A financial institution must conduct regular bank audits to ensure that they’re in compliance with the law and industry standards. Banks and credit unions, small or large, are required to abide by the regulations set by the law to protect the consumer and manage risk.
But what is a bank audit?
A bank audit is a routine procedure that provides an internal review of the operations, controls, records, and risk management of a financial institution to make sure that they’re performing accurately, legitimately, safely, and efficiently. Bank audits can be done externally by an accounting specialist, or done internally by an assigned audit team.
It’s recommended that financial institutions should have an internal audit function in place to stay on top of their internal controls. An internal audit program is an essential function of any information security and compliance system. It’s important for monitoring and assuring that all of your organization’s assets are secured and safeguarded from threats.
Today, convenient technology and software programs have been created to help companies conduct their internal auditing programs. In addition to the technology, teams of experts are available to assist organizations build out their bank audit framework and manage risk.
Risk-management platforms and high-impact reporting can help your business with the actions listed below:
- Proactive document collection to improve regulatory compliance (SSAE 18s, financials, certificates, insurance, disaster recovery information, and more)
- Cyber security monitoring to prevent losses
- Comprehensive analysis of third-party vendors’ financial status, continuity plans, information security, and more to increase knowledge
- Policy and procedure review to reduce risk
- Comprehensive risk assessment
- Reporting automation to improve efficiency and execution
There are several benefits to conducting internal bank audits. Not only does it prepare your business for an external audit, but it provides you with the information you need to ensure that your company is operating properly.
Why Bank Audits Are Important?
1. It Gives You Objective Insight
It’s important to note that an internal auditing team should be unbiased, meaning they should operate solely as the audit team to avoid any conflicts of interest. If your business doesn’t have enough funds to hire a separate department for this purpose, it’s appropriate to cross-train staff members in different departments to audit another department.
An internal bank audit function gives you objective insight into how your business is operating and if it is checking all the necessary boxes of being efficient, safe, accurate, and abiding by all regulations. With an independent and unbiased review, an audit can add value to your business.
2. It Ensures And Improves Efficiency Of Your Operations And Controls
All financial institutions should have a clear outline of their policies and procedures. A bank audit provides an objective look to ensure that your company is operating in compliance with these policies and procedures. It also gives you assurance that your operations are mitigating your specific risks.
With a regular evaluation of your policies and procedures, you can identify any areas in which you can improve their efficiency and effectiveness. As a result, your business will operate on processes as opposed to people.
3. It Allows You To Assess Risks And Protect Assets
Another benefit of an internal audit function is that it allows management and stakeholders to find any and all risks, and prioritize them with systematic risk assessment. A systematic risk assessment can help identify and evaluate any gaps in the environment, while also providing space for a remediation plan to be done. The following is a list of risks to take into account:
- Operational risk
- Compliance risk
- Strategic risk
- Reputation risk
- Credit risk
- IT and cyber risk
With the completion of a bank audit, the audit committee or bank auditor will suggest any corrective actions an organization needs to take to address any risks that were discovered.
4. It Allows For Evaluation Of Controls
It’s important to know whether your controls are fulfilling their purposes, and that they’re efficiently and effectively mitigating risk. An internal auditing program makes it possible to evaluate your controls and improve the control environment of your organization.
5. Ultimately, It Ensures That Your Organization Is Complying With The Rules
Lastly, but probably the most important, a bank audit ensures that your financial institution is in compliance with the regulations set by the law, the standards of the industry, and your own policies. It can also make sure that you’re prepared for your next external audit.
During an external bank audit, a specialist will evaluate all transactions, including bank wires, loans, and automated clearing house (ACH) transfers. Through a detailed examination of financial and regulatory reports, they can make sure that the institution’s monetary flow is recorded correctly, in a timely manner, and to completion.
An internal or external bank audit will display any violation of regulations. It will also keep you up-to-date with any changes or additions to the law’s regulations and suggest corrective actions that can be taken to address these issues and risks.
These regulations are in place to protect the consumers that bank with you. Failure to abide by the required regulations can pose a serious threat to a person. That’s why bank audits are an imperative and routine procedure to ensure that a bank, credit union or financial institution is operating in a sound and ethical manner.
A bank audit, whether it is done internally or externally, is an incredibly important procedure to implement and manage for all financial institutions. It can help you identify and find a solution for any looming risks and ensure that you are in compliance with the laws and regulations of the industry to ultimately protect the consumer.
External bank audits are inevitable, but you can be prepared by developing an internal audit committee or team that operates solely for the purpose of conducting internal auditing of your operations, controls, and services. There’s useful technology now available to help with risk management and bank auditing procedures. Don’t fear your next bank audit—embrace it!