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• COMPTROLLER OF THE CURRENCY COMPTROLLER OF THE CURRENCY • BOARD OF GOVERNORS OF THE

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STATE

• FEDERAL SAVINGS AND LOAN

INSURANCE CORPORATION (IF INSURED)
STATE SAVINGS AND LOAN COMMISSION

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• NATIONAL CREDIT UNION ADMINISTRATION * STATE AGENCY

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Cash Accounts: Domestic and International Introduction

Section 201.1

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Cash accounts include U.S. and foreign coin and currency on hand and in transit, clearings, and cash items. Cash Every bank must maintain a certain amount of U.S. and foreign currency on hand. To avoid having excess non-earning assets and to minimize exposure to misappropriation and robbery, each bank should establish a policy to maintain cash balances at the minimum levels necessary to serve its customers. The amount will vary from bank to bank depending on anticipated needs of customers, with a reasonable allowance made for unusual demands. The rates at which a bank's international division buys or sells foreign currency will not exactly match exchange rates quoted for volume book transactions or bank transfers because of such expenses as shipping charges, insurance, allocated teller salaries and fixture cost. Some banks do not include foreign currency in their net position reports or their monthly revaluations because of diftering exchange rates and generally nominal amounts. However, the coin and currency of other countries are foreign currency assets as are loans or nostro accounts and should be included. • Clearings Clearings are checks, drafts, notes and other items that a bank has cashed or received for deposit that are drawn on other local banks and are cleared directly with them. Such items usually can be exchanged more efficiently among local banks, than through correspondent banks or the Federal Reserve System. Many communities with two or more banks have formally organized clearinghouse associations which have adopted rules governing members in the exchange of checks. Such associations often extend Inuse alla.ngements io other nearby cities and towns. In most banks, clearings will be found in the department responsible for processing checks. Proof and transit were once two separate functions in a bank: the proving of work (proof) and the sending of out-oftown cash items (transit) for collection. In recent years, many banks have combined those two functions. Those functions may be performed by any combination of tellers or proof clerks, by a separate proof and transit department, by a check processing department, by an outclearing department or by some other department peculiar to the particular area

of the country. The functions may be centralized or decentralized, manual or automated, depending on the size of the bank and the volume of transactions. In some large city banks, the volume of clearings is so great that the bank's proof operations are conducted on a 24-hour basis. In such cases, daily clearings customarily are determined as of a specific cutoff time. Checks processed to that time are carried in one day's totals, and checks processed after that time are carried in the following day's totals. However, no matter who performs the function or how large the bank, the objectives of a proof and transit system are the same:

To forward items for collection so that funds
are available as soon as possible.
To distribute all incoming checks and deposits
to their destinations.
To establish whether deposit totals balance
with the totals shown on deposit tickets.
To prove the totals of general ledger entries
and other transactions.
To collect data for computing the individual
customer's service charges and determining
the availability of customer's funds.
To accomplish the assigned functions at the

lowest possible cost. Cash Items Cash items are checks or other items in the process of collection that are payable in cash upon presentation. A separate control of all such items usually is maintained on the bank's general ledger, and international division general ledger, if applicable, and is supported by a subsidiary record of individual amounts and other pertinent data. Cash items and the related records usually are in the custody of one employee at each banking office who is designated as the city cash collection, or exchange, teller. In addition to those items carried in the separate account entitled "cash items," on the general ledger, most banks will have several sources of internal float in which irregular cash items can be concealed. Such items include any memoranda slips; checks drawn on the bank; checks returned by other banks; checks of directors, officers, employees and their interests; checks of affiliates; debits purporting to represent currency or coin shipments; notes, usually past-due; and all aged and unusual items of any na

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Compiroller's Handbook for National Bank Ex.3miners February 1983

Cash Accounts: Domestic and International Introduction

Section 201.1

ture that might involve fictitious entries, manipulations, or uncollectible accounts. in their normal daily operations, all banks have an internal float of assets charged, on the general ledger, to the total debit to demand deposits but which cannot be charged to individual accounts because of insufficient funds, no accounts, etc. Such items are commonly known as bookkeepers' return items or rejected or unposted debits and may consist of checks received in the ordinary course of business, loan payment debits, and other debit memos. In some banks, such items are separated by the bookKeepers and an entry is made reclassifying them to a separate asset account entitled "bookkeepers' return items." Other banks do not use a separate asset account, instead the bookkeepers include the items in a subsidiary control account in the individual demand deposit ledgers. In that case, the account would have a debit balance and would be credited when the bank returns the checks to their source. Since bookkeepers' return items usually can be returned to their source on the next business day, the balance of the bookkeepers' return item account should represent the total of only one day's returned items. When data processing systems are in use, it is a common practice to post all properly encoded debit items, regardless of whether an overdraft is created. The resulting preliminary overdraft list, together with the items charged, then is reviewed by bank employ. ees and unapproved items are reversed and separated as bookkeepers' return items. The total of the resulting final overdraft list becomes the final overdraft figure shown on the general ledger. The examination of overdrafts is discussed in the "Deposit ACcounts" section. The examination of international overdrafts is discussed in the "Due From Banks: Domestic and International," "Borrowed Funds: Domestic and International" and "Foreign Exchange" sections. If the cash items are not in the process of collection, they should be included on the bank's books in an

appropriate account and shown under "other assets." These are items which are payable upon presentation but which the bank has elected to accumulate for forwarding to the payor on a periodic basis, such as Series E Bonds. If the items are not immediately payable in cash upon presentation, or if they were not paid when presented and, after a predetermined period of time, require further collection effort, they also should be included in a non-cash asset account, such as "suspense resources," and shown under "other assets." Examples are checks held to avoid overdrafts and other checks for which there are no funds for immediate payment. Many banks set a 3-day limit, after which all items not collected must automatically be transferred from "cash items" to "suspense resources." Currency Transactions The Financial Recordkeeping and Reporting regulations. 31 CFR 103, require financial institutions to maintain records that might be useful in criminal, iax or regulatory investigations. They also seek to identity persons who attempt to avoid payment of taxes through transfers of cash to or from foreign accounts. Amendments to the regulations in 1980 are expected to facilitate the investigations of narcotics trafficking, tax evasion and other criminal activities. The examination procedures for determining compliance with the regulations require the examiner to ascertain the quality of the bank's auditing procedures and operating standards relating to 31 CFR 103. Examiners also determine the adequacy of written policies and bank training programs. Form CC-1425-CL, Financial Recordkeeping and Reporting of Currency and Foreign Transactions, is to be used in checking compliance and reporting apparent violations. If violations are disclosed, this form should be forwarded to the regional office with the report of examination. That of. fice will compile and submit information to the chief national bank examiner's office according to the instructions contained in PPM 5000-13.

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Comptroller's Handbook for National Bank Examiners

February 1983

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