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Tips to prepare your community bank’s next compliance exam

By Ruth Razook

One thing bank executives can always count on is another exam. Regulators routinely come knocking. By proactively addressing the following common compliance challenges and learning ways to effectively deal with them, bank executives can always be fully prepared for the inevitable compliance exam in their future.

The first compliance challenge that banks face surrounding an audit relates to the overwhelming role and responsibility they place on their compliance officer. Although the compliance officer has authority and expertise in this area, banks can and should relieve some of this person’s heavy burden by making compliance a company-wide team effort, with this mindset resonating throughout the entire organization. Compliance has to be part of the company culture. It is not one person’s responsibility. Employees must stop thinking that the compliance officer will catch all their mistakes or else they risk putting the organization’s ability to be in compliance in jeopardy.

The best way to quickly implement processes and procedures in order to comply with these regulations is by increasing the number of qualified employees and requiring their compliance officers to attend industry seminars, conferences and certification programs. Sharing knowledge and interacting with peers facing similar issues helps arm employees with the latest information to fully and successfully address regulatory changes. Technology vendors can add additional support, but it is essential for banks to primarily rely on human intelligence before implementing new technology. Experienced and knowledgeable employees help the compliance officer much more than an automated system.

Documentation is simply vital to proper compliance. Banks get in serious trouble when employees do not track the observations and recommendations from previous audits, especially if it leads to repeat findings in future audits. The best way to stay on top of these items is with a tracking log that documents all audit notes and examiner comments. The more often the log is updated and acted upon, the more likely the bank is to be in compliance and pass the next audit. Best of all, maintaining such a log is an inexpensive and simple procedure.

Another way that banks ensure they are in compliance is to choose to have an unscheduled internal spot audit. In this example, bank executives hire a consultant to arrive at the bank unannounced, similar to a real audit, and perform a thorough examination. This method promotes a consistent, ongoing standard of excellence throughout the bank and eliminates procrastination of keeping up with the tracking log.

Compliance audits are not going away. The best approach to passing your bank’s next audit is to create a culture of compliance to relieve your compliance officer of some of his or her burdens, increase headcount with experienced and knowledgeable employees, and be proactive about implementing practices like tracking logs and unannounced spot audits. Not only will your community bank pass its next audit, the entire organization will be working in the most cohesive and effective way possible.


Ruth Razook (Ruth.Razook@rlrmgmt.com) is founder and chief executive officer of RLR Management Consulting Inc. in Palm Desert, Calif., a regulation and management consulting firm serving community banks.

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