Internal Audit Program for state chartered banks [1976]

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INTERNAL AUDIT PROGRAM
The Department of Banking and Finance has adopted minimum standards for an acceptable internal audit program to be used by banks wishing to be exempt from the independent audit requirements of Section 41 A-2208. If a bank has an internal auditor designated with the responsibility of implementing the internal audit program described herein, no independent audit is required. The internal auditor must be accountable directly to the Board of Directors and if the size of the bank permits, audit responsibilities should be the auditor's only duties. The audit program used by the auditor must meet the minimum standards as set forth in this publication and the implementation of the audit program must be documented in the files of the bank available for review by the examiners of the Department.
The Recommended Minimum Internal Audit Procedures set forth herein must be administered by the internal auditor with a record maintained as to the date upon which each recommended procedure was performed and a notation as to any exceptions disclosed by the auditor. Procedures having a recommended frequency of at least Quarterly must be performed no less frequently than SEMI-ANNUALLY, and those procedures having a recommended frequency of Semi-Annually or Annually must be performed at least
ANNUALL Y. The Questionnaire on Internal Control avail ab 1e from thi s Depart~ ment must be completed at least ANNUALLY and a copy maintained in the files of the bank.
As required by statute the auditor shall submit to the Board of Directors an annual summary statement on the auditor's findings and recommendations as a result of the audit procedures which have been performed. A copy of the report shall be submitted to the Department simultaneous to its filing with the Board of Directors.
The Financial Institutions Code of Georgia (Section 41A-2208) provides:
(a) Except as provided in subsection (c) of this Section, the board of directors shall at least once each year have made, by at least three of the directors or by independent or certified accountants, an audit of the books and affairs of the bank or trust company including such matters as may be.required by the Department and including, in the case of a trust company, accounts held in a fiduciary or other representative capacity. Directors who make such an audit may assign the performance thereof to assistants but may not delegate responsibility therefor. The Department may by regulation establish minimum standards for audits and reports under this Section.
(b) A report of the audit made under subsection (a) shall be signed by the directors or the accountants who make it and filed with the Department, and a signed copy of the report shall be submitted to the board and kept in the files of the bank or trust company.
(c) In the case of a bank or trust company which has a system of internal audit control approved by the Department, no audit under subsection (a) of this Section shall be required, and in lieu of the report required by subsection (b), the auditor or comptroller of the bank or trust company shall submit to the board an annual summary report of the same matters as those required under subsection (a). Such report shall set forth the degree of compliance with the approved audit system and shall express the opinion of the auditor or comptroller as to the adequacy of the internal controls. The report shall be kept in the files of the bank or trust company, and a copy shall be filed with the Department.
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The adoption of a sound audit program is a primary responsibility of the bank's directors. They cannot delegate this duty. They can appoint an auditor, audit control officer or firm of independent accountants to carry out the technical details of such a program, but the ultimate accountability for the degree of effectiveness with which the program functions is their responsibility. It is clear that neither supervisory examinations nor insurance or a combination thereof can properly take the place of an audit program.
Large banks should have little difficulty in complying with the Code as, in most cases, they employ a full-time comptroller or manager who supervises an Audit Department. In addition to carrying out an intensive internal audit program, several of these banks employ firms of certified public accountants or correspondent bank auditors to make regular annual audits.
Medium size banks should normally have a full-time internal auditor or operations control officer to make or supervise regular and/or continuing audits. Likewise, it is not unusual, and is recommended, that a qualified firm of public accountants or correspondent bank auditors be employed to perform annual independent audits, during which they should review the internal audit program to ascertain that it is reasonably effective.
During the past few years, many small banks have voluntarily established a simplified internal audit program designating an individual as Control Officer whose responsibility is to supervise and carry out the program under the direction of an Audit Committee. Other banks have employed a qualified firm of public accountants to establish and carry out the necessary audit program on behalf of the directors or audit committee. There are, however, several banks who have failed to establish either an approved internal audit program or external audit by qualified independent accountants or correspondent bank auditors.
