With all of the information provided at this year’s Bank Audit & Risk Committees conference(#BDAudit14 via @bankdirector), I think it is fair to write that some attendees might be heading home thinking “man, that was like taking a refreshing drink from a firehose.” As I reflect on my time in Chicago this week, it strikes me that many of the rules and requirements being placed on the biggest banks will inevitably trickle down to smaller community banks. Likewise, the risks and challenges being faced by the biggest of the big will also plague the smallest of the small. Below, I share two key takeaways from yesterday’s presentations along with a short video recap that reminds bankers that competition comes in many shapes and sizes.
Trust, But Verify
To open her “New Audit Committee Playbook” breakout session, Crowe Horwath’s Jennifer Burke reinforced lessons from previous sessions that a bank’s audit committee is the first line of defense for the board of directors and shareholders. Whether providing oversight to management’s design and implementation with respect to internal controls to consideration of fraud risks to the bank, she made clear the importance of an engaged and educated director. Let me share three “typical pitfalls” she identified for audit committee members to steer clear of:
- Not addressing complex accounting issues;
- Lack of open lines of communication to functional managers; and
- Failure to respond to warning event.
To these points, let me echo her closing remarks: it is imperative that a board member understand his/her responsibility and get help from outside resources (e.g. attorneys, accountants, consultants, etc.) whenever needed.
Learn From High-profile Corporate Scandals
Many business leaders are increasingly aware of the need to create company-specific anti-fraud measures to address internal corporate fraud and misconduct. For this reason, our final session looked at opening an investigation from the board’s point-of-view. Arnold & Porter’s Brian McCormally kicked things off with a reminder that the high-profile cyber hacks of Neiman Marcus and Target aren’t the only high-profile corporate scandals that bankers can learn from. The former head of enforcement at the OCC warned that regulators today increasingly expect bank directors to actively investigate operational risk management issues. KPMG’s Director of Fraud Risk Management, Ken Jones, echoed his point. Ken noted the challenge for bank executives and board members is “developing a comprehensive effort to (a) understand the US compliance and enforcement mandates — and how this criteria applies to them; (b) identify the types of fraud that impact the organization; (c) understand various control frameworks and the nature of controls; (d) integrate risk assessments, codes of conduct, and whistleblower mechanisms into corporate objectives; and (e) create a comprehensive anti-fraud program that manages and integrates prevention, detection, and response efforts.”
A One-Minute Video Recap
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