auditing techniques - 1

7/28/2019 Auditing Techniques - 1

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INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF

XYZ CO-OPERATIVE CREDIT UNION LIMITED

We have audited the accompanying financial statements of the Credit Union which comprise the balance

sheet at 31

st

, December 2008 and the related statement of income and accumulated deficit and cash flowsfor the year then ended and a summary of significant accounting policies and other explanatory notes.

Responsibility for the Financial Statements

Those charged with governance are responsible for the preparation and fair presentation of these financialstatements in accordance with International Financial Reporting Standards. This responsibility includes:designing, implementing and maintaining internal controls relevant to the preparation and fair

presentation of financial statements that are free from material misstatement, whether due to fraud or

error; selecting and applying appropriate accounting policies; and making accounting estimates that arereasonable in the circumstances.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those standards require thatwe comply with ethical requirements and plan and perform the audit to obtain reasonable assurancewhether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditors judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud or error.In making those risk assessments, the auditor considers internal control relevant to the entitys preparationand fair presentation of the financial statement in order to design audit procedures that are appropriate inthe circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitysinternal control. An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by management, as well as evaluating the overall

presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

Opinion

In our opinion, the accompanying financial statements present fairly in all material respects, the financialposition of the Union as of 31

stDecember, 2008 and of its financial performance and its cash flows for the

year then ended in accordance with International Financial Reporting Standards.

GRENADA:

7th

May, 2009 Accountants & business advisers:


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Internal Control Checklist: Cash

Yes No

1. Does each teller have his Determine this by inquiry during the own cash drawer? cash count.

1. Does each teller have Determine this during the cash count. bait money?

2. Are spare keys for cash Review internal controls with individuals drawers under a system responsible for the change fund duringof dual control? the cash count. Access to spare keys

must be authorized by at least twoindividuals.

3. Is there a system to Review this with the tellers by inquiry identify the transfer of funds during the cash count.from the vault to individualtellers?

4. Is a change fund limit in A written change fund policy should place for the tellers, the include limits for the teller and vaultvault and a total for change fund and branch offices.each branch office?

5. Do teller transaction Transaction receipts should include a

receipts identify the teller identification number.teller who performed thetransaction?

6. Is the change fund Review the change fund records which balanced daily with the compare teller and vault end-of-daygeneral ledger? totals with the general ledger balance.

Tellers should balance cash daily.

7. Does a written cash Review with management. The policy over and short policy exist? should include dollar and frequency

limits concerning cash over and shortdifferences. The policy shouldaddress disciplinary action.


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. Credit Union Limited.

Supervisory Committee Working Papers

Examination as of (date)

Prepared by . Date

Reviewed by . Date .

Organisational Management Yes No Comments

1 Does the credit union have the following?

Mission Statement?

Strategic Plan?Annual Work plan and Budget?

Organisation Chart?

Job descriptions, Job specifications andstaffing plan?

2Does the Credit union have Policies andprocedures that outline the following?Organisational Design

Mission and Objectives

Governing Rules and Regulations

Standards of Professional Conduct

Corporate Relations

Organisational StructureBoard and Staff Responsibilities and Relations

Definition and Duties

Job Description

Working Relationships

Board Committees

Annual Planning

Meetings of the Board

Compensation Administration

Recognition of Service

Performance Review

Member Referral Endorsements


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Personnel Administration

Human Resource Development

Directors and Officers LiabilityInsurance

Hours of Business

Examinations and AuditCash Management

Travel

Operating Policies Yes No Comments

Membership Qualification and Rights

Loans to other Credit Unions

Financial Administration

Financial Accounting and Administration

Capital Expenditure

Investment Control

Deposit Taking GuidelinesCredit Administration

General Guidelines

General Restrictions

Security

Refinancing of Loans

Business and Commercial Loans

Delinquency Control

Information Systems

General

Physical Security

Production Applications

Internet Access

Password Usage

Virus Policy


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Risk Management

General Practices

Safekeeping and Security

Insurance Protection against disasters

FacilitiesGeneral Administration

Maintenance

Equipment

Alarm Systems

Safety Measures

Facilities and Equipment Insurance

Disaster Recovery Plans

Anti-Money Laundering Policy

Marketing

Promotion and Advertising

Co-operative Education


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Credit Union Limited

INTERNAL CONTROL INTERNAL AUDIT CHECKLIST

Prepared by... Date..

