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The prudential regulatory agencies (FDIC, OCC, etc.) and FinCEN require banks to have compliance programs that contain, and address, pillars of compliance. One of those pillars is the requirement that a bank “provide for independent testing for compliance to be conducted by bank personnel or by an outside party”. Even when the laws and regulations do not change we all know that regulatory focus quite often fluctuates because of increased scrutiny in certain areas which are likely created by enforcement actions.
The bulk of the guidance regarding this pillar is found in the Interagency BSA/AML Examination manual. The examination manual states that testing can be performed by a bank’s Internal Audit department or by an outside qualified independent party and there has been much debate over the years regarding the level of independence, and knowledge base, of any internal or external party that can perform such an audit. The examination manual provides stipulations as to the frequency of these audits; its relationship to the BSA risk assessment; the intended recipient(s) of the audit report; the degree of transaction vs system testing and a host of other issues that need to be addressed.
Banks that desire to save on the cost of what is normally a costly external audit can learn whether they might be able to in-source this function and bank’s that must outsource this function to third parties can gain a better understanding of what is expected by regulators and how to properly scope, oversee, and minimize the cost of this audit process.
Numerous banks were cited for deficiencies regarding their independent testing program in 2016 and these enforcement actions were very public. Whereas other compliance related audits are optional this audit or independent testing is required by statute. Banks often use this audit process to their advantage in minimizing the potential for examination findings and costly, plus embarrassing, corrective actions and civil monetary penalties.
Common themes of 2016 enforcement actions involved lack of independence, poorly scoped audits, and inadequate knowledge base of those parties that were responsible for conducting such audits. The key is to focus examiners attention on the adequacy, scope and transaction testing of your independent BSA audit rather than allow them to expand their scope and conduct additional testing. This two-hour recording will provide a level of knowledge that bank personnel and management can utilize to oversee, or conduct, the audit process and ensure the bank is meeting regulatory expectations and minimizing costs.
Upon viewing participants will understand:
- What documents, or information, should be requested by either a bank’s Internal Audit department or a third party prior to, or during, such audits;
- What topics or subject matter is within the scope of such audits and needs to be addressed in the final report;
- Degree of transactional testing vs system testing;
- How the audit is related to, and differs from, internal monitoring;
- Background and experience of internal or external personnel conducting such an audit;
- How to determine if the party conducting such an audit is “independent”;
- The relationship between the audit and the examination report;
- How to identify what processes or transactions need to be tested and the adequate level of such testing;
- Primary findings and required corrective actions noted in recent enforcement actions; and
- How to address corrective actions including timing and comprehensiveness.
This program is designed for BSA and Compliance Officers along with their staffs; Internal Audit managers and their staffs; members of bank management which oversee the BSA or Audit functions; and personnel that work in a bank’s Deposit Operations or Branch Administration departments.