XI Meeting of Central Bank Internal Auditors

Transcription

1 XI Meeting of Central Bank Internal Auditors Federal Reserve Update: Structure and Responsibilities of Reserve Bank Audit Committees Marybeth Traverso, Manager Division of Reserve Bank Operations and Payment Systems Board of Governors of the Federal Reserve System Washington, D.C.

2 Agenda Federal Reserve Administrative Manual (FRAM) Recent Survey of Federal Reserve Banks Development of Model Charter Audit Committee Structure Audit Committee Responsibilities Questions 2

3 FRAM Policy in place since 1945 to document required duties and responsibilities of Reserve Bank audit committees Audit committee responsible for assessing the effectiveness and independence of its Federal Reserve Bank s internal audit function 3

4 Recent Survey of Federal Reserve Banks The Federal Reserve Board of Governors (Board) conducted a survey about Reserve Bank audit committee charters. Results: The core substance of the charters was generally consistent among the Reserve Banks. All charters conform to Board policy. Outside the core elements, there were some notable differences. 4

5 Recent Survey of Federal Reserve Banks The notable differences among the charters include the following: Three audit committees are explicitly prohibited from overseeing or considering issues related to the local bank supervision and regulation function. Two audit committees must explicitly approve the release or sharing of internal audit reports with parties outside of their Banks. Six charters specifically reference the IIA standards when discussing oversight responsibilities for the internal audit function. Ten charters specifically reference responsibility for overseeing or monitoring their Reserve Bank s risk-management program or processes either directly or through the internal audit function. Two audit committees are explicitly responsible for overseeing System responsibilities or System audits for which their Reserve Banks have responsibility. 5

6 Development of Model Charter As part of our analysis of the survey results, we developed a model charter, which we shared with all Reserve Bank audit committee chairs and general auditors. The model charter is advisory in nature and includes provisions that audit committees may wish to consider including in their charters. 6

7 Audit Committee Structure Comprises at least three members of the Reserve Bank's board of directors All must be independent and financially literate. At least one should have banking, accounting, or other relevant financial proficiency. Acts on behalf of the Reserve Bank's board of directors Adopts a formal written charter (typically reviewed annually), which is approved by the full board of directors and which specifies the scope of the Audit Committee's responsibilities 7

8 Audit Committee Functions Assess and ensure the effectiveness and independence of the Reserve Bank's internal audit function in conformance with the Institute of Internal Auditors' Standards for the Professional Practice of Internal Auditing, focusing on three key areas: financial reporting efficiency and effectiveness of operations compliance with laws and regulations Review and approve the annual internal audit program and ensure that the proposed coverage is reasonably expected to result in an appropriate level of audit attention Review and approve an annual internal audit budget that is sufficient to carry out an effective audit program 8

9 Audit Committee Functions (cont.) Ensure that audit recommendations and concerns reported by the Board of Governors, the general auditor, or external auditors receive proper attention by Reserve Bank management Ensure that the general auditor has access to the board of directors (on a confidential basis) and to the documents and individuals needed to accomplish his/her assigned responsibilities and that the audit function is independent of Reserve Bank management Formally evaluate the performance of the general auditor and review all actions affecting his/her salary or classification Recommend to the board of directors the appointment and termination of the general auditor and concur with any reassignment of the general auditor to another position in the Reserve Bank 9

10 Audit Committee Functions (cont.) Be prepared to answer inquiries from the Board of Governors, external auditors, or other governmental entities, especially concerning fraud and the mitigation of fraud risk Meet with the external auditors to discuss the Reserve Bank's financial statements and issues arising from the annual external audit Ensure that audit recommendations and concerns receive proper attention by Bank management Establish procedures for the confidential, anonymous submission of accounting and auditing complaints and concerns or concerns regarding compliance with laws and regulations more generally (whistle-blower procedures) Review the performance of the audit committee annually 10

11 Questions? 11