Complete Internal Control Checklist

Transcription

1 Complete Internal Control Checklist This checklist re p resents the internal cont rols that should exist in a credit union environment. The board of directors can use this checklist to assist in establishing operating c o n t rols and pro c e d u res. The super v i s o ry committee will find this list helpful as it reviews the level of internal control that exists within the credit union. Cash 1. Does each employee handling funds use his or her own lockable cash drawer or box? 2. If a teller is absent for more than one day, is immediate proof made of cash? 3. Are spare keys to each drawer or box kept under the control of an officer of the credit u n i o n? 4. Are relief tellers provided with separate funds and prevented from operating out of regular tellers cash during the relief period? 5. Are receipts kept to record cash transfers between tellers? 6. Are cash-received vouchers prepared when members deposit or make payments to the credit union? 7. Do the members get receipts for cash deposited or payments made to the credit u n i o n? 8. As checks are received, are they immediately stamped with a restrictive endorsement (that is, For Deposit Only )? 9. Are tellers trained to count all banded currency they receive as well as recount all cash t r a n s a c t i o n s? 10. Are cash receipts balanced daily and entered in the journal and cash record as of the day on which they are r e c e i v e d?

2 11. Are cash over and short items recorded accurately each day, and are such items reviewed at least monthly by the board of directors? 12. Is a limitation placed on the amount of cash a teller is permitted to carry in his or her d r a w e r? 13. Is bait money included in each teller s cash fund and in the vault c a s h? 1 4. Are adequate precautions taken to prevent credit union funds from being mixed with personal funds or other funds under control of credit union personnel? 15. Is there a system planning of unannounced cash counts for funds held by tellers? 16. Are change funds maintained in amounts authorized by the board of directors and are they established on the records and replenished in the manner prescribed by the b o a r d? 17. Is vault cash under dual control and are adequate safekeeping facilities provided? Cash (Automated Teller Machines) 1. Are ATM transaction journals provided that enable the credit union to determine every transaction or attempted transaction that has occurred at an ATM? 2. Are ATM cash transaction journals reconciled to the disbursement journal and the cash replenishment to the authorized balance daily? 3. Does the ATM system have built-in controls that a. b. limit the amount and times that a member may use the system within a specified period? retain the card rather than return it to the user if the wrong personal identification number (PIN) is used c o n s e c u t i v e l y? 4. Are cards retained for wrong PIN use kept under the dual control of persons not associated with card issuance or PIN i n c o m e?

3 5. Does the credit union have adequate procedures to ensure that notification of loss, theft, or unauthorized use of the cards results promptly in the halting of unauthorized transfers from a member s account or recrediting? 2. Is a subsidiary record kept to show the number, denomination, and quantities of all traveler s checks unissued and on hand? 3. Are all unsigned money orders prenumbered for easy accountability? 6. Do credit union procedures indicate a willingness to resolve member complaints regarding electronic fund transfers, including maintenance of a record of member complaints and the resolution of credit union errors? 7. Do ATM receipts and statements of member accounts provide a clear description of the t r a n s a c t i o n? 8. Is the member s responsibility with regard to personal access codes explained? Traveler s Checks and Money Orders 1. Are traveler s checks and money orders stored under tamperproof lock and key? 4. Is the credit union maintaining a stock of traveler s checks and money orders no larger than that necessary to meet its reasonable n e e d s? 5. Does someone other than the recordkeeper prepare and issue money orders? 6. Are employees who receive or control cash prohibited from signing money orders? 7. Does the authorized list contain the names of all employees who can currently sign money orders? 8. Are the proceeds from the sale of traveler s checks credited or remitted to the issuing agency on the date of s a l e?

4 9. Are surprise counts of unissued traveler s checks and money orders made by an employee other than one who controls the supply of checks? General Ledger 1. Is the general ledger posted by an employee who is not involved in credit union operations (for example, handling cash or originating new member loans)? 2. Are all amounts posted in the general ledger supported by detail vouchers or subsidiary r e c o r d s? 3. Are all detailed vouchers and subsidiary records retained in permanent files? 4. Are necessary adjustments or corrections in the general ledger accounts supported by general journal entries that are clearly exp l a i n e d? 5. Are general ledger accounts maintained in ink whether posted by hand or by machine? General Ledger (Computer) 1. Are computerprocessed general ledger accounts reviewed by an officer after processing and compared to subsidiary r e c o r d s? 2. Are necessary adjustments or corrections to general ledger accounts approved by an officer and processed on a timely basis? Member Share and Loan Accounts 1. Are monthly share and loan trial balance tapes prepared by employees other than those who post the accounts? 2. Is the balancing of the share and loan accounts with general ledger control accounts and the maintenance of the journal and cash record and the general ledger assigned to employees who do not serve as tellers?

