Louisiana Administrative Code
Title 10 - FINANCIAL INSTITUTIONS, CONSUMER CREDIT, INVESTMENT SECURITIES AND UCC
Part III - Banking
Chapter 7 - Directors' Examination Requirements
Section III-705 - Audit Program
Universal Citation: LA Admin Code III-705
Current through Register Vol. 50, No. 12, December 20, 2024
A. Asset Accounts
1. Cash, Cash Items, Clearings, and
Exchanges (Including Automatic Teller Machines and Related Settlement Accounts)
a. Count cash on a test basis and reconcile
totals with the general ledger account.
b. Balance all categories of cash items and
reconcile totals to the general ledger account; investigate any unusual or
noncurrent items; trace disposition of selected amounts.
c. Confirm totals of clearings and exchanges
direct with drawee banks or paying agents; trace disposition of selected
incoming and outgoing return items.
d. Review and test the following:
i. procedures for safeguarding teller's cash
during operating hours and relief and vacation scheduling;
ii. procedures for quarterly internal
surprise cash counts. If the internal cash counts are performed adequately on a
quarterly basis, the examiner need not count cash as a part of this
examination;
iii. adequacy of dual
control procedures over vault items;
iv. adequacy of review tellers' over and
short activity.
2. Due from Banks
a. Obtain confirmation of balances as of the
examination date.
b. Reconcile bank
statements to the related general ledger accounts as of the examination date.
Use subsequent statements to identify items that clear in a normal time period.
Investigate all items still outstanding after that. Obtain a special cut-off
statement as considered necessary.
c. Trace disposition of selected incoming and
outgoing return items recorded by correspondents on examination date and at
least two days thereafter.
d.
Review control procedures for the origination of entries (i.e., incoming and
outgoing wire transfers, IACHA items, etc.) and safeguarding of unissued
drafts.
3. Investment
Securities (and other assets considered as investment securities, plus Federal
Funds Sold, Securities Purchased under Agreement to Resell, and Banker's
Acceptances)
a. Reconcile subsidiary records
for investments to the general ledger account and test significant reconciling
items. Confirm with safekeeping agent, or if held in-house, physically inspect
and check for proper safeguards.
b.
On a test basis, verify correctness and authorization of original entries by
references to minutes of investment committee or board of directors' and to
purchase, sale, and maturity advices.
c. Reconcile accrued interest receivable
subsidiary records to general ledger accounts and test significant reconciling
items. Test the reasonableness of the individual balances by recalculating the
accrued interest for a sample from each category of investment
securities.
d. Test income recorded
by investment category through comparison to average asset balances and
investigate unusual fluctuations between balances and/or calculated
rates.
e. For all securities,
excluding marketable equity and trading account securities, reconcile
unamortized premium and discount subsidiary records to general ledger accounts
and test significant reconciling items. Test the reasonableness of the balances
by recalculating the unamortized portion and comparing the recalculation to the
bank's recorded unamortized premium/discount for a sample of investment
securities.
f. Determine that the
lower of cost or market values were appropriately applied to marketable equity
securities, as well as assets held in trading accounts.
4. Commercial, Agricultural, Installment,
Real Estate, Student, Credit Card Loans, and Discounts and Commercial Paper
(and other assets considered as loans)
a.
Reconcile subsidiary records for each loan category to the general ledger
account and test significant reconciling items.
b. Reconcile accrued interest receivable
subsidiary records to general ledger accounts and test significant reconciling
items. Test the reasonableness of the individual balances by reviewing the
accrual rates, recalculating the accrued interest, and comparing the
recalculation to the bank's recorded accrued interest for a sample from each
category of loans.
c. Test income
recorded by loan category through comparison to average asset balances and
investigate unusual fluctuations between balances and/or calculated
rates.
d. Review and test the
accrual procedures for manual systems by:
i.
recalculating outstanding principal balances from loan rate records to the
general ledger account for the date of the accrual;
ii. recalculating daily accruals on a test
basis;
iii. reviewing related
journal entries;
iv. reviewing the
most recent note-by-note calculation of accrued interest and the related
adjustment to the general ledger;
v. other steps as considered
necessary.
e. Reconcile
unearned income subsidiary records to general ledger accounts and test
significant reconciling items. Test the reasonableness of the individual
balances by recalculating the unearned income and comparing the recalculation
to the bank's recorded unearned income for a sample of loans.
f. Direct confirmation with borrowers.
i. Mail negative confirmation requests to at
least 10 percent number and dollar of each loan category, excluding
participation loans purchased and sold.
ii. Confirm all participation loans purchased
and sold. For participation loans purchased, secure a 100 percent positive
confirmation with the selling bank. For participation loans sold, secure a 100
percent positive confirmation with the purchasing bank; negatively confirm 10
percent of the total balances with the borrower.
iii. Any positive confirmation request not
acknowledged shall be followed by a second confirmation request. A listing of
significant positive confirmation requests not acknowledged after mailing of
both a first and second request shall be included in the report.
g. Review the allowance for loan
losses.
i. Reconcile subsidiary records for
charged-off loans to control record and test significant reconciling
items.
ii. Check all significant
charge-offs for proper authorization by the board of directors.
iii. Review test control procedures for loan
charge-offs and recoveries.
iv.
