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An Old Song Resung

By Blair Rugh 10 Jan 2018

For as long as I can remember, which is a timeframe that seems to be getting shorter and shorter, I have been preaching about the value of policies and procedures. In case you either missed or slept through my last sermon, I decided to change it up a little and give it again. I continue to believe that a comprehensive set of policies and procedures will improve the productivity and profitability of any organization. They are not only important for compliance issues, but for every task that the organization is trying to accomplish.


First, policies. If there is some issue for which your institution does not have a policy, then as to that issue your employees are free to do anything that they wish. At the moment, sexual harassment is the hot issue. What is your institution's policy on sexual harassment? It is not sufficient to just have a policy that says no employee shall sexually harass another. What is your policy on the use of profanity or the telling of sexually suggestive or racial jokes within the workplace? What is your policy on employees dating one another? You must have a policy, or you leave yourself open to significant liability.


On the lending side of the bank, you need a myriad of policies. You need a policy on credit standards, collateral requirements, loan concentrations, loans to one borrower, insider lending and on and on. Without adequate policies, an institution is directionless and it is anyone's guess where it will go.


One of the problems with policies is that they need to be periodically reviewed. You can't just say, "We have completed all of our policies and we will never have to do that again". Times change and sometimes the changes are dramatic. Policies have to change with the times. Who would have guessed ten years ago the transactions that a customer could make a transaction with a smartphone or the communication possibilities. If you have not changed your technology, marketing and transaction processing policies to accommodate that, you are way behind the eight ball.


Make sure that each of your department heads understand that they are responsible for the policies of their departments and it is their responsibility to make sure that those policies are up to date.


Next, procedures. To me, procedures may be more important than policies. They define where the rubber really hits the road. First, a procedure may incorporate the requirements of several policies. For example, an account opening procedure should fulfill your policy for Regulations DD, CC, V, BSA, E and P as well as your policy for customer information collection and cross selling. Many of your employees came to your bank from other institutions. If I am a customer service representative in your institution, but I got my training from Friendly Bank down the street, then until I am taught otherwise I am going to continue doing things the way I did them at Friendly Bank. All of a sudden you have twelve customer service representatives from twelve different banks all trying to accomplish the same thing but doing it in twelve different ways. In other words you have chaos. A set of comprehensive procedures will make sure that everyone is on the same track. Procedures are a great training tool for new employees, they are also a great refresher for existing employees.


Also procedures are an extremely easy way to implement change. If a regulation changes or if for some other reason a policy changes then the procedures implementing that policy need to be changed. Then, all you need to do is educate you employees on the change in the procedure.


For example, "We used to do this and now we are going to do this. Steps 5, 6 and 9 in the procedure have changed and if you are curious, this is the reason why".


Finally, if you are or have ever been an internal auditor, you know that trying to audit a result is extremely difficult. On the other hand, auditing conformity with a procedure is relatively easy. Again, if you have twelve customer service representatives and eleven of them are following the account opening procedure, but one is not, that customer service representative's actions will be obvious.


If you are an executive of a financial institution and you have not fully embraced the concept of policies and procedures for your organization or your department, rethink what they can accomplish for you in efficiency and consistency. Moreover, examiners love them and they will make your next examination the easiest you have ever had.

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