Determine whether the board of directors, consistent with its duties and responsibilities, has adopted written policies for due from bank accounts that:

• Provide for the periodic review and approval of balances maintained in each such account.

• Indicate person(s) responsible for monitoring balances and the application of approved procedures.

• Establish levels of check-signing authority.

• Indicate officers responsible for approval of transfers between correspondent banks and include procedures for documenting such approval.

• Indicate the supervisor responsible for regulatory review of reconciliations and reconciling items.

• Indicate that all entries to the accounts are to be approved by an officer or appropriate supervisor and that such approval will be documented.

• Establish time guidelines for the charge-off of old open items.

• Establish procedures for entering into revocable reserve account charge agreements.

International Due From Banks—Time

• Establish maximum limits on the aggregate amount of due from banks—time deposits for each:

  • Bank.

  • Currency of deposit.

  • Country of deposit.

  • Restrict due from banks—time deposits to only those customers for whom lines have been established.

• Establish definite procedures for:

  • Balancing of accounts.

  • Holdover deals.

  • Rendering of reports to management, external auditors, and regulating agencies.

  • Accounting cutoff deadlines.

  • Handling of interest.

1. Determine if the policies, practices, procedures, and internal controls regarding due from banks—time (including interbank placements and call money) are adequate. Consider:

• Are the policies for due from bank accounts reviewed at least annually by the board to determine their adequacy in light of changing conditions?

Bank Reconcilements

• Are bank reconcilements prepared promptly at least once a month?

• Are bank statements examined for any sign of alteration and are payments or paid drafts compared (individually or in total) with such statements by the persons who prepare bank reconcilements (if so, skip the next question)?

• If the answer to the prior question is “no,” are bank statements and paid drafts or payments handled before reconcilement only by persons who do not also:

  • – Issue drafts or official checks singly and prepare, add, or post the general or subsidiary ledgers?

  • – Handle cash and prepare, add, or post the general ledger or subsidiary ledgers?

• Are bank reconcilements prepared by persons who do not also:

  • Issue drafts or official checks singly?

  • Handle cash?

• Concerning bank reconcilements:

  • Are amounts of paid drafts or payments compared or tested to entries on the ledgers?

  • Are entries or paid drafts examined or reviewed for any unusual features?

  • Whenever a delay occurs in the clearance of deposits in transit, outstanding drafts and other reconciling items, are such delays investigated?

  • Is a record maintained after an item has cleared regarding the follow-up and reason for any delay?

  • Are follow-up and necessary adjusting entries directed to the department originating or responsible for the entry for correction with subsequent review of the resulting entries by the person responsible for reconcilement?

  • Is a permanent record of the account reconcilement maintained?

  • Are records of the account reconcilements safeguarded against alteration?

  • Are all reconciling items clearly described and dated?

  • Are details of account reconcilement reviewed and approved by an officer or supervisory employee?

  • Does the person performing reconcilements sign and date them?

  • Are reconcilement duties for foreign demand accounts rotated on a formal basis?

Drafts

• Are procedures in effect for the handling of drafts so that:

  • All unissued drafts are maintained under dual control?

  • All drafts are prenumbered?

  • A printer’s certificate is received with each supply of new prenumbered drafts?

  • A separate series of drafts is used for each bank?

  • Drafts are never issued payable to cash?

  • Voided drafts are adequately canceled to prevent possible reuse?

  • A record of issued and voided drafts is maintained?

  • Drafts outstanding for an unreasonable period of time (perhaps six months or more) are placed under special controls?

  • All drafts are signed by an authorized employee?

  • Employees authorized to sign drafts are prohibited from doing so before a draft is completely filled out?

  • If a check-signing machine is utilized, controls are maintained to prevent its unauthorized use?

Foreign Cash Letters

• Is the handling of foreign cash letters such that:

  • They are prepared and sent on a daily basis?

  • They are copied or photographed prior to leaving the bank?

  • A copy of proof or hand run tape is properly identified and retained?

  • Records of foreign cash letters sent to correspondent banks are maintained, identifying the subject bank, date and amount?

Foreign Return Items

• Are there procedures for the handling of return items so that:

• They are delivered unopened and reviewed by someone who is not responsible for preparation of cash letters?

• All large unusual items or items on which an employee is listed as maker, payee or endorser are reported to an officer?

• Items reported missing from cash letters are promptly traced and a copy sent for credit?

Foreign Exchange Activities

• Are persons handling and reconciling due from foreign bank—demand accounts excluded from performing foreign exchange and position clerk functions?

• Is there a daily report of settlements made and other receipts and payments of foreign currency affecting the due from foreign bank— demand accounts?

• • Is each due from foreign bank—demand foreign currency ledger revalued monthly and are appropriate profit or loss entries passed to applicable subsidiary ledgers and the general ledger?

