Acting Comptroller Cites Slippage in Internal Controls; OCC to "Drill Down" to Test Adequacy of Bank Systems

CHICAGO — Acting Comptroller of the Currency Julie L. Williams expressed concern today that the "vigor and thoroughness" of bank internal controls are declining at a time of challenge in many areas of the business.

Speaking before the Bank Administration Institute's National Auditing and Regulatory Compliance Conference, Ms. Williams noted that banks face increased risk from technological change, the decline in underwriting standards and a new wave of industry consolidation.

"Particularly as banks seek to grow even larger," she said, "their internal control capacities should be strengthened not diminished, relative to the size and complexity of the resulting organization."

Instead, she said, some banks have allowed vacancies in their auditing departments to go unfilled and have been slow to upgrade the accounting, information, and communication systems that are vital to any effective system of internal controls.

The Acting Comptroller attributed the slippage to complacency created by the industry's current prosperity and to cost-cutting pressures, which most often affect non-income producing areas of bank operations.

Nevertheless, she said, responsibility for maintaining a robust system of internal controls "falls squarely on bankers." OCC examiners, she added, will vigorously monitor "how well that responsibility is being met."

"We will be drilling down into the bank's operations and doing more testing and verifying of actual transactions," Ms. Williams said. "Where the bank's risk profile is higher, we will be doing proportionately more of that kind of in-depth testing. And we will bring any deficiencies to the attention of senior management."

To that end, the Office of the Comptroller of the Currency will soon issue a new handbook on internal controls. The publication will describe sound internal control procedures and make it clear that the agency's emphasis on internal controls now permeates its approach to both large bank and community bank supervision.

Related Link

• Attachment (PDF)