The internal audit function of the main banks in Malta and its relationship with the banking regulator and supervisor : an evaluation

Abstract

This dissertation seeks to evaluate the role of the internal audit function in the banks licensed under the Banking Act 1994 that operate a network of branches in Malta, as well as the relationship between bank internal auditors and the banking regulator and supervisor. Personal in-depth interviews were conducted with the banking supervisor, banks' internal auditors, management, audit committee members, external auditors and compliance officers. The study concludes that in the four banks, the role of the internal audit department extends well beyond the traditional focus on enforcing compliance with controls and corporate policies. Bank internal auditors are no longer transaction ticking inspectors, but they are providing value-adding services through risk-based reviews of internal controls and recommendations for improvements in risk management and operational efficiency. The study also concludes that internal audit reports are an important instrument for the banking supervisor to determine potential focal areas for supervisory inspections. The supervisor evaluates internal audit reports to identify problems areas, areas of potential risk and any other developments that might have occurred since the last supervisory inspection. Moreover, as long as the banking supervisor is satisfied with the quality of internal audit work, MFSA inspectors do place reliance on the work of the IAD and reduce the sizes of the samples examined during bank inspections.