Pub. 9 2014-2015 Issue 2

www.nebankers.org 26 Extraordinary Service for Extraordinary Members. E VERY TIME THE REGULATORS VISIT YOUR BANK, YOU WILL hear the words “auditing” and “monitoring.” More and more bank regulators are recommending the need for a formalized monitoring process as well as risk-based audits. While we all agree to put these processes in place, or perhaps to simply enhance the process currently in place, it is hard to distinguish exactly what the regulators are asking the bank to do. To develop a better understanding, let’s review the differences betweenmonitoring and auditing, so the next time your bank is asked about its process, you can feel confident in the program implemented at your bank. While auditing and monitoring are similar, differences exist between the two. The concept of auditing is self-explan- atory in that the audit process performs auditing activities on a scheduled, repeated basis, at a specific point in time, in order to provide assurance to senior management and the board that the bank is complying with rules and regulations as well as staying within the risk parameters set by the board, for the bank. On the other hand, monitoring is the continuous testing of transactions and processes to ensure specific areas are operating within the regulatory and board requirements. So why does the bank need to have both auditing and monitoring? In a continually evolving regulatory environ- ment, with increasingmarket pressure to improve operations and rapidly changing business conditions, more timely and ongoing verifications are needed to show that controls are in place and are working effectively. Banks should have an ongoing monitoring process in place to identify any potential weaknesses before they become problems. To fully understand the difference in the two, let’s take a closer look at what each function offers. Auditing consists of two main components: risk assessment and control assess- ment. Risk assessments identify and evaluate risk levels by examining trends and comparisons within a single process or system. These processes are then compared to their past performance, controls, and the systems. For example, product performance is compared to previous-year results and also is  Monitoring — continued on page 28 Auditing Versus Monitoring Darlia Fogarty, Director of Compliance, Compliance Alliance