FINANCIAL RECORDKEEPING AND REPORTING REGULATIONS

EXAMINATION PROCEDURES

MODULE I

The purpose of this module is to determine that the financial institution under examination has established operating standards and audit procedures to reasonably ensure compliance with the requirements of the regulations.

1.

The examiner should meet with and submit the Checklist (For FDIC
6500/54) to either a senior official or compliance officer, if
applicable, of the institution for completion and require sign-off by the
official.

2.

The examiner should ascertain that the institution has established in writing formal operating procedures to ensure compliance with the regulations. It would be acceptable for certaia mall financial institutions which do not regularly handle large currency transactions to operate under standard procedures not reduced to writing.

O

a) Reporting - Operating procedures should set forth the requirements of

the regulations and establish compliance guidelines with respect to large cash transactions and exemptions granted to customers.

b) Recordkeeping The institution's record retention schedule should, at

I minimum, include the record retention requirements of the
regulations. Puthermore, requirements for the wintenance of lists of
exempt customers with retail affiliations and custoners from whon
taxpayer identification numbers have not been obtained should be
included.

3.

Obtain a copy of the institution's list of exempt customers. Through a review of this document, determine:

a) that its contents confon to the requirements of the regulations

(name, address, business, nine-digit Pederal taxpayer identification cumber, reason for exemption, etc.) (103.22(e)), and that the exemptions appear reasonable.

b) that the institution has, in granting exemptions, adhered to its

established policy.

4.

The examiner should review the file of reports submitted (4789 and 4790) and ascertain that they are properly completed and filed as required.

The examiner should ascertain that the institution has established a
progran of employee education with regard to the requirements of the
regulations.

a) Tellers, through an ongoing training program, should be apprised of

the reporting requirements for large cash transactions.

b) Operations personnel should be made aware of the current requirements

of the regulations and management should periodically reinforce the
importance of compliance.

c) Operations personnel (i.e., tellers, platfon officers, branch

managers) should be interviewed to ascertain whether they are
sufficiently knowledgeable concerning the regulations and operating
procedures to assure compliance. This phase of the examination should
be conducted at those branches which conduct relatively large volumes
of cash business.

PROCEDURE 6 IS TO BE OMITTED IF THE INSTITUTION DOES NOT HAVE AN INTERNAL
AUDIT FUNCTION. IN SUCH CASES, THE EXAMINER SHOULD ASCERTAIN THAT A PROGRAM
OF MANAGEMENT REVIEWS OR SELP AUDITS HAS BEEN ESTABLISHED WHICH ENCOMPASSES
THE REQUIREMENTS OF THE REGULATIONS.

6.

The examiner should test the institution's own audit procedures and determine that the internal audit function provides coverage of the following sections of the regulations.

a) Reporting Coverage of the reporting requirenents should

be found in the procedures and should include a review of
actual tellers' work and forms 4789 and 4790.

b) Recordkeeping Coverage of the institution's recordkeeping activities

should encompass a test of adherence to the in-house record retention
schedule. It is understood that this schedule should meet the
requirements of the regulations.

c) Exemptions - Coverage should include audit steps necessary to

ascertain that the institution is maintaining a list of exempt
customers which includes their retail affiliations as required by the
regulations. The examiner should expect the audit procedure to
provide a test of the reasonableness of the exemptions granted.

d) Foreign Accounts - Coverage in this area should require the auditor to

ascertain that the institution has filed Fora 90-22.1 declaring
interest in a foreign financial account.

The examiner should review the results of the prior examination report and follow-up on any deficiencies.

8.

The examiner should review the totals of cash shipped to and/or received from the Federal Reserve Bank (reported on Form MD-115) or correspondent bank during the last six months. If, in the exainer's judgement, that amount appears high in relation to the amount the bank has reported on Form 4789 for the last six months, the examiner should discuss his/her findings with management and obtain a reasonable explanation.

AT THIS POINT, THE EXAMINER MUST EXERCISE JUDGEMENT IN DECIDING WHETHER
FURTHER EXAMINATION AND TESTING IS NEEDED.

-If the examiner is satisfied with the results from the steps

above, the findings should be summarized in the workpapers.

-If, however, it is determined that further work is warranted,

the examiner should implement Module II.

