The interaction of internal audit with risk management in the banking sector : an evaluation

Abstract

The objective of such research is to evaluate the existing interaction between Internal Audit and Risk Management in the Banking sector. This study evaluates the extent to which Risk Management is embedded within the role of the Internal Audit function and the extent of risk culture in the Maltese commercial banks. As the definition of Internal Audit evolved, the concept of risk and its management developed. The nature of operations in the banking industry exposes all commercial banks to a high risk environment. Thus the identification and management of risk has always been a challenge for all commercial banks, and gaining an understanding of the risks undertaken in operations will help any bank to be pro active. The Risk. Management and the Internal Audit functions in commercial banks ensure that their bank has the necessary infrastructure to deal with risk exposures. The turning point is towards a Risk Based Internal Audit approach whereby the Internal Auditor oversees the internal controls system within the bank and the measures adopted by the risk manager in identifying and mitigating risks. This entails ongoing cooperation between the Risk Manager and the Internal Auditor within a commercial bank so as to ensure that the bank has appropriate coverage from the major risk exposures.