The primary objective in any bank audit program is to discourage fraud, not necessarily to discover its existence. Fraud detection, while a worthy objective, should be regarded as a secondary aim. The internal controls must be sufficiently strong to overbalance fradulent tendencies of the few who would otherwise succumb to temptation. A program of safeguards must be implemented to meet this primary objective. Regardless of the method followed in the development of the audit program, there will be costs incident thereto that must be absorbed. While the control of operating costs is extremely important, the bank that questions the adoption of an audit program solely on the basis of its cost does itself a serious injustice. It is somewhat incongruous that banks spend considerable sums for banking house and vault facilities that provide physical protection from external sources and at the same time fail to provide themselves with internal security. An audit program is not something to be afforded; it is an integral part of bank operations.
I n order to obtain the maximum protection economically feasible it is necessary that all concerned be continually aware of the fundamental principles with respect to sound internal check and control, internal auditing, and external auditing. As a point of reference these principles are set forth along with comments with respect to the regular conduct of internal audit and external audit functions.
Internal Check and Control
A sound system of internal check and control is the bank's primary protection against irregularities. The definition of internal control as promulgated by the American I nstitute of Certified Public Accountants is as follows:
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"Internal control comprises the plan of organization and all of the coordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial pol icies."
The AICPA further defines controls in the system of internal control as either Accounting or Administrative Controls as follows:
A. "Accounting Controls comprise the plan of organization and all methods and procedures that are concerned with and relate to (1) safeguarding its assets and (2) the accuracy and reliability of the financial records."
B. "Administrative Controls comprise the plan of organization and all the methods and procedures that are concerned with (1) operational efficiency and (2) adherence to managerial policies. They usually relate only indirectly to financial records."
The characteristics of such a system are further described as follows:
"A plan of organization which provides appropriate segregation of functional responsibi lities;
"A system of authorization and record procedures adequate to provide reasonable accounting control over assets, liabilities, revenues, and expenses;
"Sound practices to be followed in performance of duties and functions of each of the organizational departments; and
"A degree of quality of personnel commensurate with responsibilities."
The operating procedures and accounting methods adopted by the bank should contain a system of automatic internal checks and controls to serve as the primary safeguard against possible irregularities. The responsibility for the proper functioning of the methods and procedures adopted in order to insure that the internal checks and controls are maintained effectively should rest directly with operating management.
Internal Auditing
The function of I nternal Auditing is (1) to determine, by continuous review of the system of operating procedures and accounting methods, that the internal checks and controls provide adequate safeguards and maximum operating efficiency and (2) to determine by sufficient test-checks of a selective nature whether the established operating procedures, policies and accounting methods are being properly performed. The Internal Auditor is not, and should not be, responsible for the correctness of each individual transaction. Since it is obviously uneconomical to audit each and every transaction, a reasonable degree of exposure must be recognized. A sound internal auditing program includes periodic surprise examinations of all departments and accounts at reasonably frequent, but at irregular, intervals. The determination of a degree of testing in each case requires careful thought, as the extent of the test will vary as conditions change. The test made should comprise a representative sampling of the bank's records and transactions and the extent should be sufficient to indicate their overall condition.
The internal auditor should be directly responsible to the Audit Committee of the Board of Directors or the Audit Committee of the Board of Directors and the President. He
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should be completely independent of all other officials so as to be able to perform the audit functions effectively without being subject to undue pressures.
