Chapter 8 – Dormancy audit

This module allows you to define dormant and inactive accounts, highlight unusual transactions on those accounts, and statistically select samples of accounts and members for detailed audit examination.

0. Introduction

0.1 Description of Audit Tests

0.1.1 Definition of 'Dormant' and 'Inactive' accounts

0.1.2 Definition of Dormant and Inactive Members

0.1.3 Comparison Tests

0.1.4 Account Selection for Detailed Audit Tests

0.1.5 Third party Audit Confirmation

0.2 Third party Audit Confirmation

1.0 Dormancy Profile

2.0 Print Dormancy Profile

3.0 Dormancy Account Selection

4.0 Print Dormancy Accounts Selection

5.0 Dormancy Members Selection

6. Print Dormany Members

7. Clear Dormancy Audit Files

0. INTRODUCTION

0.1 Description of Audit Tests

The Dormancy Module is an important audit tool. Dormancy accounts have been difficult to audit in the past, as they were always difficult to identify. However with CAPS you can now define and identify dormant accounts and conduct special audit tests on them.

Dormancy is an important area for any Financial Institution because:

  • Dormancy accounts can make up 25% of the total of the Financial Institution's deposit accounts
  • They are likely targets for fraud
  • Normal third party audit confirmations do not specifically circularise dormancy accounts
  • If the funds are unclaimed, the question of 'title' to the funds becomes important. Any relevant 'Unclaimed Moneys Acts" could take effect. In some cases the unclaimed funds belong to the Financial Institution, in some cases they may revert to the State.

0.1.1 Definition of 'Dormant' and 'Inactive' accounts

For convenience CAPS defines 'dormancy accounts' as any account which is either 'dormant' or 'inactive'. The distinction between a 'dormant account' and an 'inactive account' has important audit consequences. CAPS defines them as follows:

• A 'Dormant Account' is one which has had no active deposit or withdrawal transactions for some time. By active transactions we mean transactions which indicate that the member is using the account.

In your Dormancy Profile, you define active transactions. For example, you will consider transaction codes for Cash Deposits, Cheque Deposits, Cash Withdrawals and Cheque Withdrawals as active. That is, they indicate that the member is using the account. You can generally think of active transactions as member generated transactions, but they may also include transactions which the member has not actually generated but still indicate that they are using the account, such as a payroll credit.

You also define the length of time where there are no active transactions. For example, if you define the period as 90 days, you are likely to find more dormant accounts than if you define the period as 180 days.

• An 'Inactive Account' is one which has had active withdrawal transactions but no active significant deposit transactions for the defined dormancy period.

An auditor might be interested in inactive accounts because they may indicate fraud. Someone at the Financial Institution may identify a dormant account and begin withdrawing money from it, thereby changing the account's status to inactive. This change in status is noted by the Dormancy Audit process.

Active transaction code definition is up to you but generally you do not want to include fines, fees, interest, charges or tax.

Because you may only want to consider deposit transactions to be significant if they are over a certain amount and of a certain frequency CAPS has two parameters which allow you to filter them. These parameters are explained in more detail in the Dormancy Profile section of this chapter.

In your Dormancy Profile parameters you tell CAPS what is defined as a non-dormant account. CAPS then goes through all accounts and determines whether each account is non-dormant (it has active debit and credit transactions), inactive (it has active debit transactions) or dormant (it has no active debit or credit transactions) in the specified audit period. The dormant and inactive accounts are recorded on your profile for subsequent selection.

0.1.2 Definition of Dormant and Inactive Members

A dormant member is simply a member with all of their Savings accounts dormant. For instance, if a member has three accounts and only two of them are dormant accounts, the member is not dormant. However if all three accounts are dormant, CAPS considers the member is a dormant member and these can be selected for reporting.

An inactive member is simply a member with some Savings accounts dormant and the rest inactive. That is, all of their Savings accounts are at least inactive and possibly dormant.