Mail confirmation requests to a selected number of customers whose loans have
been charged-off, including some from prior years.
v. Trace details of activity recorded on
individual charged-off loan records to the allowance for loan loss general
ledger account on a test basis.
h. Compare the following information, where
applicable, from subsidiary records to the loan document for all categories of
loans on a test basis:
i. name(s) of
borrower(s);
ii. original amount of
loan (and current balance, if applicable);
iii. original interest rate (if interest rate
has changed, trace to appropriate supporting documentation for the
change);
iv. note date.
i. Schedule loans to officers,
directors and their related interests and notate if any are on the
institution's watch list.
5. Fixed Assets
a. Reconcile cost and accumulated
depreciation subsidiary records to the related general ledger accounts and test
significant reconciling items.
b.
Test significant purchases and dispositions since the previous examination for
proper authorization, classification. and recording, by reference to supporting
documentation.
c. Review and test
procedures for recording depreciation expense and related allowance for
depreciation.
6. Other
Assets
a. Reconcile pre-paid expense
subsidiary records to the general ledger accounts and test significant
reconciling items. Determine the reasonableness of the balances by comparing
the original cost to supporting documentation, reviewing the amortization rate,
recalculating the prepaid expense, and comparing the recalculation to the
bank's recorded pre-paid expense on a test basis.
b. Reconcile the subsidiary records for other
real estate and other tangible property to the general ledger accounts and test
significant reconciling items. Review and test the accounting procedures for
the recording of other real estate or other tangible property, including income
and expense attributable to such property.
c. Evaluate transactions concerning the sale
and financing of other real estate. Have transactions involving 100 percent
financing or financing at less than market interest rates been properly booked
in conformity with current accounting standards?
d. Review procedures for recording commercial
and standby letters of credit issued to third parties and balance to the
control record. Confirm on a test basis with the customer.
e. Review the calculations and propriety of
deferred income tax charges as of the prior fiscal year-end and compare to the
recorded amount.
f. Determine if
the bank is involved in one or more of the following activities and, if so,
perform the procedures indicated below.
i.
Lease Financing. Test for compliance with generally accepted accounting
principles.
ii. Discount Brokerage.
Review and test procedures (including segregation of duties) over the execution
of trades.
iii. Insurance and/or
Real Estate Agency. Determine how the agency is owned. If the bank owns the
agency, review and test significant assets and liabilities as considered
appropriate. Review the adequacy of the accounting system.
iv. Real Estate Subsidiary
g. Review and test the propriety
of any other asset accounts. Confirm and/or trace to supporting documentation
as appropriate.
B. Liability Accounts
1. Deposits
a. Reconcile the subsidiary records for all
deposit accounts by category to the general ledger account and test all
significant reconciling items.
b.
Review unposted items and debit and credit rejects, and follow through to
ultimate return or posting for all significant items.
c. Mail negative confirmation requests to at
least 10 percent number and dollar of each deposit category. Include a sample
of due to bank accounts.
d.
Reconcile subsidiary records for accrued interest payable to the general ledger
accounts and test all significant reconciling items. Test the reasonableness of
the individual balances by recalculating the accrued interest and comparing the
recalculation to the bank's recorded accrued interest for a sample from each
category of deposit accounts.
e.
Test interest expense recorded by each deposit category through comparison to
average liability balances and investigate unusual fluctuations between
balances and/or calculated rates.
f. Review procedures for classifications of
dormant and/or inactive accounts. as well as method of control over activity in
such accounts. Test one day's reporting and supervisory review of
activity.
g. Review procedures for
the issuance and control of certificate of deposit forms as outstanding,
voided, or redeemed. For at least two days subsequent to examination date,
prove the total of all certificates redeemed by day. Review selected redeemed
certificates for authorized signature and endorsements. Trace to the trial
balance of certificates outstanding as of examination date to test for timely
recording.
h. Obtain statement of
treasury tax and loan account including any note-option account. Reconcile the
statement with the general ledger accounts and test all significant reconciling
items. Confirm balance(s).
i.
Obtain a list of all internal deposit accounts. Review the controls over and
the nature and volume of activity in each account and test as considered
necessary.
j. Reconcile subsidiary
records for overdrafts and overdraft protection lending accounts to the general
ledger and test all significant reconciling items. Make sure that these are
included in either the loan or deposit confirmation samples as appropriate.
Trace subsequent disposition of selected overdrafts. List in the report all
overdrafts and cash items as of examination date, regardless of amount, to
employees, officers, and directors, including their related business
interests.
k. If any portion of
deposit account balances are temporarily invested in a third party's investment
accounts, perform the following.
i. Reconcile
subsidiary records for the invested deposits to the general ledger account and
test significant reconciling items.
ii. Confirm the investment(s) with the third
party through a positive verification.
iii. Review procedures for receipt and
payment of income and for opening and closing of investment
relationships.
iv. Review and test
for compliance with the investment agreement.
