Chapter 7 – Investments audit

This module independently recalculates the interest paid and accrued on Term Deposits.

0.Introduction

0.1 Description of Audit Tests

0.2 Suggested sequence and frequency of using the module

1. Term Deposit Accrual Audit

2. Print Term Deposit Accrual Audit

3. Term Deposit Audit Data Capture

4. Term Deposit Interest Audit

5. Print Term Deposit Interest Audit

6. Purge Term Deposit Data Capture File

7. Clear Term Deposit Audit Files

0. INTRODUCTION

0.1 Description of Audit Tests

This module completely re-calculates the amount of the interest accrual. This is therefore a very useful balance sheet audit tool. You can then check the amount accrued to the appropriate General Ledger account.

It lets you enter a 'reasonable' interest rate range, and reports details of all those members with investment account interest rates outside that range. This helps trap any obvious errors, such as interest rates of 30%.

It completely re-calculates interest paid in a specified audit period.

0.2. Suggested sequence and frequency of using the module

External auditors may only want to use the Accrual part of this module once or twice a year to check the accrued interest to the balance sheet. "Term Deposit Interest" audit could be run quarterly or half yearly.

Internal Auditors may want to use this module every three or six months to check that interest rates are within reason and to check interest paid to members.

This is a very simple Audit Module to use. The steps are:

Step Description
1. Use menu option 1 - TERM DEPOSIT ACCRUAL AUDIT to tell CAPS to set up the audit to check the accrual. It is usually run overnight using NIGHT AUDIT.
2. The next morning, or at any convenient time, use menu option 2 - PRINT TERM DEPOSIT ACCRUAL AUDIT to print the results of the audit. Carry out any necessary investigations.
3. Use menu option 3 - TERM DEPOSIT INTEREST AUDIT DATA CAPTURE to save the deposit details for use in the TERM DEPOSIT INTEREST AUDIT. The program is usually run overnight.
4. Use menu option 4 to enter the parameters for the TERM DEPOSIT INTEREST AUDIT, and then use the menu option to check the interest paid. The program is usually run overnight.
5. The next morning, or at any convenient time, use menu option 5 - PRINT TERM DEPOSIT INTEREST AUDIT to print any discrepancies.
6. When you are satisfied that you have completed auditing deposits up to a particular date, use this menu option 6 - PURGE TERM DEPOSIT INTEREST AUDIT DATA CAPTURE FILE to remove unneeded deposit information (deposit information prior to this date).
7. When you are satisfied the audit is complete, and you have no further use for the files generated, select menu option 7 - CLEAR TERM DEPOSIT FILES to release the space taken up on the Financial Institution's computer system.

1. TERM DEPOSIT ACCRUAL AUDIT

This menu option instructs CAPS to do a Term Deposit Accrual audit, and lets you enter some information it needs. The information is entered as follows:

<1> Denominator

This is the number of days in a year to be used when calculating interest.

<2> Accrue From

This field is normally left blank. We have included it here to allow some auditors to override the start date for the accrual period. The default (if left blank) is to start the accrual period from the deposit date of each deposit.

<3> Accrue To

This field is normally left blank. We have included it here to allow some auditors to set the date to which to accrue the interest. The default (if left blank) is to accrue to the date of the last Financial Institution accrual run. This way the results will be comparable with the results on a General Ledger account.

NOTE: You cannot reliably backdate the audit too far using the above fields because CAPS relies on the Deposit information being available on file. If a deposit is reinvested or purging has taken place, then CAPS may not be able to access the deposit details relevant to your accrual period. If you wish to compare your results to the GL then we recommend that you leave these fields blank and run the audit as at the time required.

<4> Interest rate ranges (window)

Deposit Date
All deposits made between the previous date and this date are subject to the associated Low and High rates. All deposits made after the last date are subject to the constraints associated with the last date.

Low Rate
This indicates the minimum interest rate allowable. If CAPS finds a term deposit with a rate lower than this amount in this period, it will be reported.