0.1.3 Comparison Tests

Dormancy accounts (by definition) are not supposed to change from one period to the next, and you are likely to be very interested in those that do. A special feature of the CAPS Dormancy Audit module is that it highlights dormancy accounts that change Dormancy/Inactive status.

It does this by keeping a copy of the previous 'profile'. Then, it compares the accounts it has selected on the current profile with those on the earlier profile. And it prints out a report of:

  • New 'dormant accounts or 'inactive accounts' since last period. - This is for your information only and not of great significance.
  • Accounts which were 'dormant accounts' or 'inactive accounts' and are now active accounts. - These can be very interesting. Has the member returned from overseas, or is someone manipulating the account?
  • Accounts which were 'dormant accounts' or 'inactive accounts' and are now 'closed accounts' (balance has gone to zero). These can be interesting. Someone is withdrawing funds from these accounts. Are they properly authorised to be withdrawing funds?
  • Accounts which have changed class, either from dormant to inactive or from inactive to dormant.

0.1.4 Account Selection for Detailed Audit Tests

CAPS also lets you select a sample of individual accounts from the 'profile' for detailed investigation. This selection can be either random, or you can select accounts over a nominated dollar value.

You can also specify that only accounts with specific types of debit transactions are to be printed. This enables you to conveniently monitor transactions on dormancy accounts.

A feature of CAPS is to allow you to select dormant members for detailed investigation. You have the option to only print dormant members who have loan accounts or have loan accounts and are in arrears.

0.1.5. Third party Audit Confirmation

Once you have selected the accounts or members you wish to investigate, CAPS helps you prepare a third party confirmation letter, by printing statements for those members whose accounts have been selected using the Circularisation Module.

0.2 Suggested sequence and frequency of using this module

The main aim of the dormancy audit module is to ensure that the funds entrusted to the Financial Institution are being properly safeguarded. It should therefore be run regularly by both internal and external auditors. For example:

  • Internal auditors may decide to use the module every month.
  • External auditors may want to use the audit module every three months.

The steps to follow are these:

Step Description
1 Use menu option 1 DORMANCY PROFILE to define a non-dormant account and to get CAPS to search through members Savings accounts looking for accounts not fitting your definition criteria.
2 After the Dormancy Profile has been run, use menu option 2 PRINT DORMANCY PROFILE to get CAPS to compare the accounts it selected this time with those it selected last time. (Note, if this is the first time you have done a dormancy audit, CAPS won't print a report of accounts added, deleted or closed).
3 After looking at the results of the printout, use menu option 3 DORMANCY ACCOUNTS SELECTION to get CAPS to select a small number of accounts for you to investigate in detail.
4 After the Accounts Selection has been run, use menu option 4 PRINT DORMANCY ACCOUNTS SELECTION to print the details of the accounts CAPS selected.
5 Use menu option 5 DORMANCY MEMBER SELECTION to determine which members can be classified as dormant overall.
6 After the Member Selection has been run, use menu option 6 PRINT DORMANCY MEMBERS to print a report of dormant members.

7

When you are satisfied the dormancy audit is complete, and you have no further use for any of the CAPS files generated during the audit, select menu option 7 CLEAR DORMANCY AUDIT FILES to release the space taken up on the Financial Institution's computer system. Note that the two 'Dormancy Data Capture files' are not cleared using this menu option.

1. DORMANCY PROFILE

This menu option lets you define a non-dormant account which CAPS uses to determine whether an account is 'dormant' or 'inactive'. CAPS will search all member Savings accounts and identify whether an account is non-dormant, dormant or inactive. All dormant and inactive accounts are recorded on the profile.

Note - Do not run the Data Capture in Test Mode. You achieve nothing, and you run the risk of overwriting essential information with useless 'test' data.

NOTE:
The parameters in this example screen are not complete and will not necessarily be suitable for your Financial Institution. They are meant to be used as a guide only.

<1> Period of audit (days)
This is the number of days you want CAPS to look back over to find significant transactions. The longer the period, the fewer dormancy accounts CAPS is likely to find. (Note that you can only go back as far as the information held on file).

