How does the COVID-19 pandemic affect your recent risk assessment? By Robert Bondy, Partner, Sherrie Krowczyk-Mendoza, Partner, and Scott Phillips, Senior Manager, Plante Moran
Chances are you recently finished your risk assessment for the year when – all of a sudden – the COVID-19 national emergency hit, forcing people and businesses to take an unwanted pause. Financial institutions everywhere are experiencing the same issues: the unknown economic impact, immediate operational changes, unprecedented lending demands, and unknown portfolio adjustments. Additionally, government programs have created a change in your risk environment that warrants attention. Amid a “hopeful” reopening of the economy, as your institution turns its attention toward a new way of operating, it’s critical to consider the following categories and the impact they could have on your recently completed risk assessments. Even if you’re not changing your risk assessment, we recommend documenting that you’ve considered these areas.
New government ending programs
• Compliance with terms allowing for
The newly formed loan programs, including the Paycheck Protection Program and Main Street Lending Facility, bring with them increased risk. Considering the loan volume you’ve seen in the last eight weeks is typically what you’d see in a normal year, do you feel comfortable with how you’re evaluating these items: • Eligibility of prospective borrowers • Internal controls around new loans, from loan initiations, underwriting, decisioning, commitments to fund loans and loan boarding • Implementing new forms and related documentation
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• July-August 2019
loan forgiveness
• Accounting for the costs and
income associated with these programs • Tracking and reporting of these loan types to loan committee and the board • Continued regulatory compliance requirements on a very stressed and time-sensitive operational team • Fair lending implications relative to loan decisioning • Monitoring these loans to ensure that terms are all within the established guidelines of the SBA and Department of Treasury
Changes in the operating environment
With the pandemic causing businesses to institute sudden operational changes in people, processes, or products, you need to consider what updates are necessary to maintain strong internal controls over financial reporting. Examples include: a reduced on-site workforce, remote workat-home arrangements, reliance on more paperless documentation, and virtual preparation and attendance of internal and board-level committee meetings. Since these arrangements may continue indefinitely, consider reviewing the following list sooner than later: • Impact of operational staff working from home • Adequacy of loan imaging or paperless documentation • Level and trends of loan closings with policy exceptions • Number of days to post-close review • Branch monitoring activities (cash levels) • Approval process for wire transfer requests • Segregation of duties pertaining to changes to customer accounts • Segregation of duties around new account openings and obtaining required documentation
