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Credit Limits Audit Work Program

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35 views7 pages

Credit Limits Audit Work Program

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chinhgpt189
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We take content rights seriously. If you suspect this is your content, claim it here.
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CREDIT LIMITS AUDIT WORK

PROGRAM

1 Source: www.knowledgeleader.com
Table of Contents
CREDIT LIMITS AUDIT WORK PROGRAM............................................................................................................ 3
CREDIT SUBMISSIONS AUDIT WORK PROGRAM............................................................................................... 4

2 Source: www.knowledgeleader.com
CREDIT LIMITS AUDIT WORK PROGRAM

OVERVIEW
For lenders, the operational priorities include updating loan monitoring processes, loan systems flags and fields,
reporting, technology infrastructure, and staffing to keep up with requests for loan modifications and new
originations under various special government programs. At the same time, lenders must keep their eyes on a
host of emerging risk issues that could arise as crisis conditions evolve. For instance, loan modifications made
due to hardship need to be identified and flagged in bank systems so that they can be tracked, monitored and
followed up on, both as the identified crisis evolves and once the crisis period is over. This is important as these
modifications can lower loss forecasting on portfolios in the short term and impact the accounting for troubled debt
restructurings (TDR) and the credit loss estimation under the current expected credit losses (CECL). Stress-
testing and CECL models developed and calibrated before the pandemic need to be recalibrated to reflect actual
portfolio conditions and a range of expected downside scenarios over the forecast horizon.

RECORDKEEPING AND DOCUMENTATION


Financial institutions should establish processes to enable borrowers to calculate forgiveness during the
applicable period after loan funding and develop the infrastructure and processes to capture the required
documentation to determine forgiveness. Creating a secure site where customers can post underlying support
materials for forgiveness determination and track expenditures and metrics needed to calculate loan forgiveness
is highly recommended. These practical steps would also help lenders mitigate potential liability related to how
they service applications.

MANAGING PORTFOLIO QUALITY


Lenders should take several actions now to manage portfolio quality and mitigate losses. These actions include
recalibrating credit risk rating models, identifying at-risk borrowers for closer monitoring, reassessing
concentration analysis based on geographies and industry segments, staying attuned to increased fraud risk, and
considering the potential for an extended economic shutdown or prolonged disruption to normal operations.

Given the many uncertainties, existing monitoring tools, such as flag reports or exception/watch reports, should be
adapted to focus attention on the greatest areas of risk at the day-to-day operational level. Senior management
and the board should be provided with daily reports so that all bank areas are well-informed on the credit quality
and risk of loss in the bank’s portfolios.

Additionally, lenders should consider how they utilize traditional metrics and reporting to assess delinquencies.
For instance, FICO scores may not be as relevant in the current environment and should not be wholly relied
upon to predict default accurately. Rather, lenders should look to those traditional metrics as a starting point and
focus on assessing borrowers more broadly on metrics such as current liquidity or deposit balance (or changes
therein), debt-to-income and debt coverage ratios, and how all those are changing in the current environment.

3 Source: www.knowledgeleader.com
CREDIT SUBMISSIONS AUDIT WORK PROGRAM

PROJECT TEAM (LIST MEMBERS)

Project Timing: Date Comments

Planning

Fieldwork

Report Issuance (Local)

Report Issuance (Worldwide)

AUDIT OBJECTIVES

Objective Comments Initial

Verify that credit limits are properly


approved.

Verify that the credits' terms in the


subsidiary records agree to the
documentation.

Time Audit Step Initial Wp Ref

Administration

Planning
• Discuss the nature and scope of the audit with key ABC
personnel.
• Discuss timing with key management.
• Schedule timing with the auditee.
• Finalize the audit program.
• Schedule staffing as appropriate.

Reporting
• Create a summary scorecard for each process reviewed.
• Using the standard report template, create the internal audit
report (including a compilation of findings from the work
performed).
• Hold a closing meeting with key company management to
review the draft internal audit report and findings.
• Publish the final report and distribute it.

4 Source: www.knowledgeleader.com
Time Audit Step Initial Wp Ref

Other Administrative
• Compile test work and key support data into a work paper
binder. Include a binder index of key information.
• Include a final budget vs. actual (BVA) summary for the job in
the work paper binder.
• Include a copy of the final report in the work paper binder.
• Discuss job economics with the internal audit manager, as
necessary.
• Follow up on satisfaction surveys.
• Submit a report to the internal audit report database.
• File work papers in the internal audit file room.

Preliminary Field Work


• Identify key contacts for audit areas.
• Obtain and document an understanding of the overall operating
organization structure. Consider the following areas:
− Personnel: Organization charts, total number of personnel,
divisions, job descriptions, etc.
− Transactions: The volume/value of various transaction types
processed.
− Systems: Application modules, interfaces, tracking systems
and related management reporting.
− “Customers”: Who are the key external and internal
customers for the process?
• Obtain electronic copies of relevant files as considered
necessary to facilitate testing and process analysis.

Detailed Audit Procedures

Understand the Process


• Conduct interviews with key individuals to gain an
understanding of the process.
• Create process maps to visualize information flow and identify
key points of control and risk.
• Review relevant written departmental policies and
procedures/goals and objectives.
• Evaluate current practices against known best practices.
• Interview key management in the department to gain an
understanding of the workflow within each area. Document the
discussion.

Description of Test Procedures

• Review the most recent loan examination report with particular


reference to comments on loan administration/operations and
ensure that deficiencies noted have been properly corrected.

5 Source: www.knowledgeleader.com
Time Audit Step Initial Wp Ref

• Note any comments in the loan examiner's report, which refer


to outstanding comments not covered in this program (e.g., on
company-owned securities and investments or employees’
receivables). Cross-reference them to the appropriate program.
• Review proofed exhibits for the following accounts:
− Time Loans
− Consumer Loans
− Demand Loans
− Discounted Paper
− Overdrafts
− Intercompany Loans/Discounted Paper
− Other Loans and Discounted Paper
− Customer Acceptance Liability
− Term Loans
− Special Loans
− Intercompany Term Loans
− Contracts Sold
− Loan Commitments
− Contracts Bought
− Guarantees and Commercial Credits
− Liabilities and Rediscounts
− Loans Participated to Others
• The in-charge auditor will determine audit coverage for each
account in respect of:
a) A detailed review of operating records
b) A review of limits, approvals, and CR or other stipulations
Note that the scope for a) and b) need not be identical. No need
for the scope within b) be uniform. For example, when reviewing
an important letter of credit (LOC), the in-charge auditor may
determine that the number of clients' names involved may allow all
outstanding items to be checked against limits but that only 15% of
open LOC files can be reviewed in detail, and only 50% of
collateral requirements can be examined.
The in-charge auditor will complete a standard work paper, fully
identifying the extent of audit coverage on each account.
• Complete a standard working paper, or credit limits review, for
all outstanding LOC files selected for review under the five
above. Check all outstanding LOCs to the central liability record
(CLR) or equivalent record.
• Review CRs or other approvals for all names selected. Confirm
that those approvals are current and within the written
authorities of the approving officers.
• Note on the standard working paper all relevant CR
stipulations, including:
− Amount (drawdown if applicable)

6 Source: www.knowledgeleader.com
Time Audit Step Initial Wp Ref

− Tenor
− Interest or discount rate or margin
− Repayment schedule
− Collateral requirements
− Documentation requirements
− Fees and commissions
• Utilize the standard working paper for the detailed review of
operating records and compliance with CR stipulations within
each risk asset and contingent liability audit program. Cross-
reference the standard working paper to each audit program.

7 Source: www.knowledgeleader.com

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