<2> Minimum number of credit transactions
Enter a number between 1 and 10. If an account has more than (or equal to) this 'minimum number' of specified credit (or deposit) transactions made during the period, CAPS assumes it is active. CAPS therefore won't select it.

<3> Min Transaction Amount ($)
Enter an amount less than $50. CAPS will assume that accounts with a specified deposit transaction during the period greater than this amount are active, and therefore won't select them.

Further Explanation of <2>Minimum number of credit transactions and <3> Min transaction amount.
Because you may only want to consider deposit transactions to be significant if they are over a certain amount and of a certain frequency, CAPS has two parameters which allow you to filter them: Minimum number of credit transactions and Minimum transaction amount. Accounts will only be reported as dormant or inactive if the number of active credit transactions on the account is less than the Minimum number of credit transactions as specified by you. Similarly with the Minimum transaction amount, CAPS will assume that accounts with active credit transactions greater than or equal to this specified amount are active.

For example:
If you enter Minimum number of credit transactions as 3 and a minimum transaction amount of $1 then CAPS would only consider an account to be dormant or inactive if it had less than 3 credit transactions of amounts less than $1.

If you enter Minimum number of credit transactions as 1 and minimum transaction amount of $0.20 then CAPS would only consider an account to be dormant or inactive if it had no credit transactions.

So generally speaking, the larger the values you enter in these parameters the more dormant and inactive accounts you would expect because you have set a stricter criteria for non-dormant (or active) accounts.

<4> Active Credit Transaction Codes (window)
Enter all the credit transaction codes that you consider are 'active' or 'member generated'. For example, transaction code 25 - Cash Deposits. Only input here transactions that indicate the member is actively using the account. An interest credit does not indicate the account is in use whereas a cash deposit does, and a social security deposit may.

This is the most critical parameter of the Dormancy Data Capture parameters.

<5> Active Debit Transaction Codes (window)
Enter all the debit transaction codes that you consider are 'active' or 'member generated'. For example, transaction code 50 - Cash Withdrawals.

The active transaction code definition is up to you, but generally you do not want to include fines, fees, interest, charges or tax.

<6> Account Level to Exclude (window)
If you want to exclude any account level(s) from the dormancy audit test, enter them here.

CAPS lets you enter more than one level of account to exclude. Enter one per line. Press [Enter] on a blank line to finish.

You will then be prompted with:

Enter the date to use as 'Run Date' to allow backdating or press <Enter> to use today's date:
You can set the "Run Date" back in time to allow backdating the audit. If you enter a date back in time, CAPS will then review the transactions for your nominated audit period, backward from this "Run Date". Backdating the audit allows you to quickly make up for lost time. If you backdate the Profile, you must clear the Profile and "Reset to initial state" via option 7 (once only). Run the Dormancy Profile with an earlier date, then run it again with a "Run Date" which is the 'audit period' number of days after the first Run Date you used. You can continue to follow these steps until you catch up to today's date.

The key to a successful dormancy audit is to get your definition correct for an account that is not dormant. The secret to this is to accurately record only those transactions codes that indicate the member is using the account. If you include the interest payment transaction in your list of active credit transactions you will not find many dormant accounts because all accounts (unless with nil balance) will get paid interest automatically whether they are dormant or not. Conversely if you leave out a critical (common) member generated transaction like cash deposit or cash withdrawal you will get a huge dormancy report of accounts that are not really dormant.

- if you are in Test Mode, CAPS prompts:

You are in Test Mode. Do you want to start 'Dormancy Profile' now. (Y/N)
Enter [Y] if you want CAPS to select a test sample of members accounts.

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

- if you answer [Y], CAPS prompts:

How many records do you want to process?
Enter the number of members accounts you want CAPS to use as a test sample.

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

Program 'Dormancy Profile' requires running overnight.

