Fillable Printable Annual Internal Audit Report - Texas Department of Banking
Fillable Printable Annual Internal Audit Report - Texas Department of Banking
Annual Internal Audit Report - Texas Department of Banking
TEXAS DEPARTMENT OF BANKI NG
Austin, Texas
Annual Internal Audit Report
Fiscal Year 2014
TABLE OF CONTENTS
Page
Internal Auditor’s Report ........................................................................................................... 1
Introduction............................................................................................................................... 2
Internal Audit Objectives ........................................................................................................... 3
Executive Summary
Money Services Businesses
Background ................................................................................................................4-9
Audit Scope/Objective .............................................................................................. 9-10
Management Information Systems
Background ............................................................................................................ 11-12
Audit Scope/Objective ............................................................................................ 13-14
I. Compliance with Government Code 2102: Internal Audit............................................... 14
II. Internal Audit Plan for Fiscal Year 2014 ................................................................... 14-15
III. Consulting and Non-Audit Ser vices Completed .............................................................. 15
IV. External Quality Assurance Review................................................................................ 15
V. Observations/Findings and Recommendations ......................................................... 16-19
VI. Proposed Internal Audit Plan for Fiscal Year 2015 ......................................................... 20
VII. External Audit Services Procured in Fiscal Year 2014....................................................20
VIII. Reporting Suspected Fraud and Abuse.......................................................................... 20
IX. Organizational Chart ...................................................................................................... 20
TEXAS DEPARTMENT OF BANKING
Annual Internal Audit Report
Fiscal Year 2014
INTRODUCTION
The Texas Department of Banking ( DOB) operates under the oversight of the Texas Finance
Commission, and is an agency of the Stat e of Texas. DOB performs functions des ig ned to maintain a
financial regulatory system for Texas that promotes a consistent banking environment, and provides
the public with convenient, safe, competitive banking and other stable financial services.
DOB operates pursuant to the authority of various provisions of the Texas Finance Code, the Texas
Trust Company Act, the Texas Public Information Act, Texas Government Code, Chapter 552, and the
Texas Administrative Code. DOB regulates state banks, foreign bank branches, agencies, and
representative offices, trust companies, prepaid funeral benefit contract sellers, perpetual care
cemeteries, money service businesses, private child support enforcement agencies, and check
verification entities.
The major functions of DOB are to:
Charter, regulate, and examine all state banks, foreign bank branches, agencies,
representative offices, and trust companies;
Charter, examine and regulate trust departments of commercial banks and trust companies;
License, regulate, and examine sellers of prepaid f uneral contracts;
License, regulate, and examine perpetual care cemeteries;
License, regulate, and examine money services businesses;
Register and investigate complaints of private child support enforcement agencies; and
Register check verification entities.
DOB was granted Self-Directed, Semi Independent (SDSI) status in the 81
st
Legislative Session. As
an SDSI agency, DOB is not required to have their budget approved by the Legislature; however, the
Finance Commission is responsible for setting DOB’s spending authority or limits. DOB’s entire
operating
funds
are
generated from
fees
assessed to the businesses
it
supervises
and are used to
fund both direct and indirect costs.
General
revenue funds are not used to
support DOB’s operations.
2014 Internal Audit Plan
Following are the internal audits and ot her functions performed, as identified in DOB’s approved 2014
Internal Audit Plan:
Money Services Businesses (MSB)
Management Information S ystems (MIS)
Follow-up of Prior Year Internal Audits
Other Tasks
This report contains the results of our audits of the MSB and MIS areas, reflects the follow-up
performed in the current year; and, meets the Annual Internal Audit Report requirements.
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TEXAS DEPARTMENT OF BANKING
Annual Internal Audit Report
Fiscal Year 2014
INTE RNAL A UDIT OBJECTIVES
In accordance with the International Standards for the Professional Practice of Internal Auditing,
the audit scope encompassed the examination and evaluation of the adequacy and effectiveness of
DOB’s system of internal control and the quality of performance in carrying out assigned
responsibilities. The audit scope includes the following objectives:
• Reliability and Integrity of Financial and Operational Information – Review the reliability
and integrity of financial and operating information and the means used to identify, measure,
classify, and report such information.
• Compliance with Policies, Procedures, Laws, Regulations, and Contracts – Review the
systems established to ensure compliance with those policies, procedures, laws, regulations,
and contracts which could have a sig nificant im pact on operations and reports, and determine
whether the organization is in compliance.
• Safeguarding of Assets – Review the means of safeguarding assets and, as appropriate,
verify the existence of such assets.
