Internal Control Questionnaires and Verification Procedures

Internal Control Questionnaire

Discuss with senior management the bank’s funds management policies and practices.

  1. Has the board of directors, consistent with its duties and responsibilities, adopted a funds management policy which includes:

    1. Lines of authority and responsibility for funds management decisions?

    2. A formal mechanism to coordinate asset and liability decisions?

    3. A method to identify liquidity needs and the means to meet those needs?

    4. Requirements for the level of liquid assets and other sources of funds in relationship to anticipated and potential needs?

    5. Guidelines for the level of rate sensitive assets and rate sensitive liabilities and the relationship between them?

    6. Limits on the risk to earnings arising from historic cost accounts and instruments carried on a market valuation basis?

  2. Does the planning and budgeting function consider liquidity and rate sensitivity?

  3. Has provision been made for the preparation of internal management reports which are an adequate basis for funds management decisions and for monitoring the results of those decisions? And:

    1. Are internal management reports concerning liquidity needs and source of funds to meet those needs regularly prepared and reviewed by the board of directors and senior management?

    2. Are reports prepared on the bank’s rate sensitivity?

    3. Is historical information regarding asset yields, cost of funds, and net interest margins readily available?

    4. Are variations in the interest margin, both from the prior reporting period and from the budget, regularly monitored?

    5. Is sufficient information available to permit an analysis of the cause of interest margin variations?

    6. Is sufficient information available to permit an analysis of the cause of interest margin variations?

  4. Is the foregoing information an adequate basis for evaluating internal control 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 procedures) ?

  5. Based on a composite evaluation, as evidenced by answers to the foregoing questions, internal control is considered (good, medium, or bad).

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