The methods by which these examining agencies proceed to make an examination of a department are practically identical. Certain minor differences of method are noticeable, such, for example, as that the national bank examiners rule off the ac counts and the auditor does not, because the accounts are recon ciled by the auditor monthly; but the methods are fundamentally the same. The nature of an examination can be best presented by outlining briefly the manner in which the auditing depart ment examines a few of the departments.
To perform the examinations the auditing department has two organizations: r. The subdivision for examining the departments of the bank. This work is in charge of a clerk called, say, "chief ex aminer," who has a force of clerical assistants. When the chief examiner examines any department, he calls into his subdivision the head of the subdivision or subdivisions concerned. For instance, if the coupon paying department is under examination, the chief examiner will be assisted by the head of the subdivi sion which verifies canceled coupons or some clerks delegated by him.
2. The subdivision which has charge of the examining and reporting of the foreign branches of the bank. The audits of foreign branches are made by traveling auditors. A bank with out foreign branches would, of course, not have such a subdivi sion in its auditing department.
Manner of Conducting Examinations Illustrated 1. The Loan Department. In the examination of the loan department the totals of the various classes of loans are made up from the loan cards to see whether or not those totals agree with the figures in the general ledger of the bank. The collateral to the loans is examined to determine that all the collateral listed on the loan cards is in the custody of the loan clerk and that it has been assigned in blank and is readily marketable. If certain collateral is being held in trust for the bank by others, letters are written for a verification of the facts. The cards are examined to see that, in the light of the market values of the collateral, proper margins are being maintained. The contracts on file in the department are examined to see that a contract has been re ceived to cover every loan made where there is no note. Letters are addressed to the persons, firms, and corporations to whom loans have been made, asking for a list of the collateral which, according to their books, the bank should have, and these lists are checked with the loan cards. Instead of this method, lists from the loan cards may be prepared and sent to the customers for confirmation of their correctness.
2. The Customers' Securities Department. In the examination of the customers' securities department letters are written enumerating the securities which the books of the department show are being held for the various customers. The securities are withdrawn from the vault and are counted and checked with the copies of the letters which have been written. If everything is in agreement, the original letter is mailed with a request that, if found correct, it be signed and returned. If the customer finds a discrepancy between the list and his books and cites it, the ex aminer investigates and, if he too finds the discrepancy, writes an explanatory letter. In case the securities in the vault do not check with copies of the letters made from the department's books, an investigation is made. Where there are fewer securi ties on hand than the books indicate, this almost invariably indi cates the omission of book entries when securities have been withdrawn and delivered on proper authority; on the other hand, if the books indicate fewer securities than those actually in the vaults, this invariably means that the proper book entries were not made when the securities were placed in the vaults. Care is taken to see that a letter is written to every customer having securities in the department, and also that no securities are on hand of which no records have been made.
The vaults are under the joint control of two men, one having a key and the other knowing the combination. When the examiner enters the department the key is turned over to him, which is equivalent to sealing the vaults. The deposits and withdrawals of securities for each day's business are examined, and in this way while the examination of the department is in progress the work of the department is interrupted to the smallest possible degree.
3. The Bond Department. In the examination of the bond department reference is made to the general bookkeeper to find the amount which the bank has invested in bonds. In the general ledger the investments in securities are classified into: Bonds Owned and Unpledged; Bonds Loaned; Bonds Borrowed; Bonds Pledged to Secure Circulation, to Secure Postal Savings Deposits, to Secure Government Deposits, to Secure States and Other Deposits; Bonds Sold with Agreement to Repurchase; Liberty Bonds; Other United States Bonds; Municipal Bonds; Corporate Bonds; United States Certificates of Indebtedness; etc.