SCOPE OF AUDIT

007 SCOPE OF AUDIT. 007.01 General - The audit procedures listed below are minimum procedures to be performed under the provisions of Section 21-1771. They should not be construed as restrictive. Circumstances relating to individual engagements or situations encountered may make it necessary or desirable to expand certain procedures, apply alternate procedures, or extend audit procedures to other areas. The scheduling of the audit should be coordinated with the Department to avoid conflicts with the Department's examination. The audit shall include a review of the credit union's system of internal controls and operating procedures and the report shall include comments and recommendations from this review. 007.02 Minimum Audit Procedures 007.02A Control: 007.02A1 Commence audit on a surprise basis, specifically identifying which credit union personnel had prior knowledge of the audit timing, if any. Assume control over all negotiable items and records to be examined until procedures have been completed. 007.02B Cash, Cash Items, Foreign Currency, Clearings and Exchange: 007.02B1 Conduct a count of a portion of teller and vault cash on an unannounced basis; the timing and scope should avoid recognizable patterns. Reconcile cash counts to the general ledger. Examine cash items on a test basis, verifying legitimacy and collectability. Investigate any unusual or stale items and request confirmation of totals of clearing and exchanges. Determine the disposition of larger return items. 007.02C Due From Credit Unions/Banks: 007.02C1 Examine (or prepare if necessary) credit union/bank reconciliations with correspondent institutions by obtaining statements for several days beginning with the audit date, and, on a test basis, compare checks and drafts with the records of instruments issued. Investigate any unusual or stale items. Confirm the balance directly with the related credit unions/banks. 007.02D Investments: 007.02D1 Total the securities ledgers, reconcile carrying values with applicable general ledger accounts, account for all securities by reviewing securities on hand and confirmation of those held by others. Review the investment portfolio to determine if all securities were purchased and/or being held in conformity with applicable statutes and regulations. Verify safeguarding procedures. 007.02D2 Review the method utilized by the credit union to determine the adequacy and/or need for an allowance for losses on investment account. 007.02E Loans: 007.02E1 Total the loan ledger cards or obtain a trial balance from the service center and prove totals on a test basis, or review the service center audit, and reconcile totals with applicable general ledger accounts. Examine loan documents for a representative number of each type of loan to determine if the terms conform to the credit union's loan policies and that they have accurately been entered into the computer if so applicable. See Section 012 of this Rule for confirmation requirements. 007.02E2 On a test basis review selected individual loan accounts to determine the accuracy of interest calculations. 007.02E3 Review the method utilized by the credit union to determine the adequacy and contributions to the allowance for loan loss account. Reconcile subsidiary records for charged-off loans to control records and apply transaction testing to a sample of reconciling items. 007.02E4 Review the transfer to allocated reserves, including allowance for loan loss, to determine that all transfers were made in accordance with the requirements of current applicable statutes and regulations. 007.02F Fixed Assets: 007.02F1 From the date of the prior audit, review transactions in the accounts, trace approval of major expenditures to the minutes of the Board of Directors' meetings, and test the computation of depreciation. 007.02G Share Accounts: 007.02G1 Total regular share account individual ledgers or obtain trial balances from the service center and prove totals on a test basis, or review the service center audit, and reconcile totals with general ledger accounts. Trace disposition of selected unposted items. See Section 012 of this Rule for confirmation requirements. 007.02G2 Total share draft account individual ledgers or obtain trial balances from the service center and prove totals on a test basis, or review the service center audit, and reconcile totals with general ledger accounts. Trace disposition of selected unposted items. See Section 012 of this Rule for confirmation requirements. 007.02G3 Total time deposit accounts or obtain trial balances from the service center and prove totals on a test basis, or review the service center audit, and reconcile totals with general ledger accounts. Trace disposition of selected unposted items. See Section 012 of this Rule for confirmation requirements. 007.02G4 On a test basis, review selected individual share accounts to determine the accuracy of interest calculations. 007.02H Income and Expense: 007.02H1 Test selected entries to both income and expense accounts by reviewing proper documentation for selected items. Ascertain on a test basis by some independent means that all "debits" and "credits" to the income and expense accounts have been recorded and have not been either understated or overstated. Review the related accounts of accrued income, accrued expenses, unearned discounts, and deferred income by testing "debits" and "credits" as above; ascertain that the balances in these accounts are fairly stated. 007.02I U.S. Savings Bonds, Travelers Checks, and Other Consigned Items: 007.02I1 Examine the credit union's most recent reconcilement of items on hand with memo controls and related confirmation from issuing agents, or, if such records are not available, count items on hand. Reconcile with total on consignment, and obtain confirmation from issuers. 007.02J Other Activities: 007.02J1 The Supervisory Committee is to perform risk assessments prior to the audit for other financial reporting risks such as digital assets, mortgage lending, and insurance activities, and determine whether higher risk areas should be included for testing within the scope of the engagement.