MODULE II

The purpose of this module is to conduct on-site examination of teller operations relative to Financial Recordkeeping and Reporting Regulations. This module sets out procedures and guidelines the exaniner should use when conducting test checks for compliance with the regulations. Criteria for selection of branches for detailed review are listed along with general guidelines applicable to either multiple or single office financial institutions.

This phase of the examination should include a minimum of five (preferably tea or nore) days of transactions and one to three branch offices. Branch examinations should encompass a review of the work of selected tellers within the days selected.

The selection of tellers should be governed by the bank's internal procedures. Por example, if it is the bank's practice to direct all large currency transactions to specific tellers, the examiner may concentrate on the work of those tellers. In the absence of such procedures, or if the procedures are not being followed, the work of all tellers should be reviewed.

1.

A REVIEW OF CURRENCY DISTRIBUTION/CASH CONTROL CENTER AND BRANCH
OPERATIONS

a) Submit the Currency Distribution and Cash Control Center Letter

and its attached Currency Shipment/Distribution Report to the
Officer-in-Charge of the Center.

b) If branches ship directly to a Pederal Reserve Bank or a correspondent

institution, then a copy of the letter and the currency shipment report must be subaitted to every branch that ships currency directly to u Federal Reserve or correspondent institution.

c) Check the records maintained at the currency distribution/cash control

center or the branch to ensure that the inforution in those records is compatible with information provided by the Officer-in-Charge and the Guidelines outlined below. (See Section 2)

d) A Bank Office Letter should be personally addressed and sent to every

branch.

2.

GUIDELINES FOR SELECTION OF BRANCHES FOR ON-SITE REVIEW

a) In reviewing the information provided in the Currency Distribution

Letter and Bank Office Letters, examiners should use the following criteria to select those branches for on-site review.

(1) Branch requests for large denomination currency represent

the most significant portions of their total currency
requirements;

(5) Branch manager would not sign the statement contained in the

Bank Office Letter;

(6) Branch is characterized by unusual cash transactions

with Cash Control Center, Federal Reserve Bank, or
correspondent institution.

b) In the absence of significaat leads, consider selection of branches

for on-site review by sampling on a randon basis.

a) When at the office location, the examiner is to review the work of

selected tellers within a specific time period. (See above criteria
for selection of tellers. Recommended time period: ninimus five
days, preferably ten days.) The examiner should take into account the
time period allowed for filing Forus 4789 and 4790 in selecting the
time frame in which the examination will be conducted. Por example,
if the date of exanination is 12/31/80, the grace period for filing is
15 days, and the examiner is reviewing transactions for 2 weeks, or 14
days, then the examiner should review transactioas at least 29 days
before 12/31/80.

b) Obtain, for selected tellers, completed cash proof sheets for as

many consecutive dates us practical. Pron a day-to-day comparison
of total $50 bills and $100 bills, determine specific tellers who
experienced a significant ($10,000) fall-off in these denominations
that is not supported by the tellers' transactions. Lacidents of
this type should be reported to management as possible incidents of
currency washing.

4.

REVIEW PROCEDURES FOR SELECTED TELLERS AND SELECTED DATES

a) Obtain and review tellers' documentation for the selected

dates.

b) Note any cash-in or cash-out transactions of more than $10,000.

c) la instances where such transactions are discovered, determine the

type of transaction and if it was reported. Transactions with
non-exempt customers not reported should be researched to ascertain if
they are truly subject to the regulation.

d) Review consecutive transactions which total in excess of $10,000 to

ascertain if made by or for one depositor.

e) The following transactions should be checked:

(1) Cashed checks items should be traced to ascertain if

they are a cash-out of more than $10,000 or part of a
split transaction. Split transactions which do not
involve a cash-out of more than $10,000 should be
eliminated.

(2) Cash deposits any transaction involving the receipt of

more than $10,000 cash.

(8) Securities gold or purchased if institution acts as

agent for an individual and the transaction involves more than $10,000 cash.

f) The examiner should obtain and review the list of exempt

customers. Lists which appear inordinately long or which
contain names of customers the size or nature of whose
business would not ordinarily berit exempt status should be
discussed with management of the institution under examina-
tion. If after discussion with unagement, the examiner
feels that criticism may still be warranted, the matter
should be referred to the regional office.

5.

List exceptions for possible inclusion in the report of examination.