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Audit/Compliance Committee Charter Print E-mail

Purpose

The principal purposes of the Audit/Compliance Committee is to assist the Board of Directors of Cornerstone Bank (the “Bank”) in fulfilling its responsibility to oversee: (i) the integrity of the Bank’s financial statements; (ii) the adequacy of the Bank’s financial reporting process; (iii) the Bank’s systems of internal controls to include but not limited to accounting and financial controls; (iv) the performance of the Bank’s internal audit function, other third party vendors, state and federal regulatory functions and independent financial statement auditors; (v) the independent financial statement auditors’ qualifications and independence; (vi) the Bank’s compliance with its policies about ethical conduct and legal and regulatory compliance requirements and (v) the Bank’s on going compliance with existing policies and procedures.  In so doing, it is the responsibility of the Committee to maintain free and open communication between the Committee and each of the independent financial statement auditors, the internal auditors, federal and state regulatory examination agencies, other third party vendors and the management of the Bank.The Committee should assist the Board of Directors of CB Financial Corporation (the “Company”) and Cornerstone Bank  (the “Bank”) in fulfilling its responsibility to oversee management’s compliance with the regulatory obligations of the Company and the Bank arising under applicable federal and state banking and financial institution laws, rules, and regulations, including any terms and conditions required from time to time by any action, formal or informal or informal, of the Board of Governers of the Federal Reserve System, the Federal Depository Insurance Corporation, the North Carolina Banking Commission, or any other federal or state banking regulatory agency or authority, and any response of management to any inquiries from any applicable banking regulator.

In discharging its oversight role, the Committee is granted the authority to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Bank and the authority to engage independent counsel and other advisers, as it determines necessary to carry out its duties.  The Bank shall provide appropriate funding, as determined by the Committee, for compensation to the independent financial statement auditors and to any other third party vendors and/or advisers, including independent counsel, which the Committee chooses to engage.

In a financial institution, management must meet regulatory requirements in order to effectively manage the institution’s risk to earnings and capital arising from violations of laws or of rules, regulations, prescribed practices, guidelines, required procedures, or ethical standards imposed by applicable regulators. Legal risk exposes the Company and the Bank to the possibility of fines, civil money penalties, payment of damages, agreements or orders limiting operational discretion, and other potential regulatory actions. Legal risk can lead to a diminished reputation, management disruption, reduced franchise value, limited business opportunities, leesened expansion potential, and lack of contract enforceability.

It is not practical or expected that the Committee will monitor compliance with each regulation to which the Company and the Bank are subject. Rather, the Committee take a risk-based approach and will be responsible for overseeing compliance of the Company and the Bank of the areas of regulation that are identified by management as presenting the most risk to the Bank and the Company.

In overseeing compliance with regulatory and other legal obligations, it is the responsibility of the Committee to maintain free and open communication between the Committee and each of the internal auditors, any outside vendors performing regulatory compliance services, and the management of the Company and the Bank.
The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.

Composition

The Committee shall be comprised of no fewer than three Board members who are independent of management.  The members of the Committee shall be appointed by the Board annually. The Committee’s members will be both independent and financially literate.  Accordingly, all members of the Committee shall be directors who:
•    Have no relationship with the Bank’s management or with the Bank that may interfere with the exercise of their independent judgment;
•    Do not receive any consulting, advisory or other compensatory fee from the Bank, other than in the members’ capacities as members of the Board or any of its committees;
•    Are not “affiliated persons” (as defined by applicable law or regulation) of the Bank, other than as members of the Board; and
•    Are financially literate.
    
 
    In addition, at least one member of the Committee will have accounting or related financial management expertise and, to the extent practicable, be designated as the “audit committee financial expert” as determined by the Board.
    
    Authority
    
    The Committee shall meet at least four times per year, or more frequently as circumstances dictate.  The committee will invite members of management, internal auditors, financial statement auditors, federal or state regulators and/or other third party vendors to attend meetings and provide pertinent information as necessary.  The Committee shall periodically meet separately with each of the Bank’s management, internal auditors, federal regulators, other third party vendors and independent financial statement auditors to discuss issues and concerns warranting Committee attention.  The Committee may delegate authority to any subcommittees created by it and composed of one or more of its members or individuals when appropriate. Any such subcommittee or individual acting under authority delegated by the Committee shall report any actions taken to the Committee at its next scheduled meeting. The Committee should meet periodically in executive session. The Committee shall report regularly to the Boards.
    
