Training Internal Audit Bank

Outline Training

Internal audit re-focussed

• Why does a bank have an internal audit department?
• What are the objectives of the audit department?
• How are the expectations of audit changing?
• Audit and inspection versus interactive risk based auditing
• Defining the role of a modern internal audit department
• The official definition of the Institute of Internal Auditors
• The Basel Committee on Banking Supervision position
• Identifying and achieving the benefits of an effective audit department

Excerise: Identify and explore the different issues facing  auditors, followed by discussion on how to overcome the problems identified

The changing regulatory and business environment

• New developments in worldwide legislation: why and how it affects you
• Corporate governance
• Restrictions on financial dealings: money laundering and insider dealing
• The role of the Basel Committee and of local regulators
• The Basel Committee principles of internal audit

The role and organisation of audit

• Fitting internal audit into the wider management framework
• The role and membership of the Audit Committee and the importance of an Audit Charter
• Selecting the right staff for the audit team
• The benefits and drawbacks of specialisation within audit
• The benefits and the problems of outsourcing internal audit
• Identifying the best solution for your bank
• Maintaining independence and objectivity while still adding value to the business

Discussion on the different organisational structures encountered by the participants

Defining the full scope of banking activity and recognising risk

• The front office
• The back office
• The middle office
• The support functions
• Defining risk and recognising risk where it arises
• The four steps in managing risk: identification, assessment, monitoring and control
• How banks manage risk
• The responsibility for managing risk
• The Basel II accord and the generic risks in banking:
– Market risk
– Credit risk
– Operational risk
• Fraud: controlling the risk and minimising the damage
• The relationship between the risk management function and audit

Exercise: Identify the inherent risks in different areas of banking activity, how they arise and how they can be addressed.

An overview of the control framework

• A definition of internal control
• Recognising and managing the first level of control: recruitment policy
• Organising effective training, at all levels of staffing and of career progression
• Implementing clear and proper definition of roles and responsibilities
• Defining an effective management structure
• Optimising the documentation of policies and procedures, from Board level down to operating manuals
• Planning effective segregation of responsibilities and independence of checking
• A look at some recent failures in control and at the lessons that can be learned
• How to audit the effectiveness of controls

Exercise: Examine actual reported problems in financial institutions and determine which controls were lacking or bypassed

Risk based auditing: the effective way to direct activity

• The difference between risk based and system based auditing
• The significance of risk in developing an audit plan
• Identifying the responsibility for recognising and addressing risk
• Using a bank’s risk register as a basis for planning
• Enlisting management’s help to determine risk
• Monitoring business activity in order to identify new or changed risks
• Producing an audit report that effectively communicates the risk issues

Maxinmising the benefit of relationships

• Establishing an effective dialogue with external audit
• Building relationships with regulators
• Using contacts with internal auditors in other banks
• Overcoming the conflict between internal audit, compliance and risk management
• Selling the services of internal audit to client areas within the bank
• Managing interviews and meetings to best effect

Case study: Effectively addressing major issues in an audit report without antagonising audit management.

Auditing retail banking

• Understanding the product mix and dynamics
• Evaluating the market position
• Reviewing the branch network performance, in total and by branch
• Measuring customer satisfaction to assess performance
• Identifying the risks in the consumer credit portfolio
• Evaluating the effectiveness of bad debt management
• Managing the operational risk

Case study: Analysing reported product performance in retail banking.

Auditing corporate banking

• Identifying the key relationships
• Assessing the effectiveness of client relationship management
• Evaluating client value to the bank
• Evaluating client criticality to the bank
• Reviewing the effectiveness of credit decision making

Case study: Identifying the key relationships in corporate banking.

Auditing treasury

• Reviewing board level intentions and control
• Assessing the effectiveness of the management systems
• The importance of total segregation of duties and responsibilities
• Understanding the potential impact of treasury transactions
• Understanding foreign exchange and interest rate risk
• Using statistical analysis to identify potential problems

Case study: Investigating alleged malpractice in dealing operations

Auditing the finance function 

• Assessing the effectiveness of the budget process
• Reviewing the accuracy of management accounts
• Assessing the effectiveness of finance controls
• Reviewing the payroll
• Reviewing purchasing policy and controls

Auditing information technology

• Assessing the impact of management’s IT Security Policy
• Reviewing the effectiveness of the IT security procedures
• Reviewing physical controls
• Reviewing logical and application controls
• Overcoming the particular problems of internet banking

Case study: Supporting IT management in improving security.

Auditing marketing

• Testing the validity of marketing plans and forecasts
• Evaluating control over and the return on advertising spending
• Assessing the effectives of customer relationship management
• Checking that cross selling opportunities are maximised
• Reviewing agency relationships
• Assessing the effectiveness of public relations activity

Case study: Reviewing the risks in new product launches.

Auditing the product range

• Analysing the product range
• Identifying areas of over concentration
• Testing the accuracy of product profitability reporting
• Determining product inter-relationships
• Product development: the role for audit

Auditing project management 

• Definition of a project
• The stages of project management from feasibility to implementation
• The role for audit in projects
• Points to consider when selecting software packages

Conclusion

• A review of the key points and a look at the future for internal audit
• Identifying and addressing the opportunities for new approaches to internal audit in your own bank