Internal Audit of Banks Checklist

An effective internal audit is key for banks in order to closely oversee processes and business practices within the institution, while providing comfort and assurance to statutory auditors.

An internal audit should remain impartial and objective in its operations and daily control processes, providing objectivity and impartiality. An auditor should also have the freedom to report their findings or opinions through an open reporting line.

Audit Plan
Much like how locker room morale often determines the performance of sports teams on the field, the established control environment of a bank impacts how effectively its internal audit function can function. Both internal auditor and board of directors play major roles in setting an environment which promotes and facilitates control activities and their value.

An important first step of an effective audit is creating an audit plan, detailing its frequency and timing based on risk analysis. This allows the audit department to define their scope of work as well as which processes or departments they must review.

Prior to meeting with business stakeholders, the audit committee and management must establish a high-level understanding of their objectives for the audit plan/program(s), key processes, and departments by reviewing and validating draft narratives/flowcharts with subject matter experts before presenting these documents to business stakeholders.

Audit Team
An internal audit team must be independent and free to report its findings without interference, which is only achievable if its head has direct reporting lines to both internal and external auditors. In addition, records and files must be accessible so as to allow its work to continue effectively.

Step one is to meet with management to review their audit plan, gathering input from directors, managers and supervisory staff as well as receiving them directly in person or via video conference. This meeting may take place either face to face or virtually.

An internal accounts payable (AP) audit is an integral component of financial governance, internal control and compliance in banks. This process ensures all payments to vendors and suppliers are accurate, complete, and adhere to applicable regulatory standards. An AP audit team can identify potential risks or gaps in financial systems and internal controls as well as suggest improvements that save the organization money while improving customer experiences.

Audit Procedures
Independent assessments of bank operations increase trust in their ability to effectively manage risk and provide reliable financial services, and give the internal audit department the ability to detect fraud or any other forms of misconduct in addition to creating a culture of integrity and compliance in the bank.

An auditor can assess the competence and objectivity of an internal audit function by evaluating its independence, communication with management personnel, effectiveness of its work, capacity for assignment completion and its expected effects on its own activities, such as coordinating these with those of another entity’s audit function.

Internal audit of banks focuses on evaluating the reliability, adequacy and effectiveness of processes and information and communications systems that support bank safety and soundness. Procedures may include testing controls designed to ensure accounting transactions are recorded accurately, operations run efficiently and risks are managed effectively.

Working Papers
Internal audit processes in banks are essential in ensuring compliance with policies and procedures, but internal auditors must be free to carry out their work without interference or influence from outside sources. The head of internal audit function should also report findings without fear of reprisals from management.

Working papers are an auditor’s planning documents, test results, and analytical procedures for each engagement. To facilitate review by supervisors and other members of their audit team more easily, these should also contain an index to make finding items easy while providing a complete record of the audit process.

Audit engagements will involve more than reviewing working papers; audit engagements typically include interviewing selected employees and other individuals; reviewing documents and records; performing functional walk-thrus; and testing activities from beginning to end. Audit reports must contain sufficient data and analysis in order to fulfill audit objectives.