5 3. Are share accounts in which there has been no activity (except dividends) for a year or more segregated from active accounts? 4. Do members receive statements of their share accounts at least on a quarterly basis? 5. Do members receive statements of their share draft accounts at least on a monthly b a s i s? 6. Do member statements show all transactions since the last statement d a t e? 7. Are individual ledger cards kept in a fireresistant file cabinet and locked in a vault at n i g h t? 3. Are suitable exception reports prepared to present unapplied t r a n s a c t i o n s? 4. Are unapplied exceptions corrected the following business day and resubmitted to the processing facility? 5. Are all member accounts printed on the computer report whether or not they have been updated with a current transaction? 6. Does the last activity date show on each member account? 7. Do the member s individual share and loan ledgers and member statements have a. each transaction individually in c h r o n o l o g i c a l o r d e r? Member Share and Loan Accounts (Computer) 1. Is each computerprocessed transaction properly identified for the processor? 2. Does staff prepare transaction totals to compare the computer processing results with predetermined entries in the journal and cash record? b. c. new balances after each transaction? loan transactions presented so that transactions for each loan can be identified if more than one loan is included on the s t a t e m e n t?

6 Member Account Statements Member Account Statements 1. Is the file of members signature cards (applications for membership) maintained currently (that is, on a daily basis)? 2. Are mailing addresses of members kept up-tod a t e? 3. Are requests to change a member s address made in writing? 4. Are employees other than bookkeepers used to prepare and mail s t a t e m e n t s? 5. Is a record kept to show the names of employees preparing statements for mailing so that their duties can be rotated? 6. Do all members receive monthly or quarterly statements showing all transactions since the last settlement date? 1. Do the members computer-prepared individual share and loan statements of account s h o w a. b. c. each transaction individually and in c h r o n o l o g i c a l o r d e r? a new balance after each transaction? separate listings so that transactions for each loan can be identified if more than one loan is included on the statement? 2. Will accounts opened or closed appear on a computer record r e p o r t? 3. Does an officer of the credit union review this r e p o r t?

7 4. Does the supervisory committee receive a copy of the report to complete its confidential record? Cash Receipts and Disbursements 1. Are deposits prepared by an officer or employee who does not serve as a teller? 2. Are deposits made intact within the time limits prescribed in the bylaws (usually daily)? 3. Are disbursements made by check or in accordance with disbursement procedures that the board of directors has authorized, and are such disbursements properly r e c o r d e d? 4. Do the board minutes contain an up-to-date record of the names of all officials and employees authorized to sign credit union checks? 5. Are adequate measures taken to prevent blank checks from being signed or counters i g n e d? 6. Are borrower and comaker share withdrawals approved by the credit committee or loan officer as prescribed in the bylaws? 7. Are withdrawals from inactive share accounts verified by an official other than the official or employee making the disbursement? 8. Are reconciliations prepared monthly by persons not directly concerned with handling credit union funds and recording t h e m? 9. Are spoiled or voided checks properly accounted for and ret a i n e d? 10. Does the supervisory committee periodically obtain statements directly from its financial institution and reconcile them with the records of the credit u n i o n? Cash Receipts and Disbursements (Computer) 1. Does the computerized check printer use continuous form checks, with all checks printed in numeric order?

8 2. Once a teller codes a member s account number into the system, does the computer automatically prepare a check listing the member as payee? 3. Does an employee other than one responsible for disbursing funds account for all check numbers prepared daily by the computer and determine that they agree with the check register? Investments 1. Has the board of directors, consistent with its duties and responsibilities, adopted written investment security policies that are in compliance with the Federal Credit Union Act, the NCUA s Rules and Regulations, and/or applicable state r e q u i r e m e n t s? 2. Are the investment policies reviewed at least annually by the board to determine their adequacy in light of changing investment c o n d i t i o n s? 3. Do the minutes of the board, executive committee, or investment committee contain prior approval for changes in the credit union s investments? 4. Are authorizations for purchases and sales formally approved by and recorded in the minutes of the board or its committee? 5. Are detailed records of securities balanced to the general ledger controlling accounts monthly by an employee or officer not directly connected with the processing or recording of security t r a n s a c t i o n s? 6. Is the recordkeeping function separate from the actual execution of security transactions so that the employee posting the detailed records cannot originate entries or handle s e c u r i t i e s? 7. If investment securities are maintained in a safe-deposit box, are they under the dual control of two credit union officers?

