Pub. 3 2014 Issue 8

November 2014 27 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s B OTH THE OFFICE OF THE COMPTROLLER of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have rules requiring annual or continuous “audits” of a bank’s fiduciary activities. Section 9.9 of Title 12 provides guidance for national banks, while the FDIC Statement of Principles of Trust Department Management contains federal rules for state-chartered banks. Unfortunately, most trust audits for community banks are performed solely to satisfy regulatory requirements. If annual audits weren’t required, trust audits likely wouldn’t be performed. That’s the same sad story for many risk management functions in community banking—instead of risk management, it is thought of as compliance management. The risk management regulations for trust departments have been put in place for good reason and, if performed adequately, can provide benefits for your fiduciary activities. We’re going to focus on seven benefits that arise from performing annual trust audits: 1. Required – The first reason for a trust audit is regulatory compliance. There are several off-the-wall regulations, so don’t let one of the obvious ones get you in trouble. 2. Different eyes – Have you ever written something, edited it yourself and then had someone tell you about a typo or grammar mistake? The same philosophy applies to your fiduciary work. A second set of eyes will see things you did not. If you have experience on your side, you are probably pretty confident you’ve done things correctly. Can you be so confident about everyone else in your department? Besides, no one is perfect. You’re going to make mistakes. It’s never a bad idea to identify those mistakes so you can learn from them and stop them from occurring again. 3. Protect yourself – Being audited is not necessarily the most pleasant experience in the world; no one likes to be criticized. However, going through a successful audit should give you comfort. As an auditee, you should have confidence that the controls in your department are reviewed by trained auditors. Many trust department controls were designed to keep you from being suspected if assets go missing or something goes awry. 4. Better the auditor than the regulator – If someone is going to find a mistake, regardless of how big or small, you want it to be the auditor instead of your regulator. It’s much easier to swallow a finding from an internal audit report than a regulatory exam report. Of course, if you can identify an error or a risk internally before any audit or exam, that’s the best. Unfortunately, you’re typically too busy doing your “day job” to look for errors and risks. That’s why we have auditors and regulators. 5. New rules – The regulatory environment changes every day, and it’s hard to keep up with all the new rules and industry changes—remember when Regulation R was released and all the questions you had? Hopefully, your external auditors have practical experience and work with several trust departments requiring them to keep up with the changes. If they’re not keeping up, that’s an issue. 6. Best practices – The biggest benefit of having a trust audit, especially from an outsourced relationship, is the best practices the audit can bring to the table. External auditors can pull from their experience with other clients and tell you what works best. Of course, any external auditor must abide by its confidentiality agreements, but it can share practical advice regarding what others do in the industry. An internal resource performing the trust audit will not have the luxury to see what others in the industry are doing. Hopefully, that person is encouraged to attend industry conferences and network with peers, which will at least offer other perspectives. 7. Another resource – Trust auditors can serve as an additional resource for your personnel. Many people don’t like to ask their examiners for opinions or advice and are more willing to talk with auditors. Use your auditors as the trusted resource they want to be. They have valuable knowledge and experience to share. Hopefully, when it comes time for your next trust audit, instead of worrying about what the auditor may find, you’ll think about these benefits and be more receptive to the audit process. Trust audits, like any other type of internal audit, are performed to help identify risks. Isn’t that what you want? Robert Purdy is a member of the BKD National Financial Services Group. He is a Certified Trust and Financial Advisor who assists clients with SOX con- sulting, information risk assessments, asset liability reviews, ACH audits, trust audits, loan review services and internal audits. This information was written by qualified, experienced BKD professionals, but applying specific information to your situation requires careful consideration of facts and circumstances. Consult your BKD advisor before acting on any matter covered here. Article reprinted with permission from BKD, LLP, bkd.com . All rights reserved. TRUST AUDITS: SEVEN BENEFITS YOU SHOULD SEE EVERY TIME By Bert Purdy, BKD