Corporate Governance and Oversight by the Board of Directors Program, Study notes of Corporate Finance

Download Corporate Governance and Oversight by the Board of Directors Program and more Study notes Corporate Finance in PDF only on Docsity! Corporate Governance and Oversight by the Board of Directors Program Exam Date: Prepared By: Reviewed By: Docket #: Office of Thrift Supervision April 2011 Examination Handbook 310P.1 EXAMINATION OBJECTIVES To assess whether the composition of the board of directors provides for sufficient breadth and depth of expertise to ensure adequate oversight of the association’s affairs. To determine whether the board of directors fully understands its duties and responsibilities and is dis- charging its responsibilities appropriately. To determine whether the board of directors has adopted adequate policies, procedures, and operating strategies (including internal controls, a compliance management program, and audit and loan review procedures) to conduct the association’s operations prudently. To determine the existence of any conflicts of interest or improprieties involving directors. To determine the extent of compliance with statutory and regulatory requirements applicable to direc- tors of savings associations. EXAMINATION PROCEDURES LEVEL I WKP. REF. 1. Review the association’s business plan, budgets, and policy statements. Determine if the board of directors establishes objectives and policies for the association in general and for specific relevant areas of operation. Determine whether objectives and policies are compatible with applicable laws, regulations, the charter or articles of incorporation, bylaws, and conditions for insurance of accounts. Evaluate the adequacy of stated policies in providing direction to management. Corporate Governance and Oversight by the Board of Directors Program WKP. REF. Exam Date: Prepared By: Reviewed By: Docket #: 310P.2 Examination Handbook April 2011 Office of Thrift Supervision 2. Review board of director’s minutes of regular, special, and committee meetings; consider director attendance at the meetings. Determine whether minutes are complete, the extent of significant changes in direction, activities, or policy for the association, and whether specific changes require modification of the scope of the examination. Update the electronic work papers, if appropriate, with new or revised policies (or reference the policies if not retained). You should inform other examiners of noteworthy information found during the review. 3. Review reports that management prepares for the board. Determine if the information is adequate, accurate, and sufficient to support the board of director’s decision making. (Examiners reviewing related areas can perform this procedure.) Confirm that management’s reports adequately address financial and operational risks, including technology risks, and compliance performance. Provide copies of useful board reports and other information to the other examiners. 4. Review the Matters Requiring Board Attention and Corrective Actions from the three or four previous ROEs to ensure that the board and management have taken appropriate corrective action where necessary and persistent problems have not recurred. 5. Review and evaluate the composition of the board of directors. Ensure that the association meets the requirements in 12 CFR § 563.33. Obtain answers to the following questions and disseminate information regarding directors’ interests to the examination team:  Is there always a quorum, that is, a majority of the directors that the association’s bylaws prescribe, at board meetings?  Do the directors, as a group, have sufficient expertise and experience? Corporate Governance and Oversight by the Board of Directors Program WKP. REF. Exam Date: Prepared By: Reviewed By: Docket #: Office of Thrift Supervision April 2011 Examination Handbook 310P.5 10. Interview the managing officer and other key officers, including the chief financial officer and the chief lending officer. Determine whether they keep directors informed of the association’s financial position and the potential effect of current economic conditions on the association. Also determine the extent of the directors participation and involvement in resolving current operating problems and establishing long-range objectives and policies. 11. Review Level II procedures and perform those necessary to test, support, and present conclusions derived from performance of Level I procedures. LEVEL II 12. Obtain answers to the following questions relating to the board of directors:  Does the board of directors review reports from the executive committee, audit committee, loan committee, other committees of the board, compliance personnel, and outside experts at board meetings?  Do directors and committee members have the opportunity to review and modify minutes of their meetings before approval?  Are directors aware of significant regulatory changes enacted during the examination period?  Has the board appointed a compliance officer?  Has the board adopted and maintained a comprehensive compliance management program predicated on systems, real-time monitoring, periodic self-assessment, organizational accountability, responsiveness to needed improvements, and effective training (OTS’ SMAART Compliance Program Components)? Corporate Governance and Oversight by the Board of Directors Program WKP. REF. Exam Date: Prepared By: Reviewed By: Docket #: 310P.6 Examination Handbook April 2011 Office of Thrift Supervision  Did management consider the results of prior years’ compliance reviews and examination reports when they designed procedures for the current compliance review?  Did the audit committee or the board review the results of the most recent compliance audit, compliance reviews, and self-assessment reviews?  Are adequate systems of internal control present to detect noncompliance with regulations?  Are written responses and plans for corrective action required from management concerning deficiencies noted during the compliance audit, reviews, or self-assessments? 13. Does the association use agents or other third parties to perform certain marketing, solicitation, and customer service activities related to the association’s authorized deposit and loan products and services. If so, consider the following:  Has the board adopted a program to ensure adequate monitoring, supervision, and control over any agents or third parties and the activities that they perform on behalf of the association?  Does the program include a comprehensive training program that provides the agent or third party with in-dept training about the association’s products and services, as well as applicable laws and regulations?  Does the board and management conduct an annual internal or external audit review of the programs, including a review of the training component?  Does management and the board review the program annually? 14. Did each regular director’s meeting during the examination period include a review of financial reports of the association and its affiliates? Also, consider the following:  Do the minutes reflect directors’ questions concerning financial reports along with the appropriate follow-up and resolutions? Corporate Governance and Oversight by the Board of Directors Program WKP. REF. Exam Date: Prepared By: Reviewed By: Docket #: Office of Thrift Supervision April 2011 Examination Handbook 310P.7  Did the board review recommendations concerning fiscal operations in examination reports and the board of director’s letter from independent accountants?  Did the board approve and prepare written responses to recommendations contained in examination reports and the board of director’s letter from the independent accountants?  Does the board regularly assess or monitor management’s compliance with board approved major financial polices?  Do the minutes reflect that the directors thoroughly reviewed and approved the association’s budget?  Does management include comparisons of budgets with actual results in financial reports reviewed at each board meeting? 15. Did the board establish and do they annually review minimum underwriting standards and guidelines, including a large loan policy? Check the following items:  Does management establish, and does the board review and approve formal lending limits?  In conjunction with the budgeting process and formulation of the business plan, has the board reviewed and approved the types and volume of lending planned by management?  Do the association’s lending policies require that higher-risk credit extensions and unusual loans (as specifically defined in the policies) be presented to the board for final approval?  Do the minutes reflect if the board considered any unusual loans or those exceeding ordinary risk? Do the minutes reflect the board’s approval or disapproval?  Do the minutes reflect that the board, in reviewing higher-risk loans, explored efforts to minimize risk and limit the amount invested?