Audit reports should be regularly submitted to the Board of Directors or Audit Committee. It is also advisable for the auditor to appear personally before the directors and/or the Committee to report his activities and findings. Such reports must be properly supported by documentation to enable supervisory examiners and independent auditors to evaluate the effectiveness of the internal audit program.
External Auditing
There are basically three types of external audits available to banks, anyone of which should be of sufficient scope to meet the minimum requirements for compliance under Section 41 A-220B of the Code. These include:
1. Full Scope Examination The primary objective of a full-scope examination of bank financial statements by an independent public accountant is the expression of an opinion on the fairness with which those statements present the financial position of the bank and the results of its operations. To accomplish this objective, the independent accountant reviews and test checks the internal audit and internal control efforts of the bank and adjusts the scope of his work accordingly, in order to perform only sufficient audit work to enable him to express an opinion on the financial statements. It follows that a sound system of internal control and internal audit program can decrease materially the nature and extent of auditing procedures required by an independent public accountant to express an opinion on the financial statements of a bank. Thus, the work of the independent public accountant gives bank management and the board of directors of the bank an objective professional appraisal of the effectiveness of the internal audit and internal control program of the bank with constructive recommendation for improvement, and provides an independent opinion on the financial statements of the bank.
2. Accountability Audit Basically, the scope of the accountability audit is not too different from that of the full-scope examination discussed above. It includes an evaluation of existing internal audit and control procedures in the bank; the accounting for and balancing of all assets and liabilities of the bank; testing selected transactions and entries affecting all of the bank accounts; inspecting and examining notes, collateral and other documents in support of loans; and counting and inspecting currency, coin, securities, and other negotiable items located on bank premises. It also includes direct confirmation of due to and from bank accounts, clearings, items in process of collection, loans and deposits, securities held by others for safekeeping, etc. Additionally, it includes a review of specialized departments or activities whose transactions ordinarily are not reflected in the bank's general ledger account:, such as collection department, mortgage servicing activities, safekeeping of c:rcur:ties for customers and the trust department. With respect to the trust department, It is customary for the board of directors to engage the accountant to audit the trust department of the bank simultaneously with the audit of other banking functions.
The accountability audit does not include the evaluation of fair value and collectibility of loans, investments, and other assets, and a judgment with respect to the adequacy of related valuation reserves. This, basically, is the only difference in the scope of the
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Accountability Audit and Full-Scope Examination. The independent public accounting firm will be required to qualify the opinion he expresses on the financial statements of the bank, and, perhaps, deny an opinion where the scope excludes asset evaluation.
3. Cycle Examination Program Several independent accounting firms have been offering a cycle bank examination program to small banks which is designed basically to coordinate all auditing activities in the bank, bringing together directors, officers and employees in the common purpose of developing a sound program for safeguarding the bank's assets. The program should cover all activites in the Bank over a period of not more than three years. The annual scope of this type examination should not be less than the Accountability Audit discussed above, except the confirmation program may be divided over the three-year period with approximately 30% of all loan and deposit accounts being selected for confirmation by the conclusion of the third cycle.
The independent accountant, in connection with this program, should be in a position to assist the small bank in establishing and carrying out an adequate and effective internal audit and control program.
There follows a summary of recommended minimum internal audit procedures necessary for full compliance under Section 41A-2208 of the Code. It is assumed that individual banks will enlarge the scope of this program where necessary to meet their individual needs. To assist in the necessary review of internal control procedures, an internal control questionnaire is also furnished. It illustrates basic principles of routine safeguards but may not include all functions of any individual bank. It should be expanded or changed to fit the operations of the individual bank. Any "no" answer indicates an unsatisfactory condition which should be corrected unless alternative safeguards are in effect. If so, this fact, and a brief notation of the alternative safeguard should be written under the "Comments" section of the questionnaire.