• Does an officer not preparing the calculations review revaluations of due from foreign bank—demand ledgers, including the verification of rates used and the resulting general ledger entries?

Other-Foreign

• Are separate dual currency general ledger or individual subsidiary accounts maintained for each due from foreign bank—demand account, indicating the foreign currency balance and a U.S. dollar (or local currency) equivalent balance?

• Do the above ledger or individual subsidiary accounts clearly reflect entry and value dates?

• Are the above ledger or individual subsidiary accounts balanced to the general ledger on a daily basis?

• Does international division management receive a daily trial balance of due from foreign bank—demand customer balances by foreign currency and U.S. dollar (or local currency) equivalents?

Certificates of Deposit

• Are bank issued certificates of deposits safeguarded as other negotiable investment instruments?

• Are safekeeping receipts for certificates of deposits issued but held by others checked to the original purchase order for accuracy?

Other-Demand

• Is a separate general ledger account or individual subsidiary account maintained for each due from bank account?

• Are overdrafts of domestic and foreign due from bank accounts properly recorded on the bank’s records and promptly reported to the responsible officer?

• Are procedures for handling the Federal Reserve account established so that:

  • The account is reconciled on a daily basis?

  • Responsibility is assigned for assuring that the required reserve is maintained?

  • Figures supplied to the Federal Reserve for use in computing the reserve requirement are reviewed to insure they do not include asset items ineligible for meeting the reserve requirements, and that all liability items are properly classified as required by 12 CFR 210 and its interpretations?

Dealing Room Instructions

Although dealing room and instructions functions must be separate, often foreign exchange and due from bank—time activities relating to those functions are combined. If they are, consider:

• Are dealer slips and contract/confirmation sets relaying to due from banks—time numbered sequentially and checked periodically?

• Is a position clerk present in the dealing room to maintain dealers’ memoranda records of due from bank—time deposits?

• Is due from bank—time “instructions” (operations) organizationally and physically separate from the foreign exchange dealers?

• Do good communications appear to exist between the dealing room and instructions to assure:

  • An effective working relationship with operations and management to ensure adequate control and management information?

  • Coordination with operations regarding correct delivery/settlement instructions?

• Does instructions (operations) maintain all official accounting records relating to due from banks—time?

• Does instructions (operations):

  • Balance official records against dealing room memoranda records as scheduled by management?

  • Check confirmations for errors?

  • Receive, review and control dealers’ slips?

  • Handle all payments and receipts?

• Are confirmations compared to the general ledger entries for accuracy?

Confirmations

• Does instructions (operations) monitor follow-up on non-receipt of incoming confirmations?

• Are outgoing and incoming confirmations never handled by dealers who initiate due from bank—time transactions?

• Does the bank check that there are no confirmation deals dated:

  • Prior to the bank’s own due from bank—time deal dates?

  • After the bank’s own due from bank—time deal dates?

Testing Arrangements

See “Payment Systems and Funds Transfer Activities” section for detailed procedures.

Signature Books

• Are customer signature books updated with regard to those with whom regular business is transacted?

• Does the bank check signatures on incoming confirmations for authenticity? (Many banks do not check signatures on incoming confirmations.)

• Does the bank check signatures for deals with non-bank customers?

• Are banks that do not sign confirmations asked to confirm such practice in writing over an authorized signature?

Account Records

• Are subsidiary records reconciled with the general ledger accounts and reconciling items adequately investigated by persons who do not post transactions to such records?

• Is a due from foreign bank—time deposit trial balance prepared on a periodic basis (if so, indicate frequency )?

• Is a daily reconcilement made of due from bank—time deposit controls to the general ledger?

• Are reconciliations reviewed by an officer independent of the reconciliation?

Other-Time

• Are individual interest computations checked or adequately tested by persons independent of those functions?

• Are accrual balances for due from banks—time verified periodically by an authorized official (if so, indicate frequency )?

• Do all internal entries require the approval of appropriate officials?

Does all the foregoing information constitute an adequate basis for evaluating internal controls in that there are no significant additional internal auditing procedures, accounting controls, administrative controls, or other circumstances that impair any controls, or mitigate any weaknesses indicated above (explain negative answers briefly, and indicate conclusions as to their effect on specific examination or verification procedures)?

Evaluate the effectiveness of the audit function in identifying risk in due from bank accounts. Consider the following:

• Scope and coverage of review(s).

• Frequency of review(s).

• Qualifications of audit personnel.

• Comprehensiveness and accuracy of findings/recommendations.

• Adequacy and timeliness of follow up.

Determine the effectiveness of any other control systems used by management and the board in the risk management of bank premises and equipment.

In conjunction with the examiners assigned “Loan Portfolio Management” and “Funds Management,” determine if information systems provide timely and accurate data to management to assist in the measurement of performance and decision-making relating to due from bank accounts.