Internal Control Questionnaires and Verification Procedures
Custody and Movement of Securities
Are the bank’s procedures such that persons do not have sole custody of securities in that:
They do not have sole physical access to securities?
They do not prepare disposal documents that are not also approved by authorized persons?
For the security custodian, supporting disposal documents are examined or adequately tested by a second custodian?
No person authorizes more than one of the following transactions: execution of trades, receipt and delivery of securities, and collection or disbursement of payment?
Are securities physically safeguarded to prevent loss, unauthorized disposal, or use? And:
Are negotiable securities kept under dual control?
Are securities counted frequently, on a surprise basis, reconciled to the securities record, and the results of such counts reported to management?
Does the bank periodically test for compliance with provisions of its insurance policies regarding custody of securities?
For securities in the custody of others:
Are custody statements agreed periodically to position ledgers, and any differences followed up to a conclusion?
Are statements received from brokers and other dealers reconciled promptly, and any differences followed up to a conclusion?
Are positions for which no statements are received confirmed periodically, and stale items followed up to a conclusion?
Are positions for which no statements are received confirmed periodically, and stale items followed up to a conclusion?
Is access to the trading securities vault restricted to authorized employees?
Do withdrawal authorizations require countersignatures to indicate security count verifications?
Is registered mail used for mailing securities, and are adequate receipt files maintained for such mailings (if registered mail is used for some but not all securities mailed, indicate criteria and reasons) ?
Are pre-numbered forms used to control securities trades, movements, and payments?
If so, is numerical control of pre-numbered forms accounted for periodically by persons independent of those activities?
Do alterations to forms governing the trade, movement, and payment of securities require:
Signature of the authorizing party?
Use of a change of instruction form?
With respect to negotiability of registered securities:
Are securities kept in non-negotiable form whenever possible?
Are all securities received, and not immediately delivered, transferred to the name of the bank or its nominee and kept in non-negotiable form whenever possible?
Are securities received checked for negotiability (endorsements, signature, guarantee, legal opinion, etc.) and for completeness (coupons, warrants, etc.) before they are placed in the vault?
Record keeping and Confirmation Requirements for Customer Securities Transactions (12 CFR 12)
Are chronological records of original entry containing an itemized daily record of all purchases and sales of securities maintained? Also:
Do the original entry records reflect:
The account or customer for which each such transaction was effected?
The description of the securities?
The unit and aggregate purchase or sale price (if any)?
The trade date?
The name or other designation of the broker/dealer or other person from whom purchased or to whom sold?
If the bank has had an average of 200 or more securities transactions per year for customers over the prior three- calendar-year period, exclusive of transactions in U.S. government and federal agency obligations, answer the following.
Does the bank maintain account records for each customer which reflect:
All purchases and sales of securities?
All receipts and deliveries of securities?
All receipts and disbursements of cash for transactions in securities for such account?
All other debits and credits pertaining to transactions in securities?
Does the bank maintain a separate memorandum (order ticket) of each order to purchase or sell securities (whether executed or canceled) which includes:
The account(s) for which the transaction was effected?
Whether the transaction was a market order, limit order, or subject to special instructions?
The time the order was received by the trader or other bank employee responsible for affecting the transaction?
The time the order was placed with the broker/dealer, or if there was no broker/dealer, the time the order was executed or canceled?
The price at which the order was executed?
The broker/dealer used?
Does the bank maintain a record of all broker/dealers selected by the bank to effect securities transactions and the amount of commissions paid or allocated to each such broker during the calendar year?
Does the bank, subsequent to effecting a securities transaction for a customer, mail or otherwise furnish to such customer either a copy of the confirmation of a broker/dealer relating to the securities transaction or a written trade confirmation prepared by the bank?
If customer notification is provided by furnishing the customer with a copy of the confirmation of a broker/dealer relating to the transaction, and if the bank is to receive remuneration from the customer or any other source in connection with the transaction, and the remuneration is not determined pursuant to a written agreement between the bank and the customer, does the bank also provide a statement of the source and amount of any remuneration to be received?
If customer notification is provided by furnishing the customer with a trade confirmation prepared by the bank, does the confirmation disclose:
The name of the bank?
The name of the customer?
Whether the bank is acting as agent for such customer, as principal for its own account, or in any other capacity?
The date of execution and a statement that the time of execution will be furnished within a reasonable time upon written request of such customer?
