The Financial Institutions Bureau has received questions about our efforts to improve the coordination of our examinations with those of your CPA firm. Most questions related to privilege, confidentiality, security and cost. This letter is to give more background information and to answer the main questions that have arisen.

Background

During the past several years we have refined our examination process by using the top down approach. In discussions with various groups including internal auditors, bank management, and CPAs, it was agreed that the Bureau could better use available information to avoid duplicating work already being done by the external or internal auditors through a pre-examination review program. This program would include reviewing the auditor's findings and talking either in person or by phone with your independent CPA.

Purpose

Our program modifications contained in the original addendum to Bank Bulletin No. 19 endeavored to facilitate our pre-examination review. By conducting the review systematically, we seek a better allocation of resources and personnel, which we expect will result in a savings of time to your bank.

Conference

A pre-examination conference, when held, with your independent public accountant, usually by phone or occasionally in person, would help (1) prevent a duplication of effort, and (2) establish the direction and extent of our examination. We would like to use your CPA's work in examining the bank's records and internal controls. Therefore, we are interested in reviewing the CPA s evaluation of the system of internal accounting control, the audit scope, reports issued, and the bank's financial statements. Anyone from your audit committee or an independent outside director may be present at this pre-examination conference, if you desire, or on a conference call to the CPA.

External and Internal Audit Reports

Supplying the Bureau with a copy of your CPA's audit report and management letter and a summary report of your internal audit operation will be helpful in our pre-examination planning. As provided by Bulletin 19, the summary report of your internal audit operation should reflect the summary given to the Board or a committee thereof, describing the internal auditor's role, function, scope, findings, etc., and an opinion on the overall condition of the bank's internal controls and operation. The summary should be brief and include only those areas that the internal auditor views are relevant to the examination process. We do not want a copy of the detailed audit reports that the internal auditor submits to the Board of Directors unless the auditor feels that it is of a very serious nature that should be called to our attention. We are primarily interested in a broad overview of the audit functions that the internal audit department has performed during the past year and what they expect to do the following year.

Privilege

In discussing the concept of the pre-examination planning with interested CPAs and the Michigan Association of CPA's Sub-committee on Relations with the Financial Institutions Bureau, they believed a meeting would mutually benefit all concerned. However, Section 20 of the Public Accountancy Act does not allow a CPA to disclose information about the examination of the records of a client without the client's written permission. Therefore, we ask your authorization to permit us to communicate with your CPA to facilitate our examination planning. However, we believe that there may be certain information you prefer to be kept confidential between you and your CPA. Therefore, the CPA need not give us this information. Your instructions or the CPA's judgment may guide what specific information is to be shared. We believe that an authorization for Bureau examiners to communicate with the CPA for the purpose of pre-examination planning does not result in a blanket waiver of the confidentiality privilege created in the Accountancy Act.

Confidentiality and Security

In accordance with Section 29 of the "Banking Code of 1969," the information we receive from the CPAs and the audit reports that you send to us are considered part of the examination and as such require us to maintain these records in confidence. The Bureau continually handles documents without compromising their confidentiality. We are equally concerned about confidentiality, and our procedures are designed to protect the examination records maintained in our office. We do not intend that the audit information be a permanent record, but rather to use it to plan a more efficient examination. The reports and all examination workpapers will be shredded following the next regular examination.

Cost/Benefit

We predict a savings in time to both you and us, in that our examiners should be in your bank a shorter period of time. More efficient planning through the reports and conference should take less of your employees' operational and administrative time and be less disrupting to your operations.

Authorization

We encourage you to cooperate with us in order to improve our examination function to benefit your bank and to carry out our statutory responsibility. We have revised the initial form granting us authorization to meet with your CPAs and for providing us with the reports to be used in the pre-examination review. Please return this form as soon as possible; this will replace your prior approval.

We hope we have addressed your concerns and appreciate your cooperation.

Signed:	Richard J. Francis, Commissioner
	Gifford Knudsen, Director, Bank & Trust Division
Dated:	May 19, 1980

To the Financial Institutions Bureau of the State of Michigan

Initial the Applicable Statement(s)

[  ]	We authorize you to confer with the CPA firm we have engaged to obtain information limited to the evaluation of the system of internal accounting control, scope and reports issued on their audit, and the bank's audited financial statements for your pre-examination planning. Our CPA firm is not authorized to give you any other information without our permission.
	Name of CPA firm.
[  ]	We do not authorize you to contact our CPA.
[  ]	We will forward to the Bureau our CPA's audit report, management letter, and a summary of our internal audit operations (if applicable).
[  ]	We will not forward the CPA's report, management letter, or the summary of our internal audit operations to the Bureau.
[  ]	A copy of your addendum to Bank Bulletin 19 and this document has been mailed to our CPA firm for their information and instruction.

Authorization covers calendar years 1980 and 1981.