Internal
Audit
Overview
The
following
describes
our
approach
to
providing
high
quality
risk
based
internal
audit
services.
This
approach
allows
us
to
assist
you
in
prioritizing
the
auditable
segments
in
your
institution
to
address
the
high
risk
elements
first
and
also
to
apply
audit
resources
where
they
are
needed.
We
can
also
tailor
programs
in
response
to
your
internally
prepared
risk
analysis.
Risk
assessment
and
institutional
overview
The
initial
step
is
important
because
it
allows
us
to
tailor
services
to
your
unique
needs
depending
upon
market
niches
and
core
customer
focus
of
your
institution.
Consideration
is
given
to
your
activities
to
determine
where
our
emphasis
is
needed.
All
common
risks
are
considered,
but
emphasis
will
be
on
assessing
where
in
your
institution
you
may
have
exposures
that
are
not
currently
addressed
by
your
procedures
and
controls.
Your
institution
will
be
analyzed
and
divided
into
auditable
segments
and
risk
rated
based
on
risk
factors
applicable
to
the
segment.
Regulatory
and
compliance
risk
are
considered
and
an
integrated
approach
should
be
developed
depending
on
the
institutions
internal
resources
in
that
area.
Specialists
in
regulatory
compliance
are
associated
with
our
firm
and
could
be
engaged
as
part
of
an
engagement
team,
or
as
an
additional
engagement.
Examples
of
auditable
segments
are:
- Real
Estate
Lending
including
secondary
marketing
- Overall
credit
quality
and
reserve
analysis
- Detailed
commercial
loan
review
and
construction
loan
review
- Loan
operations
and
servicing
- Branch
operations
- Alternative
delivery
systems
(internet,
telephone)
- Interest
Rate
Risk
and
Asset
Liability
Management
- Consumer
lending
- ATM
- Information
systems
- Contingency
planning
and
disaster
recovery
- Purchasing
- Human
resources
and
payroll/personnel
accounting
- Assisting
with
supporting
the
audit
objectives
of
your
external
auditors
A
common
sense
approach
is
applied
to
areas
receiving
testing
through
other
sources
and
your
scope
would
be
determined
based
on
how
your
institution
has
the
applicable
bases
covered
with
internal
resources
or
other
outsource
providers.
This
approach
focuses
less
on
standard
checklists
(an
approach
for
which
many
answers
are
not
applicable
based
on
size
and
operations)
and
more
on
identification
of
risks
and
processes
to
address
them.
Our
approach
to
loan
review
We
have
identified
and
separated
two
major
risks
associated
with
all
types
of
lending
and
how
they
are
addressed
is
different
although
both
components
are
addressed.
1.
Underwriting
and
credit
quality.
Credit
risk
is
clearly
a
significant
risk
for
institutions
large,
small
and
in
between.
The
make
up
of
your
portfolio
will
drive
the
design
of
our
approach.
Consumer
lending
tends
to
be
more
systems
driven
and
construction
and
commercial
lending
is
more
analysis
driven.
The
portfolio
is
segregated
to
identify
the
major
focus
and
any
industry
concentrations
in
the
portfolio.
Assessment
of
the
comprehensiveness
of
your
institution’s
lending
policies
and
procedures
are
considered
including
your
grading
systems
and
history
of
identification
of
impaired
loans,
treatment
of
“special
credits”
and
ability
to
succeed
at
work
out
situations.
We
also
look
at
the
quality
of
the
initial
loan
decision
from
the
standpoint
of
identifying
how
lending
personnel
analyze
borrower
information
and
provide
feedback
and
recommendations
for
improvement.
We
recognize
that
there
is
more
to
the
process
than
having
two
years
signed
tax
returns
in
the
file.
We
also
look
at
the
lending
function’s
ability
to
understand
and
use
tax
information
and
financial
statements
and
to
increase
awareness
of
potentially
fraudulent
financial
statements.
Appraisal
review
is
included
in
underwriting
and
credit
quality
due
to
the
significance
of
collateral
values
to
assessing
potential
impairment
of
loans
secured
by
real
estate.
2.
Documentation,
accounting
and
recording
standards.
Testing
would
include
review
of
the
institution’s
own
quality
control
procedures,
self
testing
and
independent
testing
of
the
adequacy
of
loan
documentation
and
servicing
processes.
Depending
on
your
needs,
this
could
be
expanded
using
a
compliance
expert
to
test
your
institutions
adherence
to
requirements
such
as
RESPA
and
Regulation
Z.
Sampling
is
used
to
test
the
portfolio
for
tendencies
toward
documentation
issues
on
a
systematic
basis.
Supplementation
of
in
house
internal
audit
and
loan
review
resources
We
provide
partial
or
full
outsource
services
that
can
be
tailored
to
your
institution’s
needs
and
growth.
Often,
changes
in
audit
needs
are
not
easily
met
in-house.
We
can
assist
you
with
program
development
and
mentorship
of
your
staff
including
testing
review,
as
well
as
performing
testing,
risk
assessment
and
program
development
to
meet
your
specific
needs.
Our
services
may
include
a
control
matrix
analysis
to
help
you
graphically
identify
risk
areas
and
to
assist
in
documenting
how
risks
are
addressed.
The
matrix
can
be
developed
by
business
process
area
such
as
“commercial
lending
and
real
estate
lending,
and/or
general
areas
such
as
“security”,
“accounting”,
or
“operations”.
As
an
institution,
you
are
called
upon
to
set
your
standards,
determine
your
monitoring
criteria
and
evaluate
the
effectiveness
of
controls
and
business
processes.
Our
job
is
to
assist
with
tools
and
experience. |
