We are considering incorporating Internal Audit into Complinace being there is already some overlap. We will continue to have a third party come in to complete the independent audit piece. What else should we be looking at?

depending on the size of your bank, how much additional workload this will bring to existing staff

It depends on the size of the bank. We had this and now it is changed as a conflict of interest was stated by the examiners.

in CRA terms we are almost an intermediate small bank. Can you elaborate on the confilcts of interest?

In our most recent exam (FDIC-2011) we were told we had to separate audit and compliance. I had been the auditor and compliance officer. FDIC determined I had lost my independence. The positions are now separate. This was not a recommendation,FDIC wanted a commitment from our CEO that the positions would be split.

Independence is the key in the above post, IMHO. Growth would also promote change.

As auditor, you could not test the compliance work since you would be testing yourself. Someone independent of the compliance function should audit it.

If it is a multi-auditor shop, and another auditor could test it independently, then it might be worth a try. If the testing auditor was not familiar enough with compliance to be independent(or reported to the compliance officer), then independence would be compromised and you would need an external audit.