Internal Audit

NLB Internal Audit Center operates as an independent, impartial and objective, and counseling group, using a systematic and professional approach to assess risk management, control systems and business administration. It helps the NLB Group implement its strategic goals and business objectives in accord with best banking practices.

The Internal Audit Center complies with the IFRS and the provisions of the Banking Act, the Auditing Ethics Code, and the Internal Auditing Principles Code. Its implementation is defined in the Internal Audit Charter. Guidelines for the Internal Audit are outlined in the Internal Audit Manual. The Internal Audit regularly reports to the Management Board and the Supervisory Board Audit Committee and if needed, to the external auditors.

In compliance with established principles of corporate governance, the NLB Audit Center is responsible for coordinating the internal auditing activities of the entire NLB Group. The Center is in charge of harmonizing and implementing uniform standards and methodologies for the Group. This is carried out by involving the management bodies of NLB Group members and by providing them with professional training. The NLB internal auditors act as consultants to the members of the Group and work with them by providing additional professional assistance for their internal audits.

The Internal Audit Activities

The main role of the of the Internal Audit Center is to give the Management Board an impartial evaluation of the risk management system, expressly including an assessment of the competency of the risk management operations and the effectiveness of the internal control systems. A good control system is the key to the effective and efficient management of risk, and an integral component for successful administration of the Bank as well as an absolute necessity for achieving the Bank’s business objectives.

Planning the audit is based on an analysis of built-in and external risks in effect in individual operations across the whole of the organization. The greatest emphasis is on a system of internal controls and risk management that conforms to international practice provided by COSO (The Committee of Sponsoring Organizations of the Treadway Commission): that is, by the IC (Internal Control) and the ERM (Enterprise Risk Management) models. These two models establish internal auditing criteria for evaluating control systems and risk management. CSA (Control Self Assessment) self-evaluation questionnaires are also used to verify internal audits in NLB Group branches and internal audit offices.

The Internal Audit Center is also in charge of selecting the external auditor for the NLB Group annual report, coordinating the external audit, implementing the recommendations of the external audit, as well as reporting to the Management and Supervisory Boards. The external auditor, in compliance with international standards, can use the services of internal accountants.

The Internal Audit Center also coordinates inspections by the Bank of Slovenia, supervises the implementation of the inspector’s recommendations and reports to the Bank’s Management and Supervisory Boards. The Center also regularly informs and updates the Bank of Slovenia about any recent important developments as well as resolving any problems and disputes concerning implementation of the banking regulations.

In 2007, the Internal Audit Center carried out audits in all areas of the Bank’s operations vulnerable to risk. Furthermore, it also audited other domestic and foreign members of the NLB Group, with special attention to controlling credit and operating risks in the area of information technology. The Center spent considerable time investigating the Bank’s readiness to adopt the BASEL II accords and the implementation of bank mergers into the NLB Group in Slovenia. Overall, the Internal Audit completed 88 regular and 6 extraordinary audits, plus 44 reviews of exchange offices under contract.

The Center’s other activities in 2007 involved; regularly supervising the implementation of auditing recommendations, coordinating the Bank of Slovenia’s inspections and the work of outside auditors, consulting to improve business efficiency, as well as revising and updating instructions for internal auditing procedures. The Center was also involved in the transfer of internal auditing standards and methodologies to the other members of the NLB Group, with the aim of harmonizing the procedures of the Center with the Group, thereby attaining the highest internal accounting standards for the entire NLB Group.

In 2007, an external review of the quality and operations of the Internal Audit Center was carried out. The conclusion was that the Center functions successfully, in a cost-effective and efficient manner, and is, in every area, in full compliance with the Standards for Professional Handling of Internal Audits, the Principles of Internal Audit Code, and the Internal Audit Professional Ethics Code.

Management and Supervision of the NLB Group Members

At the end of 2007, the Bank adopted the NLB Group Management and Supervision Policy and Harmonization Program that defines the principles of corporate management within the Group.

In practice, the Internal Audit Center has been successfully following the principles of corporate governance for years. One of its major activities is to maintain and develop uniform internal auditing standards for the whole Group, involving 18 internal auditing offices, employing 42 auditors. The overarching provisions of the NLB Internal Audit Charter and uniform accounting standards and methodologies provide the basis for harmonized operations.

The principles of corporate governance are carried out in a variety of ways:

• Implementation of uniform standards and work methodologies of internal auditors for the entire NLB Group,
• Team reviews of internal audits of the NLB Group members,
• Reviewing the Internal Audits within the Group,
• Supervising internal audits within the Group,
• Providing professional assistance to the supervisory committees of the NLB Group members,
• Reporting the operations of the Internal Audit Center to the NLB Group Management Board and the NLB Supervisory Board committees.

The following additionally contribute to the harmonized functioning of the NLB Group Internal Audits:

• Regular training courses and seminars for all NLB Group auditors,
• Sharing of professional expertise and know-how,
• Coordinating and organizing training sessions for group training,
• Offering constant professional assistance for everyday work situations.

NLB Group
Annual Report 2007