One of the nation's leading accounting firms is seeking to help banks get a grip on tighter audit controls created by the Federal Deposit Insurance Corporation Improvement Act.
Deloitte & Touche earlier this month introduced a service to assist in the creation of reports detailing internal control systems and compliance efforts, as mandated by Section 112 of the improvement act. Beginning Dec. 31, all institutions with more than $500 million of assets must issue such reports within 90 days of the end of the fiscal year.
"This is the first time any industry has been asked to issue specific reports attesting to their compliance with a reporting structure," said Daniel Rosenthal, managing director of the accounting firm's banking group.
The core of the Deloitte & Touche service is a personal computer-based software application that includes modules to assess and document the control functions of nine activities within the typical bank. The software, which the company calls a "knowledgebase," is available in both International Business Machines Corp. PCs and compatibles, as well as in Apple Computer Macintosh versions.
The software structure is "fairly generic and would fit most banking organizations," said Mr. Rosenthal. The modules cover broadly defined areas, such as commercial banking, consumer banking, accounting, item processing, and data processing.
Labor Intensive Requirement
Each module includes overall internal control objectives. A questionnaire format, supported by on-line help, is used to identify control procedures that support the overall objectives.
Compliance with Section 112 is only a small component of the sweeping legislation, but the effort still can consume considerable resources. For example, at $16.9 billion-asset Union Bank in San Francisco, the project involves 16 people covering 24 areas.
Jerry Fitch, Union's controller, estimated that creating a report for each area would take between 40 and 60 hours, which would be followed by a review by the bank's internal audit staff.
"The biggest benefit was that we didn't have to dedicate a lot of hours from our accounting function to create this framework," Mr. Fitch said. Union Bank began testing the software a month ago, before its formal release earlier this month.
One the initial process is completed, "we'll go back and review the documentation that has been created with our internal auditors and outside accounting firm," Mr. Fitch said. While the bank is using the Deloitte software, its regular accounting firm is Arthur Andersen & Co., he noted.
In addition to the chief executive, chief financial officer, and controller, who are required to assume responsibility for the report, Union also has involved the heads of community banking and commercial banking divisions. "We want them to understand the operational side of the business," said Mr. Fitch.
The various software modules can be separated and distributed throughout an organization. At $8 billion-asset Bank of California, San Francisco, half of those involved in the project have the software installed on their laptop computers, according to Frank Lee, a senior vice president of operations.
Data Useful Elsewhere
Mr. Lee said Deloitte & Touche also worked with the bank to find tune and simplify the reporting process.
Both bankers said that the data gathered in the compliance effort may be useful for other purposes. After reviewing the reports. Union "should be able to eliminate some redundancies and make improvements within the organization," said Mr. Fitch.
Deloitte & Touche offers the software as part of a consulting engagement. It is not available as a separate product.
Marking The Audit Trail
Auditing and reporting requirements under the FDIC Improvement Act, section 112. A Financial institution with more than $500 million in assets must: [check mark] Have an annual audit performed by an independent public accountant [check mark] Prepare an annual report detailing responsibility for financial statement preparation, internal reporting control structure, and regulatory compliance [check mark] Establish and audit committee of independent outside directors. In institutions over $3 billion, directors must have banking experience and access to outside counsel. Source: Deloitte & Touche