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

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

Result

CAPS carries out the following steps:

  1. It renames the current profile as the 'old Profile'.
  2. It then searches through all the members Savings accounts looking for dormancy accounts which it places into the 'current Profile'.
  3. It then compares the contents of the 'old Profile' with the 'current Profile' and generates the following information:
  • Accounts deleted from the dormancy file
  • Accounts added to the dormancy file
  • Accounts changing class (between Dormancy and Inactive)
  • Dormancy accounts closed (zero balance) in the period
  • Dormancy profile summary

2. PRINT DORMANCY PROFILE

This menu option lets you print the results of running the DORMANCY PROFILE menu option. CAPS will first prompt you with the following screen:

<1> Addition Report
Enter [Y] if you want to print the report containing all accounts newly added to the Profile. On your first run of this program (since CAPS installation) this report will not be generated. In future runs it will reflect the 'newly' dormant accounts only.

<2> Deletion Report
Enter [Y] if you want to print the report containing all accounts that have been removed from the Profile, i.e. those accounts that become active again.

<3> Class Change Report
Enter [Y] if you want to report accounts that change from dormant to inactive or vice versa. Accounts changing from dormant to inactive should be checked as they may indicate fraud.

<4> Zeroed Report
Enter [Y] if you want to report dormancy accounts that closed between this Profile and the previous Profile.

<5> Profile
Enter [Y] to print a Profile summary of the dormancy accounts with the number that fall within the above 4 classifications.

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.

YOU MUST COLLECT THE PRINT OUT IMMEDIATELY !

DO NOT LEAVE AT THE PRINTER !

Result

CAPS prints the DORMANCY PROFILE parameters plus the details contained in the files produced by the DORMANCY PROFILE.
Please refer to the example at the end of the chapter.

3. DORMANCY ACCOUNT SELECTION

This menu option allows you to select a sample of dormant and inactive accounts for a third party confirmation.

There are two screens for this selection. The first is for the selection method and the second for the sorting method. Complete the parameters for the first screen as follows:

<l> Selection Parameters (window)

Dormancy Type
Dormancy type is controlled by CAPS. You do not have to input here. CAPS will automatically skip this field.

Selection Method
You have two choices:

[R] To choose a random sample.

[L] To choose those that have balances above a specified amount and that have been dormant longer than a specified time.

-if you choose [R], CAPS prompts:

Sample Size
Enter a number between 1 and the number of dormant or inactive accounts on file. This is the number of accounts you want CAPS to select. If you want to know how many are on the Profile, enter 99999 here.

if you choose [L], CAPS prompts:

Minimum Balance
Enter a minimum balance. CAPS will not bother to choose accounts with a balance below this amount.

Dormancy Period
Enter the minimum number of the days that the account must have been on the dormancy file for it to qualify for selection. For instance, if you were to type 30 and an account was only on file for 28 days, it would not be selected. NOTE: This is the number of days that CAPS has recognised the account as dormant, not necessarily the actual number of days that the account has been dormant.

List Debit Transactions
Enter [Y] if you want CAPS to report debit transactions posted to the selected dormancy accounts. Enter [N] if you do not want the debit transactions listed. If you do enter [Y], CAPS then prompts:

<2> Minimum transaction amount to list
If you requested CAPS to list debit transactions you can limit the listing to only those with a debit transaction greater than a particular amount, enter the amount here.

<3> List only accounts with debit transactions
Indicate here (Y/N) whether you want to only list out accounts that have debit transactions or not.

<4> Transaction Code to list (window)
If you want CAPS to limit the listing to specific transaction codes, enter the transaction codes here. Note these must be Debit transaction codes between 50 and 99. If you don't enter anything, CAPS will print all debit transactions.

CAPS lets you enter more than one transaction code. Enter each code you want and press RETURN. When you have finished, press [Enter] again.

Now press [Enter] to continue to the second screen.

<1> Clients statement order:
CAPS wants to know in what order you want it to print the third party confirmation statements to be sent to members. It also wants to know the order for your control listing. (Note these can be printed out in a different order).

<2> Your control listing order:
CAPS wants to know in what order you want it to print the audit reports.

