Federal Reserve Bank of Minneapolis
The Audit Committee of the Federal Reserve Bank of Minneapolis Board of Directors operates under the bylaws of the Bank consistent with the policies of the Board of Governors of the Federal Reserve System. The Audit Committee acts on behalf of the Board of Directors and performs the functions necessary to assess and ensure the effectiveness and independence of the Bank’s internal audit activity.
The Audit Committee’s oversight of the internal audit activity includes, but is not limited to, reviewing the internal audit activity’s assessment of the adequacy and effectiveness of management’s governance, risk assessment, and control processes for (1) financial reporting; (2) effectiveness and efficiency of operations; (3) compliance with applicable laws, regulations1, and procedures; and (4) safeguarding of assets. The Audit Committee reports the results of internal audit’s assessments to the Board of Directors and is responsible for maintaining open communication between the directors, senior management, the General Auditor, the external auditor, and the Board of Governors.
To promote independent and objective assessments, the General Auditor reports directly to the Board of Directors through the Audit Committee and is not dependent on any Bank executive or operating officer for the security of his or her position. The Audit Committee ensures that the General Auditor has access to the Board of Directors, on a confidential basis, and that the audit function is independent of Bank management.
The Audit Committee consists of three or more members of the Bank’s Board of Directors, appointed annually by the Board Chair to serve during the calendar year or until their successors are appointed. Such members shall meet the qualifications issued by the Board of Governors of the Federal Reserve System. Any other member or members of such Board may attend the meeting of the Committee and while so attending shall be members of the Committee for all purposes, including the requirements hereof with respect to a quorum. One member of the Committee will be appointed by the Board Chair as the chair of the Audit Committee. At the discretion of the Board Chair, another member may be designated as vice chair. Two members of the Audit Committee shall constitute a quorum for transaction of business, and action of the Committee shall be upon vote of a majority of those present at any meeting of the Committee.
All members should be free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee.2 All members of the Audit Committee should have a working familiarity with basic finance and accounting practices, and at least one member of the Audit Committee should have banking, accounting, or related financial proficiency.3
The Audit Committee meets at least six times a year to permit adequate and timely discussion of audit results, losses, irregular occurrences, the number, nature, and resolution of suspected fraud occurrences and other matters of concern to auditors and directors. Management representatives may participate in the meetings upon invitation by the Chair of the Audit Committee. Whenever such meetings are attended by other Bank officers, the Committee will hold executive sessions with the General Auditor. Following each meeting, the Audit Committee shall report its comments and recommendations to the Board of Directors of the Bank.
1 The internal audit activity should consult legal counsel in all matters involving legal issues, and should not render legal advice or substitute its legal judgment on legal matters for those of the general counsel.
2 Members of the Audit Committee are considered to be independent if they have no relationship with the Reserve Bank that might interfere with the exercise of their independence from management and the Bank. Examples of relationships include (i) a director being employed by that Reserve Bank within the past five years; (ii) a director accepting compensation from that Reserve Bank other than compensation for Board Services; (iii) a director being a member of the immediate family of an individual who has been employed by that Reserve Bank as an officer within the past five years; and (iv) a director being a partner in, or controlling shareholder or an executive officer of, any for-profit business to which that Reserve Bank made, or from which that Reserve Bank received, payments that have been significant to the Reserve Bank within the past five years. For purposes of this policy, a director who is an officer or director of a depository institution or its holding company is not considered to have a relationship that interferes with his or her independence solely because the depository institution makes payments to the Reserve Bank for financial services or an extension of credit.
3 Banking, accounting, or other relevant financial proficiency means significant employment experience in finance, accounting, auditing, or banking functions, professional certification in accounting, or other comparable experience or background which results in the individual’s financial sophistication, including being or having been a Chief Executive Officer or other senior officer with financial oversight responsibilities.
4 S-2571 at 1-005 provides guidance on communication that should occur between the chair of a Reserve Bank’s Board of Directors and the chair of the Board of Governors’ Committee on Federal Reserve Bank Affairs concerning changes in the General Auditor position.
5 The Institute of Internal Auditors Standards for the Professional Practice of Internal Auditing defines consulting services as the range of services, beyond audit assurance services, provided to assist management in meeting its objectives. These services consist of “Advisory or partnering activities that add value and improve an organization’s operations, in which the nature and scope of services are agreed upon with the client.”
6 Consistent with Article II Section 3 of the Bank’s Bylaws, reports from internal audit reviews of Banking Supervision and Regulation function will be reviewed and approved by Class C directors of the Board instead of the Audit Committee.
7 SAS 99, consideration of Fraud in a Financial Statement Audit, requires the external auditors to obtain information to identify the risks of material misstatement due to fraud, including making specific inquiries of management, the General Auditor, and the Audit Committee. Members of the Audit Committee should be prepared to answer the auditors’ questions about the risks of fraud in the Bank and whether the committee members have knowledge of fraud or suspected fraud affecting the Bank. Audit Committee members should also be prepared to discuss how the Audit Committee exercises oversight of the assessment of the risk of fraud, and activities that mitigate those risks.
8 FRAM 1-008 sets out additional conditions that must be observed by the Reserve Banks and requires Board of Governors’ approval before engaging the external auditor to perform services. FRAM 1-083 provides procedures for Reserve Banks to follow when engaging outside legal counsel for fees of more than a specified threshold.