Collateral Deposit (Part 1).1 Dan Matt, a junior auditor for Kramp and Company, was assigned the responsibility of conducting a preliminary application review of a client bank’s loan department operations.

Dan had completed his flowchart and explanation of the loan process and turned it over to his senior. He was writing up his assessment of the process from his notes when his senior interrupted and asked what happened to the collateral received on loans. Dan recognized the significance of this omission and agreed to check it out right away.

Collateral can be anything of value acceptable to the bank but is typically some type of security. Dan found that customers turn over any collateral to their loan officer, who prepares and signs the next in sequence in a pre-numbered four-part form that describes the collateral and serves as a receipt. Each copy of the form is a different color to facilitate identification. The customer receives the original of the collateral receipt form, which is pink. The second, or white, copy of the form is sent directly to the collateral records clerk, who logs it in. The loan officer takes the blue, or third, copy to the vault custodian along with the collateral. The final, or yellow, copy is cancelled and discarded. The vault custodian compares the blue copy of the receipt with the collateral in the loan officer’s presence. If they agree, the vault custodian signs the blue copy. The vault custodian then attaches a tag to the collateral and carries it and the blue copy of the collateral receipt to the vault attendant. The vault attendant also compares the description on the blue copy with the tagged collateral. If they match, the vault attendant opens the vault and jointly with the vault custodian deposits the collateral within. The vault attendant notes the location on the blue copy and signs it. The completed blue copy is then taken by the vault attendant to the collateral clerk. Until the blue copy is received, the collateral clerk keeps the un-matched white copy, filed numerically in a suspense file as a reminder for follow-up purposes.

On receiving the blue copy from the vault attendant, the collateral clerk compares it to the white copy previously received directly from the loan officer. If the blue and white copies match, the collateral clerk completes the entry in the collateral register in numerical order. The white copy and the blue copy of the collateral receipt are placed in a permanent file by name. Any differences are resolved with the loan officer’s assistance.

List of Procedures

Customer

1. Brings in collateral to loan officer

2. Receives receipt for collateral

Loan Officer

3. Receives collateral from customer

4. Removes pre-numbered four-part form from file

5. Completes form describing collateral and signs it

6. Gives pink copy to customer

7. Sends white copy to collateral clerk

8. Takes blue copy to vault custodian

9. Cancels and discards yellow copy

10. Takes collateral in sealed bag to vault custodian

Vault Custodian

11. Receives blue copy of collateral receipt from loan officer

12. Receives collateral from loan officer

13. Reads description and instructions regarding collateral on blue copy

14. Compares collateral with blue copy

15. Signs blue copy

16. Gives blue copy to vault attendant

17. Opens vault jointly with vault attendant

18. Deposits collateral in vault

Vault Attendant

19. Receives blue copy from vault custodian

20. Compares blue copy to collateral being deposited

21. Assists vault custodian in opening vault

22. Signs blue copy upon witnessing deposit of collateral

23. Takes blue copy to collateral clerk

Collateral Clark

24. Receives white copy from loan officer

25. Makes entry in numerical sequence in logbook

26. Holds white copy until later receipt of blue copy

27. Matches blue copy when received to white copy and notes appropriate signatures

28. Records deposit of collateral in collateral register

29. Files collateral receipt copies in permanent file