High Rate
This indicates the maximum interest rate allowable. If CAPS finds a term deposit with a rate higher than this amount in this period, it will be reported.

The CAPS Term Deposit Accrual Audit allows for detailed examination of the interest calculations when in Test Mode.

If you are in Test Mode, CAPS prompts:

You are in Test Mode, do you want to start 'Term Deposit Accrual Audit' now? (Y/N)
Enter [Y] if you wish to perform a quick test run by sampling only a small number of members term deposit accounts.

Enter [N] if you don't need a test run, but want to audit all term deposit accounts.

If you answer [Y], CAPS prompts:

Do you want to process individual accounts?
If you answer [Y], CAPS prompts:

Enter Account number to process
Enter each account number on a separate line and finish by pressing [Enter] on a blank line.

If you answer [N], CAPS prompts:

Do you want to process particular Account Levels?
If you answer [Y], CAPS prompts:

Below are the number of accts by level from the previous audit run:

Acct level Count
4 260
5 350
10 154
11 300
13 428
15 178
16 74
18 62
21 8

Enter the Account Level(s) to audit, one to a line.
Press [Enter] on a blank line to finish entering account levels to be audited. The reason for the above report is to give you some idea how large the resulting report will be. Note however, that each account may have several deposits, and each deposit would represent one line in the report. CAPS collects this statistical information only when you perform an audit in Live Mode.

If you request to audit particular accounts or specific account levels, a detailed interest calculation report will be generated and written to a file called "CAPS.TD.ACCRUAL" in a directory called "&HOLD&", and you are advised of this when the audit finishes. This is done so that the file may be downloaded and imported into another application for further examination. If you simply want to print this report, from the Command Level (TCL), type the following command:

LIST.ITEM &HOLD& "CAPS.TD.ACCRUAL" LPTR

If you answer [N], CAPS prompts:

How many records do you want to process?

Enter the number of term deposit accounts you want CAPS to use as a test sample. CAPS displays messages to indicate the progress of the audit. When completed it returns to the menu.

If you answer [N], or if you are in Live Mode, CAPS prompts:

Do you want 'Term Deposit Accrual Audit' submitted for overnight running?

Confirm (Y/N)
Enter [Y] to add it to the overnight queue.

Enter [N] to cancel the request, and return to the Term Deposit menu.

Result

If you chose a test sample only, CAPS immediately runs the Term Deposit Accrual Audit.

If you chose a full live sample, CAPS sets up an instruction for the Term Deposit Accrual Audit to be run overnight under 'NIGHT AUDIT'. (See CAPS UTILITIES, Section 2 - NIGHT AUDIT for more details).

The results of running the Term Deposit Accrual Audit are stored in a file called 'Term Deposit Accrual Audit Result'.

2. PRINT TERM DEPOSIT ACCRUAL AUDIT

This menu option lets you print the results of the TERM DEPOSIT ACCRUAL AUDIT.

Print Password

Enter your print password. No user can print a report unless they have their print password. The user will be given two opportunities to enter the correct password or CAPS will automatically shut down. This feature provides security to reduce the likelihood of unauthorised users gaining access to CAPS reports.

YOU MUST COLLECT THE PRINT OUT IMMEDIATELY !

DO NOT LEAVE AT THE PRINTER !

Result

CAPS uses the information in file 'Term Deposit Accrual Audit Result' to print a summary of the term deposits showing the total deposited for each level of account and the interest accrual for each. You should check this overall summary to the Financial Institutions figures to make sure they are reasonable.

It also lists each term deposit account which has an interest rate outside the range you entered when you used the TERM DEPOSIT Menu option. The report shows the members number, the deposit number and the interest rate for each.

Please refer to the example at the end of the chapter.

