Do other banks exclude Internal Audit from incentive programs (credit cards, investment referrals, etc)? I was doing some research for my NDIP audit and one item in the OCC exam guidelines mentioned making sure that the internal auditor was not participating in referral/incentive programs. It's not really a big deal because I don't see customers anyway. Just wondering if anyone had an opinion on this.

Our state banking regulators recently commented that they believe our incentive plans should be audited by an independent party. IA does audit the plans but because we participate in them they felt that we should not be relied upon to render an opinion. This resulted in our audit committee taking a fresh look at whether or not IA should participate in 2005. Right now they are leaning toward an audit goals specific plan. But it raised a bigger issue as to whether or not payout from the plan should be tied to overall financial performance for the year. CEO says definitely but committee members not sure. If I had my way about it I would say adjust the salaries and don't have IA participate.

I am included in ours and I don't appreciate the OCC sticking their nose in my compensation! Luckily we're not a national bank. I will ignore their suggestion and make sure I answer "appropriately" if asked during an examination.

It's best to avoid the risk and remain independent - they can compensate you in other forms such as bonuses and raises. Wouldn't that be better anyway?

Heck yeah!! Anyway, I guess I never gave it much thought before as I don't have customer contact (and am not a salesperson by any stretch of the imagination). I had my named removed from an incentive "team" today and will abstain from participation in the future. Thanks for all your input.

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But it raised a bigger issue as to whether or not payout from the plan should be tied to overall financial performance for the year.

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That is definitely a conflict of interest. Auditor incentive or bonus plans should be based on meeting performance plans and never be tied to overall bank financial performance.

What does NDIP stand for ?

Non-Deposit Investment Product

I think incentive programs have the potentional to influence bankers and therefore think auditors especially should be excluded. Honestly, I wonder exactly how beneficial incentive programs are to banks. I'm not talking in the here and now, but say three or more years down the line when the s--t hits the fan and the decisions that a lender made based on incentives are very flawed. Of course this lender (teller, CSR, whatever) is no longer employed by our bank.

OK, when you all say individual incentive plans what is meant? Does that mean bonuses for bringing in new customers, profit sharing, or what? My bank has a deal where we take 10% (this year, maybe more in the future) of the total net income at year end and distribute it to the employees according to performance. Does this count?

We have a similar plan for all employees (including me), but I couldn't tell you what the % is. This is everyone's YE bonus based upon performance. We also have a profit sharing plan that is deposited into our 401K. Randy (rlcarey) said that he thinks this is a conflict of interest, but I disagree. I have no control over how much is chosen to give to employees or if we make a profit or not. Our external auditor reviews the financials and blesses them. Sure, I audit certain functions that could reflect in these statements and I audit several accounts that affect the bottom line, but I also have the CPA checking over my shoulder. Maybe I'm missing something, but I still don't see the conflict.

Now, to your question: We also have individual incentives for tellers, new accounts, lenders, etc., mainly concerning "production" goals. These are tied to certain activities like $10 for every appointment with the investment guy. I do not participate in those. If I refer someone for an appointment about NDIPs, I do it cause I want them to use my bank and not my competitor. I do feel that accepting an incentive on this could be a conflict of interest, since I audit those accounts. This is also what the Policy Stmt says.

Clear as Mississippi Mud?

At my bank, we have incentive "contests" which could include cash or days off or dinner or some such thing as a reward. This would be for new credit card customers, new loans, debit cards, internet banking customers, just to name a few. I believe (as do others from this post) that for an internal auditor, this is a conflict of interest and the auditor should not participate. I receive an annual bonus and that is figured based on my job performance. It sounds like that is how your bonus is figured also and IMO, is perfectly fine.

Why would an auditor even want to be included in an incentive program? Such programs usually are related to sales that auditors audit!

My Bank excludes the auditor from the incentive plan. I am compensated with a bonus which is generally in line with the plan but decided separately by the compensation committee. That way independence is in tact and I can still continue to audit the calculation.

At my previous bank, the CEO said that I was required to get a certain number of NDIP referrals per month as part of my salary. When I showed him the Interagency guidance against this, he stated that I wouldn't be getting that part of my salary at all. It was another reason to leave the bank.