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#955173 - 05/06/08 07:45 PM Auditor Independence
Sheldon Hendrix Offline
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Sheldon Hendrix
Joined: Jun 2006
Posts: 1,194
South
Is it common to have an audit program that's headed on record by an Independant Director who chairs the Audit Committee, but another executive who is involved with management actually oversees the auditors and and tells them when to stop looking somewhere (i.e. the auditor is finding to much, so the executive who is really their boss tells them to limit the scope)?

I think there are major issues with this process.

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Audit
#955189 - 05/06/08 07:59 PM Re: Auditor Independence Sheldon Hendrix
Passing storm Offline
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Joined: Aug 2005
Posts: 111
Here and Now
I definitely would not call that a common practice. The internal auditor at our bank reports directly to the Audit Committee. The Chair of the Audit Committee is a Board member. There is no one in management who oversees the auditors except in an administrative way. i.e. report vacation or sick time and approve expenses.

Sounds like major issues indeed.
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#955382 - 05/07/08 12:48 PM Re: Auditor Independence Passing storm
hawksfan Offline
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Joined: Mar 2004
Posts: 114
Iowa/Illinois
I agree with Passing Storm. We (internal audit) report directly to the Audit Committee (independent directors) with a dotted line to the CEO for administrative issues. Management has absolutely no say in what we can look at and when we can do it.

Your description of auditing reporting to management sounds like a nightmare. I'm sure the regulators will have issues with the reporting structure.

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#957391 - 05/12/08 02:45 AM Re: Auditor Independence hawksfan
Dazed and Confused Offline
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Dazed and Confused
Joined: Feb 2006
Posts: 250
Big XII South
The problem with the scenario above is that the regulators will not notice the problem because "on record" and "on paper" ... an independent director chairs the audit committee. If the auditors allow the executive officer to dictate their scope and program, then they are putting their own necks on the line for this officer ... as the shareholders and directors place reliance on the audit program to help ensure the bank's controls are adequately designed and functioning properly. If it's an external audit program ... then the scope and program should be outlined in an engagement letter that was approved by the audit committee; and if it's an internal audit program ... then the scope and program should be outlined in an internal audit schedule/program that was submitted to the audit committee for approval. Either way ... it seems the audit committee may have approved an audit program that is being unilaterally modified by an executive officer.

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#965734 - 05/28/08 05:18 PM Re: Auditor Independence Dazed and Confused
TennesseeFlash Offline
Member
Joined: May 2008
Posts: 75
I have the same reporting structure as "HawksFan" and agre with 'Passing Storm". In a prior position I was in a similiar situation with management dictating what Internal Audit could and could not do. It is not a place I would want to be in. I would not have taken my current position if the reporting structure was not direct to the Audit Committee.

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#967923 - 06/03/08 01:00 PM Re: Auditor Independence TennesseeFlash
KAT Offline
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Joined: Aug 2004
Posts: 986
Massachusetts
I also report directly to the audit committee but I rely on the CEO for suggestions on different things. I know that ultimately he cannot tell me what to do or look at, I respect his expertise and as long as he does not demand I do/don't do something I am fine with it.

My audit committee changes annually and a lot of my time is spent training them. Just when they have an idea of what is happening they leave.

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#968472 - 06/03/08 06:56 PM Re: Auditor Independence KAT
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
"My audit committee changes annually and a lot of my time is spent training them. Just when they have an idea of what is happening they leave."

I would say that the regulators are eventually going to criticize you for that practice. You have to have continuity in your audit process. Most banks don't have enough outside directors with the appropriate expertise to even pull this off.
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#968774 - 06/03/08 11:36 PM Re: Auditor Independence rlcarey
J-me Offline
Member
Joined: Nov 2004
Posts: 72
"Most banks don't have enough outside directors with the appropriate expertise to even pull this off."

You are always so right on spot! After just coming home from my audit committee meeting tonight I just want to give up.

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#969430 - 06/04/08 07:14 PM Re: Auditor Independence J-me
Passing storm Offline
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Joined: Aug 2005
Posts: 111
Here and Now
We stagger the changes to the Audit Committee so that only one or two rotate off at a time and we always have someone with Accounting background.
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Don't believe everything you think

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#969711 - 06/05/08 01:10 PM Re: Auditor Independence Passing storm
KAT Offline
Platinum Poster
Joined: Aug 2004
Posts: 986
Massachusetts
I work in a credit union and that is one of the problems that are recognized by both the state and NCUA. If you have a large cu then you get a different caliber of directors. Most of our directors are bus drivers or mechanics with just a few in management. They are so gung ho when they get on the board they want to learn about all areas of the cu so they switch committees at the end of the year.

It is difficult but you learn to do small bites of training at each meeting. This year I lucked out. Two remained from last year and two came back who were on the year before. That is making my job easier because there is less explaining to do.

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