The identity, price, and number of shares or units (or principal amount in the case of debt securities) of such securities purchased or sold by such customer?
For transactions which the bank effects in the capacity of agent, does the bank, in addition to the above, disclose:
The amount of any remuneration received or to be received, directly or indirectly, by any broker/dealer from such customer in connection with the transaction?
The amount of any remuneration received or to be received by the bank from the customer and the source and amount of any other remuneration to be received by the bank in connection with the transaction, unless remuneration is determined pursuant to a written agreement between the bank and the customer?
The name of the broker/dealer used; or where there is no broker/dealer, the name of the person from whom the security was purchased or to whom it was sold, or the fact that such information will be furnished within a reasonable time upon written request?
Does the bank maintain the above records and evidence of proper notification for a period of at least three years?
Does the bank furnish the written notification described above within five business days from the date of the transaction, or if a broker/dealer is used, within five business days from the receipt by the bank of the broker/dealer’s confirmation (12 CFR 12.5)? If not, does the bank use one of the alternative procedures described in 12 CFR 12.5?
Unless specifically exempted in 12 CFR 12.7, does the bank have established written policies and procedures ensuring (12 CFR 12.6):
That bank officers and employees who make investment recommendations or decisions for the accounts of customers, who participate in the determination of such recommendations or decisions, or who, in connection with their duties, obtain information concerning which securities are being purchased or sold or recommended for such action, report to the bank, within 10 days after the end of the calendar quarter, all transactions in securities made by them or on their behalf, either at the bank or elsewhere in which they have a beneficial interest (subject to certain exemptions of 12 CFR 12.6(d))?
That in the above required report the bank officers and employees identify the securities purchased or sold and indicate the dates of the transactions and whether the transactions were purchases or sales?
The assignment of responsibility for supervision of all officers or employees who: (1) transmit orders to or place orders with broker/dealers, or (2) execute transactions in securities for customers?
The fair and equitable allocation of securities and prices to accounts when orders for the same security are received at approximately the same time and are placed for execution either individually or in combination?
Where applicable, and where permissible under local law, the crossing of buy and sell orders on a fair and equitable basis to the parties to the transaction?
MSRB Records Maintenance
Does the bank maintain:
Customer confirmations, including as applicable (required by MSRB Rule G-15):
Bank dealer’s name, address, and phone number?
Customer’s name?
Designation of whether transaction was a purchase from or sale to the customer?
Par value of securities?
Description of securities, including at a minimum:
Name of issuer?
Interest rate?
Maturity rate?
Designation, if securities are limited tax?
Subject to redemption prior to maturity (callable)?
Designation, if revenue bonds and the type of revenue?
The name of any company or person in addition to the issuer who is obligated, directly or indirectly, to pay debt service on revenue bonds? (In the case of more than one such obligor, the phrase “multiple obligors” will suffice.)
Dated date, if it affects price or interest calculations?
First interest payment date, if other than semi-annual?
Designation, if securities are “fully registered” or “registered as principal”?
Designation, if securities are “pre-refunded”?
Designation, if securities have been “called,” maturity date fixed by call notice and amount of call price?
Denominations of bearer bonds, if other than denominations of $1,000 and $5,000 par value?
Denominations of registered bonds, if other than multiples of $1,000 par value up to $100,000 par value?
Denominations of municipal notes?
CUSIP number, if assigned?
Trade date and time of execution, or a statement that time of execution will be furnished upon written request of the customer?
Settlement date?
Yield and dollar price? Only the dollar price need be shown for securities traded at par.
For transactions in callable securities effected on a yield basis, the resulting price calculated to the lowest of price to call premium, par option (callable at par) or to maturity, and if priced to premium call or par option, a statement to that effect and the call or option date and price used in the calculation?
For transactions in callable securities effected on the basis of dollar price, the resulting yield calculated to lowest of yield to premium call, par option or maturity?
Amount of accrued interest?
Extended principal amount?
Total dollar amount of transaction?
The capacity in which the bank dealer effected the transaction:
As principal for own account?
As agent for customer?
As agent for a person other than the customer?
As agent for both the customer and another person (dual agent)?
If a transaction is effected as agent for the customer or as dual agent:
Either the name of the contra-party or a statement that the information will be furnished upon request?
The source and amount of any commission or other remuneration to the bank dealer?
Payment and delivery instructions?
