The CEO at my bank mentioned to the Chairman of the Audit Committee that at several banks the CEO attends all the Audit Committee meetings as an observer. I was wondering if any of you have any opinions on this and whether or not your CEO attends the Audit Committee meetings.

I've been in both situations. It really depends on the CEO. If the CEO is very overbearing and has a love/hate relationship with audit and does not fully understand that they would be an observer and not a participant and unless the board fully stood behind the auditor at all times, then I would not be in favor of letting him in. It does not create the best world for a free flow of information to the Audit Committee without fear of retribution.

In my institution, the CEO has attended all of the meetings I have attended since I have been internal auditor.
The CEO can (and probably should) attend some of the meetings. The audit committee should be able to meet from time to time with the internal auditor (and external auditor) without management presence. This enhances the aforementioned free flow of information from audit to the board.

It's going to get tougher to be a board member because of all the recent scandals. I think that, at least sometimes, the audit committee needs to get the pure, unadulterated facts straight from audit. But that's just my opinion.

In reply to:

"I think that, at least sometimes, the audit committee needs to get the pure, unadulterated facts straight from audit."

I think that as auditors, we better be sure that the audit committee "always" gets the pure unadulterated facts, or you're going to see an internal auditor in front of a senate subcommittee in handcuffs someday soon pleading the fifth.

We do not have an internal auditor on staff, instead we use a firm that acts as our auditor. I am the liasion between the firm and staff. I attend all the audit committee meetings as does the CEO. We find it very helpful to see the board's reaction to the audit comments. BUT, we also have an executive session at the end of the meeting. The CEO and I leave and the auditor stays to review anything again and answer any questions. Sometimes the executive session information is shared with us, sometimes not. This may be a good solution for you. With the new Sarbanes-Oxley bill, and corporate governance standards, we are now asking our external auditor to send a rep to all meetings and she also stays for executive session to discuss the concerns of the committee.

opinion are mine and mine alone.

In reply to:

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I think that as auditors, we better be sure that the audit committee "always" gets the pure unadulterated facts, or you're going to see an internal auditor in front of a senate subcommittee in handcuffs someday soon pleading the fifth.

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I think my statement there was misunderstood. The auditor should always, absolutely give the board of directors the truth, regardless of the presence of the CEO. However, the presence of the CEO may put pressure on the auditor not to emphasize things he should. The absence of management at meetings gives the auditor a clear path to say what needs to be said- without retribution.

At both financial institutions where I have worked, both the CEO and Executive V.P. attend all audit committee meetings. Audit reports have already been reviewed by the entire Board prior to the quarterly Audit Committee meeting. I've never encountered a situation where I felt I could not speak freely.

At my last company, the CEO, CFO and sometime the CRO (Chief Risk Officer) would attend audit committee meetings. It would get hairy sometimes when the CFO would contest audit findings BEFORE I could present the report. A hardcopy would go out before, but I would verbally present the findings in the meeting. And, yes, it took a toll (note, FORMER company)...

You make an excellent point. My bank's CEO never comes to the audit committee and it certainly frees up both the directors and the auditor to discuss issues.

I think it depends on your independence from management influence and your corporate structure. If I felt that management is trying to influence my findings or compromise internal controls, it is reported to the Audit Committee. This would be pretty hard to do with the CEO there. If upper management does your salary review instead of the Audit Committee then again your independence may be compromised and you may not feel you can say what you want. On the other hand, we auditors have to have tough hide and stick our necks out.

Our examiners have stressed for years about audit independence even though we are a small community bank, and we have very good communication with our examiners. If I in any way felt audit independence was compromised, I would call my EIC at the drop of a hat.

I think that I would call the Chairman of the Board before making that call to the EIC. Just a suggestion.

My CEO, Senior Loan Administrator and the CFO attend all of the Audit Committee meetings, and in fact, the regulators (OCC) made mention that it was probably not a good idea. I also know that when present, giving the facts can place a bit of pressure on the one presenting a bad audit, especially if it is in their arena, but it must be done.

Our CEO is Chairman of the Board. Luckily my Audit Committee Chairman is great and I have never had to call my EIC for something like this. My entire Audit Committee attended a seminar "The Audit Committee after Enron" so I know my department won't be having any "audit independence" problems.

Since we are discussing the ability of audit to report to the audit committee, let me ask you this. As auditors, are you given the freedom to call a meeting of the audit committee if need be? What does your audit charter say? There is a big difference between saying that the auditor is independent and the auditor actually being independent. I'm curious to see what practices other banks have.

The charter typically indicates that the Chairman of the audit committee can call special meetings outside of the normal schedule. That power is not normally reserved by the auditor.

Our CEO and EVP/Cashier attend the Audit Commmittee meetings and we all get along fine. The last item on the agenda after Other Business is, "Executive Management Exits the Meeting". This then allows me and the committee time to discuss matters or ask any other questions relating to the audits discussed without any reservations or potential intimidations by the CEO.

Its not in the charter, but I in fact schedule the audit committee meetings by consulting with the committee members. Access to the committee is not a problem. They want to know about any serious issues as soon as possible.

The CEO at the bank where I work is an "ex-officio" member of all board committees, including the audit committee. However, at each quarterly audit committee meeting, the CEO and any other members of management that may be in attendance are asked to leave for a portion of the meeting, so that I (internal auditor) may have "unlimited" access to the audit committee. Further, when the external auditors meet with the audit committee, I am included in those excused from the meeting.

Independence is at the "eye" of the beholder. Standards and ethics can be independent, but who is actually in control and in control of what? It depends on who you ask.

Having just completed our Safety & Soundness/Compliance exam by OTS, I'll inform you that with the recent
Sarbanes-Oxley Act; they strongly recommended that any executive (senior) manager not be present
at the Audit portion of the Audit Compliance Committee meeting. So, our CEO excuses himself for the audit
of the meeting. Have fun!

Our CEO sits in, but at the end of every AC meeting, there is an executive session and he leaves. The AC then discusses issues with me, and I am able to discuss issues with them. It seems to work well for us.

Great suggestion. I'm setting up a new audit committee at the holding company level and I like that idea. Management from each bank wants to attend each meeting but I am going to ask that the end of the meeting be reserved for a private session whether we need it or not, so that if sometime in the future we do, it does not run up a red flag.