SUMMARY OF RECOMMENDED MINIMUM INTERNAL AUDITING PROCEDURES

Recommended Freguency

A. Cash:
1. Review all tellers' recap records, summarize and balance total to general ledger control account.
2. Make independent surprise count of each teller's cash funds (Consider switching tellers or using employees who are not involved in teller operations).
3. Make a periodic surprise count of entire cash supply, including reserve cash, and balance total to general ledger control account.
4. Review tellers' overages and shortages.

Monthly
Quarterly
Quarterly Quarterly or on Occu rrence

B. Cash Items:
1. Examine items for validity and approval and trace subsequent disposition.

Monthly

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2. Determine that bank's policy with respect to these items is being strictly adhered to by all employees. (These items should be transferred daily to a central control point, Iisted, and formally approved by a designated officer).
3. Verify validity of U.S. Savings Bonds redeemed and balance total with control. Test check redemption amounts.
C. Collection and Transit Items: 1. Obtain or prepare analysis of each account relating to collection items for shich immediate credit has been given, local clearings, etc. Investigate unusual items. 2. Trace subsequent clearance of all items listed on above schedules. 3. Confirm all uncleared items.
D. Due From Banks: 1. Review reconcilement record and investigate unusual reconciling items. 2. On a surprise basis, request cut-off statements from correspondent banks and prove most recent reconciliations of each account by: (a) Comparing paid checks returned with cut-off statements to outstanding list and verify that checks not on list are dated subsequent to reconciliation date. (b) Checking deposits in transit and other items on the reconciliation to the cut-off statement or to appropriate entry on the bank records. (c) Proofing totals on the reconciliation and tracing appropriate balance to the general ledger control account. (d) Obtaining particulars of all reconciling items not cleared and following up final disposition.
E. Investment Securities: 1. Review subsidiary records and balance with general ledger control accounts. 2. Test check purchases, sales, exchanges, maturities, etc. and determine that tested transactions have been approved by the board of directors or investment committee. 3. Confirm investment securities held in safekeeping. 4. Test check bond income and verify amortization, accretion, profit or loss, etc.
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Recommended Frequency
Monthly Monthly
Monthly Monthly Quarterly Monthly Quarterly
Quarterly Quarterly Annually Quarterly

F. Commercial Loans: 1. Balance the loan ledger with the general ledger control account and test check notes to the related ledger card.
2. Trace selected notes for proper form, documentation, and disbursement.
3. Trace daily total debit from loan register to general ledger control.
4. Test check interest computations. 5. Control and mail maturity notices. 6. Confirm selected loan balances directly with loan
customers (percentage to be determined by auditor after evaluation of internal control procedures, but must not be less than 10% annually). 7. Test check loan files to ascertain that all documentation necessary to properly support or secure a loan or line of credit has been received and is maintained on a current basis.
G. Negotiable Collateral: 1. If collateral receipt system is in use, account for all numbers used, voided and unused. (If collateral receipt system is not in use, one should be established). 2. Test check collateral against notes and records. 3. Examine collateral and determine that it is in proper form for conversion. 4. Confirm collateral held with selected customers. 5. Evaluate marketable securities and review unsecured loan evaluation procedures for a selected number of accounts.
H. Consumer Credit: 1. Balance loan ledgers or computer printouts to general ledger control totals. 2. Test selected notes for discount computation and trace disbursement. 3. Trace daily total debit from register to general ledger. (Be alert for withholding of payments). 4. Test check rebates and discount computation. 5. Exami ne selected notes for authenticity and where possible check signatures. 6. Test check to see that all past-due notes are being properly reported and followed for collection. 7. Examine supporting documentation to see that the bank is in a secured position, the lien recorded, insurance obtained, loss payee clause included, etc.
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Recommended Frequency
Monthly Quarterly Quarterly Quarterly Quarterly
Annually
Annually
Annually Semi-Annually Semi-Annually Semi-Annually
Annually
Monthly Quarterly Quarterly Quarterly Quarterly Monthly
Semi-Annually

