Question: Should the President or other members of management be present at the audit committee meetings? How often and how long does the audit committee meet?

Background: I am the internal auditor and compliance officer for a state chartered trust company that has approximately $1 billion dollars in assets. The President and another member of management attend the meetings. In the past, the audit committee and the auditor were given 10 minutes alone to discuss anything. The President has suggested to me that we discontinue this practice because the meetings ran long, and only implement it if asked by the committee members. The Audit Committee meets 4 times a year for an hour each time to discuss internal audits, external audits, and any other miscellaneous items. The state examiners have reviewed my minutes which state who’s present and when we met. They seem to have no problems with our practices. Unfortunately, management sees the audit department as a necessary evil not a way to enhance the company, so I need to tread gently on these topics. I’m hoping to change their perception over time! I'm curious to hear the practices of other trust companies and banks. Thanks for your help!

Hi,
We meet monthly for an audit/compliance committee meeting. They are approximately 30-45 minutes long. The CEO sits in on the compliance portion, and is excused for Internal Audit's portion.

Management should be present by INVITE ONLY. Audit committee meetings should be a change for the IA to openly discuss findings with the committee. NO MANAGEMENT ALLOWED. Also our meetings are on a quarterly basis and special meetings can be called if needed.

Refer to the post entitled Audit Committee Meetings from J.L.J., last post 4/1/04

In our situation, the Prez and EVP sit in on Audit Committee meetings, then excuse themselves at the end so that any frank or confidential discussion can be afforded the auditor/compliance officer and the committee. Tell your President to go "fly a kite or jump in the lake", in politically correct terms, of course.

we meet monthly, we invite the management of the area we are going to discuss so that they can discuss their responses to the audit findings. management is dismissed close to the end of the meeting for any discussion needed without management present.
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I have to agree with the previous posters. Executive management is generally afforded an invitation to the meeting if needed, but the IA should be allowed to discuss issues with the committee in a frank open manner. How would you be able to accurately discuss findings with the committee, especially if they involved a member of executive management, with them sitting in front of you. God help you if their activities may be considered potentially criminal in nature. Also, how do you manage being the IA and CO for a financial institution with 1+ billion in assets? Your regulators don't complain about this?

Thanks to everyone for the input! Keep the responses coming! Yes, I am the internal auditor and compliance officer. It's quite the task. A few areas of compliance have been delegated to others. It does help that we are a trust company only...no commercial banking side. The state regulators have not seen a problem with this dual role. I questioned an examiner on it once and he stated that institutions of our size and smaller frequently have one person assigned to both positions.

Anon --

The composition of the Audit Committee, the requirement for a financial expert, and the functional reporting issue that you speak to are all issues governed by the the size and ownership of your institution.

A non-public institution under $500 million (meaning that you wouldn't be subject to the original FDICIA guidelines) is not required to have an audit committee. If you are over $500 million, and if you are a publicly held institution that is subject to FDICIA (and therefore subject to the Securities Act of 1934), then your Audit Committee would be expected to be independent.

Orignial poster here- FYI - We are a nonpublic organization and have approximately 1 billion in assets

We are 600 million and I am the CO and IA. The audit committee, the president, vp, cfo, director of lending (who used to be an examiner) all sit in throughout the entire meeting - even the reports.

Original Anon --

Depository institutions over $500 million are subject to the provisions of Section 36 of the FDI Act (12 U.S.C. 1831m) and the FDICIA implementing regulation and guidelines (12 CFR Part 363).

Section 36 and Part 363 require the establishment of independent audit committees that, at a minimum, oversee a system of audit, attestation and internal control.

There is also an interagency issance of March 5, 2004, which addresses non-public institutions regarding such issues as director independence, board composition, the audit committee, and corporate governance standards.

At $1 billion, your institution would certainly be exposed to the types of risk that would warrant an independent audit committee, and given that your asset size is over $500 million it appears from the FDICIA description of institutions subject to the audit committee requirements that you definately are required to have an independent audit committee.

First of all, I agree with the majority of the other posters in that you do need an independent audit committee. However, I do not see a problem with certain members of executive management being there on a regular basis (i.e. every meeting), as long as the spirit and intent is positive. Neither do I have a problem with other members of management being there as necessary (i.e. to respond to questions, criticisms, etc.). In fact, I always offered the auditee an opportunity to be present at the audit committee meeting when their report was being presented.

That said, there should be regular times established for 1) the auditor to meet with the audit committee with no one else present, 2) executive management to meet with the audit committee with no one else present, and 3) the external auditors to meet with the audit committee both with and without management and the internal auditor.

Especially in the case of the sessions between just the internal auditor and the audit committee, I would recommend making it an agenda item at least quarterly, even if there is nothing specific to discuss. This help prevent management from second quessing why a special "called" session is called.

Original Anon - You stated

Quote:

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Background: I am the internal auditor and compliance officer for a state chartered trust company that has approximately $1 billion dollars in assets.

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Are you a "trust only" institution? If so, is this $1 billion in assets under management or $1 billion in corporate assets? This may determine whether you are subject to Section 36 of the FDI Act.

Original poster- We are a trust company with 1 billion dollars under our management. No commercial banking side.

We are in a similar situation. We are also a trust only institution. Our Audit Committee meets quarterly and members of management attend as guests. The Committee also has an annual meeting that excludes managment and the Audit Committee has discretion to meet with the auditors (internal or external) independent of management as often as is deemed necessary.

This part is just my opinion, so take it as such:
Even if your Audit Committee is not required to be independent, it should still provide an objective and critical analysis of management. I don't see how this can be done without a confidential exchange of information between the internal and external auditors and the Audit Committee.

our audit comitee meets 4 time / year

In reference to your question regarding an IA also being the Compliance Officer: I have asked the same question and been told that its not a conflict as long as the final responsibility for compliance lies with each department manager. I act in a research and advisory capacity, then audit the departments for compliance. You just have to make sure it's written down (regulators have to see everything in writing to believe it happened!). It's in our Audit Policy.