    In discharging its oversight role, the Committee is granted the authority and resources necessary to discharge its responsibilities or to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company and the authority to engage independent counsel and other advisers, as it determines necessary to carry out its duties. The Company shall provide appropriate funding, as determined by the Committee, for compensation to any advisers, including independent counsel, that the Committee chooses to engage.independent counsel  and other advisers, as it determines necessary to carry out its duties. The Company shall provide appropriate funding, as determined by the Committee, for compensation to any advisers, including independent counsel, that the Committee chooses to engage.
    
    Meeting agendas will be prepared and provided in advance to members, along with supporting agenda materials.   The Committee will prepare and maintain accurate meeting minutes.
    
    Duties and Responsibilities
    
    The primary responsibility of the Committee is to oversee the Bank’s financial reporting process on behalf of the Board and report the results of its activities to the Board and to oversee the efforts of the Company and the Bank to manage the risks associated with regulatory compliance obligations. While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Bank’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles (“GAAP”) and applicable rules and regulations. Management is responsible for the preparation, presentation, and integrity of the Bank’s financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Bank. Management is also responsible for ensuring an adequate control environment is in place and working effectively.  The independent financial statement auditors are responsible for auditing the Bank’s financial statements. It is not the duty of the Committee to assure compliance with relevant laws, and other relevant standards. Rather, the Committee will oversee the relevant work of the Compliance officer and will receive reports from the Compliance Officer, each of the internal auditors, any outside vendors performing regulatory compliance services, and other members of management about issues that may arise concerning the Company’s and the Bank’s compliance with various laws and regulations.
    
    The Committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible in order to best react to changing conditions and circumstances. The Committee will take appropriate actions to set the overall corporate “tone” for quality financial reporting, sound business risk practices, and ethical behavior. The following shall be the principal duties and responsibilities of the Committee. These are set forth as a guide with the understanding that the Committee may supplement them as appropriate.
    
    Internal Controls
    
•    Consider the effectiveness of the Bank’s internal control system, including information technology security and control.
•    Understand the scope of internal and external auditor’s review of internal control over financial reporting, and obtain reports on issues and recommendations, together with management’s responses.
•    Understand the scope of the federal and state regulatory examinations for safety and soundness, and regulatory compliance as performed by FDIC and State of North Carolina Commissioner of Banking.

Compliance Matters

•    Ensure that the Bank is taking appropriate measures to address the regulatory requirements of the Bank Secrecy Act, including Anti-Money Laundering regulations and guidance.
•    Discuss with management the Company’s and Bank’s major regulatory risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.
•    Ensure that each of the Company and the Bank is taking appropriate measures to address the federal and state regulations that present the most legal risk for the Company and the Bank.
•    Discuss with management changes in regulatory requirements and management’s plans for complying with them.
•    Review and approve the Bank’s policies and procedures relating to regulatory compliance activities of the Bank, including the Bank Secrecy Act, Anti-Money Laundering & Customer Identification Policy.
•    Ensure that the full Board of Directors of the Company and the Bank receives such materials and training as may be necessary for educating it on all significant compliance issues, including policies, procedures, planning and statutory requirements.
•    Periodically report to the Boards on the adequacy and effectiveness of the compliance program of the Company and the Bank.
•    Become familiar with the terms and conditions of any and all orders, agreements, supervisory letters, or similar actions of any banking regulatory or other governmental authority and the responsibility of the Company and the Bank in taking appropriate steps within reasonable timeframes to comply with the terms thereof.
•    Review management reporting to all banking regulators and serve as a contact point for banking regulators with respect to all matters relating to any regulatory findings/recommendations.
•    Review all reports of regulatory examinations or reviews.
•    Review and ensure appropriate management response to all issues related to regulatory obligations as identified in all audits of the Company and the Bank.
•    Review the appointment and replacement of the internal auditor.
•    Discuss with the internal auditors the overall scope and plans for their audits, including the adequacy of staffing and compensation.
•    Review all significant reports to management prepared by the internal auditor and management’s response.
•    Investigate or cause to be investigated any significant instance of noncompliance, or potential significant compliance violations that come to the attention of the Committee.
•    Perform such other duties and responsibilities as may be assigned to the Committee by the Board.
•    Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.

Reporting Responsibilities

•    Regularly report to the Board of Directors about committee activities and issues that arise with respect to the quality or integrity of the Bank’s financial statements, the Bank’s compliance with legal or regulatory requirements, the performance of the Bank’s independent financial statement auditors and other third party vendors providing audit or related services and the performance of the internal audit function.
•    Provide an open avenue of communication between internal auditor(s), the external auditors, regulatory examiner(s), and the Board of Directors
•    Report to the shareholders describing the committee’s composition, responsibilities and how they were discharged and any other information as deemed appropriate.
•    Review any other reports that the Bank issues that relate to the committee responsibilities.
    
