Internal Control Questionnaires and Verification Procedures

Verification Procedures

1. Obtain or prepare detailed lists of other assets and other liabilities including a breakdown of subsidiary ledgers.

2. Within each category of other assets, use an appropriate sampling technique to select specific items, and:

   1. Where appropriate, verify the original balance of the item from an invoice or other supporting document.

   2. Examine documentation for additions to any given item since the previous examination.

   3. Where amortization is applied to a given item, review the bank’s computations for the period since the previous examination to determine mathematical accuracy and the reasonableness of estimated life.

   4. Determine the reasonableness of the current balance by reviewing the remaining estimated life, collectability, etc.

   5. Prepare any special programs considered necessary to properly analyze and test specific accounts selected.

3. Determine that interoffice and intercompany transactions clear in the normal course of business by actually reviewing the entries to the account for several days and examining the debit and credit tickets. Special attention should be given to entry dates, authorizing initials, and validity or reasonableness of the item.

4. For accrual records:

   1. Review bank’s system of recording liabilities for interest, taxes, and other expenses.

   2. Review the balance of interest accrued to outstanding interest bearing liabilities for reasonableness.

   3. Review the balance of the reserve for taxes, both current and deferred, for reasonableness by examining the bank’s worksheets and computations.

   4. Agree amounts recorded for dividends to excerpts of board minutes.

   5. Review the reasonableness and completeness of the balance reflected for reserves for other expenses.

5. Within each general category of other liabilities, use an appropriate sampling technique to select specific items for further review, and, for each item selected, determine that the balance is reasonably stated by examining supporting documentation.

6. Review accounts not sampled for items which appear unusual in nature or amount, and examine supporting documentation.

7. Using an appropriate sampling technique, select expense checks issued since the supervisory activity date, and:

   1. Determine whether the expense was incurred before or after the activity date by examining the vendor’s invoice or other supporting documentation.

   2. For expenses incurred prior to the activity, trace the amount to the detail list of other liabilities.

   3. Discuss with appropriate bank officials any significant items incurred prior to and recorded after the supervisory activity date.

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