Review the internal and external audit, compliance, and/or internal loan review functions and working papers as they relate to existing and proposed insider transactions. Determine whether:

• Their function is adequate in terms of:

  • Independence.

  • Scope (e.g., testing for compliance with laws and regulations).

  • Coverage (e.g., includes review of income received from and fees paid to insiders and their related interests).

  • Frequency of review.

  • Procedures.

• Bank management and the board of directors take timely corrective action to address deficiencies noted by the audit, compliance, and/or internal loan review functions.

Does the bank, through the audit department or other independent source, review and report to the board of directors or committee:

• Existing transactions between insiders for compliance with the bank’s conflicts of interest policy?

• Proposed transactions, or modifications of existing relationships, between the bank and any of its insiders and their interests?

• Insider transactions for compliance with laws, rules, and regulations including breaches of fiduciary duty or unethical conduct?

• Testing performed to ensure the completeness and accuracy of insider reporting?

• Whether the bank accurately calculates unimpaired capital and unimpaired surplus for Regulation O purposes? (This should be done in conjunction with the examiner reviewing capital.)

Has a process been implemented to prevent anyone from overriding the control systems, and are the systems checked periodically to ensure that they have not been compromised by anyone? Has the system been tested?