Internal Control Questionnaires and Verification Procedures

Verification Procedures

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

  2. Test the reconciliations of the trial balances to the general ledger.

  3. Using appropriate sampling techniques: select items from the inventory (position) schedule and compare market values quoted by independent sources to values reflected on internal documents; and request confirmation from counterparties on extended settlements.

  4. Test gains and losses on disposal of EM products since the last examination. Compare prices reflected on confirmations, invoices, broker’s advises and trial balances (book value). Calculate gains/loss by tracing the amount to its proper recording in the general ledger.

  5. Using appropriate sampling techniques, select items from the inventory (position) schedule and perform the following:

    1. For securities selected that are held by the bank, physically examine and count the securities:

      • If physical count agrees, make a proper notation in the work papers.

      • If physical count does not agree, request that bank personnel recount the item and resolve the discrepancy.

      • If discrepancy can not be resolved in a timely manner, inform the internal audit department of the situation and make appropriate arrangements for follow-up.

    2. For securities selected that are held by others, check that security description and details (e.g., type, quantity, rate, etc.) as shown on safekeeping confirmations agree with inventory (position) schedule:

      • Investigate and resolve any discrepancies.

      • If the discrepancy can not be resolved in a timely manner, inform the internal audit department of the situation and make appropriate arrangements for follow-up.

  6. Using appropriate sampling techniques, select items from fails and:

    1. Prepare and mail confirmation forms to customers. Confirmations 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 discrepancies.

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