The following activities are performed as part of the internal control system for the loan department of a large bank:

1. Verification of the existence of loan collateral by a physical inspection of the pledged property and by documentation confirming ownership.

2. Confirmation of loan balances with banking customers. (The auditee mails the "confirmations" to outside parties. They are requested to verify the information in writing and return the verification to the auditors.)

3. Preparation of an aging of loan balances.

4. Directing a loan officer to obtain updated credit reports from customers who are delinquent in their payments on large notes.

5. Deciding upon the information required for loan applications.

6. Approval and denial of loan applications.

7. Designing a computer filing system for notes held by the bank.

8. Evaluation of the adequacy of the billing procedures designed to maximize the number of prompt payments by loan customers.

Required:

a. Determine whether each of the activities would best be classified as (1) a design of controls, (2) an implementation of controls, (3) a test of compliance with controls, or (4) an evaluation of controls.

b. Which of the activities are appropriate for the internal auditing function?