From Gaps to Strengths: Lessons Learned from the Internal Audit Frontline

What keeps today’s bankers up at night? Cyber threats, market volatility, credit risk, regulatory shifts, talent shortages, and pressure from fintech disruptors are just the start. Technology demands are accelerating, and many financial institutions, particularly community banks, are struggling to keep up. The Office of the Comptroller of the Currency’s 2025 Request for Information on community bank digitalization underscores the urgency: without reengineering traditional processes and mindsets, these institutions face the growing risk of obsolescence.

But while external forces demand attention, many of the most damaging risks originate within. Over 18 months of internal audit work, our Risk & Advisory Services (RAS) team encountered breakdowns not in headline-grabbing crises, but in everyday activities, controls, and systems.

In banking’s “three lines of defense” model, each group has a distinct role: the first line owns risk and controls, the second line provides oversight and compliance, and the third line, internal audit, delivers independent evaluations. What follows are insights from that third line: real-world examples of where controls failed, why they failed, and how institutions can transform those weaknesses into lasting operational resilience.

Business Process Stumbles

Weak or poorly enforced controls were the common denominator in most business process findings. At one lender, employee loans were priced below the board-approved rate schedule because nobody checked the final figures against the policy. A quick dual review step could have prevented the slip and the compliance headaches that followed.

Governance gaps surfaced as well. One financial institution let its Allowance for Loan and Lease Losses (ALLL) policy roll forward year after year without the required annual board approval. In the absence of oversight, the methodology became outdated, increasing the risk of misstated reserves and potential regulator pushback.

Even routine reconciliations revealed soft spots. Team members prepared the monthly CECL tie-out but never signed off, leaving management unsure whether the numbers had been vetted. Formal electronic sign-offs — automatically logged and timestamped — now force accountability.

Some oversights were startlingly simple: a terminated employee still had full access to a rewards platform. The episode highlighted a broader problem: no one owned the off boarding process from end to end. Involving HR, IT, and business managers in a single checklist has since closed the loop.

IT Control Gaps

Technology audits uncovered their own set of avoidable hazards. In several financial institutions, users held elevated system privileges long after their roles changed, a direct violation of the least privilege principle. Automated quarterly access reviews have since pared those rights back to what each job truly demands.

Password rules were another relic of the past: short, predictable strings with no multifactor authentication. By adopting the NIST 800-63B standard and activating MFA, the financial institutions moved those accounts out of a low-hanging fruit category for attackers.

Few problems proved as costly as informal change management. One undocumented server tweak caused a 14-hour outage because no one had tested the update or drafted a rollback plan. A formal change approval board—complete with checklists and sign-offs—now stands guard against repeat performances.

Legacy software lingered, too. End-of-life servers, no longer supported by vendors, left gaping security holes. Short-term network isolation and a structured upgrade timeline have become the survival plan until each system can be replaced.

Why These Gaps Matter

The downstream effects are anything but theoretical. Loose access controls invite data breaches that draw fines, lawsuits, and headline risk. Mispriced employee loans can trigger fair lending inquiries and loss of income. Unsupported software not only enlarges the attack surface—it can also void cyber insurance coverage. And poorly supervised vendors may become the entry point for attacks. All these events create unintended costs: would it have been more valuable to ensure a proper risk, process and control framework was in place?

Root Causes: Culture Over Configuration

Digging deeper, we discovered that most technical failures had human roots. Manual steps relied on memory, and memories faded. A culture that prized speed over documentation encouraged off-the-books server tweaks—much easier to have updated policies and procedures. Departmental silos meant HR closed tickets, IT shut off email, but no one remembered the SaaS login. And change fatigue pushed teams to rush fixes and skip approvals in the name of expediency.

Five Moves to Make Before Next Quarter End

To help institutions act, not just react, we distilled our findings into five high-impact steps. Think of them as a starter kit for risk reduction:

1. Tighten access controls. Map every job role to the minimum privileges it needs, automate provisioning and deprovisioning, and run quarterly audits.
2. Put policies on the clock. Schedule an annual review for critical documents — CECL, IT security, vendor management — complete with board approval.
3. Split high-risk duties. Require dual signoffs on wires, journal entries, and reconciliations, and keep the audit trail intact.
4. Treat vendors like insiders. Perform rigorous due diligence up front, embed security clauses in contracts, and monitor external access continuously.
5. Validate models independently. Test CECL and stress testing models outside the development team and scrutinize every report before it leaves the building.

Closing Thought

Risk rarely rushes in with flashing lights. More often, it creeps through unchecked edits, skipped approvals, and a single user account no one bothered to disable. By addressing those mundane — but potent — weak points, financial institutions strengthen not only their control environment but their reputation and resilience. In that light, internal audit stops being a regulatory hurdle and becomes what it should be: a strategic lens on how the enterprise truly operates.

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CBIZ’s Financial Services Industry Group is committed to being a trusted advisor and partner to financial institutions, from cyber and fraud prevention, credit risk management, M&A support, to insurance needs, technology, and talent management. Check out an overview of our services for financial institutions, and reach out to an industry professional to learn more about how CBIZ can help you navigate change with confidence.