2. Mail confirmation requests to a selected
number of deposit customers whose accounts have been closed since last
examination.
3. Official Checks
a. Balance all categories and reconcile
totals to the general ledger accounts.
b. For at least two days subsequent to
examination date, prove the total of all checks paid by day. Review selected
paid checks for authored signatures and endorsements and for any unusual
payees. Trace to the listing of official checks outstanding as of examination
date to test for timely recording.
c. Review procedures for control of unissued
checks and test for compliance.
d.
Obtain a list of all outstanding official checks payable to the bank. Review
the nature and propriety of the checks as considered necessary.
e. Review procedures for classification of
dormant official checks; method of control over the checks; and test for
compliance.
4. Other
Liabilities
a. Review and test the accounting
procedures for recording income taxes and determine the reasonableness of the
balances by:
i. determining that the prior
fiscal year's income tax liabilities were properly recorded;
ii. reviewing the calculation and propriety
of deferred income taxes as of the prior fiscal year-end and comparing it to
the recorded amount;
iii.
recalculating the current fiscal year's provision for income taxes (through the
prior month end) and comparing to the recorded amount.
b. Confirm all federal funds purchased by
positive verification.
c. Reconcile
subsidiary records for other borrowings (including items such as securities
sold under agreement to repurchase, notes and mortgages payable, and
capitalized leases) to the general ledger account and test significant
reconciling items. Confirm each borrowing by positive verification. Test
related interest accrual and expense accounts as considered
necessary.
d. Reconcile subsidiary
records for accrued expenses and deferred revenue accounts to the general
ledger accounts. Determine the reasonableness of the balances by reviewing the
accrual rate, recalculating the balance and comparing the recalculation to the
bank's recorded accrued expense and deferred revenue accounts on a test
basis.
e. Review and test any other
liability accounts as to reasonableness and consistency. Confirm and trace to
supporting documentation as considered appropriate.
C. Capital Accounts
1. Capital Stock. Reconcile subsidiary
records for capital stock to general ledger account. If applicable, request a
listing from transfer agent/registrar and reconcile to general ledger.
Ascertain that there is adequate control of unissued certificates.
2. Capital Notes and Debentures
a. Reconcile subsidiary records to the
general ledger.
b. Review all
entries for compliance with terms of the agreement.
c. Test interest paid and interest accrued as
applicable. Check sinking fund payments, if any, for compliance with terms of
the agreement.
d. Confirm balances
with holders on a test basis.
3. Surplus. Review all entries since last
examination for proper authorization by the board of directors.
4. Undivided Profits
a. Review the prior year-end closing entries
for propriety on a test basis.
b.
Review all interim entries for proper authorization and accuracy.
c. Recompute the last dividend paid and agree
to authorization in the board of directors minutes.
D. Other Income and Expense
1. Review other income and expense accounts
not tested in connection with balance sheet accounts by comparison with prior
periods and investigate unusual fluctuations.
2. Review salary and benefit expenses for
comparability with prior periods and overall reasonableness, considering the
number of employees and various pay classifications.
E. Other Customer Services
1. Collection Items
a. Schedule selected outstanding items at the
examination date; inspect items or confirm with holders.
b. Examine credit or remittance advices,
checks, or other evidence of payment applicable to scheduled items paid
subsequent to examination date.
2. Safekeeping Department
a. Review accounting procedures for recording
items held in safekeeping for customers.
b. Inspect selected items on hand and confirm
items held in custody by other banks.
c. Mail negative confirmation requests on a
sample of the customer safekeeping accounts.
3. Loan Collateral
a. Inspect selected items on hand and confirm
items held in custody by other banks.
b. Mail negative confirmation requests on a
sample of the loan collateral accounts.
c. Compare loan collateral with collateral
receipts outstanding on a test basis.
d. Review the bank's procedures for receipt,
custody, substitution, and release of that collateral.
4. Consignment Items. Determine the adequacy
of inventory records and control procedures over the unissued reserve supply of
travelers checks, United States Savings Bonds, and other consignment items. If
no quarterly internal surprise counts are performed or if they are not
adequate, count all consignment items and confirm with the issuer(s).
F. Trust Department
1. Reconcile subsidiary records for trust
investments and trust cash to the control accounts and general ledger accounts,
respectively. Review the procedures to determine if entries are recorded
accurately and on a timely basis.
2. Count trust assets or confirm with
safekeeping agent on a test basis.
3. Review policies and procedures for
identifying overdrafts and uninvested cash balances.
4. Review selected trust accounts and test
transactions to supporting records and data.
AUTHORITY NOTE: Promulgated in accordance with R.S. 6:290.
Disclaimer: These regulations may not be the most recent version. Louisiana may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.