The amount of information provided was minimal to make an objective decision, but:
Define “serious” – there could have been a significant number of “almost serious” findings. What may be serious for the auditor as a control breakdown may be a common business practice for the department.
There are many types of controls, including compensating. While the report did not present evidence of lack of controls, it did not appear to say there was an overabundance of controls either. Processes, procedures, responsibilities and systems are everchanging. A control over scanners would not have been mentioned 5 years ago, but now, they can be used to duplicate and change virtually every document in the bank.
While not having exceptions mentioned by regulators is a good thing, they are not the ultimate in detectives. If it’s not in their examination program, they usually don’t have the time to mess with it. Examiners look for violations of banking law, and not deeply involved in internal controls. It’s difficult to walk in, sit at a desk removed from everything except what’s handed to you, and analyze controls to the same extent as someone who’s living with them for 365 days a year.
More so with external auditors. Grunts do the work and the managers take the CEO/CFO’s out for lunch. If you don’t believe me, just look how the materiality factor increases exponentially the closer it comes to sign-off day.
From what was mentioned, it seems that there was not a meeting of minds on the importance of certain facets and controls, before, during and after the audit. If all that was said is true, then Unsatisfactory might be a bit harsh.
I had a staff auditor review the REO department and write the report. It was extremely detailed, and had the same firepower as a Warthog after a tank in Iraq. I asked him to sit at my desk and read all 34 pages of the report, as if it were addressed to him and he had to respond to Senior Management. 20 minutes later, he was pale and re-writing it. The original report would have set back relations with REO about 15 years. We got the same results and a great good will with the re-write.