Textbook Problem

Internal controls for bank lending

Pacific Bank provides loans to businesses in the community through its Commercial Lending Department. Small loans (less than $100,000) may be approved by an individual loan officer, while larger loans (greater than $100,000) must be approved by a board of loan officers. Once a loan is approved, the funds are made available to the loan applicant under agreed-upon terms. Pacific Bank has instituted a policy whereby its president has the individual authority to approve loans up to $5,000,000. The president believes that this policy will allow flexibility to approve loans to valued clients much quicker than under the previous policy.

As an internal auditor of Pacific Bank, how would you respond to this change in policy?