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 employees 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, tax or regulatory investigations. They also seek to identify 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 office will compile and submit information to the chief national bank examiner's office according to the instructions contained in PPM 5000-13.

2

Comptroller's Handbook for National Bank Examiners

February 1983

Section 201:2

1. To determine if the policies, practices, procedures and internal controls regarding "cash accounts" are adequate.

2. To determine if bank officers and employees are operating in conformance with the established guidelines.

3. To determine the scope and adequacy of the audit function.

4. To determine compliance with laws, rulings and regulations.

5. To initiate corrective action when policies, practices, procedures or internal controls are deficient or when violations of law, rulings or regulations have been noted.

Comptroller's Handbook for National Bank Examiners August 1981

Section 201.3

1. Complete or update the Cash Accounts section of the Internal Control Questionnaire.

2. Based on the evaluation of internal controls and the work performed by internal/external auditors (see separate program), determine the scope of the examination.

3. Test for compliance with policies, practices, procedures and internal controls in conjunction with performing the remaining examination procedures. Also obtain a listing of any deficiencies noted in the latest review done by internal/external audit from the examiner assigned to that area of examination, and determine if appropriate corrections have been made.

4. Perform those verification procedures deemed appropriate.

5. Scan the general ledger cash accounts for any unusual items or abnormal fluctuations. Investigate any such items and document any apparent noncompliance with policies, practices and procedures for later review with appropriate management personnel.

6. Obtain teller settlement sheet recap or similar document as of the examination date and agree to the general ledger. Scan for reasonableness and conformity to bank policy. 7. Obtain detailed listings of cash items, including any bank items which are carried in the general ledger under "other assets". agree listings to general ledger balances and scan for propriety and conformity to bank policy

8. Test compliance with 12 CFR 21 by:

a. Selecting teller and banking office cash balance sheets and determining that balances are within currency limits established.

b. Selecting bait money and agreeing serial numbers to applicable records.

c. Reviewing documentation evidencing training sessions held since the preceding examination.

d. Performing any visual inspections deemed appropriate.

e. Analyzing the bank's system of security and protection against external crimes. Guidance for this analysis is offered in the Appendix to this handbook.

f. Determining, through discreet corroborative inquiry of responsible bank officials and review of documentation, whether a security program that equals or exceeds the standards prescribed by 12 CFR 21.4 is in effect and that the annual compliance report and any other reports requested by the OCC have been filed.

9. Review compliance with the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act 31 CER 103 22 103.23. 103.33 and 103 34 by:

a. Reviewing the Audit Function Questionnaire and the International Supplement in the Internal and External Audits program to determine if the internal auditor is checking procedures for compliance with the Act. (If the bank does not have an internal audit function, ascertain that a program of management reviews or self audits has been established which encompasses the requirements of the regulation.)

b. Reviewing the file of reports submitted (forms 4789 and 4790) and ascertaining that they are properly completed and filed as required by the regulation and bank policy. Reviewing the bank's list of exempt customers to determine that:

Its contents conform to the requirements of the regulation (103.22(e)) and that the exemptions appear reasonable.

The bank has, in granting exemptions, adhered to its established policy.

d. Interviewing operations personnel (tellers, platform officers, selected branch managers, and international division management) 10 ascertain whether they are sufficiently knowledgeable concerning the regulation and operating procedures to assure compliance. (In those instances where a branch visitation is impractical, selected branch managers may be contacted by telephone.)

Xe. Reviewing 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 any amount appears high relative to the amount

Comptroller's Handbook for National Bank Examiners February 1988

Section 201.3

the bank has reported on Form 4789 for the last six months, discuss the findings with management.

1. Meeting with a senior official or compliance officer and submitting to either of them the Financial Recordkeeping and Reporting of Currency and Foreign Transactions (Form CC 1425-CL) for completion and signature. Explain all "no" answers. Correlate work performed in other areas of examination interest and forward the checklist to the regional office with the examination report, explaining any reported "no" answers. In the absence of any "no" answers retain the checklist in the work papers.

g. Based on the results of step f, and on an evaluation of the bank's policies and procedures, determine if appropriate operating and auditing standards are in place and document the conclusion in the work papers. If appropriate standards are not in place, perform those verification procedures dealing with compliance with 31 CFR 103.