    Financial Statement and Disclosure Matters
    
•    The Committee shall review and discuss with management and the independent auditors the annual audited financial statements, and disclosures made in management’s discussion and analysis, and recommend to the Board whether the audited financial statements should be included in the Bank’s Annual Report to Stockholders.
•    The Committee shall periodically review with management and the independent auditors the quality, as well as acceptability, of the Bank’s accounting policies, and discuss with the independent auditors (i) how the Bank’s accounting policies compare with those of other companies in the industry in which the Bank is a participant and (ii) all alternative treatments of financial information within GAAP that have been discussed by management and the independent auditors, the ramifications of use of such alternative disclosures and treatments and the treatments preferred by the independent auditors.
•    The Committee should review significant accounting and reporting issues and understand their impact on the financial statements.  These issues include but are not limited to:
o    Complex or unusual transactions and highly judgmental areas
o    The effect of regulatory and accounting initiatives on the financial statements
o    Review analyses prepared by management and/or independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements
•    The Committee shall review with management and the independent auditors any material financial or other arrangements of the Bank which are not reflected in the Bank’s financial statements and any transactions or courses of dealing with third parties that are significant in size or involve terms or other aspects that differ from those that typically would be negotiated with independent parties, and which arrangements or transactions are relevant to an understanding of the Bank’s financial statements.
•    The Committee shall discuss with management and the independent auditors significant financial reporting issues and judgments made in connection with the preparation of the Bank’s financial statements, including (i) any significant changes in the Bank’s selection or application of accounting principles, (ii) any material issues as to the adequacy of the Bank’s internal controls, (iii) the development, selection and disclosure of critical accounting policies, practices and estimates, and (iv) any analyses of the effect of alternative accounting principles, assumptions, practices or estimates on the Bank’s financial statements.  Such discussions also shall address why any practices, estimates or policies have not been deemed critical.
•    The Committee shall discuss with management and the independent auditors the effect of regulatory and accounting initiatives as well as existing (or proposed) off-balance sheet structures on the Bank’s financial statements.
•    The Committee shall discuss with management the Bank’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Bank’s risk assessment and risk management policies.
•    The Committee shall discuss with the independent auditors the matters required to be discussed by Statement on Accounting Standards No. 61 relating to the conduct of an audit of the Bank’s annual financial statements and other similar matters.  In particular, the Committee shall discuss:
o    The adoption of, or changes to, the Bank’s significant auditing and accounting principles and practices as suggested by the independent auditors, internal auditors or management.
o    The management letter provided by the independent auditors and the Bank’s response to the letter.
o    The independent auditors’ report on observations and recommendations on internal controls, the schedule of material adjustments and reclassifications proposed by the independent auditors in connection with an audit (and any adjustments and reclassifications not recorded), the independent auditors’ engagement letter and the independent auditors’ independence letter.
o    Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.
    
    Oversight of the Bank’s Relationship with the Independent Financial Statement Auditors
    

•    The Committee shall be directly responsible for the appointment, compensation and oversight of the work of the independent auditors in preparing or issuing any audit report or related work, including resolution of any disagreements between management and the independent auditors regarding financial reporting.  
•    The Committee shall approve the engagement of the independent auditors and shall approve, in advance, all audit services and all permitted non-audit services to be provided to the Bank by the independent auditors. The Committee may delegate pre-approval authority to a member of the Committee. The decisions of any Committee member to whom pre-approval authority is delegated must be presented to the full Committee at its next scheduled meeting.
•    On an annual basis, the Committee shall obtain from the independent auditors and review a formal written statement delineating all relationships between the independent auditors and the Bank consistent with Independence Standards Board Standard No. 1 and such other requirements as may be established by the Public Bank Accounting Oversight Board, discuss with the independent auditors any disclosed relationships and their impact on the independent auditors’ independence, and take appropriate action regarding the independence of the independent auditors.
•    At least annually, the Committee shall obtain and review a report by the independent auditors describing:
 
o    The independent auditors’ internal quality control procedures;
o    Any material issues raised by the most recent internal quality control review, or peer review, of the indpendent auditors, or by an inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the independent auditors, and any steps taken to address such issues; and
o    All relationships between the independent auditors and the Bank.
 

