N.J. Admin. Code § 3:7-3.9

Current through Register Vol. 56, No. 23, December 2, 2024

Section 3:7-3.9 - Audit program

(a) The minimum audit scope to be performed in banks includes the following:

1. Cash, cash items and due from banks:

i. Cash shall be counted and reconciled with the general ledger control;

ii. Cash items shall be inspected, checked for propriety, reconciled to general ledger control and clearance of larger items shall be checked;

iii. Clearings and exchanges shall be confirmed. Large items shall be followed to disposition;

iv. Obtain direct confirmation of account balances with other banks; reconcile confirmed balance with general ledger controls, and check authenticity and disposition of reconciling items.

2. Investment securities:

i. Prepare or obtain a listing of investment securities and reconcile with general ledger controls;

ii. Account for securities owned by inspection, if on hand, or by confirmation if held in safekeeping elsewhere;

iii. Verify bank's records of pledged securities with safekeeping custodian;

iv. Ascertain the market value of securities owned, as of the examination date, or as of a recent pricing. Check authenticity of purchases and sales to supporting documentation and investment authority approved by the board of directors;

v. Review procedures with respect to amortization of premiums and accretion of discounts.

3. Loans and discounts:

i. Prepare or obtain a listing of the liability ledger and reconcile with general ledger controls;

ii. Notes shall be reviewed for proper officer of board approval;

iii. Collateral and side collateral shall be examined, evaluated and verified to appropriate records including wholesale obligations if carried in loan department;

iv. Participation and/or service agreements shall be reviewed and amounts shall be confirmed and reconciled to appropriate records;

v. Prepare or obtain a listing of past due accounts. Review to the extent deemed appropriate to ascertain collectibility and that past due listings and reports are regularly submitted to the board and are prepared in accordance with standards established by the board.

4. Mortgage loans:

i. Prepare or obtain a listing of the liability ledger and reconcile with general ledger controls. Escrow balances shall also be listed or obtained and reconciled to the respective controls.

ii. Inspect necessary documentation including approvals;

iii. Participation and/or service agreements shall be reviewed and amounts shall be confirmed and reconciled to appropriate records;

iv. Prepare or obtain a listing of past due accounts including tax or other such delinquencies. Review to the extent deemed appropriate to ascertain collectibility and that past due listings and reports are regularly submitted to the board and are prepared in accordance with standards established by the board.

5. Installment loans:

i. Prepare or obtain a listing of the liability ledger and reconcile with the general ledger controls;

ii. Notes shall be reviewed for proper officer of board approval. Other related documents shall be examined;

iii. Prepare or obtain a listing of past due accounts. Review to the extent deemed appropriate to ascertain collectibility and that past due listings and reports are regularly submitted to the board and are prepared in accordance with standards established by the board;

iv. Collateral shall be examined, evaluated and verified to appropriate records including wholesale obligations if carried in this department;

v. Participation and/or service agreements shall be reviewed and amounts shall be confirmed and reconciled to appropriate records.

6. Banking premises and furniture and fixtures:

i. Documents evidencing ownership or leases covering leaseholds shall be examined on all new properties or leaseholds;

ii. Changes in these accounts shall be checked to determine propriety and/or authorization;

iii. Insurance policies and tax receipts shall be inspected;

iv. Ascertain that the board has conducted its annual review of insurance coverages so as to insure adequacy of coverage.

7. Other real estate owned: Balances shall be listed, reconciled to the general ledger and related documents shall be inspected to ascertain authorizations, ownership and insurance protection.

8. Accrued interest receivable: Review procedures with respect to accrued interest receivable and test to the extent deemed appropriate.

9. Other assets: Other assets accounts shall be reviewed and tested to the extent deemed appropriate to determine propriety and/or authorization.

10. Demand deposits:

i. A list of accounts shall be prepared or obtained and reconciled to the general ledger controls. Reconciling items shall be reviewed and investigated to the extent deemed appropriate;

ii. Review procedures with respect to dormant or inactive accounts;

iii. Overdrafts shall be reviewed. Ascertain that regular overdraft reports are being made to the board in accordance with standards established by the board. The procedures used in preparing such reports shall be reviewed to determine compliance;

iv. Due to bank and treasury tax and loan accounts shall be confirmed and reconciled;

v. Accounts of directors, officers and employees shall be reviewed, including those accounts in which they have an interest.

11. Certified and official checks:

i. A list of open items shall be made or obtained and reconciled to the general ledger. Checks subsequently presented and paid shall be checked against the listing;

ii. Review procedures with regard to controls over unissued checks.

12. Time deposits:

i. A listing of accounts shall be prepared or obtained and reconciled to general ledger controls;

ii. Review procedure with respect to dormant or inactive accounts;

iii. Interest and dividend credits to accounts shall be reviewed;

iv. Accounts of directors, officers and employees shall be reviewed, including those accounts in which they have an interest.

13. Accruals and reserves: Review procedures with respect to accrual and reserve accounts.

14. Other liabilities: All other liability accounts shall be reviewed and tested to determine propriety and/or authorization.

