Internal Control Questionnaires and Verification Procedures

Guarantees Issued

1. Test the addition of trial balances and their reconciliation to the general ledger.

2. Using an appropriate sampling technique, select guarantees issued from the trial balance, and:

   1. Prepare and mail confirmation forms to account parties. (All confirmation forms should be done in the name of the bank, on its letterhead, and returned to its auditing department with a code designed to direct such confirmations to the examiners. Guarantees serviced by other institutions, either whole guarantees or syndicate participations, should be confirmed only with the servicing institution (or lead bank.) Guarantees serviced for other institutions, either whole guarantees or syndicate participations, should be confirmed with the buying institution and the account party. Confirmation forms should include account party’s name, guarantee number, amount, fee charged, and a brief description of any collateral or counter- guarantee held.)

   2. After a reasonable time, mail second requests.

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

   4. Examine guarantees issued instruments for completeness, and agree date, amount, and terms to the trial balance.

   5. In the event any guarantees issued are not held at the bank, request confirmation by the holder.

   6. Check to see that required initials of the approving officer are on the guarantee instrument.

   7. Check to see that the signature on the guarantee is authorized.

   8. Compare any collateral held with the description on the collateral register.

   9. Determine that the proper assignments, hypothecation agreements, etc. are on file.

   10. Test the pricing of any negotiable collateral held.

   11. Determine that collateral margins are reasonable and in line with bank policy and legal requirements.

   12. List all collateral discrepancies, and investigate.

   13. Determine if any collateral is held by an outside custodian or has been temporarily removed for any reason.

   14. Forward a confirmation request on any collateral held outside the bank.

   15. Determine that each file contains documentation supporting counter-guarantees, if applicable.

   16. Review guarantee participation agreements, making excerpts, where necessary, for such items as fees charged the account party or remittance requirements, and determine whether the account party has complied.

   17. If the bank has to pay a beneficiary under its guarantee, review disbursement ledgers and authorizations to determine whether payment was effected in accordance with the terms of the guarantee agreement.

3. Review fees collected accounts by:

   1. Reviewing and testing procedures for accounting for fees collected and for handling any adjustments.

   2. Scanning fees collected for any unusual entries and following up on any unusual items by tracing them to initial and supporting records.

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