First in a four-part series on multifaceted perspectives of internal audit

When it comes to internal audits, having well-defined policies approved by a financial institution’s board of directors is an important endeavor and the foundation of effective controls. More important still, however, is having the supplemental procedures in place that will ensure implementation of an institution’s key policies.

Every financial institution must establish comprehensive procedures. They provide staff with proper guidance and help to ensure that all processes are well documented. Any operational area without procedures is an area without a major internal control, which often leads to credit losses, undetected fraud, jeopardized reputation, and poor regulatory examination results. Moreover, examiners view a lack of documented or updated procedures as a red flag, signaling that controls are weak.

It’s also nearly impossible to audit an area that lacks documented procedures. Without a “right way” ascribed to paper, auditors aren’t able to determine what’s expected and, therefore, are unable to render an opinion on whether or not tasks are being performed correctly.

Perhaps worse still, inadequate procedures can imply to staff that their actions either aren’t monitored or simply don’t matter. Without standardized guidance, employees are left to decide what to do on their own and chaos ensues.

The right procedures for the right results

Well-documented procedures are designed to assist financial institution employees in performing approved tasks using approved methods. Such procedures serve as a reliable resource that employees can turn to when working alone or when confronted with new and unfamiliar circumstances.

Written procedures further ensure that staff will perform tasks consistently and in a standardized manner from branch to branch and shift to shift. Additionally, an institution’s procedures are an excellent training tool for new employees, putting them on the immediate path to better performance.

For the people, by the people

When drafting such extensive procedures for systems of internal control, financial institutions should consult a broad spectrum of resources. Among them is an organization’s own employees, an often overlooked wellspring of information.

Personnel at all levels can be valuable assets in helping a financial institution create or update its comprehensive set of standards. By involving both managers and staff in discussions about proposed procedures, the organization benefits from a full range of ideas and suggestions. Tellers, for instance, can offer “real world” insights to help shape procedures that are both practical and effective.

Through meetings and in communication with various levels of employees, a financial institution can begin to explore the necessary internal controls it will need to create and pursue process improvements that ultimately lead to better procedures.

Financial institutions that consult their internal resources alongside external ones also reap the additional benefit of creating early buy-in. By engaging employees and soliciting their input, institutions foster an ownership atmosphere, which further reinforces support for and understanding of the procedures once they are in place.

Engaged and established equals enhanced internal audits

People and procedures go hand-in-hand. Financial institutions that capitalize on this reality can establish a prevalent and healthy attitude about applying and respecting internal controls.