8. Confirm selected loan balances directly with loan customers (percentage to be determi ned by auditor after evaluation of internal control procedures, but must not be less than 10% annually).
I. Credit Cards: 1. Review overall operations and determine effectiveness. 2. Test check income accruals. 3. Test check card issue, including inventory of unissued cards. 4. Review return mail and make certain cards are destroyed, if necessary. 5. Confirm selected balances.
J. Real Estate Loans:
1. Balance loan ledgers and notes with related general ledger control accounts.
2. Examine supporting documentation to ascertain that all documentation necessary has been received and is on file.
3. Ascertain that proper mortgage clause on insurance policy is obtained.
4. Test check interest computation and collection. Trace to appropriate income account.
5. Determine adequacy of escrow balances. 6. Confirm selected loans directly with borrower.
K. Fixed Assets: Exposure in this area is normally minimal. The Intermal Auditor should periodically review these accounts to determine that major purchases and sales are properly approved and recorded; that records are adequate to provide accounting control; that depredication is being accurately recorded in accordance with bank policy and supervisory authority requirements; and that adequate internal check and control procedures are in operation. These objectives can be accomplished by periodic physical inspection, account analysis, vouching transactions, checking depreciation and reviewing the system of internal control. The extent to be determi ned by the aud itor.
L. Accrued Income: 1. Review accruals and consider listing all loans and securities by groups. Compute the interest to audit date on each loan group or security group and check total to applicable accrued account. (If applicable).
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Recommended Freguency
Annually Quarterly Quarterly Quarterly Quarterly Quarterly
Monthly Semi-Annually Semi-Annually Quarterly Semi-Annually Annually
Annually
Semi-Annually

2. Schedule interest payments on selected securities and trace to accrual account.
3. Trace selected interest payments on credits on loans from note teller to accrual account.
M. Other Assets:
1. Prepaid Insurance-Ascertain that this account is supported by proper documentation and that periodic amortization is mathematically correct. Determine adequacy of insurance coverage.
2. Federal Funds Sold-Determine that sales are proper and comply with supervisory authority requirements. Ascertain that interest is being collected in accordance with terms of the notes and trace income to appropriate income account.
3. Repossessions-Prepare summary listing of such assets; inspect supporting documents; determine that original acquisition was properly approved; trace entries on general ledger to customers' accounts; physically inspect and account for all major items and verify subsequent disposition.
4. Other Real Estate-Prepare summary of general ledger account; vouch additions to supporting data; check details of sales to supporting documentation and trace proceeds; inspect insurance policies and review adequacy of coverage; check depreciation and charge-offs; and trace rental income, if applicable.
5. Letters of Credit and Acceptances-Prepare trial balance; review files on each outstanding letter; confirm customers' liability directly with applicable customers; verify fees charged and trace to appropriate income account.
N. Demand Deposits:
1. Run surprise trial balance of individual ledger accounts and balance to general ledger control (or intercept box from computer trial balance to the general ledger control).
2. Review and verify closed accounts.
3. Review and monitor check exceptions, cutbacks, nonpostables, etc.
4. Review accounts of officers and employees.
5. Text selected signature cards for accuracy and completeness of pertinent information.
6. Watch for accounts with kiting characteristics.
7. Reconcile Treasury, tax & loan account.
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Recommended Frequency
Semi-Annually Semi-Annually
Annually
Annually
Annually
Annually
Annually
Monthly Quarterly Quarterly Monthly Annually Monthly Semi-Annually

