Deposit Audits Procedures I. DEPOSIT INSTRUMENTS Specific Audit Procedures A. Savings and Money Market Accounts 1. Determine if all savings and money market account types are monitored for transaction limits. 2. Review monitoring procedures for transaction limits. 3. Determine if appropriate steps have been taken to manage customers who have exceeded the transaction limits. B. Certificates of Deposit 1. Review the reconciliation of certificate of deposit trial balance to the general ledger: a. Determine if the trial balance agrees with the general ledger balance. b. Test a sample of the accrued interest calculations. c. Determine if suspense account entries are clearing in a timely fashion. 2. Confirm the following information with the depositor for a sample of outstanding certificates listed in the trial balance: a. Depositor name(s). b. Certificate amount. c. Interest rate, interest frequency, and compounding method. d. Maturity date. 3. Verify rate and term calculations: a. Determine if the interest rate and terms for the sample selected above conformed with the institution s published schedules at the time of issuance. b. Determine that rate changes are made in accordance with the institution s official rate schedule. c. Perform test calculations to determine the accuracy of interest paid and accrued calculations for a sample of accounts. 4. Verify matured CDs: a. Obtain and review a trial balance of matured CDs. b. Verify that matured CDs are classified as demand deposits, and review the institution s attempts to contact the depositors. c. Review a sample of closed accounts for: i. Endorsement, if not rolled over. ii. Method of payment. Operations C14-1
Deposit Audits Procedures (cont.) Specific Audit Procedures iii. Cancellation of a paid certificate. 5. Verify that other CD procedures are being carried out correctly: a. Review a sample of early withdrawal penalties for mathematical accuracy and proper posting. b. Review backup withholding procedures. c. Review maintenance changes. C. Individual Retirement Accounts (IRAs) 1. Conduct a preliminary review of procedures: a. Review IRA operating procedures. b. Review distributions made during the current period, verifying that minimum distribution requirements are met. c. Review year-end IRS reporting procedures and test to determine if they are being followed. 2. Review controls to ensure new accounts are properly established, including: a. Appropriate disclosures are provided at time of account opening. b. IRA accounts are not commingled. c. Accounts are not opened for persons reaching age 70½ during the year of account opening. 3. Select a sample of new accounts opened within a sample period and test for the following: a. Is there evidence that appropriate disclosures were provided and forms were properly completed? b. Was the taxpayer identification number (TIN) obtained? c. Was the customer s date of birth (DOB) obtained to ensure that the customer would not have turned 70-1/2 or older during the year of account opening (rollover accounts can be opened for persons 70-1/2 or older)? d. Was the appropriate documentation received for all rollover accounts and transfer requests? e. Are dormant accounts monitored and controlled? 4. Are controls in place to ensure that IRA distributions are made accurately? Select a sample of distributions and determine if the following procedures are in place and being followed: a. IRA election of payment forms are used for participants that wish to receive regular distributions from their IRA. b. IRA withdrawal statement and Form W-4P are used when a participant makes a withdrawal from their IRA to indicate the tax they want withheld. c. Wage withholding tables are appropriate for the type of withdrawal made. C14-2 Operations
Deposit Audits Procedures (cont.) Specific Audit Procedures d. Tax liability is deducted from the distribution amount and placed into an income tax payable account for remittance to the IRS. e. Tax liability is remitted according to IRS guidelines. f. Payment election forms and form W-4P are on file. 5. Recalculate a sample of distribution amounts to ensure the amount of tax withheld, distribution amount, and distribution method agrees to the distribution request form. 6. Verify the total income tax withheld for all distributions was transferred to an accounts payable account and subsequently remitted to the IRS within the required timeframes. 7. Determine if regulatory reports are being prepared according to current requirements: a. Are reports provided to the customer and the IRS? b. Is the process of preparing, sending, and tracking the annual reports functioning according to requirements? c. Are annual customer reports, IRS form 5498s and Form 1099-Rs mailed according to requirements? 8. For IRA system maintenance, are items cleared on daily basis? Do exceptions appear on subsequent reports until they are corrected? D. Official Checks 1. Review written procedures and controls governing official checks. 2. Review a recent reconciliation of outstanding official checks to DDA and/or general ledger control accounts. 3. Determine that official checks are signed only by authorized signers. 4. Examine unissued official checks and verify that checks are: a. Maintained in sequential order. b. Not presigned c. Safeguarded adequately. 5. Inspect stop-payment orders against official checks. Review for authorization, explanation, and posting on data processing system. 6. Review payees on old outstanding checks to determine if they require further investigation. Determine if escheatment procedures apply. Operations C14-3