Special instructions, such as:
“Ex-legal” (traded without legal opinion)?
“Flat” (traded without interest)?
“In default” as to principal or interest?
Dealer confirmations, including as applicable (required by MSRB Rule G-12):
Bank dealer’s name, address, and telephone number?
Contra-party identification?
Designation of purchase from or sale to?
Par value of securities?
Description of securities, including at a minimum:
Name of issuer?
Interest rate?
Maturity date?
Designation, if securities are limited tax?
Subject to redemption prior to maturity (callable)?
Designation, if revenue bonds and the type of revenue?
The name of any company or person in addition to the issuer who is obligated, directly or indirectly, to pay debt service on revenue bonds? (In the case of more than one such obligor, the phrase “multiple obligors” will suffice.)
Dated date, if it affects price or interest calculations?
First interest payment date, if other than semi-annual?
Designation, if securities are “fully registered” or “registered as principal”?
Designation, if securities are “pre-refunded”?
Designation, if securities have been “called,” maturity date fixed by call notice and amount of call price?
Denominations of bearer bonds, if other than denominations of $1,000 and $5,000 par value?
Denominations of registered bonds, if other than multiples of $1,000 par value up to $100,000 par value?
Denominations of municipal notes?
CUSIP number, if assigned?
Trade date?
Settlement date?
Yield to maturity and resulting dollar price? Only the dollar price need be shown for securities traded at par or on a dollar basis.
For transactions in callable securities effected on a yield basis, the resulting price calculated to the lowest of price to call premium, par option (callable at par) or to maturity?
If applicable, the fact that securities are priced to premium call or par option and the call or option date and price used in the calculation?
Amount of accrued interest?
Extended principal amount?
Total dollar amount of transaction?
Payment and delivery instructions?
Special instructions, such as:
“Ex-legal” (traded without legal opinion)?
“Flat” (traded without interest)?
“In default” as to principal or interest?
Purchase and sale journals or blotters which include:
Trade date?
Description of securities?
Aggregate par value?
Unit dollar price or yield?
Aggregate trade price?
Accrued interest?
Name of buyer or seller?
Name of party received from or delivered to?
Bond or note numbers?
Indication if securities are in registered form?
Receipts or disbursements of cash?
Specific designation of “when issued” transactions?
Transaction or confirmation numbers recorded in consecutive sequence to insure that transactions are not omitted?
Other references to documents of original entry?
Short-sale ledgers which include:
Sale price?
Settlement date?
Present market value?
Basis point spread?
Description of collateral?
Cost of collateral or cost to acquire collateral?
Carrying charges?
Security position ledgers showing separately for each security positioned for the bank’s own account:
Description of the security?
Posting date (either trade or settlement date, provided posting date is consistent with other records of original entry)?
Aggregate par value?
Cost?
Average cost?
Location?
Count differences classified by the date on which they were discovered?
Note: For questions dealing with position ledgers, multiple maturities of the same issue of municipal securities and multiple coupons of the same maturity may be shown on the same record, provided that adequate secondary records separately identify such maturities and coupons.
Securities transfer or validation ledgers which include:
Address where securities were sent?
Date sent?
Description of security?
Aggregate par value?
If registered securities:
Present name of record?
New name to be registered?
Old certificate or note numbers?
New certificate or note numbers?
Date returned?
Securities received and delivered journals or tickets which include:
Date of receipt or delivery?
Name of sender and receiver?
Description of security?
Aggregate par value?
Trade and settlement dates?
Certificate numbers?
Cash or wire transfer receipt and disbursement tickets which include:
Draft or check numbers?
Customer accounts debited or credited?
Notation of the original entry item that initiated the transaction?
Cash or wire transfer journals which additionally include:
Draft or check reconcilement?
Daily totals of cash debits and credits?
Daily proofs?
Fail ledgers which include:
Description of security?
Aggregate par value?
Price?
Fail date?
Date included on fail ledger?
Customer or dealer name?
Resolution date?
A distinction between a customer and a dealer fail?
Follow-up detail regarding efforts to resolve the fail?
Due bill ledgers which include:
Description of securities sold.
Aggregate par value.
Price.
Date of receipt of customer funds.
Customer name.
Description of collateral.
Market value of collateral.
Date collateral was assigned or deposit reserve treatment commenced.
Date securities sold were delivered.