• Effectiveness and Efficiency of Operations and Programs – Appraise the effectiveness
and efficiency with which resources are employed.
• Achievement of t he Organization’s Strategic Objectives – Review operat ions or programs
to ascertain whether results ar e consistent with established object ives and goals and whether
the operations or programs are being carried out as planned.
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TEXAS DEPARTMENT OF BANKING
Annual
Internal Audit Report
Fiscal Year 2014
EXECUTIVE SUMMARY
BACKGROUND
Money Services Businesses
Chapter
151 of the Texas Finance Code (TFC), known as the Money Services Act, generally requires
a person or business that engages in the money services business (MSB) in Texas be licensed by the
Texas Department of Banking (DOB).
DOB is responsible for protecting the interests of Texas consumers who use MSBs by ensuring the
overall financial condition of the MSB is sound and the MSB is properly monitoring transactions to
deter money laundering, terrorist funding, or financial crimes from occurring.
Organizational Structure
The Special Audits Division (Division), managed by the Division Director, who reports to a Deputy
Commissioner, is comprised of a Review Examiner, 6 Financial Examiners, and 1 Administrative
Assistant.
The Division is responsible for monitoring and providing sound regulatory supervision to MSB
licensees to assure compliance with applicable laws and regulations, including the federal
requirements of the Bank Secrecy Act. To perform these responsibilities, the Division performs
periodic examinations; calculates annual assessment fees; and, processes annual renewal
applications.
The Corporate Activities Division (CAD) is responsible for processing MSB applications and issuing
licenses.
Licenses
There are two types of
MSB licenses: Money Transmission and Currency Exchange. A person or
business that engages in the money
transmission business must have a money transmission license.
Money transmission includes:
1)
issuing or selling prepaid access cards and instruments such as checks,
money orders and
traveler’s checks;
2)
receiving money
for transmission;
3)
providing third-party bill paying services;
4)
transporting currency;
or
5)
currency exchange.
A
person or
business
that
only
engages
in currency
exchange business
must
have a currency
exchange license.
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TEXAS DEPARTMENT OF BANKING
Annual Internal Audit Report
Fiscal Year 2014
New Applications
Applications and instructions are made available to the applicant on DOB’s website. In accordance
with TFC §151.303 and §151.504; and, TAC §33.13, DOB requires the applicant to submit the
following items when applying for a MSB license:
• Completed application form signed by the applicant or authorized officer and notarized;
• All required search firm reports;
• Money Transmission –
o Application fee of $10,000;
o Surety bond, letter of credit or deposit instead of a bond in the amount of at least
$300,000; and
o Audited financial statements that demonstrate a minimum net worth of $100,000 if
business is to be conducted at 4 or fewer locations and $500,000 if at 5 or more
locations.
• Currency Exchange –
o Application fee of $5,000;
o Surety bond, letter of credit or deposit instead of a bond in the amount of at least
$2,500; and
o Unaudited financial statements demonstrating solvency.
Processing Applications
The CAD’s Administrative Assistant is responsible for performing the initial review of the new
applications to ensure the required documents and fees have been received. If any of the items are
not received, the Administrative Assistant will return the application to the applicant and it will not be
processed. If all items are received, the application is given to the CAD Director who will then assign
it to 1 of the 4 Corporate Analysts. The Analyst will log the information into the Corporate Activities
Tracking System (CATS) and document the date received. T he Analyst will then utilize the internally
developed checklists to ensure all the required documents have been submitted and meet the
requirements set forth by the TAC and TFC.
As required by TAC §33.13(e), within 15 days, the Analyst will prepare a letter accepting the
application or requesting additional infor mation. The date the application is considered complete and
accepted for filing is then entered into CATS by the Analyst. Per TAC §33.13(h), a written notification
to the applicant must be made within 45 days of the application being accepted for filing indicating
whether it was approved or denied.
A background investigation will then be conducted by the Analyst and the Program Specialist (PS).
The background investigation consists of reviewing information; such as, credit history, fingerprint
results conducted by DPS and FBI, name searches, etc.
After reviewing the application and ar riving at a recommendation, the Analyst sends an internal e mail
summary of the application, typically with a 7 day response deadline, to other Corporate Analysts, the
Director of Special Audits, the Administrative Assistant, and the PS for their input and any comments.
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TEXAS DEPARTMENT OF BANKING
Annual Internal Audit Report
Fiscal Year 2014
The Analyst will then draft a recommendation memo to the Deputy Commissioner. The draft memo,
checklists, and application file is given to the PS, for a quality assurance review. The PS will sign the
checklist denoting approval. The final draft of the memo is emailed to the CAD Director by the Analyst
and then to the Deputy Commissioner by the CAD Director requesting her approval. All documents
are submitted to the Deputy Commissioner for her review. The Deputy Commissioner denotes her
approval in an email to the CAD Director and the Analyst. T he Analyst will update CATS to reflect the
approval and date. The CATS automatically generates a license with a unique license number and
letter to send to the applicant informing them of the approval.
