LOAN CYCLE INTERNAL AUDIT-AUTHORIZATION AND REPORTING

Completed W/P
By Ref

A. Loan Documentation / Exception Reporting

1. Obtain the most recent Note Tickler Report and perform the
following.

2. Review the exceptions listed and consider whether the bank is

clearing exceptions on a timely basis. Determine the total number
of exceptions is not unusually high. Obtain an explanation for any
old or unusual exceptions noted.

B. Past-Due Loans

1. Obtain a copy of the most recent LAS Past Due Notes Report.

2. Judgmentally select a sample of loans 120 days past due and all
loans over $100,000. And test for the following:

a. Is the loan on the watch list?

b. Has all or part of the loan been charged off? If the loan meets
the criteria for charge-off, determine why the loan has not been
charged-off.

c. Is the loan on accrual or non-accrual status? Consider whether

the status is appropriate.

C. Charge-Offs

1. Prepare a roll-forward of the Reserve for loan losses for the past
year with a detailed listing of monthly provisions, individual charge-
offs and individual recoveries.

2. Obtain the most recent LAS Charged-Off Notes Report and perform
the following:

3. Agree charge-offs per the reserve for loan losses (G/L accounts) with
charge-offs per the Charged-off Notes Report (subsidiary ledger).

a. Verify that major charge-offs were approved by the loan committee and
reported to the board.
 LOAN CYCLE INTERNAL AUDIT-AUTHORIZATION AND REPORTING

Completed W/P
By Ref

b. Examine supporting documentation for significant charge-offs.

Determine the reason for the charge-off. Note any deficiencies
in policies or compliance with policies.

D. Watch List

1. Obtain the most recent copy of the Watch List and determine
that it contains the following:

a. Customer name, business and background.

b. Loan balance outstanding.

c. Any partial charge-offs.

d. Performance status (current, past due, non-accrual)

e. Summarization of the most recent financial information available

(net income, assets, liabilities, equity).

f. Collateral and its estimated value.

g. Loss exposure.

h. Comments by officer on current status and forecast as to future

performance.

2. Note any of the following:

a. Deviations from bank policy.

b. Unreasonable or unjustified credit ratings or inadequate exposure

based upon the information provided on the list.

c. Previously approved officer action plans, which were not followed.

d. Any loans on accrual status, which seem to qualify for non-accrual or

charge-off status.
 LOAN CYCLE INTERNAL AUDIT-AUTHORIZATION AND REPORTING

Completed W/P
By Ref

E. Problem Loans

1. Review collection procedures for previously charged-off loans.

a. Are qualified individuals given specific responsibility for

actively pursuing loan recoveries?

b. Is management using all possible methods (legal and direct

contact with customer) to recover loan?

F. Obtain the most recent quarterly loan loss reserve computation

(Loan Review Grading System Recap).

1. Test the calculations and agree totals to G/L and Loan Review
Grading System Report.

2. Verify the current reserve appears adequate when compared to

the target reserve.

G. Prepare a narrative describing the Purpose, Scope and Conclusion

of the audit procedures.