Negative Balance Accounts Audit Program
7/31/10
Audit Procedure
/ By: / Reference/CommentsAUDIT OBJECTIVES
1. To determine that adequate policies and procedures are in place for the collection and charge off of negative balance accounts (NBA’s.)2. To determine that NBA’s are being monitored on a regular basis
3. To determine that old/uncollectible NBA’s are being charged off in a timely manner
4. To determine that controls regarding Overdraft Privilege (ODP)are adequate.
5. To determine that controls regarding Employee NBA’s are adequate.
Audit Procedures
PRELIMINARY
1. Review and update PAF as necessary.
2. Follow up on prior audit findings (from IAD, external and regulatory exams) for proper management resolution.
3. Read and become familiar with any reference materials in the PAF, especially the NCUA Part 707 and Reg. E (12 CFR 205.17) revisions.
INTERNAL CONTROLS
1. Obtain CU’s NBA policy & procedures and review for adequacy. They should address, at a minimum:a. The maximum length of time an account can remain negative;
b. Acceptability of payment arrangements and timeframes; and
c. Departments responsible for processing NBA’s.
d. Processes in place to ensure compliance with applicable regs, especially Part 707 and 12 CFR 205.17.
Audit Procedure
/ By: / Reference/Comments2. Ensure that there is a daily negative balance report generated.
a. Note to whom the report is generated, and determine that all needed personnel are receiving it.
b. Note if the Board is receiving any NBA’s reports.
3. Document who makes pay/return decisions on NSF items, and the process in place to make such decisions.
a. Ensure that if there are any system defaults, they are set to “return/charge.”
4. Determine under what circumstances a share draft line of credit (LOC) will be granted to a member and corresponding limits.
a. Note how the system advances money to cover an account deficit.
b. Note what type of documentation and approval is required for such LOCs.
c. Ensure compliance with NCUA RR 701.21 (c)(3), which states, “A CU may advance money to a member to cover an account deficit without having a credit application from the borrower on file if the CU has a written overdraft policy. The policy must: set a cap on the total dollar amount of all overdrafts the CU will honor consistent with the CU’s ability to absorb losses; establish a time limit not to exceed 45 calendar days for a member either to deposit funds or obtain an approved loan from the CU to cover each overdraft; limit the number of overdrafts the CU will honor per member; and establish the fee and interest rate, if any, the CU will charge members for honoring overdrafts.”
Audit Procedure
/ By: / Reference/Comments5. Document collection procedures in place (including those performed by Accounting and Call Centerpersonnel) to follow up on NBA’s, including charge off criteria.
6. Note how often notices are sent to members, and by whom.
TRANSACTION TESTING
1. Obtain the Negative Balance Report (NBR) as of the audit date.
a. Schedule accounts listed which are older than 60 days, and discuss with collections why items have not been charged off.
b. For non-ODP-items, determine why items were paid, and if the decision was justified.
c. Similarly follow up on any refunded or waived fees.
2. Test a sample of items >$50 to ensure the system is properly placing them in the Collections queue.
3. Ensure that “regular attemptsare being made to collect these items.
UNAVAILABLE FUNDS/KITING
1. Document controls over actions taken on unavailable funds, and note how they differ from NSF funds.
2. Note how kiting suspects are monitored, and what type of kiting suspect reports are generated.
3. Opine on overall adequacy of the process.
OVERDRAFT PRIVILEGE (ODP)
1. Read and become familiar with NCUA Letter 05-CU-03, 205.17 of Reg. ENCUA Part 707.
Audit Procedure
/ By: / Reference/Comments2. Document the process in place for the ODP, including process by which the CU complies with the revised ‘Overdraft Services’ section of Reg. E.
3. Determine if there is an adequate process in place by which management performs a documented periodic cost benefit analysis of ODP revenue vs. increase in charge offs.
4. For ODP items on the above NBR ensure that the requirements of Policy 4.805, and written procedures are being followed:
a. The $30 fee was assessed for each item;
b. That the available balance at the time was not below <$800 for consumers and <$1,000> for businesses;
c. That there were not any loans on the account which were more than 11 days delinquent at the time;
d. That a negative balance on the share draft account was not present for more than 20 days; and
e. That all other designated transfer sources were used.
5. Determine if any personnel are monitoring the system to ensure that system parameters are working properly.
6. Total the number of all overdrafts in the ODP, and ensure they don’t exceed 3% of net worth.
7. Opine on adequacy of ODP collection process (note: as of 2/11/10, ODP collections became the responsibility of the Call Center, specifically the Overdraft Privilege Administrator.)
8. Compare charge offs from pre-2/11/10 to those subsequent to that date, and note any material changes.
9. Note how membership was informed of opting options, and ensure improper swaying of opinion is not evident.
Audit Procedure
/ By: / Reference/Comments10. Document percentage of members who have opted in, compare to industry averages, and note any material variances.
11. Through test work during the audit, ensure adequacy of ODP controls, and compliance with NCUA Letter 05-CU-03, Reg. E and Part 707 by completing the NCUA Negative Balances ICQ, Overdraft Privilege ICQ, Negative Balance ICQ,Part 707 ICQ & Reg E Overdraft Services ICQ.
EMPLOYEENEGATIVE BALANCE ACCTS.
1. Through review of policy and/or the CU Employee Handbook, document controls over employee NBA’s.
2. Note any controls differing from those of non-employee members.
3. Note how employee NBA’s are monitored, including what type of disciplinary action is taken.
3rd Party Due Diligence
1. Obtain list of negative balance 3rd party processors who have been contracted since the prior audit.
2. Via discussion, and review of corresponding documentation, document due diligence performed.
3. Opine on adequacy, and if in compliance with Policy 4.009.
User Access
1. Obtain user access for all staff.
2. Ensure that access is consistent from position to position.
3. Ensure that access is appropriate for position level
4. Ensure that access provides adequate separation of duties
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