Temporary Licenses
Temporary licenses, which are valid for only 90 days, can be issued to people or businesses that
engage in money transmissions but do not have licenses. The applicant must submit the following to
receive a temporary license:
1. Certify in writing that they qualify for a license and will submit an application no later than 60
days after the temporary license is issued; and, will only engage in activities being conducted
at existing locations until a permanent license is issued;
2. Submit recent financial s tatements that reflects the minimum required net worth;
3. Provide security that meets the required amount, not less than $300,000; and,
4. Pay the application fee of $2,500 for a temporary license.
Temporary license applications are basically processed in the same manner as applications for
permanent licenses.
As of February 28, 2014, DOB received a total of 13 applications (2 temporary license applications);
approved 10 applications (1 temporary license application); had 5 applications pending; and, 1
withdrawn.
Examinations
Periodic examinations of licensees are performed to ensure compliance with the TFC and TAC.
Examinations are conducted on a 6, 12, or 18 month basis, depending on the volume of business
conducted by the licensee and prior examination rating.
A notification letter and pre-examination packet, which lists the requested documents to perform the
examination, are sent to the licensee 30 days prior to the scheduled examination. The on-site
examination is performed by reviewing the list of items requested in the pre-examination packet and
completion of the tailored examination work program to determine compliance with applicable rules
and regulations. As part of the examination process, the Examiner reviews the license holder’s
permissible investment reports or quarterly reports for accuracy and completeness, and ensures the
license holder meets the security and net worth requirements defined by the TFC.
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TEXAS DEPARTMENT OF BANKING
Annual Internal Audit Report
Fiscal Year 2014
At the conclusion of the examination, the Examiner assigns the exam a rating, using a scale of “1” to
“5”, based on the licensee’s level of compliance, as follows:
Rating
Basis
1
Sound in every respect and in substantial
compliance.
2
Fundamentally sound and in substantial
compliance.
3
Exhibits a combination of weakness and violations
of laws and regulations may be evident and
recurring.
4
Exhibits serious weakness and/or violations of laws
and regulations may be recurring and cause overall
condition to be unsafe and unsound.
5
Exhibits critical weaknesses and a combination of
other weaknesses and/or violations of laws and
regulations may be recurring and cause overall
condition to be extremely unsafe and unsound.
The Examiner will proceed to write a Report of Examination (ROE) which states the findings noted, if
any, during the examination. The Examiner has 8 days to complete the report upon examination
completion. The Examiner sends the ROE and examination work papers to the Administrative
Assistant, who records the date received in the ‘Examination Processing Log’. The Administrative
Assistant is required to submit the ROE to the Review Examiner within 7 days of receipt. All
examination reports are reviewed by either the Review Examiner or Director; and, those assigned a
rating of 3 to 5 go through a second review, which is performed by the Deputy Commissioner. The
review is documented on the ‘Examination Processing Log’. ROEs with a rating of 1 to 3 are signed
by the Director; and, by the Deputy Commissioner if a rating of 4 or 5.
Licensees whose examinations are assigned a rating of 1 or 2, with no violations are generally not
required to respond, unless there are other matters in the ROE that require a response. Licensees
whose examinations are assigned a rating of 3 to 5 are generally required to respond to the ROE.
The transmittal letter provides the requirements and due date for responses. A limited scope
examination is performed within six months f or licensees who’s ROE’s ref lect an assigned rating of 4
and 5.
Texas participates in t he Money Transmitter Regulators Assoc iation ( MTRA), a non-pr ofit organization
that regulates money transmission businesses in the United States. The Division performs joint
examinations with other States participating in the MTRA as either the lead or participating State.
During a joint examination, the lead State is the primary point of contact and is responsible for
coordinating the examination, compiling, and signing the ROE.
As of February 28, 2014, t he Division has perform ed 11 currency exchange examinations; 15 money
transmission examinations; and, 8 joint money transmission examinations.
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TEXAS DEPARTMENT OF BANKING
Annual Internal Audit Report
Fiscal Year 2014
TFC §151.601(b)(4) states that t he Commissioner may accept the examination report of another state
agency, an agency of another st ate, the federal government; or, a r eport prepared by an independent
accounting firm; which upon being accepted, is considered the official report of the Commissioner.
