Enterprise risk management and “unknowns” among biggest fears of audit committee members
CHICAGO, April 19, 2010 – The trend for banks to have a chief risk officer is picking up steam, according to Grant Thornton LLP’s 17th Bank Executive Survey, conducted in conjunction with Bank Director magazine. In the second quarterly installment, which surveyed bank audit committee members, 71 percent of public institutions reported that they have a chief risk officer on board, compared to just 40% of public institutions who reported they had one three years ago. In comparison, only 32% of private banks have a chief risk officer.
With 82% of respondents believing the recent credit crisis has increased their risk as audit committee members, it is not surprising that 35% reported that they have a risk committee that is separate from the audit committee. Forty-one percent of respondents among large banks have a separate risk committee, as opposed to 17% among those representing small banks.
“The credit crisis and related economic turmoil of the last few years have prompted financial institutions to re-evaluate their auditing practices, processes and committees significantly,” said John Ziegelbauer, national managing partner of Grant Thornton’s Financial Institutions practice. “We expect this trend to continue as audit committees assess their weaknesses and start to make the changes necessary to ensure the credibility and viability of the institutions they serve.”
Audit committee fears
The swirl of issues that surround the audit committee’s agenda are among the most problematic for any board committee. Among their biggest fears, the monstrous task of monitoring enterprise risk management (ERM) rose to the top – with 31% reporting this as their biggest fear. Monitoring ERM was a bigger fear among large banks (32%) than smaller banks (24%). Second to monitoring ERM was fear of the unknown, with 25% of respondents reporting this as their largest fear.
Improvements and efficiencies
When it comes to improving their experience or making audit committees more efficient, 54% of respondents cited increased training opportunities as the best way to achieve this. Forty-four percent believe the ability to receive feedback from the audit partner about management and how they are doing in comparison to other management teams would help them be more efficient in their role as an audit committee member. Notably, this number was significantly higher among private banks and mutuals (62%) and was selected more often among respondents representing large banks (47%) than among those representing small banks (33%).
Most audit committee members are either extremely confident (57%) or confident (33%) that their audit committee has the ability to challenge management when necessary without creating conflict. Slightly more representatives among large banks (60%) than those among small banks (51%) express extreme confidence in their audit committee’s ability in this area. It is interesting to note that 75% of respondents among institutions regulated by the Federal Reserve are extremely confident in their audit committee’s ability to challenge management appropriately, compared to 56% among those institutions regulated by the OTS, 53% among those regulated by the FDIC, and 49% among those regulated by the OCC.
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About the Survey
Grant Thornton LLP and Bank Director magazine conducted this national survey of bank audit committee members from Feb. 16, 2010, through March 9, 2010, with 197 respondents for a response rate of 11.1%. Eighty percent of respondents are public institutions, 15% are private institutions and 5% are mutuals. The Northeast region has the largest representation (at 28%) in the study, followed by the Midwest (25%) and Southeast (21%) regions. Seventy-six percent of the banks represented in the study have more than $500 million in assets. The FDIC (at 41%) is the agency cited most often as the primary regulator of represented institutions in the study, followed by the Federal Reserve (23%) and the OCC and OTS (both at 18%). Visit www.GrantThornton.com/banksurvey.
About Grant Thornton LLP
The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity.
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