program for independently assessing the effectiveness of internal controls on at least an annual basis. boards of directors and audit committees are responsible for ensuring that their organizations have effective internal controls that are adequate for the nature and scope of their businesses and are subject to an effective audit process. effective internal control is the responsibility of line management. line managers must determine the acceptable level of risk in their line of business and must assure themselves that they are getting an appropriate return for this risk and adequate capital is being maintained. supporting functions such as accounting, internal audit, risk management, credit review, compliance, and legal should independently monitor and test the control processes to ensure that they are effective. implementing management reports on internal controls comparable to those required under sarbanesoxley and fdicia 112 can also assist community bank boards of directors and audit committees in obtaining a better understanding of the controllable risks within the bank and the quality of the controls in place over those risks. sarbanes - oxley and fdcia 112 require an annual management assessment of internal control effectiveness and an attestation of management ’ s assessment and the effectiveness of controls by the bank ’ s external auditor. community bank management could perform periodic assessments of internal control effectiveness. another group of employees within the bank could perform an independent evaluation of management ’ s report. by independent, i do not necessarily mean an external auditor should be engaged to issue a report. in this sense, independent may mean that internal audit is brought in to perform something similar to an external auditor ’ s attestation. the details of such an approach need to be worked out. the important point is that the audit committee should have some reasonably independent assessment of management ’ s report. audit committee members could use these reports to set the audit plan for the next year, to track how risks have changed and are changing within the organization, and to facilitate discussion of which controls should be added. best practice 3 : adopt a framework for assessing operational risk over the past few years, the discussion of operational risk management has increased significantly in banking circles. in 2003, the basel committee released a paper, “ sound practices for the management and supervision of operational risk. ” 4 this paper sets forth a set of broad principles that should govern the management of operational risk at banks of all sizes. although operational risk is nothing new to community banks, the prospect of addressing this risk in a structured framework with measurable results is something new. the broad variety of products and services that banks provide, the evolution of

monetary policy is not on a pre - set path, and i will be closely monitoring the incoming data and their implications for the economic outlook. i will be looking for evidence that inflation is on a consistent and meaningful downward path as i consider whether further increases in the federal funds rate will be needed, and how long the federal funds rate will need to remain at a sufficiently restrictive level. i know that high inflation has been a hardship, especially for lower - and middle - income families, who spend the majority of their income on necessities. returning inflation to two percent will help american families focus on important decisions other than 1 / 3 bis - central bankers'speeches inflation. addressing high inflation will ensure that it is no longer a factor for spending and investment decisions and will help put the u. s. economy on a course of ongoing economic growth and rising standards of living. but i also know that higher interest rates have made it more difficult for many to get a loan, to buy a home or a car, and for businesses to invest and expand. i am interested to hear the ways in which inflation and higher interest rates are affecting the day - to - day lives of our participants today. i am also looking forward to learning about how the economy and the fed's policies are affecting lower - income workers and small businesses, the two subjects of today's fed listens event. over the past few years, for many, wage and salary increases have not kept up with inflation, and while that general pattern has improved recently, most workers still have not seen wage increases equal to price increases. for workers at the lower end of the wage spectrum, wage gains have been the strongest seen in decades. however, because necessities like groceries and gasoline make up a large share of their household expenses, lower - wage workers have been experiencing the effects of higher prices more acutely than others. we also know from history that a slower economy, with higher unemployment, tends to hit lower - income workers the hardest, so we must remain attuned to the fact that our efforts to reduce inflation have the potential to undermine wage gains and job security for lower - wage workers. should inflation remain at today's level, or increase again, lower - wage workers would continue to bear the brunt of these effects. small businesses are also more vulnerable in an economic slowdown than larger businesses, and i am watching carefully to see how they are dealing with both inflation and higher interest rates. despite high inflation and