3. TERM DEPOSIT INTEREST AUDIT DATA CAPTURE

This menu option generates a Data Capture file containing details of all Investment accounts on the Certificate file - Term Deposit certificate file. You must run this option at least before the Certificate file is purged by the Financial Institution.

In running the Term Deposit Interest Audit, CAPS can extract deposit information from the transactions, the certificate details and the Data Capture file in an attempt to get all the information it needs to calculate interest paid relevant to a deposit in your audit period. In order to give CAPS the maximum possible opportunity to get the required deposit details we have included this Data Capture option.

The Data Capture stores Deposit Certificate details so that when these details get purged by the F.I., there will still be a copy of this information available for the audit. It is important to note that the Data Capture file is not actually cleared before it is run. Any new deposit details will be added during this process. We recommend that the Data Capture be run after the Term Deposit Audit at the end of each quarter. As this process is cumulative, there is no harm in running it as often as you think is necessary. CAPS will only add deposit information to the Data Capture which has changed since the last Data Capture. This file will grow in size each time this process is run. It is recommended that you use option 6 (Purge Term Deposit Data Capture file) to remove old certificate data that is no longer required, up to a nominated date.

CAPS prompts:

Do you want 'Term Deposit Data Capture' submitted for overnight running? (Y/N)
Enter [Y] to queue the Data Capture in NIGHT AUDIT

Enter [N] to cancel the request, and return to the Term Deposit menu.

Result

CAPS sets up an instruction for 'Term Deposit Data Capture' to be run overnight under NIGHT AUDIT. (See CAPS UTILITIES, Section 2 - NIGHT AUDIT for more details).

The results of running 'Term Deposit Data Capture' are stored in the Data Capture file.

4. TERM DEPOSIT INTEREST AUDIT

This menu option instructs CAPS to calculate interest paid on each deposit and report discrepancies. CAPS lets you enter information it needs as follows :

<1> Period Start

This indicates the beginning of the period the audit will operate on.

<2> Period End

This indicates the end of the period that the audit will operate on.

<3> Minimum discrepancy for each interest payment

If CAPS will only report discrepancies larger than this amount.

<4> Allow for errors caused by leap year

Choose [Y] if you wish to allow for possible discrepancies caused by the leap year, else [N]. The answer here depends on which method your institution is using to calculate interest. (Financial institutions could start the leap year on their computer systems at either the start of the calendar or financial year. They also have the option to accrue interest before they swap to or from a leap year.) Because of this flexibility, sometimes it is impossible to determine the actual fraction (365 on 366) used in the calculation.

<5> Maximum discrepancy for errors caused by leap year

If you are taking the leap year into account in your calculations, enter the maximum discrepancy you are prepared to allow for.

<6> Report rate difference

Enter [Y] if you wish CAPS to report when there is a difference between the rates at the start and at the end of a deposit. CAPS will use the same interest rate the financial institution uses to calculate interest, which is the interest rate at the time interest was paid.

<7> Deposit Start Date Reset to Part Redemption Date

Enter [Y] if you wish the Deposit Start Date to be reset to the Part Redemption date, otherwise enter [N]. The default is [N]. When a deposit is part redeemed (Part, but not all, of the money is withdrawn before maturity) the new deposit amount can earn interest from the original deposit date (default) or from the date of the part redemption.

<8> Suppress Discrepancy Report

Enter [Y] if you want to disable the interest credit discrepancy report, otherwise enter [N].

<9> Exclude Levels

Enter any investment account levels which you wish to exclude from the audit. You can enter a number of levels, or leave the field blank to include all levels.

- if you are in Test Mode, CAPS prompts:

You are in Test Mode, do you want to start 'Term Deposit Interest Audit' now (Y/N)
Enter [Y] if you want to do a quick test run by sampling a small number of members term deposit accounts.

Enter [N] if you don't need a test run, but want to audit all term deposit accounts.

- if you answer [Y], CAPS prompts:

How many records do you want to process?
Enter the number of members term deposit accounts you want CAPS to use as a test sample. CAPS displays messages to let you know what it is doing. When finished it returns to the menu.

