Audit Committees:

Legislation Needed to Strengthen Bank Oversight

AFMD-92-19: Published: Oct 21, 1991. Publicly Released: Oct 21, 1991.

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GAO studied audit committees of the largest U.S. banks, focusing on: (1) the extent to which the committees had the necessary independence, expertise, and information on bank operations to perform their corporate governance functions.

GAO surveyed 40 chairpersons and: (1) 25 reported that their committees included members who were large customers of the bank; (2) found that 3 committees were comprised solely of large customers of the bank; (3) 19 reported that their committee members had little or no expertise in banking, even though their committees were responsible for approving the bank's response to findings from regulatory examinations; (4) 13 reported that their committee members had no expertise in law and never met independently with the bank's legal counsel, even though they were responsible for assessing management compliance with banking laws and regulations; and (5) many indicated that independent evaluations of internal controls and compliance with laws and regulations by external auditors, beyond those which are currently provided, would be of great use to bank audit committees in overseeing bank operations. GAO also found that guidance from federal bank regulators and bank audit charters inadequately address: (1) independence criteria from bank audit committee membership; (2) expertise that bank audit committees should have to carry out their oversight role; and (3) the information the committees should receive and review.

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