Internal audit

NLB’s Internal Audit Center functions in an independent, and objective advisory role, using a systematic and professional approach to assess risk management, control systems and the management of operations. It plays an important role within the NLB Group in the implementation of strategic and business objectives and best banking practices.

The Center operates in accordance with the International Standards for the Professional Practice of Internal Auditing, the Banking Act, the Code of Ethics of Internal Auditors and the Code of Internal Auditing Principles. The Center received an external quality assessment of operations in accordance with the rules of the internal auditing profession as adopted by the Institute of Internal Auditors based in the US and the Slovenian Institute of Auditors. The Center’s purpose, effectiveness, work methodology, 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, the Supervisory Board and its Audit Committee, and to external auditors as required.

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

Internal audit activities

The main role of the of the Internal Audit Center is to provide NLB’s Management Board and Supervisory Board impartial assurance with respect to the effectiveness of risk management by assessing whether critical risks are managed appropriately and whether the internal control system is functioning effectively. A good control system is the key element to effective risk management, which is critical to achieving the Bank’s business objectives.

Planning audits is based on an analysis of the inherent and control risks present in different areas of the Bank’s operations. Emphasis is placed on the system of internal controls and risk management, which is also envisaged by international practices in line with guidelines of the COSO (Committee of Sponsoring Organizations of the Treadway Commission): e.g. IC (Internal Control) and ERM (Enterprise Risk Management) models. Both models represent internal auditing criteria for assessing the control system and risk management. To supplement audits, branches of the business network use self-assessment questionnaires (Control Self-Assessment or CSA) and unannounced audits of specific business areas.

In 2010, auditors of the Internal Audit Center carried out audits in all key areas of the Bank’s operations vulnerable to risk, and audited or participated in the audits of other NLB Group companies. The audits were carried out in the areas of credit, operational and non-credit risk management, and included particular business and support functions of the Bank. The Internal Audit Center conducted a total of 61 audits.

The majority of the Center’s other activities related to consulting aimed at improving the efficiency of operations, internal development and the transfer of the Center’s internal auditing methodology and know-how to the internal audit departments of other NLB Group companies.

The Internal Audit Center is also responsible for coordinating the selection of the external auditor for the NLB Group’s annual report, coordinating the external audit, monitoring the implementation of the recommendations of the external auditor, and reporting to the Management and Supervisory Boards in this regard.

The Internal Audit Center also coordinates examinations by the Bank of Slovenia, supervises the implementation of the inspector’s recommendations and reports to the Bank’s Management and Supervisory Boards in this regard.

Governance and supervision of NLB Group companies

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 strives to put these principles into practice. Other Group companies have 12 internal auditing offices, employing 38 auditors, whose work is based on a standard umbrella act (e.g. the Internal Audit Charter for each individual NLB Group company), as well as uniform standards and work methodologies maintained and developed by the Center with the aim of meeting the highest internal auditing standards across the entire NLB Group.