Reviewed by.. Date ...

NO. GENERAL YES NO REMARKS

1 Has the Board of Directors developed and

approved an Internal Audit Charter?

2 Does the internal auditor report to and take

direction from the Supervisory Committee,

free from undue influence by management

and/or the Board?

3 Does the internal auditor have the authority

needed to perform the job i.e. free access to

all records?

a. Have a commitment to a

programme of continuing

education and professional

development?

b. Have a certification as an internalauditor or as a certified public

accountant?

c. Have audit experience and

possess organizational and

technical skills commensurate

with the assigned responsibilities?

d. Communicate well both orally and

in writing?

5 Do audit staff supervisors possess adequate

knowledge of audit objectives and an

understanding of the audit procedures

performed by staff?

6 Are the practices of the supervisor in

assigning and supervising the tasks of the

internal auditors adequate?


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NO. STANDARDS FOR PERFORMING WORK YES NO REMARKS

7 Does the internal auditor(s) performing the

audit meet regulatory standards for

performing audits?

a. Adequate technical training and

proficiency?

b. Reasonable care?

c. Work adequately planned and

assistants properly supervised?

d. Sufficient understanding of internal

controls to determine nature, timing

and extent of necessary testing?

e. Use inspection, observation, inquiry

and confirmation to obtain sufficient

evidence?

NO. INTERNAL AUDIT PROGRAMME

ADEQUACY

YES NO REMARKS

8 Is there a documented record of work

performed?

9 Do work papers exist and include audit work

programmes and analyses that indicate the

procedures performed the extent of testing

and the basis for the conclusions reached?

10 Do audit programmes include:

a. Surprise contacts when appropriate?

b. Maintenance of control over records

selected for audit?

c. Review and evaluation of the credit

unions policies and procedures and

the system of internal control?

d. Proof of detail to related control

records?e. Verification of selected transactions

through examination of supporting

documentation, direct confirmation

and physical inspection?


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NO. INTERNAL AUDIT PROGRAMMEADEQUACY

YES NO REMARKS

11 Are internal audit reports issued to theSupervisory Committee withrecommendations for any required remedial

actions?12 Are follow-ups being performed on audit

findings and remedial actions made?

NO. INTERNAL AUDIT PROGRAMMEEFFECTIVENESS AND REPORTING

YES NO REMARKS

13 Have the credit unions internal controls andoperating procedures been adequatelyreviewed?

14 In the reporting process, are all findings andrecommendations clearly and conciselycommunicated, pinpointing problems and

suggesting solutions?15 Are such findings and recommendations

and the audit procedures and testing whichled to them clearly documented in internalaudit working papers?

16 Are such audit reports submitted timely afterthe audit work is finished?

17 Are deficiencies reported to the SupervisoryCommittee and communicated by them tomanagement?

18 Are the official who received the report

those who have both the responsibility andauthority to implement suggested changes?

19 Is a prompt and effective managementresponse made to the auditorsrecommendations?

20 Is the internal audit work acceptable (A)partially acceptable (PA) not acceptable(NA)?

NO. SUPERVISORY COMMITTEE REVIEW YES NO REMARKS

21 Did you interview the SupervisoryCommittee or a representative?

22 Did you review the Minutes of theSupervisory Committee?

23 Are you comfortable that the Committee isfamiliar with the credit unions operations,management and the state of the creditunions financial condition?


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Credit Union LimitedINTERNAL CONTROL EXTERNAL AUDIT CHECKLIST

Prepared by : Date

Reviewed by: . Date:

NO. BANK RECONCILIATION YES NO REMARKS

24 Are cheques that have been outstanding longer

than 90 days transferred to Accounts Payable?

25 Is a procedure in place to follow up on cheques

of a material size outstanding for substantial

periods?

26 Are adjusting entries to the bank reconciliation

cleared in a timely manner (not exceeding 60

days)?27 Are deposits made in accordance with applicable

rules and regulations?

28 Does someone who is not involved in other cash

functions prepare the bank reconciliation?

29 Do the internal/external auditors periodically

prepare bank reconciliations on a surprise basis?

