INTERNAL CONTROL AND AUDITING IN SMALL BANKS
The following remarks are devoted to a review of the purpose of audits, what they are trying to accomplish, how they relate to internal control and what a small bank might do to establish or improve an audit program.
The purpose of auditing in banks, large and small, is to insure accurate presentation of financial statements, including the balance sheet and the results of operations. Accurate financial statements are important in safeguarding the stability of a bank, protecting the depositors and informing owners and management of operating results. The various regulators are also interested in protecting the depositor and insuring overall public confidence in the banking and monetary system. These regulators include the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the various state supervisors. Accordingly, banks are constantly involved with broad-brush audits which are performed primarily to determine overall financial stability. In addition to the audits done by the regulators, other audit work should be done. This can be accomplished using internal audit staffs, outside CPAs or some combination of the two.
The most important way to provide adequate protection for a bank is not by the use of auditing but through the establishment and maintenance of appropriate accounting controls. Many think of internal controls as those expensive, often impractical suggestions made by an auditor or examiner as a result of completing a "yes/no" checklist or questionnaire and that are received less than enthusiastically by management. However, bank management
has really been involved in internal control for years in many ways.
Since the bank's product in the marketplace is money, the commodity most susceptible to fraudulent manipulation, the banking industry has long
Thomas Y. Hartley Partner, Columbus Office
Presented before the Central Ohio Chapter, Bank Administration Institute, Columbus-April 1974