CPA's Assistance in Bank Directors' Examinations
by DAN P. FULTON In-Charge Accountant, Houston Office
Presented before the Gulf Coast Conference of the National Association of Bank Auditors and Comptrollers, Houston—April 1961
BANK defalcations are not uncommon if we can accept recent news-papers as a criterion. Bank depositors and stockholders alike cannot help but wonder why some of the more publicized bank irregularities
were not detected much earlier than they were. Contrary to popular belief, examinations by federal and state examiners do not have as their purpose the detection of fraud or correction of internal control weaknesses, but rather are conducted to determine the bank's financial position, or solvency, and compliance with appropriate laws and regulations.
Many bank shortages of significance could be detected, and even prevented, by an active examining committee composed of the bank's directors. Although there is no statutory requirement, federal or state, that bank directors make periodic examinations of either national or state banks in Texas, except as may be required under the by-laws of the bank, the directors have a real and moral responsibility to the bank's depositors and stockholders to see to it that the bank's assets are properly safeguarded and the possibility of losses to depositors and stockholders reduced to a minimum.
If a committee of any sort is to be successful it must have guidance
and the knowledge that it is getting somewhere; this is especially true of a bank directors' examining committee. For the most part, examining committees are composed of individuals from various walks of life. Such committees might be composed of any combination of business men and representatives of other professions, few of whom may have had any training as accountants or auditors or have knowledge of banking and the internal operations of a bank. Without professional supervision and guidance the committee's time is apt to be spent on a fruitless maze of details and in laborious effort, with the possibility of existing irregularities going undetected (and consequently
uncorrected), and of the bank's employees becoming convinced
that the directors' examining committee knows little about the details of banking and less about bank examinations. One way to obtain the guidance and professional skill so vital to the examining