passed on to branches.

The Company has different localities generating accounting entries. For each locality, there are levels of access restricted by individual passwords from the systemic point of view. The authorization levels defining responsibilities for operational routines in the corporate accounting system are related to the grades of the employees’ executing the routines. At the accounting localities, entries are typed and signed (signatures digitized by an authorized person) by employees in positions of responsibility whose signatures are validated by Personnel Management Unit.

The commissioned employees must analyze posts or entries containing their password and signature on a daily basis to ensure conformity. If they have not authorized a post/entry or do not agree with the data it contains, they must contact the persons involved to find solutions or cancel a post/entry if necessary. Therefore commissioned employees must run daily checks as very important task since the routine defines responsibilities for accounting posts/entries and electronic signatures are recognized rather than traditional signatures on statements of responsibility.

At the General Management area, monthly routines are executed to verify managers’ conformity in relation to balances and flows of expenses and revenues related to their processes. In addition to the accountability of the business manager for accounting events generated within their spheres of competence, other instances of consolidation and evaluation are structured to ensure that financial statements are reliable, including: Accounting Unit, Internal Audit, Audit Committee, Independent Auditing, Executive Board, Fiscal Council and Board of Directors.

The Accounting Unit is responsible for formatting inputs for the financial statements. The Company ’s Accountant is jointly liable together with the Executive Board for any wrongful acts against others. Therefore any irregularities in the balance sheets imply civil and criminal liability of the individual who signs the financial statements.

Another Company department involved in accounting procedures and participating in the process of reconciling balances is Internal Audit, by auditing branches, foreign offices or branches, Head Office bodies and Conglomerate companies; auditing the information technology environment; improving operations and controls, and assisting corporate governance risk management. Internal Audit also manages contracts governing relations with independent audit firms engaged via bidding procedures.

Independent Audit is responsible for expressing an opinion on the adequacy of the financial statements in relation to Brazilian and international standards and current accounting principles and evaluating the quality and adequacy of the internal control system, including electronic data processing and risk management systems, detecting weaknesses identified and making recommendations for the improvement of the accounting system and controls, performing their duties to the high standards commensurate with the scale, characteristics and complexity of the Company.

The Audit Committee regularly examines the financial statements, maintains frequent contact with Accounting Unit and Internal Audit and with Independent Auditors on a quarterly basis in order to assess and identify any distortions in financial statements.

The Fiscal Council consists of members elected by the annual general meeting. The Company ’s Bylaws stipulates that Fiscal Council members should hold degree-level qualifications in their profession and have experience in executive positions exercise in senior management with National Financial System member institutions or other companies. In addition to its duties and powers under the Brazilian Corporate Law, the Fiscal Council must express its opinion on examinations of financial statements and their adequacy and approval.

The Company ’s Board of Directors is its joint decision-making body responsible for determining the bank’s general business policies and its long-term strategy. It is also responsible, among other duties, for nominating the Bank’s directors and supervising their mandate. The Board of Directors is the instance in charge of approving financial statements.

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