30 Has the credit union established a procedure to

ensure bank reconciliation is completed each

month?

31 Are voided or spoilt cheques marked as such and

retained?

32 Is signing blank cheques against credit union

policy?

NO. CHANGE FUND/IMPREST ACCOUNT YES NO REMARKS

33 Is the daily change fund activity properly

recorded and identified in the Journal and cash

record?

34 Are cheques to replenish the fund made payable

to the credit union only?35 Has the Board of Directors approved adjustments

to the size of the fund?

36 Are currency shipments received and counted

under dual control?


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.. Co-operative Credit Union Ltd.


Reviewed by.. Date ..

NO. EXTERNAL AUDIT PROGRAMME

ADEQUACY

YES NO REMARKS

1 Is there a documented record of work

performed?

2 Do working papers exist and include audit

work programme and analyses that indicate

the procedures performed, the extent of

testing and the basis for the conclusionsreached?

3 Do audit programmes include:

a. Maintenance of control over records

selected for audit?

b. Review and evaluation of the credit

unions policies and procedures and

the system of internal control?

c. Proof of detail to related control

records?

d. Verification of selected transactions

of confirmation and physical

inspection?

4 Are audit reports brought before the Board

of Directors with recommendations to

management or responsible parties for any

required remedial action?

5 Does follow-up on audit findings and

remedial actions take place?


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NO. EXTERNAL AUDIT EFFECTIVENESS YES NO REMARKS

6 Have the credit unions internal controls and

operational procedures been adequately

reviewed?

7 In the reporting process are all findings and

recommendations clearly and concisely

communicated, pinpointing problems and

suggesting solutions?

8 Are timely audit reports submitted after the

audit work is finished?

9 Do the audit designees communicate with or

liaise with the internal audit and are results

communicated to management raising

deficiencies?

10 Are the officials who receive the reportthose who have both the responsibility and

authority to implement suggested changes?

11 Is a prompt and effective management

response made to the auditors

recommendation?

12 For what period was the last external audit

conducted?

13 Did the audit report comply with the terms of

engagement letter?

14 Was the audit report prepared in

accordance with the Regulations and

Industry Standards?

15 Do audit programmes include evaluation of

the credit unions compliance with

applicable legislation?

NO. AUDIT REPORT ACCECSS YES NO REMARKS

16 Were you given unconditional access to the

auditors management letter?


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Reviewed by.. Date: .

NO. TELLER CASH CONTROL YES NO REMARKS

1 Is each Teller provided with adequatestorage facilities for cash under his/hercontrol both during business hours andovernight?

2 Do the Tellers have control over their cash

at all times?3 Do Tellers keep all cash storage facilitieslocked during their absence?

4 If applicable, are relief Tellers provided withseparate cash and prevented from operatingfrom regular Tellers cash during the reliefperiod?

5 When a Teller is absent because of illness,is his/her cash counted in the presence oftwo employees and turned over to anotherTeller?

6 Is Teller cash counted the day Teller leavesfor vacation?

7 Are systematic and unannounced detailedcash counts for funds held by Tellers,performed at least once monthly by seniorpersonnel? (N.B.) an officer should notcount the same Teller in consecutivemonths)

8 Does each Teller maintain a daily settlementsheet that summarizes all of his/hertransactions and reflects the balance status

of his/her cash?9 Are cash transactions between Tellers

signed for by the receiving Teller) (N.B.describe the method used for suchtransactions)

10 Does the Teller validate (by Teller stamp) allcheques, withdrawals and depositsprocessed by him/her?


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NO. TELLER CASH CONTROL YES NO REMARKS

11 Does the Teller initial all passbook entriesand does the printed deposit receipt identifythe Teller?

12 Are Tellers prohibited from making out

deposits slips for members?13 Are changes in the cash total on slips

initialed by member?

14 Are Tellers forbidden to take deposits ascarry-over to the next business day?

15 Are Tellers required to transfer their cashitems to the Head Teller or other controlpoint?

16 Are Tellers instructed to put through generalledger debit or credit vouchers for shortagesor overages in their statement within seven

(7) days after occurrence, if not located bysupervisory or control personnel?

17 Is a subsidiary record of shortages andoverages kept for each Teller, to show thecumulative number and amountdifferences?

