Internal Control Functions

The Internal Control Banking Functions play a crucial role in the current state of maintenance, bank’s internal control assessment, risk management factors and governance systems. These areas in banks create a great impact on the keen interest of supervisory authorities. An effective internal audit function provides independent assurance to the board of directors and bank managements to manage the reliability of organisational reputation. Furthermore, both auditors and supervisors use risk assessment approaches and techniques to determine their respective work plans and strategies. Internal control auditors use different methods and mandatory functions as per their own judgements and assessments, they may use them to identify banking risk management factors.

Internal audit functions should be developed in an independent and informed environment to help banks to manage their risks, they face while implementing their financial & operational tasks, and maintaining governance systems.

Key Features of Internal Audit Functions

The understanding of key features of internal audit functions is essential for the effective operations in the banking sector.

  1. Independence & Objectivity

The functions of internal audit function should be independent to maintain governance systems and risk assessment systems effectively. Internal auditors understand the importance of auditing functions which require sufficient standing and authority within the banking sector. Independence term is referred to as freedom from conditions that create risks and threats to limit the ability of internal control activities. Objectivity is referred to in the glossary as an unbiased mental attitude that permits internal auditors to identify and execute risk engagements in such a manner to rectify their compliance assessments and control quality compromises. Independent and expressive  internal audit functions allow banking institutions to identify and understand all risk measures from requesting required inputs from audit reporting matters related to risk and governance.

  • Professional Ethics

Professional ethics says internal auditors must act with integrity. Integrity is an essential function ifn internal control that helps the banking sector to establish trust that requires the internal auditor to be straightforward and honest. It helps the banking sector to understand and function the risk assessment activities on the basis of reliance and professional judgement. Banking managers and auditors can effectively respect the confidentiality of data and information acquired in the courses of their duties. Integrity helps auditors to regain all information without engaging in personal and malicious activities. This function is diligent which helps banking sectors to establish and maintain international standards and code of ethics for effective auditing procedures. It helps banking institutions to address and execute the principles of objectivity, competence, confidentiality and integrity.

c) The Scope of Activity

Every activity including outsourcing services and activity of the banks should fall within the overall scope of the internal auditory functions. The scope of activity includes proper examination and evaluation of scope integrity and effectiveness to understand risk assessment and governance systems of entire banking systems. Internal auditors independently monitor compliance with laws and regulations to assess all financial and operational requirements. It also helps the banking sector to ensure adequate coverage of masters of regulatory assessment of interest within the auditory plan.

d) Capital Adequacy and Liquidity

Banking sector works with the global regulatory framework to manage their capital and liquidity approved by specific committees and implemented in national regulation. The functions of capital adequacy and liquidity of internal control audit helps the banking sector to measure global integrity and strengthen regulatory capital. Internal auditing helps banking institutions to review and evaluate financial processes and transactions for stress testing of capital adequacy, their purposes of internal monitoring and reliabilities of the processes. This functions helps banking systems and processes to measure and monitor its liquidity performance and positions in the relation to manage risk profile, external environmental changes, etc.

e) Corporate Governance Consideration

This function of internal control auditing shows a complete illustrative overview of relevant principles and standards for the banking sector with the responsibility to the internal audit function, governance structure and effective communication channels within general bank’s governance models. As each bank has their own permanent internal audit function to ensure and understand the size, nature, operations and complexities of the organization.

Conclusion

The internal audit functions are the key building factors for internal control systems because it gives an independent and sustainable assessment of the adequate and effective management of banking operations and governance systems. It is helpful for supervisory authorities to understand the engagement of a constructive and formalized internal control system. Through complete auditory and internal control functions, banks are allowed to meet their periodic risk assessment tasks, analysis and findings as per audit plans.