8. Confirm selected accounts with depositors (percentage to be determined by auditor after evaluation of internal control procedures, but must not be less than 10% annually).
9. Refer all returned or undelivered bank statements to auditor for review and disposition.
10. Obtain proof tapes from proof department and reconcile total deposits and checks with bookkeeping department records and to general ledger control account.
O. Overdrafts: 1. Balance overdrafts to control. 2. Examine large overdrafts for recurrence. 3. Review uncollected funds procedure. 4. Look for accounts of officers and employees on list. 5. On surprise basis, mail overdraft notice to depositors.
P. Official Checks: 1. On a surprise basis, run and balance outstandi ng checks to general ledger controls. 2. Account for all numbers paid, void or outstanding. 3. Examine large and unusual paid checks for endorsements, signatures and cancellations. 4. I nvestigate checks outstandi ng for an unreasonable length of time.
Q. Savings/Time Deposits (including Christmas Club Accounts): 1. Run surprise trial balance of subsidiary ledgers and balance to general ledger control (or balance computer trial balances with general ledger control). 2. Select and verify signatures on withdrawals for selected days (also verify signatures on all large and unusual withdrawals). 3. Spot check interest calculations and trace to interest expense. Review accruals. 4. Review accounts of officers and employees. 5. Confirm selected accounts with depositors (percentage to be determined by auditor after evaluation of internal control procedures, but must not be less than 10% annually). 6. On Certificates of Deposits, account for all numbers paid, void or outstanding for a selected month.
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Recommended Frequency
Annually Monthly
Quarterly
Monthly Monthly Monthly Monthly Semi-Annually
Monthly Semi-Annually Quarterly Semi-Annually
Monthly
Monthly Quarterly Monthly
Annually Semi-Annually

R. Dormant Checking and Savings Accounts:
1. Determine bank policy in designating and controlling dormant accounts (normally should be twelve months for demand deposits and two years for savings).
2. Balance detail to general ledger or other control. 3. Review and verify entries to these accounts and ascer-
tain if such entries were reviewed and approved by a designated officer prior to being recorded.
4. Consider confirmation of balance directly with depositors.
S. Other Liabilities:
1. Bills payable-Prepare analysis of accounts, examine evidence of indebtedness, confirm outstanding balance at surprise audit date, check transaction for proper approval and verify and trace interest paid.
2. Unearned Discount-Analyze the account for reasonableness and test computations of rebates and trace to applicable accounts. Test check discount calculations.
3. Accrued Liabilities- Review each general ledger account relating to reserve for dividend, pension or profit sharing, taxes, etc. and relate to appropriate expense or contra account. Test check basis and computation of periodic provision.
4. Reserve for Losses on Loans-Review transactions in the reserve account, text check charge-offs for proper approval, determine basis and computation of annual provision and ascertain control procedures with respect to subsequent collection.
T. Capital and Reserves:
1. Balance stock ledger to general ledger control and account for all stock certificates used, voided, cancelled and/or unused.
2. Review surplus account and capital reserves and check entires for authorization in the minutes of Board of Directors and/or stockholders.
3. Analyze Undivided Profits since last audit date and trace the offsetting entries to contra accounts. Inspect posting media for each transaction and check for authorizations in the minutes of the Board of Directors, if required.
U. Income and Expense:
1. Test check interest, service charges, rent and miscellaneous income (more verifying will be necessary on cash basis).
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Recommended Frequency
Annually Quarterly Quarterly Annually
Semi-Annually Semi-Annually
Semi-Annually
Semi-Annually Annually Annually Annually
Quarterly

2. Prepare or obtain comparative statements and investigate unusual variations.
3. Vouch entries to expense accounts for selected periods by reference to paid invoices, cancelled checks, etc. Examine paid check for date, endorsement, payee, etc.
4. Compare all expense categories each month and investigate large variations.
5. Compare payroll tax returns with payroll expense.
6. Run and balance forms W-2 to total payroll expense annually.
V. Other Activities:
1. Collection Items (no immediate credit) (a) Take possession of collection items on hand and tickler files and consider confirmation of major items in process of collection. (b) Check subequent disposition of all major items. (c) Verify income earned and trace to applicable account.
2. Consigned Financial Paper (a) Prepare schedule of unissued Series E. Bonds and reconcile to last report to Federal Reserve Bank taking into consideration bonds sold and voided since last report. (b) List travelers checks on hand and confirm by serial number, quantity and dollar amount directly with the consignor. (c) Test check income earned on consigned financial paper.
3. Safe Deposit Department: (a) Observe operations for compliance with written operation procedures. (b) Test check income to determine that rent is recorded. (c) Test check unrented boxes and unissued keys. (d) Test records, contracts, access tickets, rent records, etc.
4. Customers' Safekeeping (a) Control and list safekeeping items on hand and check to applicable safekeeping records. (b) Consider confirmation of selected safekeeping items.
5. General Ledger (a) Review the general ledger accounts and investigate accou nts opened and closed si nce last aud it. (b) Analyze and test transactions in accounts which have not been subjected to audit. (c) Review debit and credit tickets for completeness.
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Recommended Frequency
Quarterly
Semi-Annually Annually Quarterly Annually
Semi-Annually Semi-Annually Semi-Annually
Semi-Annually
Semi-Annually Semi-Annually
Semi-Annually Semi-Annually Semi-Annually Semi-Annually
Semi-Annually Semi-Annually
Semi-Annually Semi-Annually Semi-Annually

