Internal Audit

NLB Internal Audit Center operates as an independent, impartial and objective 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. NLB received the external quality mark for operating in compliance with the rules of the auditing profession awarded by the Institute of Internal Auditors based in the US and the Slovenian Audit Institute. The Center’s purpose, validity, method, and competencies and responsibilities are defined in the Internal Audit Charter. Guidelines for the Internal Audit Center’s work are outlined in the Internal Audit Manual.The Internal Audit Center regularly reports to the Management Board, Supervisory Board, and its Audit Commission, and, if needed, to the external auditors. At the end of 2009, the Audit Center had 32 employees.

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, Audit Commission and Supervisory 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. Its work includes planning the audit, establishing deficiencies, and providing quality recommendations for individual areas.

Planning the audit is based on an analysis of builtin 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.

In order to verify internal audits in branches of the business network and internal audit offices within NLB Group members, additional self-evaluation questionnaires are used (Control Self Assessment, CSA). If needed, the internal audit center within an NLB Group member also engages external experts to carry out internal audits.

In 2009, auditors of the Internal Audit Center carried out audits in all areas of the Bank’s operations vulnerable to risk, and also audited or participated in the audits of other NLB Group members. The audits were carried out in credit, and in operational and non-credit risk management, and also included individual business and support functions of the Bank. Overall, the Internal Audit Center completed 76 regular and 9 extraordinary audits.

In 2009, the supervised implementation of auditing recommendations showed a decrease in open audit reports compared to the previous year. The Center’s other activities involved coordinating the Bank of Slovenia’s inspections and the work of external auditors, and consulting to improve business efficiency and internal development. The Center was also involved in the transfer of the Center’s internal auditing methodologies and know-how to the other members of the NLB Group.

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, and reporting to the Management and Supervisory Boards.

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.

Management and Supervision of NLB Group Members

In line with the adopted NLB Group Management and Supervision Policy and the Harmonization Program, which define the principles of corporate governance and supervision within the Group, the Center has putting these principles into practice for several years. The other members of the Group have 12 internal auditing offices, employing 35 auditors, whose work is based on uniform overarching provisions (Internal Audit Charter for each individual NLB Group member), as well as uniform standards and work methodologies maintained and developed by the Center in order to meet highest internal auditing standards within the entire NLB Group. The principles of corporate governance are carried out in a variety of ways:

• Implementation of uniform standards and work methodologies,
• 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 knowhow,
• Coordinating and organizing training sessions for group training,
• Offering constant professional assistance for everyday work situations.

NLB Group
Annual Report 2009