Pub. 9 2019-2020 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S March • April 2020 9 Darlia Fogarty brings a wealth of knowledge and practical experience to Compliance Alliance banks and staff. Darlia served as a commis- sioned national bank examiner with the OCC for a large majority of her career, where she developed an expertise in compliance while administering examinations in banks of all sizes. She contributed as a member of the retail credit team, with a strong knowledge of compliance as well as all other areas of the banks’ operations and lending. Darlia also has many years of experience as a compliance officer/ auditor and four years as a compliance/audit consultant. As a speaker, Darlia travels to several conventions, meetings, and schools throughout the year and can often be found speaking at compliance schools and conferences. Her articles can be found in State Banking Association magazines, Compliance Alliance newslet- ters and several other publications. The two key overall areas to reevaluate are content and delivery. Board packages should be delivered well in advance of the scheduled board meeting to allowample time to review the information before time for discussion. Delivery encompasses more than just a timing factor. An effective delivery incorporates the following: • Easy-to-understand presentation • Useful information • Direct delivery from the data source, not a report that has been manually crafted by someone It would be virtually impossible to meet all of the requirements for report delivery outlined above without the use of technology. The bank’s IT system (platform) can produce timely and accurate information for reports to be included in the boardpackage. Systems can accumulate data across business units, making it realistic to provide support data for ongoing risk assessments and for reporting at the business unit level. This technology can function not only as a comprehensive collection of financial information, but can also be used as the focal point for bank-wide risk management and control. The use of technology-produced reports suppliesnot onlyaccuratedata, but it also accumulates data over time which provides an active, dynamic benchmark against which bank performance can be measured. All the information in a data warehouse produced by the IT platform ties back to the source—the financials and the general ledger—allowing the bank’s management team towalk into ameeting with the information they need to support their position. If auditors request reports to assist them in their analysis, the bank can go to the datawarehouse and recreate reports if there is any questionof potential irregularities. Once we have the delivery issues addressed, we can focus on the actual reporting and Best Practices. Board members greatly appreciate a shift towards amore efficient and effective agenda, witha focus oncommittee reports and presentation of only meaningful information about the condition and operations of the bank. Most directors only visit the bank once or twice amonth, which makes a full understanding of the bank’s plans and status very difficult. There needs to be an educational element in board meetings. Most directors have an ongoing need and desire for growth and development in their understanding of the banking industry. With education, directors can become more effective in their recognition and understanding of the risks to be monitored, as well as the factors that most influence a bank’s strength and performance. Financialandoperationalpresentations bymanagement should focus on informing the boardmembers on what time it is; not howthewatchwasbuilt. This approachcan result inmore interesting and informative board meetings and will likely result in greater interaction and participation by the board members. There are no regulatory requirements on information that must be included in the monthly board package, the only requirement is that the board should receive and review enough information to effectively manage and oversee the bank. That being said, there are a fewBest Practices for assembling information for your board’s review. Best Practice #1 -- Provide the Board with Information, Not Data Change the monthly financial report to something meaningful. Most boards need to know only about 20 – 30 key data points and ratios and how those numbers compare to budget, peer banks and prior year results to have a good handle on the condition of the bank. The typical financial report at a bank board meeting is encompassed in a 25 – 30 page document that blurs into a very detailed, and often meaningless, presentation of pure data that is often difficult to follow. Providing meaningful information in an understandable format is essential for the board members to identify and manage risk. Less is often more in effective board presentations. Best Practice #2 – Encourage Board Participation No board should have a Devil’s Advocate who is in opposition to everything, but there should be an open enough relationship in the board room which allows for opposing views and occasional “no” votes. Many times there aremeaningful questions that go unasked in the board room. Board members need to feel informed and comfortable enough to ask challenging questions, and also to say that they don’t understand a proposal or a presentation. Inmy experience, “why?” can be a very powerful question. I know several bank boards that have greatly benefited from a few independent thinking directors in the past years that lead up to the current economic downturn. Those directors had the insight and the courage to question the popular belief of the booming real estate market. More importantly, the culture of the boards on which they served allowed for real discussion of concerns expressed by directors. Information to include in the board package: Financial performance reports –These reports provide supporting information of the bank’s health and profitability. Risk management reports - Board reports should allow the bank’s directors to assess the institution’s ability to manage, monitor and control risks through the reviewof processes, policies, andpractices. Again, there are no regulator y requirements for these reports, and it is obviouslydifferent for eachbank. Consider your bank’s complexity and markets and require your management to provide information that will give you the ability to make informed and quality decisions. n