15. Capital stock, surplus, undivided profits, capital notes and capital and valuation reserves:

i. A listing of outstanding shares reflected on the stockholders ledger shall be prepared or obtained and reconciled to appropriate controls;

ii. Purchases and sales of certificates shall be tested;

iii. Review procedures with respect to control of unissued certificates;

iv. Entries to these accounts shall be tested for propriety and authorization;

v. Debt outstanding shall be reviewed including check of performance on amortization program and confirmation with lender if deemed necessary.

16. Contingent liabilities:

i. The probable liability, if any, on claims or lawsuits pending shall be requested from the bank's attorney;

ii. Letters of credit shall be reviewed and substantial items shall be confirmed.

17. Consignment items: United States Savings Bonds, travelers checks and any other items on consignment shall be confirmed and reconciled with the issuing agent.

18. Income and expense accounts: Tests of subsidiary accounting records, invoices, vouchers and so forth, relating to major sources of income and expense shall be performed.

19. Safekeeping: Review systems, procedures and controls relative to such items and confirmed directly with the customers where deemed necessary.

20. Purchase and sale of customer securities: A test of procedures shall be made to insure that the system of internal controls are adequate, such as, requirements that purchases are made only against available funds; sales are only made upon delivery of securities, and proceeds of sales are promptly credited or remitted.

21. Bankers blanket bonds and other insurance: Policies shall be reviewed and determination made that the board reviews coverage on an annual basis for adequacy in conformance with the State banking laws.

22. Collections: System and procedures used in processing of collection items shall be reviewed and confirmations made as deemed appropriate.

23. Board minutes:

i. The minutes of the meetings of the board of directors and committees thereof shall be examined and major resolutions reviewed to determine if actions taken were in accord with such resolutions;

ii. Director's and officer's obligations shall be reviewed for approvals.

24. Trust department:

i. Prepare listing of account balances of the various trust and custody accounts (including corporate trust and escrow accounts), and reconcile with respective control accounts. Deposit accounts shall be confirmed and reconciled;

ii. Review overdrafts in trust cash accounts as to authorization and collectibility;

iii. Review selected personal trust accounts and corporate trust accounts to ascertain that the administration of the account is in conformity with the governing instrument. The review should include:

(1) Verification of assets;

(2) Ascertainment of asset conformity to the provisions of the fiduciary instrument;

(3) Transactions were authorized;

(4) Income is properly collected;

(5) Commissions are properly computed;

(6) Disbursements are documented; and

(7) Uninvested or undistributed funds were not held for an unreasonable length of time.

iv. The assets of other accounts, other than those accounts reviewed for conformity, shall be inspected and checked to proper records;

v. Review the minutes of the trust committee to ascertain that trust accounts are being reviewed and that trust accounts acquired or closed had been approved;

vi. Review final accountings on accounts.

25. On premise electronic data processing department:

i. The review of internal operating procedures and controls as they relate to the data processing department shall encompass at least the following items, or analogous items, but not necessarily be limited to the specific areas outlined:

(1) Review organizational structure to determine if functional responsibilities and separation of duties have been established and are in effect;

(2) Review standards manual, operator's run manual and program run books for propriety. Also review user's guide or procedures manual for currency and correctness with respect to appropriate application;

(3) Review control and/or access restrictions with respect to program run books, computer facilities and tape/disk library;

(4) Review operating logs and documentation with respect to reruns, halts, downtime and so forth;

(5) Review retention policy and protections standards established to determine capability to reconstruct operating programs and master files;

(6) Review equipment maintenance documentation for adherence to established schedules and review arrangements to provide the backup processing time;

(7) Review fidelity, liability, fire and other insurance in light of the nature and volume of application and service contract commitments;

(8) Review input, processing and output controls;

(9) Review program changes and/or program maintenance controls and documentation for propriety and/or authorization;

(10) Test the integrity of records generated either by utilization of "audit through the machine" or "audit around the machine" techniques.

26. Electronic data processing services:

i. The review of internal operating procedures and controls as they relate to data processing servicers shall encompass at least the following items, or analogous items, but not necessarily be limited to the specific areas outlined:

(1) Review the bank's own insurance and obtain the review coverages of the servicers;

(2) Review service contract;

(3) Check user's guide to ascertain it is current;

(4) Review operational controls such as separation of duties, internal controls and level of accessibility;

(5) Test integrity of records generated;

(6) Review audit scope utilized by the servicer's internal auditor and/or outside accountant. In addition, third party reports and reports of regulatory agencies, if not precluded from inspection by law, should be reviewed;

(7) Review servicer's provision for back-up processing time and management awareness of compatible servicers in the event a change in servicers is necessitated.

N.J. Admin. Code § 3:7-3.9

As amended, R.1978 d.103, eff. 3/21/1978.
See: 10 N.J.R. 54(d), 10 N.J.R. 136(b).
Amended by R.1990 d.497, effective 10/15/1990.
See: 22 N.J.R. 2205(a), 22 N.J.R. 3213(a).
Correction of word "amortization".
Amended by R.1995 d.571, effective 11/6/1995.
See: 27 N.J.R. 3254(a), 27 N.J.R. 4281(a).
Amended by R.2008 d.331, effective 11/3/2008.
See: 40 N.J.R. 3775(a), 40 N.J.R. 6437(a).
In the introductory paragraph of (a), deleted "or savings banks, as applicable," following "banks"; and in (a)26(i)(1), substituted "bank's" for "institution's".