18 Are limits established as to the amount ofcash a Teller may carry? What is the limit?

19 Does the institution keep daily record ofTellers differences?

20 Are Tellers cash limits adhered to? (Spot

check cash drawers and drop safes, ifapplicable. Also review a sample ofTellers settlement sheets)

21 Are limits established as to the amount ofcash a designated area may carry? What isthe limit?

22 Are Teller workstations equipped with dropsafes and are they being utilized asintended?

23 Are Tellers restrictions on cashing ofcheques adhered to?

24 Do officers initial cheques cashed thatrequire authorization?


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. . Co-operative Credit Union Ltd.

INVESTMENT CONTROL

Prepared by: Date:

Reviewed by: .. Date:

POLICY YES NO REMARKS

1. Does the credit union have written investment

policies that include the following:

a. Purpose and objectives.

b. The characteristics of the investment such

as issuer, maturity, and interest rate risk?

c. A statement on the management of interest

rate risk, including the amount of risk

acceptable in the investment portfolio in

relation to earnings and net capital?

d. The designation of authority specifying

persons, and/or committees and the extent

of their authority?

e. An approval list of safekeeping facilities if

acceptable?f. A procedure addressing investments which

fall outside Board policy, or fail to meet

regulatory requirements, after purchase.

g. Guidelines for trading activities if authorized

by the Board?

2. Does the Board review and revise investment

policies at least annually?

3. Are the written investment policies being adhered

to by the credit union?

4. Are all investment transactions properly authorized

by the Board?


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NO. BOARD AND INVESTMENT COMMITTEE YES NO REMARKS

5. If an Executive or Investment Committee has been

authorized to make investment transactions, has

the Committee been provided with written

guidelines and is a summary of all investment

transactions reported to the Board?

6. Is the discussion reflected in the Board minutes

adequate to demonstrate that the Board is made

aware of the risk of investments and the portfolio?

7. Does the Board or Investment Committee review

all investment transactions at least monthly and

are these reviews incorporated into the minutes?

8. Does the Board review regular investment reports

showing such data as type, amount, current

valuation, maturity, distribution and yield?NO. REPORTING YES NO REMARKS

9. Does the credit union maintain all documentation

regarding an investment transaction as long as the

investment is held and until it has been both

examined and audited?

10. Does the credit union maintain adequate

subsidiary records for investments?

11. If the credit union accrues interest on investments,

is the General Ledger balance accurate?

12. Has any official, senior management employee or

their immediate family member received anything

of value in connection with any investment

transaction?

13. Are there any indications of conflict of interest or

kickbacks from investment companies to the credit

union officials or senior management staff?

14. If the credit union uses an institution for

safekeeping, does the credit union have a signed

agreement with the institution?


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NO. SAFEKEEPING YES NO REMARKS

15. Is confirmed of purchase compared to the actual

securities in safekeeping?

16. Does the credit union physically separate

securities owned by it from securities held as

collateral on loans?

17. Are transactions reviewed after the fact by an

authorized officer or other responsible person

18. Are detailed subsidiary records maintained

independently from records maintained by the

custodian that contain a full description, including

identification numbers and related income data?

19. Is a formal record maintained of the reconciliation

for later review?

20. Is Investment income reviewed periodically andcompared with the investments to determine if all

income has been received fully and promptly

accounted for?

21. Is there adequate segregation of duties among

those who approve, have access to, record and

reconcile investments?

22. Is authorization required for all write down of

investments?

23. Are adequate records maintained for all

investments, which have been written off?

24. Are securities periodically inspected and counted

on a surprise basis?

25. Is the accounting for and classification of the

various investment types evaluated periodically to

ensure their conformity with International

Accounting Standards?


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ANTI-MONEY LAUNDERING

Prepared by: Date:



1. Does the credit union have a Compliance Officer

with adequate job description?

2. Does the credit union have an Alternate

Compliance Officer?

3. Are the Compliance Officer and Alternate working

as a team?

4. Are there Board approved Anti-Money Laundering

Policies and Procedures?

5. Are there sufficient copies of the relevant Act and

Regulations available to staff and committee

members?

6. Does the credit union subscribe to Anti-Money

Laundering journals or periodicals?

