ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release April 13, 2005 #05-13
E-mail: [email protected]

COMMUNITY BANKER TESTIFIES AT SEC ROUNDTABLE

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WASHINGTON, D.C. — A community banker expressed serious concerns today to the Securities and Exchange Commission over the burdens imposed on smaller banks by the process for implementing and reporting the Sarbanes-Oxley Act’s internal control requirements.

Curtis L. Hage, a panelist at the SEC’s roundtable on implementation of the Sarbanes-Oxley Act’s section 404, said: “Without proper oversight and controls over the related fees being imposed for section 404 implementation and compliance, and a profound inability to adequately assess the benefit gained through section 404 reports and disclosures, this system appears doomed to failure.”

Hage is chairman and CEO of HF Financial Corp. and Home Federal Bank, Sioux Falls, S.D., and a former chairman of America’s Community Bankers, the national trade group. His comments were based on a written statement submitted prior to the roundtable.

“Smaller public companies like Home Federal Bank are starting to wonder how many additional funds and resources can be allocated to comply with this new standard, on top of the existing bank regulatory burdens, with little confidence as to a commensurate benefit to our organization or its investors.

“Without some form of reasonable relief provided by the SEC or PCAOB [the Public Company Accounting Oversight Board], real and unfortunate conclusions for many community financial institutions will likely be dissolution through merger activity, or becoming private enterprises.”

Hage noted that before passage of the Sarbanes-Oxley Act banks were already heavily regulated. Banks with more than $500 million in assets, like Home Federal, were already subject to audit and attestation requirements under the FDIC’s FDICIA regulations.

“Since external auditors now have a newfound authority and directive under the Act and are acting more like bank examiners, banks are becoming significantly overwhelmed by the over-regulation,” he said. “The examiners and external auditors are often duplicating efforts, and in many cases, disagreeing on some financial statement reporting or internal controls issues.” Community banks don’t know whether to comply with their bank regulator or their auditor, he added.

The Sarbanes-Oxley Act’s section 404 and PCAOB’s Auditing Standard No. 2 “have effectively created a vehicle where public companies are being subject to over-compensating and costly measures to ‘remove’ many of the risks that were previously identified and deemed insignificant by regulators under banking laws and regulation.”

While financial institutions as both preparers and users of financial statements certainly welcome efforts to improve the accuracy and transparency of financial reporting, Hage said “it seems highly unlikely that users of financial statements will recognize a benefit commensurate with the extraordinary costs and resource burdens associated with section 404.”

In its recent comment letter to the SEC, America’s Community Bankers recommended allowing banks to meet the Sarbanes-Oxley requirements by complying with the current approach to internal control and attestation requirements contained in federal banking law. At a minimum, ACB urged consideration of relief consistent with the FDICIA exemption for smaller community banks.

ACB urged the SEC and the PCAOB to make field visits to gain a first-hand understanding of how the current requirements affect smaller companies, and what being is required by the auditors. ACB further urged the agencies to review and evaluate the way auditing firms are implementing section 404 requirements and provide corrective guidance.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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