- if you answer [N], or if you are not in Test Mode, CAPS prompts:

Do you want 'Term deposit Interest Audit' Submitted for overnight running?

Confirm (Y/N)
Enter [Y] to add it to the overnight queue.

Enter [N] to cancel the request, and return to the Term Deposit menu.

Result

If you chose a test sample only, CAPS immediately runs the Term Deposit Accrual Interest Audit.

If you chose a full live sample, CAPS sets up an instruction for the Term Deposit Accrual Audit to be run overnight under 'NIGHT AUDIT'. (See CAPS UTILITIES, Section 2 - NIGHT AUDIT for more details).

The results of running the Term Deposit Accrual Audit are stored for printing by menu option 4 - PRINT TERM DEPOSIT INTEREST AUDIT.

5. PRINT TERM DEPOSIT INTEREST AUDIT

This menu option lets you print the results of the TERM DEPOSIT INTEREST AUDIT.

- CAPS prompts:

Print Password
Enter your print password. No user can print a report unless they have their print password. The user will be given two opportunities to enter the correct password or CAPS will automatically shut down. This feature provides security to reduce the likelihood of unauthorised users gaining access to CAPS reports.

YOU MUST COLLECT THE PRINT OUT IMMEDIATELY !

DO NOT LEAVE AT THE PRINTER !

Result

CAPS uses the information on file to print discrepancies between the CAPS and the institution's calculations. It will also print out accounts with interest rate changes if this option has been selected.

If you find that there are many discrepancies you should check the possibility that your client's software is adjusting the start date of the deposit incorrectly. For example a deposit made in December 1992 may have its original deposit transaction purged and then reinserted with a new date (eg June 1993) so that it appears on the member's statement. CAPS will calculate the interest based on the deposit date (June, 93) and compare it to the interest paid (which was based on the December 92 date) and come up with a discrepancy.

To solve the problem, either ask your client not to purge Investments as often (leave 12 months transactions on file) or ask their software supplier to maintain the accuracy of the data. Usage of the Data Capture file should minimise these sorts of discrepancies.

The 'Total Interest Summary' report shows interest paid within the period and not interest accrued within the period. Beware of this when attempting to compare with General Ledger figures.

Please refer to the example at the end of the chapter.

6. PURGE TERM DEPOSIT DATA CAPTURE FILE

This lets you purge data from the Term Deposit interest Data Capture file. When you use the TD Data Capture process, Certificate data on deposits held at the F.I. is appended to the Data Capture file. As such this file will grow in size each time the Capture process is used.

All deposits maturing up to and on this date will be purged. 30/06/95
Enter the date you wish to apply for the purge process.

If you are in Test Mode, CAPS asks;

You are in test mode, do you want to start 'Term Deposit Data Capture Purge' now?
If you answer [Y], CAPS immediately starts purging the term deposit Data Capture file. The deleted data cannot be restored. If you answer [N] CAPS returns you to the Term Deposit menu without doing anything.

Otherwise,

Do you want 'Term Deposit Data Capture Purge' submitted for overnight running?

Confirm (Y/N)
Enter [Y] to queue Term Deposit Data Capture Purge in NIGHT AUDIT

Enter [N] to cancel the request, and return to the Term Deposit menu.

Result
The Term Deposit Interest Data Capture file is irretrievably purged up to and including the date entered by you.

7. CLEAR TERM DEPOSIT AUDIT FILES

This lets you clear the term deposit audit files. Parameter data and the TD Data Capture file are not cleared.

Are you sure you want to clear all term deposit audit forms?
This is just a warning and a check to make sure you really know what you are doing. If you answer [Y], CAPS immediately clears all term deposit audit files. They cannot be restored. If you answer [N] CAPS returns you to the Term Deposit menu without doing anything.

Result

The Term Deposit Audit Result files are irretrievably cleared.