How to Measure the Effectiveness of Your Credit Union’s Internal Audit Process
Credit unions — like banks and other financial institutions — are subject to strict regulatory oversight which carries significant reporting and auditing requirements. These regulations are intended to maximize efficiency and improve accountability in an industry that was largely unregulated until the early 2000s when a number of major banks failed. Internal Audits can go a long way toward helping you achieve regulatory compliance. To ensure you get the most out of your credit union’s internal audits, you need to make sure your internal audit process is working correctly. This is why it’s important that you either know or learn how to measure the effectiveness of your credit union’s internal audit process.
Regulatory Compliance and Your Credit Union’s Internal Audit Process
The bank failures of the early 2000s seriously disrupted the public’s trust and shook their confidence in the financial system as a whole. These events highlighted the need for oversight, accountability, and transparency, leading to the formation of regulations and legislation such as the 2002 Sarbanes-Oxley Act (also known as SOX.)
Large, publicly-held companies — including major banks and credit unions — are now required to be SOX-compliant. SOX compliance requires the submission of annual financial reports and audits. SOX is a fairly unique piece of legislation in terms of how much attention it gets because it’s one of the few regulations that can lead to more than just monetary fines and penalties. Non-compliance with SOX regulations can lead to jail time,
As legislation that was passed in the early 2000s, SOX came on the scene at a time when newspaper headlines announced multiple high-profile scandals in the financial space. The 2002 Sarbanes-Oxley Act was passed with the intention of promoting greater accountability and improved transparency within the financial sector. Today’s financial institutions are tasked with providing audits and reports that prove that all of their dealings are, in fact, honest and transparent. SOX legislation affects companies in virtually all industries, including the financial space.
Additional examples of government organizations that oversee the financial space include the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Like SOX, they too carry requirements for reports and audits.
Regulatory Compliance and Risk Management Strategy
Achieving and maintaining regulatory compliance ought to be a key component of any company’s risk management strategy. As such, credit unions are tasked with measuring the effectiveness of their internal audit processes. But how do you evaluate these processes in an effective way that generates actionable steps for improvement?
How to Evaluate Your Credit Union’s Internal Audit Process
Evaluating your credit union’s internal audit process is a multi-step engagement. When all is said and done, you should have actionable steps that will allow you to optimize the internal audit process for your credit union.
One of the points of evaluation that’s specific to credit unions is the 5 Cs, which are as follows.
- Criteria
- Condition
- Cause
- Consequence
- Corrective Action
Internal auditors typically use a process that’s centered around the 5 Cs, and as such, an evaluation of efficacy ought to include an examination of how these process flows are being performed.
Additionally, there are five assertions that comprise the internal audit standards. They are put forth in the International Standards for the Professional Practices of Internal Auditing as follows.
- Existence
- Completeness
- Obligations / Rights
- Valuation
- Disclosure
As your reporting and auditing evaluation task force performs a review of the credit union’s internal audit process, there’s a specific process that should be followed.
Evaluation of Regulations and Laws
The evaluation of your credit union’s internal audit process should begin with a comprehensive review of applicable laws and regulations. You need to have a firm understanding of what legislation and regulatory compliance obligations must be met since this will guide your credit union’s internal audit process.
Identifying Challenges and Obstacles
The task force must identify any and all challenges, obstacles, and pain points that the internal auditor has confronted. These challenges can have significant effects on the company’s internal auditing processes, so they must be taken into consideration as you perform an evaluation.
Reviewing the Auditing Plan
The auditing evaluation task force should take time to review the internal audit plan to ensure that it aligns with the company’s risk management plan and its broader business strategy.
Recommending Improvements and Developing a Plan for Deployment
Once the internal auditing process has been reviewed and evaluated, it’s time to offer recommendations for changes that will improve the overall auditing process. These improvements should augment the audits in a way that also serves the credit union’s best interests.
Also, consider implementation and deployment for the changes that you’re going to be recommending. It’s not uncommon for multiple enterprise software systems to be affected, which means you’ll need to consider the potential impact on operations, amongst other things.
Updates and Monitoring for Your Credit Union’s Internal Audit Process
The auditing task force ought to establish a process for monitoring progress and receiving updates on the company’s latest internal auditing-related projects. This ensures that the auditor remains on track in a manner that aligns with the credit union’s broader business strategy.
Regulatory oversight accounts for a large segment of a credit union’s risk management strategy and the consequences for noncompliance are significant. This underscores the importance of having a robust and effective internal auditing process. Any slips in this area can have an adverse impact downstream, leading to reporting problems that may affect a credit union’s ability to prove its compliance.
In addition to verifying the actual internal audit process, a credit union may also wish to confirm that all necessary data governance measures and third-party integrations are active and working properly. Data flow interruptions have a dramatic impact on reporting capabilities and data retention too. If data isn’t flowing properly into the system, you will end up with gaps in your reports. Those data gaps may constitute record-keeping law violations, leading to major consequences such as fines and penalties.
Data retention settings are another area that should be investigated and verified as part of the task force’s review of the credit union’s internal auditing processes. Certain types of data must be retained in a safe, secure data management platform for a pre-specified period of time in order to meet record-keeping requirements. Data may be purged and lost if your data retention settings are askew, so it is essential that these settings are periodically verified. A well-architected data management platform will have monitoring capabilities for this sort of setting, with an alert generated if the integration is lost or disrupted in any way.
Credit unions deal in sensitive financial data too, so there are a number of cybersecurity-related rules to take into consideration as well. The goal is to provide a secure data management platform, with encryption, firewalls, and other protective measures that will keep clients’ financial data safe from cyber criminals, ransomware, viruses, and data theft attempts.
The Right Technology for Risk Management, Reporting, and Auditing
Finding the perfect enterprise risk management software can have a tremendous impact on your company’s internal reporting and auditing processes. A well-architected platform will boost overall productivity and efficacy for your auditing and reporting efforts. You’ll also be equipped with tools for monitoring and oversight, which is ideal for measuring the effectiveness of your credit union’s internal auditing process.
At iTech, risk management and data governance software platforms are among our specialties. We work one-on-one with the client to gain an understanding of their needs and objectives as a business. Then, we develop a solution that helps the client to meet those goals. Contact the iTech team today to begin a dialogue on your credit union’s internal auditing and reporting efforts and how we can help create technology to elevate your processes, improve efficiency, and bolster your bottom line.