Internal audits of banks involve the deployment of robust frameworks that can identify, assess and manage financial risks. Also referred to as risk-based bank audits, these will often be financial, compliance, operational and systems-oriented. Overall, an audit of the bank entails placing the operations and internal controls under a microscope.
What Do You Check in a Bank Audit?
Internal audits can best be described as an offensive and defensive approach. During the audit, the team will be checking specific operations and internal controls. Compliance with policies and regulations will also be evaluated. Further, the risk management strategies employed will be reexamined to check for their adequacy.
As part of the internal audit, operational risks are also evaluated. These have to do with the testing of the internal control activities to check on their efficiency in mitigating risks. Further, there will be probes into potential cybersecurity risks as part of accessing the security of the IT infrastructure.
What Does an Internal Audit Do in A Bank?
An internal audit helps monitor the bank’s internal control systems and procedures. When done efficiently, these internal audits should give the financial institution some form of assurance in the event of a risk. Additionally, the audits should help improve overall operational performance, thus ensuring compliance with banking regulations and operational continuity.
Checklist for an Internal Audit of a Bank
As you carry out the internal audit, you want to ensure that the process has sufficient authority, is independent, compliant and has the proper stature. A checklist should act as a guiding light as you consider an internal audit for the bank. The list, which works similarly to a coach’s playbook, features the following checklist items.
The initial step of an internal audit at a bank is coming up with a realistic audit plan. The latter is based on methodical control risk assessment where the audit department examines the institution and its associated risks. From this checklist item, you will get to know the budget and time allocation for the audit. Additionally, you should include a statement detailing all the resources required for the audit process.
Scope of the Internal Audit
Before you embark on an audit, you first need to evaluate its scope. The recommendation is that the audit examines and evaluates the overall adequacy and effectiveness of the organization’s internal control systems. It would also be best to review the application and effectiveness of any risk management procedures and methodologies in place. Further, the audit should extend to a review of the management and financial information systems used for usual business functions at the bank.
A comprehensive audit will also include a review of the accuracy and reliability of the financial documents and reports at the bank. This will often be followed up by an appraisal of the economic efficiencies of the current operations and systems.
Your bank should have an internal audit charter that explicitly states the standing and authority of the audit function within the organization. It could be argued that this is the most essential checklist item as it establishes the objective and scope of the internal audit. As the charter is periodically reviewed, the document will be both an updated and comprehensive statement of position on what the audit team has power and responsibility over.
An internal audit cannot take off without the support of a competent team of internal auditors. As such, the bank should have staff members within the internal audit department with sufficient up-to-date knowledge of the standard auditing techniques.
Suppose you want to have a successful audit process. In that case, you want to have a team of competent individuals who are able to collect information on different facets of the internal audit, examine it to pick up on the critical metrics, evaluate these and ultimately communicate the findings in a comprehensive audit report.
An excellent internal audit of a bank should be objective and impartial. Specifically, the auditors and the audit department undertaking the audit process must avoid any conflict of interest. A strategy that should ensure that the audit process is impartial is to create a system in which the internal audit team is not involved in any operations within the bank. Additionally, you want to ensure that this team is not responsible for implementing any of the internal control measures that will eventually be audited.
With the increased threats to financial institutions, the latter have to stay proactive and vigilant. Internal audits for banks benefit the financial institution in that it ensures sound corporate governance, accountability throughout the business process, efficient enterprise risk management systems, and overall transparency. Besides, the adoption of audit frameworks is in line with both internal policy requirements and those of regulatory agencies. Overall, regular audits create an environment in which the bank has better control over banking procedures and business practices, thus better comfort and assurance.