Internal Control Questionnaires and Verification Procedures

Bank Dealer Activities

1. Test the additions of the inventory schedules and the reconciliation of the schedules to the general ledger.

2. Request that safekeeping agents, receiving and delivering parties of items in transit, and holders of loaned securities provide detailed lists of all securities held.

3. Using appropriate sampling techniques, select items from inventory schedules and perform the following:

   1. Prepare count slips indicating the quantity and description of the security.

   2. Determine which securities are:

      • Held by the bank.

      • Held by others.

      • Held partially by the bank and partially by others.

   3. Indicate the location of securities held entirely by the bank or by others on the count slips.

   4. For securities held partially by the bank and partially by others:

      • Indicate the quantity held by the bank on the count slip.

      • Prepare additional count slips indicating the quantity held by others.

   5. Sort count slips by location.

   6. Number each set of count slips consecutively, and maintain a control record of the numbers used.

4. For those securities selected in step 3 which are held by the bank:

   1. Physically examine and count the securities.

   2. If physical count agrees with the count slip amount, initial the count slip.

   3. If physical count does not agree with the count slip amount:

      • Note the quantity actually counted.

      • Request that bank personnel recount the security.

      • If the discrepancy is resolved, initial the count slip.

      • If the discrepancy is not resolved, initial the count slip, and request that bank personnel sign it.

      • Give unresolved count slip discrepancies to the examiner controlling the count for follow-up and investigation.

5. For those securities selected in step 3 which are held by others:

   1. Agree quantity as shown on safekeeping confirmation to count slip.

   2. Investigate any discrepancies.

6. Account for all count slips, and:

   1. Determine that all discrepancies have been satisfactorily resolved.

   2. Discuss with management and prepare report comments on any unresolved discrepancies.

7. Using appropriate sampling techniques, select items from fails and due bills schedules, and:

   1. Prepare and mail confirmation forms to customer(s). Confirmation forms should include a description of the security and the nature of the transaction, price, delivery date, and current balance.

   2. Follow-up on any no-replies or exceptions and resolve differences.

8. Using appropriate sampling techniques, select items from good faith deposits and cash collateral schedules, and:

   1. Prepare and mail confirmation forms to syndicate participants.

   2. Follow-up on any no-replies or exceptions and resolve difference.

9. Test gains and losses on underwriting and trading account transactions since the last examination by selecting items from sales records, and:

   1. Determining sales price by examining invoices or broker’s advices.

   2. Checking computation of book value on settlement date.

   3. Calculating gain or loss.

   4. Tracing gain or loss to proper recording in general ledger.

   Note: Steps 10 and 11 should be performed only if the examiner-in- charge determines that it is necessary as an extension of similar computations made in NBSS reports.

10. Obtain or prepare a schedule showing the accrued interest balances and the ending trading account balance for each quarter since the last examination, and:

    1. Calculate quarterly ratio.

    2. Investigate significant fluctuations and/or trends.

11. Obtain or prepare a schedule showing the monthly income amounts and the average securities balances for each month since the last examination, and:

    1. Calculate monthly yield.

    2. Investigate significant fluctuations and/or trends.

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