Commercial real estate (CRE) loan servicing is a complex, high-stakes business where success depends on precise execution, strong controls, and proactive risk management. A well-built and consistently executed internal audit program anchors this effort. If it’s been a while since your CRE Internal Audit Program was last reviewed, now is the time to take a closer look.

In this piece, we outline the key components of a strong program, why it matters, and the essential questions you should be asking to ensure your audit remains comprehensive and relevant.

What Goes Into a Strong CRE Internal Audit Program

To be thorough and reliable, an audit program should include components that directly address the critical aspects of CRE loan servicing:

• Process Reviews: Assess core functions such as loan boarding, investor reporting, surveillance, and asset management for alignment with company policies, industry best practices, and federal regulations.

• Controls Testing: Test whether controls prevent or detect errors, fraud, and operational bottlenecks.

• Policy vs. Practice Analysis: Compare documented policies and procedures against daily operations to expose inconsistencies that could create compliance issues.

• Sampling and Testing: Use random samples of loan files to evaluate compliance, performance, and data integrity across the portfolio.

• Key Metrics and Reporting: Track critical metrics like remittance timelines, covenant compliance, and error rates to gauge control strength.

• Findings and Recommendations: Present results, identify root causes, and propose clear, actionable improvements.

Why Your Audit Program Matters

The value of a CRE Internal Audit Program lies in how it mitigates risk, enforces compliance, and sharpens operations:

• Identify & Mitigate Risk: Spot potential issues early and apply targeted controls before they escalate.

• Maintain Compliance: Enforce adherence to regulations, loan documents, PSAs, and investor guidelines to avoid penalties and reputational damage.

• Boost Operational Efficiency: Pinpoint gaps and streamline processes to improve performance.

• Safeguard Accuracy and Integrity: Validate critical data, financial reporting, and servicing activities to preserve trust.

• Build Accountability and Oversight: Establish clear audit trails and reinforce responsibility across the loan lifecycle.

How To Evaluate Your Audit Program

A meaningful review of your CRE Internal Audit Program should answer these questions:

1. Does your audit program identify key elements of servicing?
Look for:

• Key controls that prevent or catch errors.

• Critical data elements driving decisions and reporting.

• Oversight and approval mechanisms.

• Escalation paths for exceptions.

• Clear audit trails.

This ensures you don’t just flag failures but explain where and why they happen.

2. Does it distinguish between design and execution failures?

• Is the process itself weak, missing controls, or easy to bypass?

• Is an issue a failure in execution, or an outlier with legitimate reasons for deviation?

Pinpointing root causes enables targeted fixes.

3. Are standard testing criteria applied?
Consistency is critical for meaningful year-over-year comparisons. Criteria should factor in:

• Variances in loan documents, PSAs, or investor requirements.

• Different remittance timelines, triggers, and covenants.

This balance allows flexibility while maintaining reliability.

4. Is random sampling truly representative?

• Are samples drawn from the full population?

• Do they reflect portfolio diversity and meet adequate size standards?

Proper sampling ensures findings are comprehensive and actionable.

5. Does the audit address policy vs. practice?

• Observe processes in real time.

• Interview staff with independence and objectivity.

• Compare procedures against execution.

This step reveals where policies break down in daily practice.

6. Are preliminary findings validated with process owners?

This allows for:

• Obtaining context for outliers.

• Confirming accuracy before publishing results.

Engaging owners builds audit credibility and sets the stage for remediation.

Your Audit Program Needs to Level Up. Here’s How.

A strong CRE Internal Audit Program isn’t static — it should evolve with your organization and portfolio. Regularly evaluating its design and execution ensures it remains central to compliance, risk management, and operational excellence. By taking a proactive approach, you protect your business while positioning it to seize new opportunities and thrive in a shifting CRE landscape.

If you’re ready to elevate your audit program and ensure your servicing operations meet the highest standards, Infinitum can help. Our expertise in CRE loan servicing and audit program design delivers actionable insights and tailored solutions. Explore our website or Contact Us to learn more and take the first step toward a stronger, more resilient servicing business.