LOAN CYCLE INTERNAL AUDIT-PHYSICAL SAFEGUARDS

Completed W/P
By Ref

A. Obtain a copy of the most recent inventory of negotiable

and nonnegotiable collateral and complete the following:

1. Ensure all negotiable collateral is maintained under dual control.

Review the physical security methods used to protect the active
and charged-off notes, issued and unissued letters of credit, credit
files and any other sensitive loan related records.

2. What is the number of the last collateral receipt used?

3. Select a sample of collateral on hand from the Negotiable

Collateral Report and physically compare to securities
(stocks, bonds, life insurance contracts, certificates of deposit,
etc.) Verify that securities are endorsed to the bank where
applicable. Consider whether collateral receipts are being used
in order.

4. Note whether the Negotiable Collateral Report shows collateral

receipt numbers.

5. Do loan officers sign the collateral receipts to authorize release

of collateral?

6. Are receipts from the customer obtained and filed for released
collateral?

7. Prepare a narrative describing the physical safeguards over loan

files (where stored, who has access, policy for removal from bank
property, removal from vault, etc.)

B. Verify the bank performs a periodic inventory of negotiable and

nonnegotiable collateral. Examine documentation of the most
recent inventory for adequacy.

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

of the audit procedures.