Securities borrowed and loaned ledgers which include:
Date of transaction?
Description of securities?
Aggregate par value?
Market value of securities?
Contra-party name?
Value at which security was loaned?
Date returned?
Description of collateral?
Aggregate par value of collateral?
Market value of collateral?
Collateral safekeeping location?
Dates of periodic valuations?
Records concerning written or oral put options, guarantee and repurchase agreements which include:
Description of the securities?
Aggregate par value?
Terms and conditions of the option, agreement, or guarantee?
Customer account information which includes:
Customer’s name and residence or principal business address?
Whether customer is of legal age?
Occupation?
Name and address of employer? And:
Whether customer is employed by a securities broker or dealer or by another municipal securities dealer?
Name and address of beneficial owner or owners of the account if other than customer? And:
Whether transactions are confirmed with such owner or owners?
Signature of municipal securities representative introducing the account?
Signature of municipal securities principal accepting the account?
With respect to discretionary accounts:
Customer’s written authorization to exercise discretionary authority?
Written approval of the establishment of such account by the municipal securities principal who supervises the account?
Written approval by the supervising municipal securities principal for each transaction in the account, indicating the time and date of approval?
Name and address of person(s) authorized to transact business for a corporate, partnership, or trustee account? And:
Copy of powers of attorney, resolutions, or other evidence of authority to effect transactions for such an account?
With respect to borrowing or pledging securities held for the accounts of customers:
Written authorization from the customer authorizing such activities?
Customer complaints including:
Records of all written customer complaints?
Record of actions taken concerning those complaints?
Customer and the bank dealer’s own account ledgers which include:
All purchases and sales of securities?
All receipts and deliveries of securities?
All receipts and disbursements of cash?
All other charges or credits?
Records of syndicates’ joint accounts or similar accounts formed for the purchase of municipal securities which include:
Underwriter agreements? And:
Description of the security?
Aggregate par value of the issue?
Syndicate or selling group agreements? And:
Participants’ names and percentages of interest?
Terms and conditions governing the formation and operation of the syndicate?
Date of closing of the syndicate account?
Reconcilement of syndicate profits and expenses?
Additional requirements for syndicate or underwriting managers which include:
All orders received for the purchase of securities from the syndicate or account, except bids at other than the syndicate price?
All allotments of securities and the price at which sold?
Date of settlement with the issuer?
Date and amount of any good faith deposit made with the issuer?
Files which include:
Advertising and sales literature?
Prospectus delivery information?
Internal supervisory records which include:
Personnel registration and investigation information?
Account reconcilement and follow-up?
Profit analysis by trader?
Sales production reports?
Periodic open position reports computed on a trade date or when issued basis?
Reports of own bank credit extensions used to finance the sale of trading account securities?
Does the bank preserve the following municipal securities records for the periods of time indicated:
An itemized daily record of all purchases and sales, all receipts and deliveries of securities, all receipts and disbursements of cash, and all other debits and credits pertaining to municipal securities for 6 years?
Customer and bank dealer’s own account ledgers for 6 years?
Customer complaint records for 6 years?
Customer account information relating to the opening and maintenance of the account for a period of at least 6 years following the closing of an account?
Securities position ledgers?
Records of syndicate transactions for 6 years? (Such records need not be preserved for an account which was not successful in purchasing an issue of municipal securities.)
Secondary records for 3 years which include:
Transfer, validation, borrowed or loaned and fail ledgers or tickets?
Put options and repurchase agreements?
Records of principal and agency transactions (order tickets and confirmations)?
Checkbooks, checking account statements, canceled checks, reconcilement, and wire transfers?
Receivables and payables?
All written communication received or sent, including inter- office memoranda, on the conduct of activities in municipal security transactions?
All other customer account information?
All other written agreements entered into with respect to any municipal securities account?
Are all records required to be preserved in a readily accessible place for at least 2 years, and thereafter, in a reasonably accessible place?
If records are preserved in any manner other than the original format of the record, does the bank have available facilities for ready retrieval, inspection, and reproduction of legible facsimiles?
Has the bank officially designated at least one registered municipal securities principal to maintain and preserve records (if so, give name, )?
Is a record of each such designation maintained showing the name, title, and business address of the person so designated and the date of designation?
Is such a record retained for 6 years following any change in designation?
Previous: Offsetting Resale and Repurchase Transactions
Next: Purchase and Sales Transactions