7. Is there evidence that the Compliance and

Alternate Compliance Officers are upgrading theirskills on Anti-Money Laundering procedures?

8. Is there documented evidence that new

knowledge is transferred to all parties at the credit

union?

9. Does the Compliance Officer arrange training for

the Board, Committees and staff?

10. When was the last time that training was

organized by the Compliance Officer?

11. Are all staffers well trained with the administration

of Anti-Money Laundering policies and

procedures?

12. Do all the employees adhere to the procedures for

Anti-Money Laundering?


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13. Is the process of interviewing a member with large

transactions or multi-transactions or suspicious

transactions thorough?

14. Is there a clear audit trail to indicate that there has

been thoroughness with regards to interviews of

members

15. Is there evidence of know your customer or

employee?

16. Is there a register of suspicious transactions

reported to the Compliance Officer but not filed

with the Authority?

17. Is the Board presented with monthly updates on

Anti-Money Laundering activities at the credit

union?18. Is there evidence that the appropriate forms are

completed and submitted where necessary to the

Anti-Money Laundering Supervisory Authority?

19. Are all employees capable of completing all the

required forms accurately?

20. If the Compliance Officer requires information,

does he or she have a readily available contact at

the Supervisory Authority?

21. Does the Compliance Officer keep records stored

in a secure place?

22. Is there a register in which transactions and

activities reported to the Authorities are recorded?

23. Is documentation filed in chronological order?

24. Is there evidence that the credit union complies

with all requirements of applicable Anti-Money

Laundering Laws, Regulations, and Procedures?

25. Is there a register of enquiries made by the

Supervisory Authority?

26. Are there internal controls to ensure ongoing Anti-Money Laundering compliance?

27. Is there independent testing of compliance by the

Internal Auditor or an outside party?


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Credit Union Ltd.

LOANS COLLECTION

Prepared by: .. Date:


NO. COLLECTIONS DEPARTMENT YES NO REMARKS

1. Does the credit union have a separately staffed

Collections Department?

2. Are persons who approve or disburse loans

denied access to cash and record keeping

(including access to terminals where loan

payments can be changed?)

3. Do supervisors regularly review reports showing:

a. Changes in delinquency status?

b. Changes in repayment terms?

c. Changes in repayment terms?

d. Prepaid loans?

e. Unusual interest rates?

f. Unusual date of first payment?

g. Unusually small loan payments?

4. Do supervisors regularly review employeesloans?


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SURVEY OF ADMINISTRATIVE AND OPERATING ENVIRONMENT

Prepared by . Date

Reviewed by Date ....

NO. Organizational Management Yes No REMARKS

1 Does the credit union have thefollowing?

Mission Statement?

Strategic Plan?

Annual Work plan and Budget?

Organization Chart?

Job descriptions, Job specifications andstaffing plan?

Does the Credit union have Policiesand procedures that outline thefollowing?

2 Organizational Design

Mission and Objectives

Governing Rules and Regulations

Standards of Professional ConductCorporate Relations

Organizational Structure

3 Board and Staff Responsibilities andRelations

Definition and Duties

Job Description

Working Relationships

Board Committees

Annual PlanningMeetings of the Board

Compensation Administration

Recognition of Service

Performance Review

Member Referral Endorsements

Personnel Administration


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Human Resource Development

Directors and Officers LiabilityInsurance

Hours of Business

Examinations and Audit

Cash ManagementTravel

4 OPERATING POLICIES YES NO REMARKS

Membership Qualification and Rights

Loans to other Credit Unions

5 Financial Administration

Financial Accounting andAdministration

Capital Expenditure

Investment Control

Deposit Taking Guidelines6 Credit Administration

General Guidelines

General Restrictions

Security

Refinancing of Loans

Business and Commercial Loans

Delinquency Control

7 Information system YES NO REMARKS

General

Physical Security

Production Applications

Internet Access

Password Usage

Virus Policy

8 Risk Management

General Practices

Safekeeping and SecurityInsurance Protection against disasters

Facilities

General Administration

Maintenance

Equipment


22/22

Alarm Systems

Safety Measures

Facilities and Equipment Insurance

Disaster Recovery Plans

Anti-Money Laundering Policy9 Marketing

Promotion and Advertising

Co-operative Education

auditing techniques - 1

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