The Australian Prudential Regulation Authoritys (APRA) General Manager, Dr Darryl Roberts, told an Association for Compliance Professionals of Australia Incorporated (ACPA) seminar on "Compliance versus Enforcement" today that the practice of auditor certification was working well below par.

Speaking at the ACPA/PricewaterhouseCoopers conference in Sydney, Dr Roberts said "While a key element of APRAs prudential safety net, our experience is that in many cases we cannot take much comfort from the work of the external auditor."

"A disturbing number of auditors seem ignorant of the relevant statutes and standards, and are failing to detect and flag weaknesses such as non-compliance with APRA prudential standards," Dr Roberts told conference delegates.

Cited among the areas of concern within regulated financial institutions, that auditors were failing to identify, were:

• delegations set at inappropriate levels of seniority;
• large credit exposures that breach prudential limits;
• lack of a strong, independent internal audit function;
• inadequate controls on lending to related parties; and
• inadequate controls on risky activity.

"The compliance function should be deeply embedded in a financial institutions everyday commercial culture, and not regarded as a mere mechanical or legalistic box-ticking exercise," said Dr Roberts.

For the financial year ended 30 June 2002, APRA will be questioning auditors where its on-site activity identifies compliance problems but the audit report remains unqualified.

Dr Roberts also highlighted the accountability of the board and senior management of regulated institutions.

"If APRA detects a failure to exercise good risk management - for example, serious problems are swept under the carpet  then we will not hesitate to deem board members and senior executives unfit for their roles and remove them," he said.

A copy of Dr Roberts presentation is available on APRAs Website www.apra.gov.au.

APRA is the prudential regulator of the financial services industry including banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. It currently regulates $1.5 trillion in assets for 20 million Australians.