10. Review tellers' over and short accounts for recurring patterns and any large or unusual items and follow up as considered necessary. Investigate differences centered in any one teller or banking office. Determine whether corrective action has been taken, if required.

11. Determine, by discreet corroborative inquiry of responsible bank officials and review of documentation, whether defalcations and/or mysterious disappearances of cash since the preceding examination have been properly reported pursuant to Interpretive Ruling 7.5225 in the Comptroller's Manual For National Banks.

12. Review foreign currency control ledgers and dollar book value equivalents for:

a. Accuracy of calculations and booking procedures.

b. Unusual fluctuations.

c. Concentrations.

d. Unusual items.

13. Review international division revaluation calculations and procedures if performed by cash account operations staff. (The bank's accounting/auditing department may revalue cash accounts together with other foreign currency ledger and future exchange accounts.)

14. Review the following items with appropriate management personnel (or prepare a memo to other examining personnel for their use in reviewing with management):

a. Internal control exceptions and deficiencies
in, or noncompliance with, written policies,
practices and procedures.

b. Uncorrected audit deficiencies.
c. Violations of law.

d. Inaccurate booking of U.S. dollar book value
equivalents for foreign currencies.

e. Inaccurate revaluation calculations and procedures performed by cash account operations staff.

15. Prepare comments on deficiences or violations of law noted above for inclusion in the examination report.

16. Prepare a memorandum and update work program with any information which will facilitate future examinations.

Comptroller's Handbook for National Bank Examiners

February 1982

Section 201.3

1. Complete or update the Cash Accounts section of the Internal Control Questionnaire.

2. Based on the evaluation of internal controls and the work performed by internal/external auditors (see separate program), determine the scope of the examination.

3. Test for compliance with policies, practices, procedures and internal controls in conjunction with performing the remaining examination procedures. Also obtain a listing of any deficiencies noted in the latest review done by internal/external audit from the examiner assigned to that area of examination, and determine if appropriate corrections have been made.

4. Perform those verification procedures deemed appropriate.

5. Scan the general ledger cash accounts for any unusual items or abnormal fluctuations. Investigate any such items and document any apparent noncompliance with policies, practices and procedures for later review with appropriate management personnel.

6. Obtain teller settlement sheet recap or similar docyment as of the examination date and agree to the general ledger. Scan for reasonableness and conformity to bank policy.

7. Obtain detailed listings of cash items, including any bank items which are carried in the general ledger under "other assets", agree listings to general ledger balances and scan for propriety and conformity to bank policy.

8. Test compliance with 12 CFR 21 by:

a. Selecting teller and banking office cash balance sheets and determining that balances are within currency limits established.

b. Selecting bait money and agreeing serial numbers to applicable records.

c. Reviewing documentation evidencing training sessions held since the preceding examination.

d. Performing any visual inspections deemed appropriate.

e. Analyzing the bank's system of security and protection against external crimes. Guidance for this analysis is offered in the Appendix to this handbook.

f. Determining, through discreet corroborative inquiry of responsible bank officials and review of documentation, whether a security program that equals or exceeds the standards prescribed by 12 CFR 21.4 is in effect and that the annual compliance report and any other reports requested by the OCC have been filed.

9. Review compliance with the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act, 31 CFR 103.22, 103.23, 103.33 and 103.34 by:

a. Reviewing the Audit Function Questionnaire and the International Supplement in the Internal and External Audits program to determine if the internal auditor is checking procedures for compliance with the Act. (If the bank does not have an internal audit function, ascertain that a program of management reviews or self audits has been established which encompasses the requirements of the regulation.)

b. Reviewing the file of reports submitted (forms 4789 and 4790) and ascertaining that they are properly completed and filed as required by the regulation and bank policy.

c. Reviewing the bank's list of exempt customers to determine that:

Its contents conform to the requirements

of the regulation (103.22(e)) and that the exemptions appear reasonable.

The bank has, in granting exemptions, adhered to its established policy.

d. Interviewing operations personnel (tellers, platform officers, selected branch managers, and international division management) to ascertain whether they are sufficiently knowledgeable concerning the regulation and operating procedures to assure compliance. (In those instances where a branch visitation is impractical, selected branch managers may be contacted by telephone.) e. Reviewing 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 any amount appears high relative to the amount

Comptroliers Handbook for National Bank Examiners February 1982