9 8. Are adequate safekeeping facilities provided for investment securities held on the p r e m i s e s? Investments (Computer) 1. Does the computer listing of investments accounts contain all required financial data, such as the terms and rates of return? 2. Are the updated balances for all investment accounts listed in the computer report? 3. Does the income received for each investment appear on the computer report? 4. Do all transactions since the date of the last audit appear on the computer report? Loans 1. Are loans disbursed only after (a) completed applications are received; (b) a thorough screening and evaluation is made; (c) approval is given by the board of directors, the credit committee, or loan officer(s); and (d) a signed note is obt a i n e d? 2. Is the screening and evaluation of loan applications enhanced by credit investigations (that is, calling references or receiving credit reports furnished by outside credit bureaus) or appraisals of mortgaged property made by individuals not responsible for approving loans? 3. Are loan proceeds disbursed only by official check and by someone other than the loan officer who approved the l o a n? 4. Are complete minutes prepared by the directors or credit committee and are complete records prepared by the loan officer? 5. Does the collateral register or loan card show clearly the description of times or collateral and their latest valuat i o n? 6. Is loan collateral reevaluated periodically? 7. Is the release of collateral or shares pledged as security for outstanding loans approved by the credit committee or loan officer?

10 8. Are all paid notes canceled (that is, marked Paid ) and returned promptly to the member with the related c o l l a t e r a l? 9. Is a receipt issued to the member covering each item of collateral r e t u r n e d? 10. Is written acknowledgment obtained from the member for all items of collateral returned? 1 1. Are collateral items maintained under the dual control of two credit union employees? 12. Are adequate safekeeping facilities provided for notes and supporting documents and for property held as security for loans? 13. Is there compliance with the requirements of the Federal Credit Union Act, the NCUA s Rules and Regulations, Federal Reserve Board Regulation Z (Truth-in- Lending), Federal Reserve Board Regulation G, the Fair Credit Reporting Act, the Flood Disaster Protection Act, the rules and regulations of the state regulatory agencies, and policies established by the board of directors? Loan Delinquencies, Charge- Offs and Recoveries, Undivided Earnings, and Reserves 1. Is a monthly statistical report prepared that contains an accurate and complete classification of delinquent loans? 2. Is this complete and accurately classified report of delinquent loans reviewed by the board of directors or by a special committee of the directors on a monthly basis? 3. Does the credit union maintain a formal collection program? 4. Do the directors actually authorize the charge-off of each loan determined to be uncollectible? 5. Are charged-off loans reviewed by the directors at least semiannually to determine whether to reinstitute collection efforts? 6. Are recoveries of charged-off loans properly recorded in the credit union s books?

11 7. Do the directors receive monthly reports of recoveries on charged-off loans? 8. Does the supervisory committee confirm the outstanding balances of delinquent loans that are in the hands of collection agencies, and also the loan balances that were charged off since the last audit? 9. Does the credit union use an accepted method, such as adjustment or experience, to properly evaluate the allowance for loan losses account? 10. Are the credit union reserves and undivided earnings being properly maintained at a level to protect the members shareholdings? Interest Collected, Interest Refunds, Expenses, and Fixed Assets 2. Do the directors review the monthly financial statements to see that the budget is maintained? 3. Is the amount of interest computed on the member loans test checked for mathematical accuracy on a regular basis? (Not necessary under a properly reviewed computer record system.) 4. Are authorizations for the payment of expenses recorded in the directors minutes and are these authorizations clearly stated and strictly observed? 5. Are invoices and bills for the credit union expenses and capital expenditures marked paid with the date of payment to prevent their being used to support more than one disb u r s e m e n t? 6. Are invoices and other supporting documents attached to checks before the checks are signed? 1. Does the credit union adopt an annual budget of income and expense?

12 7. Is reimbursement to officials and employees for expenses incurred in the performance of official credit union duties adequately supported by approved vouchers? 8. Does the board approve the purchase, disposition, and depreciation of fixed assets? 9. Are depreciation schedules maintained for all fixed assets? This step requires the greatest amount of judgment on the part of committee members. The overall question the committee must answer is whether the system of internal control in effect is adequate. An adequate system is one that is free from material weaknesses. A material weakness is a condition that does not provide reasonable assurance that employees would promptly prevent or detect major errors or irregularities in the records during the course of their assigned functions. As committee members evaluate the adequacy of the systems of internal control, they must rely on their own judgment. There are no standards saying which internal controls make a system adequate. T h e committee must evaluate the interrelationship of existing controls and decide whether the system as a whole is sufficient to produce reasonably accurate records. Many credit unions have reached a sufficient size or complexity to make it difficult for supervisory committees to evaluate internal controls. Many of these credit unions hire a professional internal auditor to complete the work of the committee. This person should be supervised by, report to, accept assignments from, and otherwise be under the control of the supervisory committee.