A bank audit is something all financial institutions are familiar with today. It is a routine review of the operations, controls, and records of a bank, credit union, or other financial institutions to ensure that they are in compliance with the law and their own policies.
External bank audits are required to be done regularly and conducted by a third-party vendor, accountant specialist, or bank auditor. However, a financial institution can conduct internal audits in order to be prepared and keep up-to-date with the status and effectiveness of their operations and services themselves.
When a financial institution executes an internal bank audit, it is important to avoid any conflict of interest. In order to do so, a bank should either hire a team to handle the auditing procedures, or cross-train employees from different departments to audit another department.
An external or internal audit will entail a thorough look into all transaction records, including bank wires and automated clearing house (ACH) transfers to ensure that everything is being done accurately and in a timely-manner. It will also include an evaluation of the operations and controls to make sure that everything is operating according to the law, industry standards, and the company’s own policies. Another essential step is to identify any risks and advise a plan to manage them.
Bank audit strategies that are needed allow for a financial organization’s management and leadership teams to gain an objective assessment of how their business is operating and identify any areas that need improvement. An unbiased, independent perspective can add value to your business. In this article, we’ll cover the common bank auditing procedures a financial institution can expect.
4 Bank Audit Processes For Business Owners
Assessment of Practices to Ensure Accuracy, Efficiency and Legitimacy
One of the major bank auditing procedures to expect is an assessment of all accounts, services, transaction records, and other pertinent information. A bank auditor will conduct control tests and evaluations to reveal any suspicious activity or critical mistakes.
All financial statements and reporting must be accurate and executed efficiently. A bank audit will bring to light any misleading data or information used in decision making that could lead to discrepancies or a violation of the law.
Systematic Risk Assessment and Risk Management
A routine external or internal bank audit allows an organization to identify any risks and protect their assets. A systematic risk assessment will be done to prioritize all risks, pinpoint any gaps in the environment, and provide a plan to address the risks.
A financial institution may encounter any of the following risks:
- Operational risk
- Compliance risk
- Strategic risk
- Reputation risk
- Credit risk
- IT and cyber risk
Evaluation of Controls
Next, another bank auditing procedure is the evaluation of the internal controls. This will ensure that a financial organization’s controls are fulfilling their purpose and meeting the requirements of its policies. An institution’s controls should also effectively and efficiently mitigate risk. A thorough assessment can improve the overall environment of the operations.
Ensure the Organization is in Compliance with the Law and Policies
The most important reason for a bank audit is to ensure that an organization is in compliance with the regulations set by the law, standards of the industry and the company’s own policies and procedures. With a close examination of the financial and regulatory reports, a bank audit will determine whether or not the organization’s bank account’s monetary flow is accurately and efficiently recorded to prove timeliness and completion.
A bank audit will also keep the management and executives up-to-date with any changes or additions to the law’s regulations. The rules are in place to protect the assets, security, and privacy of consumers. For this reason, bank audits are enforced to ensure that a bank, credit union, or other financial organization is functioning in an ethical way.
Tips for Handling a Bank Audit
It is recommended to maintain an internal auditing function to be prepared for external bank audits. Technology has been developed to help manage and execute all internal bank auditing procedures. It is also possible to outsource auditing services. Experienced bank auditing strategists are available to help financial companies establish their bank auditing framework.
Stressing out over an external bank audit is unnecessary. It is a routine procedure that all financial institutions must comply with. The following is a list of tips for handling a bank audit:
- Review the external bank audit request and discuss the details with the key players, management, stakeholders, and other employees.
- Bring on a legal expert, if necessary. This is recommended if any confidentiality, employee, customer or criminal issues need to be addressed.
- Set up a centralized filing location for all necessary documents. Ensure that it is secure at all times and only accessible to certain personnel.
- Gather and organize all necessary information and data reports. It might be helpful to hire an information technology staff to obtain the necessary documentation from off-site sources and backup hard-drives and organize it into the filing location.
- Review data for validation. Make sure to do a thorough cross-check with other financial reports in the system to ensure accuracy. The more methods, the better. This may or may not include the general ledger, transaction records, and statements.
- Combine all of the documentation into an information package.
- Submit information package for review. Keep in mind that an on-site examination may be required for certain types of bank audits.
- Obtain an audit-compliance letter for records.
Bank auditing procedures are required to ensure that financial institutions are operating in a sound and ethical way and, ultimately, protect the consumer’s assets, security, and privacy at all times. A bank audit is not to be feared. Be prepared for the next external bank audit by maintaining an internal bank auditing function.