W. Trust Department:
1. Examine trust assets on hand and compare to records.
2. Verify cash on hand and in bank.
3. Confirm transactions in process.
4. Balance trust department ledgers.
5. Test security transactions and number controls.
6. Test tickler systems. 7. Review minutes of Trust Committee and test for actual
performance. 8. Test check fees and trace to income.
9. Establish administrative audit-Plan to review or have reviewed all trust accounts within a twelve-month period.
X. E D P (On and Off Premises):
1. Off premise operation (a) Review and test internal control. (b) Test input and output procedures and review u nprocessable items. (c) Trace unposted work to completion. (d) Trace adjustments and determine authorized approval. (e) Develop confirmation program with computer center personnel. (f) Arrange to obtain special audit print-outs of dormant accounts, exception reports, new and closed account reports, etc.
2. On premise operation: (a) Develop and maintain basic understanding of computer operations. (b) Develop and maintain audit programs. (c) Review and test internal control. (d) Review program changes and flow chart changes. (e) Test adjustments, unposted items and exceptions. (f) Consider use of duplicate tapes, test decks, and similar devices where appropriate. (g) Develop confirmation program.
Y. Miscellaneous:
1. Vault-Review vault procedures. Determine adequacy of control procedures.
2. Night Depository-Review procedures and determine adequacy of controls.
3. Mail Deposits-Review procedures and determine adequacy or control.
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Recommended Frequency
Semi-Annually Semi-Annually Semi-Annually Semi-Annually Semi-Annually Semi-Annually Semi-Annually Semi-Annually
Annually
Quarterly Quarterly Quarterly Quarterly Annually
Quarterly
Continuously Continuously Quarterly Monthly Quarterly Quarterly Annually
Annually Annually Annually

4. Addressograph- Review procedures in preparing plates for new accounts and safeguarding plates, supplies, etc.
5. Activities of Board of Directors-Determine that directors are fulfilling their obligations and responsibilities in accordance with the By-Laws of the Board.
6. Stationery & Supplies Inventory-Ascertain that proper
safeguards are used in controlling the purchase and requisition of major items. Inspect supply room for neatness and cleanliness.
7. Record retention and storage- Review bank policy and procedures and determine that bank is complying with all regulatory requirements.
8. Security program-Determine that the bank's security program is in accordance with supervisory requ irements and that management is complying therewith.
Z. Review the system of internal control to determine that adequate control procedures have been established. Determi ne through tests and observations that these procedures are being followed.

Recommended Frequency
Annually Annually
Annually Annually Annually
Semi-Annually

Direct Verification
No system of examination and audit can be complete without some measure of direct verification, both with the individual borrowers and the individual depositors. Manuals showing how this can be best and most easily accomplished, together with the forms to be used, are available through your city correspondent.
In General
Arrangement of the working affairs of the bank should be looked into and compared with the set of tests given above under the heading of Audits and Controls. The report of exami nation should include statement of any matters deemed to affect the solvency, stability and prosperity of the bank. The report should be presented to the board, noted in the minutes as to action taken, preserved in the bank's files and shown to state and federal examiners at their next examinations of the bank for notation in their reports.

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