Document Management Helps Bank Streamline Audit Process

Imagine opening your company’s doors — and files — to government and private auditors so often that it feels like someone is looking through your records every day. That’s what many banks face, says Robert Nicols, senior VP for credit administration at State Bank of Long Island, which is no exception to this situation. The State Bank of Long Island is a $1.5 billion community bank with an $850 million loan portfolio concentrated in commercial and real estate loans to midmarket companies. The auditors who come into the bank’s premises include bank examiners from both the New York State Banking Department and the FDIC (Federal Deposit Insurance Corporation), who come in daily for six to eight weeks. The bank is also visited by external CPA (certified public accountant) auditors to access the files to compile the bank’s annual report. Also, the bank has its own outsourced loan review department, the auditors for which are at the bank approximately every six weeks for a week at a time, with the intent of reviewing every large loan relationship. Finally, auditors from the Federal Home Loan Bank, which provides a line of credit to the State Bank of Long Island, visit every year for a week to review credit files. “We have auditors going through our files practically every day,” says Nicols. “During their reviews, the auditors have a habit of taking the credit files apart to make copies of certain documents. They often misfile the documents when they replace them. As a result, documents are misplaced when the next auditor or examiner comes in, and we are criticized for a missing document.”

In addition to the challenge of auditors and bank examiners, the bank also spent a good deal of time putting new credit documents into hard copy files, weeding out older files, and pulling files for the auditors. The bank also spent $35 per square foot for rental space for the files. “We knew we needed to change our archiving system and move away from paper,” says Nicols. “This ultimately became clear following our 2004 exam, in which we received criticism for missing documents that other auditors had misplaced.”

The State Bank of Long Island knew it needed a system to house documents in the correct files that were security protected so unauthorized users could not change or remove file components. It also wanted a system in which the contents of credit files could be viewed at workstations, thereby allowing the auditors to look through the files without interrupting the bank’s day-to-day business.

CHOOSE A VENDOR THAT WILL CUSTOMIZE YOUR EDM SOLUTION
After reviewing several document management solutions, the State Bank of Long Island decided to install Westbrook Technologies’ Fortis EDM product. The bank worked with InfiNet Business Systems, an integrating partner of Westbrook’s. “InfiNet and Westbrook listened to our specific needs for a solution and even brought us to Westbrook’s headquarters and provided contacts at other customers using applications similar to what we wanted,” says Gerry Harden, VP at the State Bank of Long Island, who has experience with a document management system used in a different department and worked with Nicols to implement the credit department’s system. “The key differentiator for us was the fact that InfiNet and Westbrook developed an application that fit our exact needs and requirements. The focus of the design was to make the electronic system replicate the look and feel of the hard copy file as much as possible.”

MAINTAIN CONTROL, COMPLIANCE BY SCANNING DOCUMENTS IN-HOUSE
The EDM solution, including software and hardware (two Canon 9080c scanners, servers, and flat panel workstation monitors), cost approximately $125,000 and took three to four months to implement. The two scanning stations are manned by a dedicated scanning employee who has been scanning the bank’s files into the system since September 2005. Since then, the State Bank of Long Island had scanned in more than 20,000 credit documents, which total more than 200,000 pages.

Nicols says he chose not to send the files out for scanning (which many companies do) because of security purposes. “It was easier to ensure quality and security by keeping the scanning in-house,” he says. “Even though it is taking a little longer to get all of our documents into an electronic form, we have not had a single instance in which a document was saved into the wrong folder.” The bank has measured its payback on the solution through the anticipated $35,000 annual savings of office space leasing, but Nicols points to the positive feedback from auditors as the biggest payback. “Avoiding examiner criticism of missing files is a very big intangible result,” he says.