The Art of Islamic Banking and Finance: Tools and Techniques for Community-Based Banking

All board members, management, and staff of the bank sincerely believe
that the various internal and external audits and the onsite examination are
a process of discovery, cleansing, training, and coaching of bank manage-
ment and staff that will help to improve the quality and effectiveness of
bank operations. Bank management trains bank staff to listen carefully, to
not argue, to not act defensively, and to learn. They are also trained to take
prompt and immediate action to correct any oversight or error pointed out
by the auditors. The management asks bank auditors to point out specifically
what needs to be fixed so that we can attain the highest level of compliance.
The board of directors’audit committeeis responsible for establishing
and maintaining an effective audit function that satisfies statutory, regula-
tory, and supervisory requirements.
As stipulated by the standards of government regulators, directors can-
not delegate these responsibilities. However, they may delegate the design,
implementation, and monitoring of specific internal controls to manage-
ment and the testing and assessment ofinternal controls to auditors and
other outside vendors. The board of directors’ meeting minutes should re-
flect decisions regarding audits, such as external audit engagement terms
(including any decision to forgo an external audit), the scope of audits to be
performed, or why an audit of a particular area is not necessary.
Members of the bank’s board of directors are specifically responsible for:

&Reviewing and approving audit strategies, policies, programs, and or-

ganizational structure

&Monitoring the effectiveness of the audit function

Following are the audit functions to be executed by the board’saudit
committee:

&Facilitation of the appointment and work of the internal and outside

auditors

&Analysis and evaluation of their findings

&Recommendation of corrective actions with a specific timeline

&Reporting of all findings and recommendations in the Board’s meeting

minutes

&Review of financial content of the bank’s financial reports to be submit-

ted to stockholders, the public, and/or regulatory agencies

&Recommendation and/or initiation of an investigation of adverse oper-

ation results or trends, where applicable

The formality and extent of a bank’s internal and external audit
programs depend on the bank’s size, complexity, scope of activities, and

308 THE ART OF ISLAMIC BANKING AND FINANCE