Internal Control Questionnaires and Verification Procedures

Other

  1. Are notes safeguarded during banking hours and locked in the vault overnight?

  3. Are all loan rebates approved by an officer and made only by official check?

  4. Does the bank have an internal review system that:

    1. Re-examines collateral items for negotiability and proper assignment?

    2. Test checks values assigned to collateral when the loan is made and at frequent intervals thereafter?

    3. Determines that items out on temporary vault-out tickets are authorized and have not been outstanding for an unreasonable length of time?

    4. that loan payments are promptly posted?

    5. Insures compliance with the requirements of governmental agencies insuring or guaranteeing loans?

  5. Are all notes recorded on a note register or similar record and assigned consecutive numbers?

  6. Does someone not connected with loan processing handle collection notices?

  7. Are payment notices prepared and mailed by someone other than the loan teller?

  8. Does the bank prohibit the holding of debtor’s checks for payment of loans at maturity?

  9. Concerning livestock loans:

    1. Are inspections made at the inception of credit?

    2. Are inspections properly dated and signed?

    3. Is there a breakdown by sex, breed, and number of animals in each category?

    4. Is the condition of the animals noted?

    5. Are inspections required at least annually?

  10. Concerning crop loans:

    1. Are inspections of growing crops made as loans are advanced?

    2. Are disbursements closely monitored to assure that the proceeds are properly channeled into the farmer’s operation?

    3. Is crop insurance encouraged?

  11. In mortgage warehouse financing, does the bank hold the original mortgage note, trust deed or other critical document, releasing only against payment?

  12. Concerning commodity lending:

    1. Is control for the collateral satisfactory, i.e., stored in the bank’s vault, another bank, or a bonded warehouse?

    2. If collateral is not stored within the bank, are procedures in effect to ascertain the authenticity of the collateral?

    3. Does the bank have a documented security interest in the proceeds of the future sale or disposition of the commodity as well as the existing collateral position?

    4. Do credit files document that the financed positions are and remain fully hedged?

  13. Concerning loans to commodity brokers and dealers:

    1. Does the bank maintain a list of the major customer accounts on the brokers or dealers to whom it lends? If so, is the list updated on a periodic basis?

    2. Is the bank aware of the broker/dealer’s policy on margin requirements and the basis for valuing contracts for margin purposes (i.e., pricing spot vs. future)?

    3. Does the bank attempt to ascertain whether the positions of the broker/dealer’s clients that are indirectly financed by bank loans remain fully hedged?

Previous: Collateral Next: Conclusion