At irregular intervals and at least once a year every branch is visited by an inspector and his assistant from the head office, and a thoro audit of the books and assets of the office is made.
An inspection consists of two kinds of examinations, namely, verification and valuation. The first is called the audit or routine inspection, and consists of an audit of all the books, and a verification of the physical existence of the assets of the branch, as well as the correctness of the liabilities. All routine matters are carefully checked to see if the head office instructions are being conformed with.
The first part of the inspection is made by a routine inspector, or, as he is sometimes called, audit officer, who either accompanies or precedes the senior inspector, with one or more assistants, according to the size of the branch.
The second phase or inspection proper is made by a senior inspector, and consists of a thoro analysis and valuation of the loans and other assets of the branch. The senior inspector's particular duty is to discuss with the manager the inspection liability return with a view to obtaining a valuation, as correct as possible, of the loans and securities held by the branch.
To be a good inspector requires special training and qualifications. In the first place, a thoro knowledge of all conditions of branch work is essential, and this training can be acquired only thru actual experience in branch positions, from that of manager downward.
The inspector follows the audit officer as soon as the inspection report on liabilities is completed, tho in the case of small branches, which have but few large loans, the liabilities can be discussed by the routine inspector or by correspondence, and a visit from an inspector is therefore not necessary.
Altho the work involved by an audit is too specific to be dealt with fully in this chapter, a brief consideration of its methods and requirements will be of value in emphasizing some of the essential features of Canadian practice. Practically all banks are similar in their method of auditing, tho with some the examination may be more exhaustive and searching. The following procedure may be considered as fulfilling the requirements of an average audit:
The audit officer and his staff of assistants time their arrival in a town so as to reach the office at the close of the day's business, and thus interfere as little as possible with the service to the public. Their arrival is, of course, unheralded. Immediately on entering the office, control of the safe is obtained and the following taken into custody:
Treasury and teller's cash, etc.
Cash books, vouchers for the day, including letters received.
Current account, general and saving ledgers.
The auditor then proceeds to:
Count in detail the teller's cash and the treasury cash.
Take charge of deposits made for the clearing house and see that they are credited by other banks the following day without deductions, or if deductions are made, ascertain their nature.
Obtain verifications of balances due to or by other banks.
Ascertain from the teller's cash statement book whether or not the cash has been examined in detail at irregular intervals at least twice a month.
See that a satisfactory explanation is entered in the teller's cash statement book opposite each important cash over and cash short item.
Check list of collateral securities with the securities themselves and with the register.
Examine all life and fire insurance policies and see that they are properly assigned to the bank and otherwise in form.
See that all securities are properly hypothecated and otherwise in order.
Check list of securities held for safe-keeping with the documents or packages themselves.
Send lists of all negotiable securities held as collateral or for safe-keeping for verification by owners.
Verify existence of loans, trade bills, and past due bills, initialing for each item in the diary or past due bills register.
Make a summation of the totals in the bill diary and compare with balances in the general ledger. The bill diary should be kept in the custody of the inspecting officers from the time they begin to check the bills until the totals have been verified.
Examine bills. Take a memorandum of all items not correctly drawn in every respect, and hand them to the manager or accountant to be put in order as soon as possible.
Verify the existence of local collections and collateral bills held, checking off each item with its relative entry in the collection diary.
See that all collections outstanding in the collection register are properly accounted for.
Examine collections and collateral bills, ascertaining regularity of acceptance and correctness of due dates.
Mail to branches and correspondents for verification, lists of trade bills remitted, collateral bills remitted and items outstanding in cash item account.
Call off the day's checks and deposits and other vouchers with cash book, and compare cash book entries with current account and savings ledgers.
Take a rough list of current account balances and outstanding checks, and afterward instruct ledger-keeper to balance ledger in the usual way in his balance book.
Take off balance from savings ledgers, listing balances on inspection return.
When the current account ledger has been balanced, call off balances, initialing the balances in the ledger and comparing them with list previously prepared.
Examine each ledger heading in the current account and savings ledgers and see if all particulars required have been entered, also if rules regarding loose-leaf sheets have been observed.