DOB believes that having the ability to accept another state’s ROE provides for enhanced utilization of
examination resources, reduced expenses, and reduced regulatory burden to the MSB license holder.
The Examiner will perf orm abbreviated examination procedures t o ensure the ROE is accurate. As of
February 28, 2014, DOB accepted 4 ROEs issued by other state agencies.
Annual Assessment Fee
The Division calculates an annual assess ment fee, which ranges from $1,950 to $15, 000, depending
on the licensee’s annual transactions reported in the most recent renewal application, in accordance
with TAC §33.27. The Division withdraws the fee from the licensee’s bank account and sends them
an ACH notice 15 days prior to the date the fee is to be withdrawn.
The Division assessed and collected an estimated 70% of the fee in November, 2013, and the
remaining balance will be assessed and collected towards the end of the fiscal year, as considered
necessary by the Director of Special Audits. The Director of Special Audits will review the Division’s
expenses and compare them to the revenues collected to determine if the remaining balance will be
collected. As of February 28, 2014, DOB collected $508,002 in assessment fees.
License Renewal
Effective September 1, 2013, MSB licenses no longer expire. The license holder is required to meet
the qualifications or satisfy the requirements that apply to a new applicant or the Commissioner may
suspend or revoke the license. Annually, the license holder is required to:
1. Pay an annual license fee, which is currently $1,500 for money transmission licenses and
$500 for currency exchange licenses;
2. Submit an annual report that contains:
a. Money transmission licenses – Audited unconsolidated financial statements;
b. Currency exchange licenses – Audited or unaudited financial statements; and,
c. Documentation and certification demonstrating the required security, net worth, and
permissible investments.
Licenses were last renewed in 2013 for f iscal year 2014. The pr ocess and procedures for processing
renewal application were as documented below.
To renew a license, the license holder would have to continue to possess qualifications and satisfy
requirements applicable to a new applicant, which included, among other requirements:
Money transmission – $300,000 security; minimum net worth of $100,000 if operating 4 or
fewer locations or $500,000 if operating 5 or more locations; and, a permissible investment
ratio of 100% if net worth is under $5 million or 50% if net worth is over $5 million.
Currency exchange – $2,500 security and demonstrate solvency.
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TEXAS DEPARTMENT OF BANKING
Annual Internal Audit Report
Fiscal Year 2014
The licensee was required to submit a completed renewal application online and fee by July 1st.
The Division would send the licensee a renewal letter which would provide the licensee a unique
password to renew online.
The renewal fee for money transmission and currency exchange licensees is $1,500 and $500,
respectively. The Division withdraws the fee from the licensee’s bank account and sends them an
ACH notice 15 days prior to July 1
st
, which indicates the date and amount to be withdrawn.
Upon receipt of the renewal application and required inf ormation described above, the administrative
assistant would complete a renewal checklist to ensure all required information were received and
entered the applicable information into the MSB database. The checklist, application, and other
required information would be sent to an examiner for review. The examiner would review the
application and analyze the information submitted. The examiner would denote their approval on the
checklist and forward it to either the Director or Review Examiner for review and final approval. Once
approved, it would be returned to the administrative assistant to update the MSB database and the
renewed license would be generated and sent to the licensee.
The 2013 – 2014 license renewals were processed during fiscal year 2013. At that time, t he Division
processed 128 MSB renewals and collected $154,000 in renewal fees.
Audit Scope/Objective
The scope of our audit was the Money Services Businesses (MSB) area. The objective of our audit
was to gain an understanding of the MSB area and determine if licenses were issued and
examinations performed in accordance with applicable sections of the TFC and TAC; and, DOB’s
established policies and procedures.
The procedures performed to achieve the objective of our audit were as follows:
1. Reviewed and obtained an understanding of the laws and regulations provided in Chapter 151
of the Texas Finance Code, Chapter 33 of the Texas Administrative Code, and Bank Secrecy
Act requirements.
2. Obtained and reviewed the MSB area’s written policies and procedures, collected available
documentation, and conducted interviews to document formal/informal processes and
controls.
3. Deter mined if significant compliance requirements of Chapter 151 of the Texas Finance Code,
Chapter 33 of the Texas Administrative Code, and Bank Secrecy Act requirements were
included in the examination procedures used to examine records of the MSB licensees.
4. Obt ained the list of the examinations conducted between September 1, 2013 – February 28,
2014 and selected a random sample of 5 money transmission and 4 currency exchange
examinations to tes t for the following attributes:
a. Examination procedur es properly performed;
b. Complet eness of workpapers and examination work program;
c. Workpapers supported violations cited and rating assigned in the ROE;
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