Audit Panels Urged to Take Compliance Role

Part watchdog and part compass, audit committees should keep compliance in line with the bank's overall risk management strategies, industry officials said.

Most banks have audit committees, but they are used in many ways. Consultants and industry experts said in interviews this week that an effective audit committee should shine a spotlight on important regulations, push for operational changes, and work with the compliance department.

"It's absolutely become more important to have compliance and the audit committee work together," said Karen M. Mayo, director of compliance at CFX Corp., Allenstown, N.H.

The need is more immediate now that regulators have begun risk-based exams, she said.

These new exams have made audit committees hot topics at recent conferences, where bankers try to figure out the best mix of auditing and compliance. While bankers said they don't want overly intrusive audit committees, most agreed that compliance departments benefit when the committee takes an active role.

Craig Webb, compliance officer at Plains National Bank in Lubbock, Tex., said auditors should help steer a bank's regulatory focus.

"They set our schedule for us by ranking risks," said Mr. Webb. "For a hot topic like the Bank Secrecy Act, they may say that our policies should be reviewed more frequently than others."

Along with pointing out potential trouble spots, audit committees also should comment on how to correct problems, bankers said.

For example, John R. Adams, senior compliance officer at Summit Bancorp, Princeton, N.J., said he consults with his committee after each regulatory exam to get its views. He lays out the exam's results so auditors can recommend solutions.

But the committees' problem-solving influence should extend beyond just examinations.

"Compliance officers should report all of their findings to the bank's audit committee because it gives them more teeth," said Kim McFall, senior banking specialist at Elliott, Davis & Co., Greenville, S.C.

The Federal Deposit Insurance Corporation Improvement Act requires banks with more than $500 million of assets to set up audit committees made up entirely of outside directors. In banks with more than $3 billion of assets, at least two members of the audit committee must have banking experience, and none may have large deposits in the bank. Small banks have no such requirements.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER