Safeguards & Controls of Banking Activities

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  • 0:02 Safeguards and…
  • 0:58 Goals of Safeguards
  • 1:39 How Do They Do It?
  • 2:11 Example
  • 5:18 Lesson Summary
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Lesson Transcript
Instructor: Rebekiah Hill

Rebekiah has taught college accounting and has a master's in both management and business.

Money is one of the most highly valued items a person has. Is that money safe when it is deposited in a bank? In this lesson, you'll learn how banks safeguard your money so that you can be confident with every deposit you make.

Safeguards and Controls Defined

Have you ever wondered just how safe your money is when you deposit it in the bank? I used to, but then I did a little research on the safeguards and controls of banking activities, and I don't worry so much anymore. You see, my research showed that the banking industry is one of the most highly regulated industries in the world. And because of this, they have stringent safeguards and internal controls in place.

Safeguards are measures that are taken to prevent someone or something from an undesirable outcome. Internal controls are rules and regulations that are put into place to guard assets owned by a person or a company. These two terms seem to mean the same thing, but in reality, they don't. You see, the rules and regulations that are put into place (which are internal controls) are the measures that are taken to prevent someone or something from an undesirable outcome (which are safeguards).

Goals of Safeguards

There are five goals for having effective safeguards in place in the banking industry. To begin with, effective safeguards and internal controls provide reasonable assurance that banks operate efficiently and effectively. They also ensure that each transaction that occurs in the bank is recorded correctly. The third goal of effective safeguards is to make sure that the information provided by banks is true and reliable information. Yet another goal of banking safeguards is to make sure that the risk management system in place in the bank is effective. And the final goal is to make sure that all the banking laws and regulations are being complied to.

How Do They Do It?

Now that you know what a bank's goals are for having safeguards and internal controls, how do they manage to achieve those goals? Well, the key to this is having written policies and procedures in place that must be followed by all employees. A specific component that must be a part of the policies and procedures is the separation of duties. What do I mean when I say separation of duties? Separation of duties means to separate one big job into smaller jobs, with a different individual performing each.


Let's look at a banking scenario and see how the process flows. Jenny, Christie, Chelsea, Faith, Jared and Blake all work at the First Bank of TyTy.

Jenny's a teller. At the beginning of her work day her bank protocol says that she needs to count her drawer to ensure that it contains the correct amount of currency. The rest of her day she spends taking customer deposits, customer loan payments, cashing checks and making change. At the end of the day, again per bank protocol, she totals up the deposits and loan payments that she's taken in and the checks she's cashed, and then balances her drawer again. She turns all the cash and checks that she has received, along with all associated paperwork, in to the head teller, Christie, at the end of the day.

Christie is the head teller. She's responsible for all the customer service duties of a regular teller, as well as the direct supervision of the other tellers. She's also responsible for retrieving money from the vault as needed to make change for the teller drawers, and collecting all daily paperwork and reports that each teller generates. Christie turns all the daily paperwork over to Chelsea.

Chelsea works in the bookkeeping department. It's her job to process all the documents that Christie gives her at the end of the day, and check them against reports that are pulled from the computer. Checks are then scanned and electronically dispersed to the Federal Reserve. Once everything is verified, and copies are all scanned, the checks are then sent to the document shredding department and shredded.

Faith works in the loan department of the bank. Faith does not take deposits or payments, and she does not cash checks. Instead, she meets with bank customers who are seeking a bank loan. She takes the application and submits it to the credit department at the bank.

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