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Preparing for an Uneventful Compliance Audit

BY BAMBI HELM

Examiners are raising their expectations of compliance audits. Will your credit union meet them? Doing so ensures your CU maintains its trustworthiness in the eyes of current and potential members alike. These best practices will prepare you for a stress-free compliance audit so you can keep your reputation intact.

Examiners exist to ensure the safety and soundness of your credit union. It is also their responsibility to ensure processes are in place to protect consumers. Today, regulators are turning up the heat to make sure consumers can 100 percent trust the credit unions they do business with.

“Over the span of my career, I’ve experienced countless exams and have seen the steady increase in regulations and heightened scrutiny by examiners to ensure financial institutions are in compliance with those regulations,” said Lenny Swanger, director of audit services at Centris Federal Credit Union.

COMPLIANCE AUDIT BEST PRACTICES

Audits support the credit union’s compliance commitment and effectiveness, which in turn supports the safety and soundness of the credit union.

When preparing for an audit – whether it will be conducted by your own internal personnel or an outside partner – there are three best practices that will set your auditor up for success.

  1. Establish clear expectations.
  2. Provide documentation early.
  3. Be open to findings.

Establish clear expectations.

If a credit union is just now establishing a compliance management system (CMS) and needs to evaluate the current state of compliance, conducting a full suite of audits may be especially effective. However, many credit unions find that a deeper dive on the areas they determine are of greatest concern or risk yields more effective outcomes.

Talk with your auditor or auditing team to set clear expectations and priorities from the outset. Is an examiner coming in to look at a particular area? Have you uncovered concerns and need to determine if you truly have an issue? Perhaps you’ve found you need to test established controls on a scheduled timeframe based on your residual risk rating.

Share that information up front and set a timeline for completion that both you and the auditor agree is doable.

Provide documentation early.

Not handing over all the policies, procedures, training manuals, etc. up front can cause delays in your audit process. If an examiner is on the way, you will have a timeline you want to follow. Giving your auditing personnel what they need to be successful will ensure you have your report in hand well before your deadline.

Be open to findings.

Issues that prompt unscheduled audits are often the tip of the iceberg. Be prepared for the auditor to discover other areas that need your attention. Don’t become overwhelmed. A good auditor can assist you in creating a plan of attack.

A VIEW FROM THE OUTSIDE

A byproduct of a thorough compliance audit is a review of your credit union’s CMS. Auditors review policies, procedures, management oversight and compliance structure as they check off their technical compliance lists specific to an audit.

Regulators want more structure around compliance, and the outside perspective can often find gaps in that structure. Missing items or inadequate processes and controls are easier to spot when you perform hundreds of audits on all different sizes and types of organizations. That is why many credit unions are beginning to find greater value in audit assistance from an outside partner.

THE DISRPUTION MORE PEOPLE SHOULD BE THINKING ABOUT

There is so much talk of disruption in the financial services industry. Typically those conversations center on product innovation and competitive threats. Not as many are focused on the upheaval of increased examiner scrutiny. Yet the cranked-up pressure is creating just as much disruption – if not more – within the industry.

Many credit unions have already experienced higher expectations from the examiners who are visiting their cooperatives. And the stakes of failing to meet an agency’s rules are getting higher. With the right strategic auditing plan in place, however, credit unions will continue to impress examiners as the type of financial institutions that put consumers first.

Bambi Helm is director of audit services for regulatory compliance firm PolicyWorks. She oversees the end-to-end delivery of compliance audits and reviews to credit union clients, ensuring the audit programs are current, consistent and efficient. Reach her at bambih@policyworksllc.com.

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