This section is from the book "Elementary Banking", by John Franklin Ebersole. Also available from Amazon: Elementary Banking.
In the larger banks this important official's functions are highly varied. His work is by no means confined to analysis. His major responsibility is that of seeing that all transactions have been routed and recorded correctly and that there are no unauthorized ones. More specifically, his duties may be divided into the following sub-classifications :
1. Investigation of and response to all customers' inquiries relative to adjustments, and also the handling of inquiries from all examining authorities;
2. Cost analyses;
3. Control of interest income on loans and investments;
4. Control of interest payments on customers' deposits;
5. Follow-up on depositors' reconcilements;
6. Reconcilements of all accounts which the bank has with correspondents;
7. Custody of all bank records;
8. Compilation of bank statistics;
9. Charge of all checks and audits.
In any bank customers are constantly asking for information as to items on their monthly statements, and as to the fate of various items deposited by them. Space does not permit of enumerating the various types of inquiries which a bank receives, but all of those which relate in any way to adjustments are handled by the auditor. A complete investigation in each case must be made, of course, and any adjusting entries that may be required must be made under the authority of the auditor. Statements required by National, State, and private examining authorities should be furnished by the bank's auditor.
Many banks have separate divisions or departments devoted to cost finding. Is a department yielding sufficient income to justify its existence? Some departments obviously do not, as they are almost purely of a service character such as so-called customers' securities or custody departments, at least as they were usually operated during former times. There is a tendency for banks these days to make departments pay for themselves. What is the minimum balance that a bank can make money on and still permit a customer to use its checking facilities? It is not generally known that it costs a bank a considerable sum to open an account if consideration is given for various index records (cross-reference otherwise required), and for the stationery and labor costs in connection therewith. Thorough cost finding will determine, from an analysis of the entire relations with a customer, just what the profit or loss status of his account may be. The balance carried by the customer is, of course, a major factor in this cost computation.
Many banks maintain complete control over the interest income on loans by maintaining a separate so-called skeleton set of records of all loans made and paid, classified by kind. The auditor under this arrangement receives each day the registers of loans made and paid from the loan department and makes entries on his own records showing the balance of loans as at the close of each day under each borrower's name. A continuous inventory of loans is thus kept so that when bills are rendered to customers for interest on loans the auditor checks them against his own figures and releases them if they are collected. By a follow-up later he assures himself that all of the funds have been collected for the bills and thus maintains a complete control of the loan interest, and incidently a complete control of the amount of all loans. Interest income on the bank's investments is controlled by a method analogous to that previously explained for loan interest.
Under the discussion of the duties of the individual bookkeepers it was said that interest statements are currently posted by the depositors' ledger clerks, who ascertain each day the amount of balance on which a customer earns interest. A simple form which yields all the information that is required is one giving the interest balance for each day of the month, the figures for each day of the month proceeding down the page from top to bottom. Thus, at the end of the month the balance for each day on each account is shown, and the grand total must represent the interest due the customer in question for one day. This was explained previously, but what should be kept clearly in mind in this connection is, that if a man has $100 in the bank for thirty days, it is the same as $3,000 for one day. The auditors check these interest statement figures compiled by the bookkeepers each day, and post them usually to records of their own so that when the day of interest credit or payment arrives, the figures are all available and computation becomes comparatively simple. Interest credit entries are then put through the books and corresponding charges are made to the interest paid account.
As has been explained, depositors are given statements of account monthly, or more frequently, as they may desire them. The balance at the end of the month is shown on the statement, and a form is usually enclosed requesting the customer to reconcile the statement with his own records and to signify on the form the fact of agreement or otherwise. It is the auditor's duty to see that all of these acknowledgment forms are returned in due course, and to see that those certificates on which differences appear are promptly investigated and adjusted.
As the bank sends out statements to all of its own customers, so it receives from its own correspondents statements of balances carried with them. It is one of the duties of the auditor or his assistants to check promptly all debits and credits appearing on these statements with the bank's records in accordance with the method explained under reconcilements in a previous chapter. All items of difference, including those in transit, are followed' up until they are adjusted.
One of the best indications of a good bookkeeping system in the bank is that of the availability of old original entry records. Many banks find it difficult to go back eight or ten years to find basic information with respect to a transaction. It should be a duty of the auditor to insure that all records are adequately classified and kept in accordance with definite principles. Decision as to the destruction of records should be made only after the most careful study, as probably there is no one point in which foresight is more necessary than in the proper custody of old records.
One of the major duties of an auditor is to make certain that he and his assistants are daily checking and controlling the more important transactions in the bank involving the disposition of either the bank's or customers' funds. Subsequently, the auditor must see that all securities received by the bank are either placed safely in vaults or otherwise properly disposed of. He must assure himself that all withdrawals of securities, whether from customers' deposits or from the bank's own investments, are properly authenticated and accounted for. All cashier's checks issued must be properly approved and followed up for cancellation. Cash items in possession of the teller must be frequently verified, if not daily, to insure that they agree in total with the figures on the ledger. Debit and credit tickets, especially debits to general ledger accounts, should be closely scrutinized for authority and should be checked to the accounts themselves to insure authenticity and accuracy of recording. A daily control of all profits and expenses should be instituted to make certain that all earnings made are received, and that expenses incurred are legitimate. Many other items might be mentioned, but these are given to indicate the character of the check made.
 
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