Audit committee and internal audit effectiveness in a multinational bank subsidiary: A case study

This case study examines the operations and linkages of internal audit and the audit committee in a clearing bank in the Republic of Ireland over a ten-year period to 1998. The focus is on their effectiveness in relation to certain specific 'improper practices' which occurred during the period studied. The bank had been a subsidiary of the Midland Bank of the UK since the mid-1960s until it was acquired by National Australia Bank in 1987. The Irish banking system was the subject of a Parliamentary inquiry in 1999. Compliance with a new deposit interest withholding tax, effective from April 1986, was found to be poor in the four clearing banks (and others also) until about 1992. The bank under study, National Irish Bank (NIB), was the only clearing bank that was the subject of a High Court inspectors' investigation. Various bank practices which enabled customers to evade tax through the concealment of funds, continued into the late 1990s and were uncovered by the High Court inspectors. The internal governance systems, particularly internal audit and the audit committee, appear to have been aware of many of the practices - yet they were not corrected appropriately. Drawing on some concepts of culture theory, the analysis attempts to illustrate how internal governance systems can fail to fulfil their functions. Suggestions for further research issues are also presented.