Rules/Guidelines on Internal Auditor Independence

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Question:

The Audit Committee just hired an internal auditor, and the auditor is an FTE on the bank's books. How do banks achieve independence, (besides the audit charter), when the internal auditor is an employee of the bank? Is it unreasonable that the internal auditor would be subject to employee policy (handbook)? Administratively, whom should the internal auditor report to and to what extent? The rules of internal auditor independence, (banks under $500 mill) are black and white, but don't seem practical in reality. The new auditor is a rookie and is very concerned that in some way he will be asked to do something in contrast to what he is reading and researching about the internal auditor. We are struggling to strike the balance.

Answer:

The internal auditor reports directly to the Directors' Audit Commmitte. He or she may report to some other executive for day-to-day management, such as vacations, etc., but normally not for actual job responsibilities. Other than that, they are just like any other employee subject to employee rules. Many, many banks have internal audit departments and independence is not an issue.

First published on BankersOnline.com 2/11/13