A bank audit is a routine procedure designed to review the services of financial institutions to ensure they are in compliance with laws and industry standards. An accounting specialist known as a bank auditor carries out the review. Bank or credit union audits can be internal audits or external audits.
The focus of a bank or credit union audit is on compliance. Its purpose is to discover if the institution’s financial activities are accurate, legitimate, and complete. Its primary goal is to provide an independent evaluation of the bank’s activities, controls, and information systems. Tests are carried out on the systems, findings are generated, and auditors recommend corrective actions the bank needs to take.
Risk-based bank audits identify risks, including:
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Liquidity
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Price
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Compliance risk
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Strategic risk
The institution’s risk management processes are reviewed.
The auditor examines financial transactions, bank wires, automated clearing house (ACH), and the bank account monetary flow to ensure the accuracy, completeness, and timeliness of transaction recording. Financial and regulatory reports are examined to determine if they were filed as required. Tests are conducted to identify inaccurate, incomplete, or unauthorized transactions. Control testing is used to identify whether the bank is operating in an appropriate and effective way.
Most importantly, the bank audit uncovers violations of laws or regulations governing financial institutions and failures in following the bank’s own policies. Bank auditors look for the root cause of issues they find so that they can make beneficial recommendations. Their findings are documented and kept on file by the bank.
Bank audits are necessary to ensure the bank’s practices are sound. Yet, bank audits can be distressing for the bank managers. Several audit software solutions can help the bank stay in compliance so that their bank audits go as smoothly as possible.
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