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WHAT IS THE ROLE OF THE
INTERNAL AUDITOR? |
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The function and purpose of an internal auditor is to evaluate the
internal control structure. The systems of internal control
have been designed, put into place, and operated by management.
The Bank Administration Institute, in "A Statement of
Principle Concerning Internal Auditing in the Banking
Industry", states that the function of internal auditors
is to independently evaluate the adequacy, effectiveness,
and efficiency of the systems of control within the bank
and the quality of ongoing operations. Information is
collected, evaluated, and reported to the Audit Committee,
representing the Board of Directors. In addition to generally
accepted auditing standards, the internal auditor determines
compliance with internal guidelines - board approved policies,
procedures established by management to implement the
board approved policies, and systems of internal control,
and external guidelines - national or state banking laws,
federal banking regulations, and sound fiduciary policies.
One misconception is that internal auditors are responsible for detecting
fraud. The Institute of Internal Auditors in May 1985 adopted SAIS
#3 which states, deterrence of fraud is management's responsibility.
Obviously, should the internal audit uncover fraud, the Audit Committee
and appropriate level management will be notified immediately.
There is no concept more important to the internal auditor than independence.
Independence is a state of mind enabling the internal auditor to objectively
and without bias evaluate controls, the operations, the overall condition
of the function being audited, and the Bank. This critical attitude
or disposition of independence can be impaired and even destroyed
if:
- The auditor allows himself or herself to become involved in
making management decisions or become part of the operations of
the bank.
- Management requires that the auditor make management decisions
or become part of bank operations.
- Management edits the contents of the audit reports requiring
the auditor to make deletions or alterations favorable to management.
- The auditor reports to someone in management rather than reporting
to the Board by means of the Audit Committee.
- The Audit Committee does not support the audit function or
fails to adequately supervise it.
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Role of the Audit Committee |
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The Audit Committee is empowered by the Board of Directors to oversee
the bank internal audit function. Results of internal audit activities
are reported first to the Audit Committee and then to the Board
of Directors. The Board empowers the Audit Committee and internal
auditors with full power and authority to perform examinations,
internal audits, and investigations of all financial records, operations,
activities and affairs of the Bank. Free and unrestricted access
to activities, records, property and personnel is assured by the
Board and the Audit Committee.
Contact Nichols,
Cauley & Associates by Email, phone,
or online form
with your questions.
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the content is generally designed to be of general
applicability. Particular state laws, regulations
and special contractual provisions can greatly impact
rights, responsibilities and legal obligations. Only
a competent attorney, accountant or other professional
looking at all the pertinent facts and circumstances
of a particular situation can provide definitive
guidance for you. Please refer to our important legal
discalimer which can be accessed from the bottom
of any BankAudit.net webpage.
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