By: Darragh Henry, McInerneySaunders
The recent shock liquidation of Berehaven Credit Union will have done little to help restore confidence in the Credit Union Sector which has previously had to deal with the Newbridge Credit Union absorption into Permanent TSB.
The Credit Union Sector holds an important role both as a player in the domestic financial economy and in adding value at community level. It is unfortunate therefore, when the above stories grab the headlines and the huge growth and service improvements the majority of local credit unions have made in recent years are unreported.
So how is confidence restored?
It is our belief that the role of internal audit will be key to re-establishing confidence in the sector.
The requirement for all credit unions to have an internal audit function was introduced in the Credit Union and Co-operation with Overseas Regulators Act 2012. It is a process of testing internal controls, reviewing the reporting processes and presenting our findings, together with appropriate recommendations, to the Board of Directors or the Audit Committee.
Testing of internal controls
The primary purpose of internal controls is to prevent fraud and error. These controls can be simple and include such routine processes like:
- Weekly or monthly bank reconciliation and appropriate sign off
- Multiple cheque signatories
- Proper authorisation of payments (loans, overheads, capital expenditure, payroll)
- Proper expenditure approval procedures
- Loan approval procedures
The list of possible internal controls is endless.
Review of reporting processes
The primary purpose of the reporting process is to ensure that the Board of Directors are kept fully informed in relation to all aspects of the credit union’s performance and position as well as other issues that may arise from time to time.
The internal audit process involves documenting and reviewing the reporting processes to ensure that the reports that are communicated to the Board of Directors are accurate and reliable. Any areas where there are weaknesses in the reporting processes are reported to the Board of Directors or the Audit Committee together with appropriate recommendations.
Main benefits of an effective internal audit function
- Provides the Board of Directors with confidence that the internal controls that are in place are being monitored on a regular basis and this in turn strengthens the internal controls themselves and makes them more effective.
- Provides the Board of Directors with comfort that the reports that are presented to it on a monthly basis are accurate and reliable and form a sound basis upon which to make decisions
- Provides the Board with useful feedback in relation to the operation of the credit union’s processes and procedures
The current economic environment and changes in legislation over the past few years have seen a huge emphasis being placed on the implementation and the effectiveness of internal controls at all levels of the credit union’s operations. It is not enough for the Board of Directors to simply implement the internal controls and ‘hope for the best’.
In addition the Board of Directors is inundated these days with reports of various shapes and sizes at every Board meeting. In a lot of cases these reports are difficult to read and to understand; even for qualified professionals! The Board needs to be satisfied that these reports are accurate and reliable.
The benefit of a strong internal audit function cannot be underestimated when it comes to providing the Board of Directors with confidence in the credit union’s system of internal controls and with comfort in relying on internally generated reports.
Please contact us if you wish to discuss your credit union’s internal audit requirements with us.