Community Bank Audits Provided by The Whitlock Co.

Has a bank examiner pointed out what things your institution needs to do better to comply with regulations? Does your bank need to perform any of its annual audits as required by law?

It’s important to get an objective third party to assess your organization’s risk and compliance so that you can make the best decisions and have the best strategy to strengthen your bank’s financial position.

Keep reading to learn more about our community bank audit services at The Whitlock Co.

Directors’ Exam/Internal Audit Outsourcing

The Directors’ Exam is an internal audit product that is deemed less rigorous than a financial statement audit and is generally performed during one annual visit with the purpose of meeting any applicable state minimum audit requirements.  While designed to accomplish this goal, bank management often requests that procedures be expanded so that coverage includes an examination of all balance sheet accounts.  This may include testing of account reconciliations and the performance of other procedures which provide further assurance of both regulatory compliance and accurate reporting.

Our Internal Audit Outsourcing service provides a more in-depth analysis of the Bank’s policies, procedures, and processes.  The objective of the engagement is to assist management, the audit committee, and the Board of Directors in performing its internal audit procedures.  The Whitlock Co. will evaluate your community bank’s risk management practices and internal controls during multiple visits throughout the year.  We will also determine whether internal controls result in prompt and accurate recording of transactions while focusing in on segregation of duties and fraud prevention measures.  Our testing will ultimately help verify that the Bank is adhering to established policies and procedures. Areas covered during the engagement are dictated by management and are generally based on the bank’s audit risk assessment.

With both the Directors’ Exam and Internal Audit Outsourcing engagements, we will identify any potential issues that could impact financial stability.  Any weaknesses identified will be noted, with suggested improvements to be made ahead of the next regulatory bank exam.

What you will receive from these engagements:

Written Report 

• Overview with a summary of the examination’s scope, objectives, and methodology.
• Observations and findings in specific areas where the bank may have potential weaknesses or areas for improvement.
• Recommendations that offer practical suggestions for addressing identified issues and enhancing the bank’s overall risk management and governance practices.

Executive Summary

A more concise version of the written report, focusing on key findings and recommendations.  This is typically tailored to the bank’s management team, highlighting areas that require immediate attention.

Exit Interview/Meeting 

The Whitlock Co. team will meet with the bank executives and the Board of Directors, when requested, to discuss preliminary findings and recommendations.  You and your team can ask questions, clarify findings, and discuss potential corrective actions.

Loan Review

The Whitlock Co. can conduct a thorough loan review to evaluate the quality and performance of your community bank’s loan portfolio. This review ensures that your organization’s lending practices align with the bank’s policies, regulatory requirements, and sound risk management principles. The overall goal is to mitigate credit risk and safeguard financial stability.

The fundamental steps of the loan review process are as follows:

• Detailed analysis of individual loans and repayment risks
• Identification of any lapses in loan documentation
• Determining compliance with lending policies and procedures
• Highlighting credit risk management priority findings
• Recommending best practices and procedures to address the priority findings
• Evaluating your bank’s risk grades and their accuracy

The loan review by The Whitlock Co. begins with a complete analysis of individual loans, focusing on key aspects such as creditworthiness, repayment history, and adherence to underwriting standards. Loan files are examined for documentation accuracy, proper risk grading, and compliance with your bank’s lending policies. The goal is to identify loans that may be underperforming or at risk of default, enabling your bank to take proactive measures to address them.

Finally, we will report on our findings and recommend corrective actions. The review team provides the bank’s management with a detailed report highlighting risks, policy deviations, and potential problem loans. Your management team will receive an executive summary, a detailed report of the findings, and recommendations to fix any potential problems.

Interest Rate Risk Review (IRR)

An interest rate risk review (IRR) is aimed to thoroughly assess and validate a bank's risk management model and to determine whether the model accurately and consistently predicted net interest margin outcomes. This includes evaluating the effectiveness of its risk measurement systems and controls, ensuring data inputs were accurate and complete, testing risk projections under various rate shock scenarios, and confirming the reliability of calculations.

Our review process may encompass:

1. Reviewing the system of internal control over the interest rate risk management process.
2. Reviewing policies and relevant committee minutes.
3. Discussing the interest rate risk profile with bank management to determine the flow of information and the processes used for the generation of data.
4. Reviewing controls in effect to determine whether an effective process is in place to ensure the completeness of uploaded data.
5. Comparing current data in the model to previous quarterly reports.
6. Reviewing the reasonableness and accuracy of assumptions utilized to adjust data and reports to align with the bank’s asset liability structure.

Our findings and conclusions (deliverables) may include the following:

• Internal controls assessment as to whether your bank’s internal controls are adequate.
• Report on the accuracy and completeness of data input and assumptions within the risk system.
• Interest rate backtest report
• Summary of conclusions and any recommendations

Bank Secrecy Act Audit

Your community bank requires a Bank Secrecy Act (BSA) audit every 12 to 18 months. The Whitlock Co. can serve as an independent auditor for this comprehensive review of your institution’s compliance with the Bank Secrecy Act (BSA) and related anti-money laundering (AML) regulations. The goal of this BSA audit is to identify weaknesses in your bank’s compliance program and safeguard against illicit financial activities such as money laundering, fraud, or terrorist financing.

We start with a thorough assessment of your community bank’s written BSA/AML policies and procedures to determine their adequacy and effectiveness. This includes reviewing the bank’s customer identification program (CIP), customer due diligence (CDD) practices, and enhanced due diligence (EDD) for high-risk customers. We will evaluate whether these policies align with regulatory requirements and whether they are effectively implemented by the bank’s staff.

