Allies in Auditing

By Motley, Apryl; Sponsler, Fran V. | Independent Banker, April 2011 | Go to article overview
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Allies in Auditing

Motley, Apryl, Sponsler, Fran V., Independent Banker

How outsourcing your community bank's compliance audits could help gain efficiencies and cost savings

Broadly speaking, an audit is an official examination and verification of accounts and records, especially of financial accounts. Put that way, an audit doesn't sound quite so bad. However, the various audits required by the financial regulatory agencies can prove challenging for those community banks lacking the necessary resources and staff to complete them in-house.

For those banks, staying abreast of new regulations can be a monumental task. Auditing a community bank's overall compliance policies and procedures can sometimes be more efficiently managed with the assistance of an outside consulting firm with the appropriate special expertise.

"Regulations kept evolving, and our compliance officer was wearing many hats," recalls John D. Marchell, president of First State Bank, a $136 million-asset community bank in South Grand Forks, N.D. "We decided it was time to have someone come in and focus solely on compliance." Thus began the bank's decade-long relationship with Phoenix-based accounting firm Eide Bailly LLP.

Similar concerns led $405 million-asset American Founders Bank in Lexington, Ky., to outsource its compliance audit function. "We're a small bank, and while we have an internal auditor, she manages audits more than she actually does them," explains Stephanie Renner, a senior vice president at the bank and head of compliance and administration. "She does other things, and it's difficult to keep the review independent. Banks our size need an outside auditor." American Founders began working with Bankers Service Corp., a regulatory and risk management consultancy also in Lexington, three years ago when the firm handled the bank's loan reviews, but for the past year, the relationship has focused on compliance.

Rock Springs National Bank, a $341 million-asset institution in Wyoming, started a similar outsourcing relationship with Denver accounting and advisory firm Fortner, Bayens, Levkulich & Garrison PC to help the community bank better manage its overall compliance program irrespective of any changes in its staff. "I came to the bank 15 years ago as an internal auditor," says Ben Hansen, the bank's chief financial and trust officer. "We tried hiring someone from an accounting firm and teaching him what to do, but he left the bank after three years. We ended up back at square one, and that doesn't happen when you outsource."

From enhancing their compliance programs and becoming more efficient to managing staff changes, here's a closer look at how these three community banks have made the most of their relationships with the firms that oversee their compliance audits.


First State Bank, which has three locations, hired its first full-time compliance officer last year. According to Marchell, the community bank did so with the expectation that this staff member would work closely with its outsourced compliance vendor, Eide Bailly.

"You're never totally outsourced. You have to have someone on staff at the bank," Marchell says. "Regulators look for day-to-day practice. You can't just say, 'I've hired a firm, so I don't have to worry about compliance anymore.' It's an ongoing effort between the vendor and the bank."

Ann Rockswold, a senior manager at Eide Bailly, worked with First State Bank initially to establish its relationship with the firm. She agrees with Marchell that stronger compliance programs are collaborative efforts between banks and their vendors: "Working with a consultant will lessen the workload internally and provide efficiencies, but the work doesn't go away entirely. Management has to support staff internally and provide the resources and time needed to make the program successful."

Staff members from Eide Bailly come into First State Bank quarterly to perform audits; the most recent was of the bank's compliance with the Fair Credit Reporting Act.

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