Internal Control Questionnaires and Verification Procedures

Verification Procedures

1. Obtain control of all outstanding contracts and number them sequentially so that they may be returned to the bank in the order in which they were received, and:

   1. Arrange them by currency for preparation of position worksheets for proof to or comparison with:

      • Foreign currency subsidiary ledgers.

      • The general ledger.

      • The bank’s position report as of the same date.

      • Net position limits.

      • Aggregate trading limits.

   2. Arrange them by currency and by maturity for preparation of maturity worksheets and for comparison with the bank’s maturity gap reports, if available, as of the same date, and check for compliance with gap limits.

   3. Arrange them by customer and by maturity, and:

      • Provide to customer liability ledgers.

      • Check for compliance with customer trading limits.

      • Check for compliance with customer settlement limits.

   4. Test for compliance with other limits, as appropriate.

2. Identify those contracts for which incoming confirmations have not yet been received as well as those for which incoming confirmations bear unresolved discrepancies.

   1. Unless bank personnel have taken follow-up action too recently to expect response, prepare and mail confirmation forms to include:

      • Counterparty name.

      • Currency denominations and amounts.

      • Rate.

      • Transaction date.

      • Maturity date.

      • Settlement instructions, if applicable.

3. Using appropriate sampling techniques, select accounts from the trial balance, and perform the following:

   1. Prepare and mail confirmation forms to include the same information cited in 2a.

   2. After a reasonable time, mail second requests.

   3. Follow-up on any no-replies or exceptions, and resolve differences. Confirmation forms and return envelopes should be prepared:

      • By bank staff under examiner supervision.

      • On bank letterhead and signed by the auditor.

      • Using the bank’s return address with conspicuous markings to insure their direct routing to the responsible examiner.

4. In conjunction with the audit staff, intercept at the bank’s mail room all incoming confirmations for a period of several days to determine:

   1. If any contracts have been made but not booked.

   2. Extent to which the confirmation clerk, or other personnel, relies upon traders to resolve discrepancies.

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