Deposit Audits Procedures (cont.) II. DEPOSIT OPERATIONS General Audit Procedures 1. Select a sample of accounts opened over the audit period and determine the following: a. Is a properly completed signature card on file? b. Is a properly completed corporate resolution on file for all business accounts that agrees to the signature card? c. For all interest-bearing accounts, is a separate completed W-9 form on file? d. If ATM access was requested, has the customer signed an application/agreement? 2. Obtain closed account reports over the audit period. Select a sample of accounts from these reports and complete the following review steps: a. Review a sample of new account signature cards for completeness, agreement to the data system, and agreement to a sample of recent transaction documents. b. Review a sample of new accounts for tax identification numbers, back-up withholding, etc. c. Review a sample of recently closed accounts for proper documentation, including review of the closing transaction and cancellation of the signature card. d. Based on the above review, is the account properly noted as closed on the system? Document variances and determine reasons. 3. Review backup withholding for demand and savings accounts subject to withholding: a. Trace to a subsidiary ledger that agrees to the general ledger. b. Determine that reporting and remittance meet IRS requirements. 4. For new accounts, review account opening procedures, including customer identification procedures (CIP), and select a representative sample of accounts without a prior bank relationship opened since the last audit. Determine that account documentation includes the following: a. Customer s name. b. Date of birth, if the customer is an individual. c. Residence and mailing address. If the customer is a corporation or partnership, review for principal place of business and mailing address. d. For U.S. employees, a taxpayer identification number, such as social security number, individual taxpayer identification number, or employer identification number. e. For non-u.s. persons, review one or more of the following: i. U.S. taxpayer identification number; ii. Passport number and country of issuance; iii. Alien identification card number; or C14-4 Operations
Deposit Audits Procedures (cont.) General Audit Procedures iv. Number and country of issuance of any other government-issued document evidencing nationality or residence bearing a photograph or similar safeguard. f. Verification of the authenticity of identifying information: i. Individual: Unexpired, government-issued photo I.D. or document specified in the procedures. ii. Corporation: Articles of incorporation, government-issued business license, or partnership agreement. g. Verification that the customer names were checked against the Office of Foreign Asset Control (OFAC) list. 5. Select a sample of new accounts and ensure that all identification requirements are met. The sample should include: a. Joint account holders, including absent account holders. b. Existing customers who open a new account. c. Someone becoming a signatory on another account. 6. Evaluate the adequacy of controls over deposit master file maintenance changes: a. Document the process of performing account maintenance for deposit applications: i. Determine if maintenance changes are reviewed by an independent function within the deposit operations area. ii. Determine the branches role in performing maintenance. b. Obtain a sample of file maintenance reports and ensure the reports contain evidence of a documented review, such as initials and date of reviewer. c. Select a sample of maintenance performed and trace to supporting documentation. Determine if maintenance changes, such as rates and account restrictions, were properly approved. 7. Determine the process for closing and purging zero balance accounts from the system: a. Identify the time period after which a zero balance account is automatically purged from the system. b. Determine whether zero balance accounts were closed and purged according to established policies and procedures. 8. Review the process for making online entries and focus on the following: a. Control procedures for keying entries. b. Methods to control the edit function. c. Controls over employees with online access. d. Controls over systems in which online entries can be made. 9. Review procedures for making changes to deposit product specifications. Consider the following in this review: a. Which individuals have the authority to request and key changes? Operations C14-5
Deposit Audits Procedures (cont.) General Audit Procedures b. Are controls in place over the edit function to ensure all changes are appropriate? c. Are controls in place over system parameters for the calculation and payment of interest? Ensure that parameter changes are consistent with account disclosures. 10. Evaluate the following deposit operations procedures for handling matured time deposits: a. Contracting the customer. b. Sending notices to the customer. c. Monitoring responsibilities, such as a review of the mature deposits report. 11. Review controls over rejected and unposted or nonpost items. Consider the following in this review: a. Are written procedures available? b. Are follow-up procedures performed on all nonpost items greater than 30 days outstanding? c. Does documentation for corrective action taken indicate that the change was accurate? d. Is the unposted transaction journal reviewed, signed, and dated by a supervisor in accordance with established procedures? 12. Review system access controls: a. Determine if system access levels have been reviewed annually in accordance with security procedures. b. Select a sample of employees within the department and determine if access levels granted appear reasonable. C14-6 Operations