•    The Committee shall evaluate the qualifications, performance and independence of the independent auditors, including considering whether the independent auditors’ quality controls are adequate and the provision of permissible non-audit services is compatible with maintaining the independent auditors’ independence, while taking into account the opinions of the Bank’s management and internal auditors.  The Committee shall present its conclusions to the Board and, if so determined by the Committee, recommend that the Board take additional action to satisfy itself of the qualifications, performance and independence of the independent auditors.
•    The Committee shall recommend to the Board policies for the Bank’s hiring of employees or former employees of the independent auditors of the Bank, as deemed appropriate.  

•    The Committee shall review annually management’s most recent assessment of the effectiveness of the Bank’s internal controls and the independent auditors’ report on management’s assessment.
•    The Committee shall discuss with the independent auditors the overall scope and plans for their respective audits, including the adequacy of staffing and compensation.
•    The Committee shall discuss with management, and the independent auditors the adequacy and effectiveness of the accounting and financial controls, including the Bank’s policies and procedures to assess, monitor, and manage business risk, and legal and ethical compliance programs (e.g., Bank’s Code of Business Conduct and Ethics).
    
    Oversight of the Bank’s Internal Audit Function and any Third Party Vendors
    
•    The Committee shall review the appointment and replacement of the internal auditor.
•    The Committee shall be directly responsible for the appointment, compensation and oversight of the work of any third party vendor performing audit or audit related services in preparing or issuing any audit report or related work, including resolution of any disagreements between management and the internal auditor and/or third party vendor.  
•    The Committee shall approve the engagement letter of the third party vendor performing audit or audit related services and shall approve, in advance, all audit services. All third party vendors must maintain their independence.  The Committee may delegate pre-approval authority to a member of the Committee. The decisions of any Committee member to whom pre-approval authority is delegated must be presented to the full Committee at its next scheduled meeting.
•    The Committee shall review and approve the annual internal audit risk assessment and corresponding annual audit plan.
•    The Committee shall actively monitor the annual audit plan and maintain adequate evidence of the plan accomplishment, revisions, individual audit scope revisions, etc.  The committee has the sole responsibility to approve any audit plan revisions and/or changes in individual audit scope(s).
•    The Committee shall review all reports to management prepared by the internal auditor and any third party vendor retained to perform internal audit services and management’s responses.
•    The Committee shall discuss with the internal audit function, the internal auditors’ responsibilities, budget and staffing, and any recommended changes in the planned scope of the individual internal audits.
•    The Committee shall periodically (and at least annually) discuss with management and the internal auditors(s) the quality and adequacy of the Bank’s internal controls and internal auditing procedures, including any significant deficiencies in the design or operation of those controls that could adversely affect the Bank’s ability to record, process, summarize and report financial data or the Bank’s ability to detect any fraud, whether or not material, that involves management or other employees who have a significant role in the Bank’s internal controls.
•    The Committee shall evaluate the qualifications, performance and independence of any third party vendor who provided internal audit services, including considering whether the firms’ quality controls are adequate, while taking into account the opinions of the Bank’s management and internal auditors.  The Committee shall present its conclusions to the Board.
    
Regulatory Examination Oversight Responsibilities
    
•    Meet with the federal and/or state regulatory agencies as needed/requested for safety and soundness, regulatory compliance and Community Reinvestment Act (CAR) examinations.
•    Review the issues and determine the adequacy of management responses to any federal or state regulatory examinations as performed by regulatory agencies.
•    Maintain on-going communications with the federal and state regulatory agencies involving safety and soundness and/or regulatory compliance to include CRA.
    
    Other Oversight Responsibilities    
    
•    Discuss with management the Bank’s major policies with respect to risk assessment and risk management
•    Initiate and oversee any special investigations as needed.
•    The Committee shall obtain reports from the Bank’s management, and internal auditor that the Bank and its affiliates are in conformity with applicable legal requirements and the Bank’s Code of Business Conduct and Ethics.  The Committee shall advise the Board with respect to the Bank’s policies and procedures regarding compliance with applicable laws and regulations and with the Bank’s Code of Business Conduct and Ethics.
•    The Committee shall review reports and disclosures of insider and affiliated party transactions.
•    The Committee shall establish procedures for (i) the receipt, retention and treatment of complaints received by the Bank regarding accounting, internal accounting controls or auditing matters and (ii) the confidential, anonymous submission by employees of the Bank and its subsidiary of concerns regarding questionable accounting or auditing matters.
•    The Committee shall discuss with the Bank’s general and other counsel any legal matters that may have a material impact on the financial statements or the Bank’s compliance policies.  
•    Perform other activities related to this charter as requested by the Board of Directors.
•    The Committee shall evaluate its performance at least annually to determine whether it is functioning effectively and in accordance with the audit charter responsibilities

 
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$132.3 million as of  
March 31, 2013

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