The Whitlock Co. also closely examines transaction monitoring and reporting processes. We will evaluate your bank’s systems for detecting and reporting suspicious activities through suspicious activity reports (SARs) and currency transaction reports (CTRs). This includes assessing the accuracy, timeliness, and completeness of filings, as well as the effectiveness of automated monitoring systems in identifying unusual patterns or red flags in customer transactions.

The final stage of the BSA audit involves testing the bank’s internal controls and staff training programs. The Whitlock Co. reviews the effectiveness of internal controls designed to prevent and detect noncompliance, as well as the adequacy of employee training on BSA/AML requirements.

Your deliverables may include:

• An executive summary highlighting key findings
• Complete report and detailed findings
• Specific recommendations to address deficiencies, compliance issues, due diligence, and risk management
• Corrective action plan
• Supporting documentation
• Exit meetings with bank leaders

Compliance Audit

A community bank typically needs a compliance audit once a year unless regulators find a lack of compliance that might require bi-annual or even quarterly audits. A compliance audit conducted by a third party such as The Whitlock Co. ensures that your community bank operates within legal and ethical boundaries, mitigating the risk of fines or penalties. This forms a vital part of your bank’s overall risk framework.

The Whitlock Co.’s audit team starts with a complete review of your community bank’s compliance framework, including policies, procedures, and controls. We will assess whether these align with regulatory requirements, such as the Equal Credit Opportunity Act (ECOA), the Truth in Lending Act (TILA), or the Community Reinvestment Act (CRA). The goal is to verify your institution’s compliance structure is robust and that management fosters a culture of accountability and transparency.

Next, we closely examine operational areas for adherence to regulatory standards. This includes looking over processes for loan origination, deposit account management, advertising, and disclosures to ensure compliance with consumer protection laws. Additionally, the audit team checks for compliance with anti-money laundering (AML) rules, privacy laws, and fair lending practices. Any deviations or weaknesses in these processes are documented for further action.

The Whitlock Co. will also assess whether employees have received adequate training on regulatory requirements and understand how to implement compliance policies effectively. They also review the institution’s methods for identifying, reporting, and addressing compliance violations.

Your deliverables may include:

• An executive summary highlighting key findings
• Complete report and detailed findings
• Specific recommendations to address deficiencies in compliance management, risk mitigation strategies, and employee training
• Corrective action plan with a timeline and steps needed to address compliance deficiencies
• Supporting documentation
• Exit meeting with bank leaders

ACH Audit

Your community bank must have an annual ACH audit as required by NACHA to assess your ACH operations against regulatory guidance, industry best practices, and potential risk vulnerabilities. An ACH Audit conducted by The Whitlock Co. includes an analysis of the bank’s operational processes, originator activity, and RDFI functions including proper handling of federal government payment entries.

First, The Whitlock Co. reviews your institution’s ACH policies and procedures to confirm alignment with NACHA Operating Rules and Guidelines. We look closely at the authorization process for ACH transactions, ensuring that proper agreements are in place with originators while verifying originator limits are periodically reviewed to ensure the bank is limiting their liability and risk of loss. Our auditors also assess whether your community bank complies with record retention guidelines and other administrative requirements.

Next, we will evaluate transaction processing to ensure compliance with NACHA Operating Rules. The Whitlock Co. will check whether ACH files are originated, received, and settled in a timely and accurate manner. This assessment includes confirming that proper formatting is used for transactions, verifying that return entries and notifications of change (NOCs) are processed within required timeframes, and ensuring adherence to transaction limits and thresholds.

Risk management represents another essential focus of the ACH audit. Our team will also review processes for managing exposure to operational, credit, and reputational risks associated with ACH activities.

Your deliverables may include:

• Executive summary
• Complete audit report, identifying areas of non-compliance, potential risks, and opportunities for improvement (if any)
• Recommendations for strengthening controls, enhancing training programs, or updating policies
• Corrective actions to take
• Supporting documentation
• Exit meeting with bank leaders

IT & Cybersecurity Risk Assessment

Cyberattacks don’t just happen to large corporations like Target and Home Depot. Nearly half (46%) of all cyberattacks happen to companies with fewer than 1,000 employees. An astounding 82% of ransomware attacks, where bad actors hold your company’s computer systems hostage until you pay a ransom, happened to businesses with less than 1,000 employees in 2021. And these attacks are only increasing thanks to the prevalence of AI-powered programs, sophisticated phishing scams, and email vulnerabilities.

IT and cybersecurity risk management will help you mitigate data breaches, system failures, malware attacks, and unauthorized access to sensitive information. 75% of small businesses would fail after falling victim to a cyber attack. As many as 60% of small businesses cease operations six months after falling victim to a cyberattack.

The Whitlock Co. can help you evaluate the potential vulnerabilities within your company’s IT infrastructure. For instance, we may identify outdated software, insufficient encryption, or weak user authentication as areas of concern. To mitigate these risks, we could suggest implementing stronger access controls, regularly updating software, and investing in advanced security technologies such as enterprise-grade firewalls and intrusion detection systems.

Ongoing monitoring of IT systems remains critical to staying ahead of emerging cyber threats. Cyberattacks evolve rapidly, and your company must establish robust security measures that can adapt to new risks.

We will show you the testing results so you can take action to protect your IT assets from a cyberattack.

Community Bank Audits From The Whitlock Co.

The Whitlock Co. helps community banks perform third-party audits as required by law. Contact The Whitlock Co. to request a consultation today.