CAPS gives you a choice of 4 possible orders which it displays on the screen. Enter the number of your choice.

Once you have entered the information for this screen, you may return to the previous screen by entering [L]. However if you are satisfied with your parameters simply press [Enter] to continue with the audit.

- if you are in Test Mode, CAPS prompts:

You are in Test Mode, do you want to start 'Dormancy Account Selection' now?
Enter [Y] if you want to do a quick test run by selecting from only a small number of dormancy accounts.

Enter [N] if you don't want a test run but want to select from all dormancy accounts.

- if you answer [Y], CAPS prompts:

How many records do you wish to process?
Enter the number of dormancy accounts you want CAPS to use as a test sample.

CAPS displays messages to show it's progress. When finished it returns to the Dormancy menu.

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

Do you want 'Dormselect' submitted for overnight running?

Confirm (Y/N)
Enter [Y] to do it.

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

Result

CAPS generates a file called "Selected dormant accounts" containing details of each dormancy account it has selected.

4. PRINT DORMANCY ACCOUNTS SELECTION

This menu option lets you print a control list of the dormancy accounts CAPS selected.

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.

YOU MUST COLLECT THE PRINT OUT IMMEDIATELY !

DO NOT LEAVE AT THE PRINTER !

Result

CAPS uses information from file "Selected dormant accounts" to print the report. Please refer to the example at the end of the chapter.

5. DORMANCY MEMBERS SELECTION

Dormancy members selection will locate members with all their savings accounts dormant or inactive. The parameters screen is as follows:

<l> Report only if with loans
Enter [Y] if you wish to select members with loans accounts only, otherwise enter [N].

<2> Report only if in arrears
Enter [Y] if you only wish to select members with loan accounts in arrears, otherwise enter [N]. This option only works if the <1> Report only if with loans option has been chosen with [Y].

<3> List members that are dormant
Indicate if you want to select members that are dormant (Y/N). Remember there are only two possible states; Dormant or Inactive.

<4> List members that are inactive
Indicate if you want to select members that are inactive (Y/N).

<5> List Debit Transactions
Indicate if you would like the debit transactions to be listed on the selected members print out.

<6> List only members with debit transactions
Indicate if you only want to select only those members who have debit transactions. (Y/N)

<7> Minimum transaction amount to list
Indicate here the minimum transaction amount required before the transaction debit is listed if requested in the above field`.

<8> Transaction codes to list (window)
Enter the transaction codes to list out if you requested that they be printed in the questions above. If you wish to list all transaction codes, leave this field blank.

You are in Test Mode, do you want to start 'Dormancy Members Selection' now?
Enter [Y] if you want to perform a quick test run by selecting from a small number of members dormancy.

Enter [N] if you don't need a test run but want to select from all members.

- if you answer [Y], CAPS prompts:

How many records do you want to process?
Enter the number of members 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 Dormancy menu.

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

Do you want 'Dormancy Member Selection' 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 Dormancy menu.

Result

CAPS generates a file containing details of each dormant member it has selected.

6. PRINT DORMANT MEMBERS

This menu option allows you to print a control list of the dormancy members CAPS selected.

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 information from the file produced by DORMANCY MEMBER SELECTION to print a report on dormant members. Please refer to the example at the end of the chapter.

7. CLEAR DORMANCY AUDIT FILES

This allows you to clear all files relating to the dormancy audit.

CAPS will prompt:

Are you sure you want to clear all dormancy audit files?
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 dormancy audit files and then prompts:

Do you also want to reset Profile to initial state?
Enter [Y] to reset the Profiles to their initial state (as though the Dormancy Profile has never been used before). This is necessary if you wish to use the backdating feature for the Dormancy Profile.

If you answer [N] CAPS returns you to the Dormancy menu without doing anything.

Note that this process does not clear the two Profiles nor the parameter data.

Result

CAPS will clear off the dormancy files ready for the next audit. This will free space on the Financial Institution's computer system.