Test the additions of the trial balances and the reconciliation of the trial balances to the general ledger. Include loan commitments and other contingent liabilities.

After selecting loans from the trial balance by using an appropriate sampling technique:

1. Prepare and mail confirmation forms to borrowers. (Loans serviced by other institutions, either whole loans or participations, are usually confirmed only with the servicing institution. Loans serviced for other institutions, either whole loans or participations, should be confirmed with the buying institution and the borrower. Confirmation forms should include borrower’s name, loan number, the original amount, interest rate, current loan balance, borrowing base, and a brief description of the collateral).

2. After a reasonable time, mail second requests.

3. Follow up on any unanswered requests for verification or exceptions and resolve differences.

4. Examine notes for completeness and compare agree date, amount, and terms with trial balance.

5. In the event notes are not held at the bank, request confirmation by the holder.

6. Check to see that required officer approvals are on the note.

7. Check to see that note is signed, appears to be genuine, and is negotiable.

8. Compare collateral held in loan files with the description on the collateral register.

9. If the loan is secured, determine that the proper collateral documentation is on file.

10. Determine that advance rates and loan-to-values are reasonable and in line with bank policy.

11. List all collateral discrepancies and investigate.

12. Determine that any required insurance coverage is adequate and that the bank is named as loss payee.

Review disbursement ledgers and authorizations, and determine whether authorizations are signed in accordance with terms of the loan agreement.

Review accounts with accrued interest by:

1. Reviewing and testing procedures for accounting for accrued interest and for handling adjustments.

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

Using a list of nonaccruing loans, check loan accrual records to determine that interest income is not being recorded.

Obtain or prepare a schedule showing the monthly interest income amounts and the retail loan balance at each month end since the last examination, and:

1. Calculate yield.

2. Investigate any significant fluctuations or trends.