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Corporate Governance

HILLS BANCORPORATION & HILLS BANK AND TRUST COMPANY

March 22, 2004

Employee, Officer, Director, and/or Shareholder

Complaint Procedure for Accounting and Auditing Matters

Any employee, officer, director, and/or shareholder of the Company may submit a good faith complaint regarding accounting or auditing matters to the management of the Company without fear of dismissal or retaliation of any kind. The Company is committed to achieving compliance with all applicable securities laws and regulations, accounting standards, accounting controls, and audit practices. The Company's Audit Committee (comprised of three independent members of the Board of Directors) will oversee treatment of any employee, officer, director, and/or shareholder concern in this area.

In order to facilitate the reporting of any employee, officer, director, and/or shareholder complaint, the Company's Audit Committee has established the following procedures for (1) the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, or auditing matters ("accounting matters") and (2) the confidential, anonymous submission by any employee, officer, director, and/or shareholder with a concern regarding questionable accounting or auditing matters.

Receipt of Complaints

  • Employees, officers, directors, and/or shareholders with concerns regarding accounting matters may report their complaints or concerns on a confidential or anonymous basis to the Audit Committee of the Company through TeleSentry, an independent third party, using a 24-hour hotline:

Toll Free: 1-888-883-1499

Scope of Matters Covered by These Procedures

  • These procedures relate to any employee, officer, director and/or shareholder complaint relating to any questionable accounting or auditing matters.

Treatment of Complaints

  • Upon receipt of a complaint, the independent third party will provide the Audit Committee with the complaint information.
  • Complaints relating to accounting matters will be reviewed under Audit Committee direction and oversight by the Counsel, Internal Audit, or such other persons as the Audit Committee determines to be appropriate. Confidentiality will be maintained to the fullest extent possible, consistent with the need to conduct an adequate review.
  • Prompt and appropriate corrective action will be taken when and as warranted in the judgment of the Audit Committee.
  • The Company will not discharge, demote, suspend, threaten, harass, or in any manner discriminate against any employee, officer, director, and/or shareholder in the terms and conditions of employment, responsibilities, or services, based upon any lawful actions of such employee, officer, director, and/or shareholder with respect to good faith reporting of complaints regarding accounting matters or otherwise as specified in Section 806 of the Sarbanes-Oxley Act of 2002.

Reporting and Retention of Complaints and Investigation

  • The Internal Auditor will maintain a log of all complaints, tracking their receipt, investigation, and resolution and shall prepare a periodic summary report thereof for the Audit Committee.

 

CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF HILLS BANCORPORATION

Amended and Restated as of April 12, 2011

I.     Purpose of the Committee

The purpose of the Audit Committee (the “Committee”) is to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company.

II.     Composition of the Committee

The Audit Committee shall be comprised of three or more directors, each of whom shall be independent directors, as defined under Rule 10A-3 of the Securities Exchange Act of 1934.  All members of the Committee shall be financially literate.

III.     Meetings and Procedures

The Committee shall fix its own rules of procedure, which shall be consistent with the Bylaws of the Company and this Charter.  The Committee shall meet as provided by its rules, which shall be at least four times annually or more frequently as circumstances require.  The Board shall designate one member of the Committee as its Chairperson.  A majority of the members of the Committee shall constitute a quorum for the transaction of business at any meeting and action of the Committee shall be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.

Following each of its meetings, the Committee shall deliver a report on the meeting to the Board, including a description of all actions taken by the Committee at the meeting.  The Committee shall keep written minutes of its meetings, which minutes shall be maintained with the books and records of the Board.

IV.       Committee Responsibilities

The Committee has the following responsibilities:

  1. Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.
  2. Review the Company’s annual audited financial statements prior to filing. Discuss with management and the independent auditors significant issues regarding accounting principles, critical accounting policies, accounting practices, and related judgments.
  3. Be available (or designate the Chairman of the Audit Committee to be available) at the request of the independent auditors, management, or the Board, to discuss the Company’s quarterly financial results before filing.   
  4. Participate, to the extent appropriate as determined by the Committee, in meetings with management, the internal auditor and the independent auditors to review the Company’s major financial risk exposures (meaning the financial reporting process and the safeguarding of assets) and the steps management has taken to monitor and control such exposures.
  5. Review significant findings reported by the independent auditors and the internal auditors and any response to such findings by management.
  6. Appoint the Company’s independent auditor.
  7. Receive and review the appropriate annual engagement letter and approve the fees and compensation to be paid to the independent auditor for the annual audit and quarterly reviews.
  8. Review with the independent auditor the audit plan and pre-approve all audit and non-audit services to be provided by the independent auditor thereunder.
  9. Review, periodically, the Committee’s policy regarding the engagement of the Company's independent auditor or other accounting firms.
  10. Consider any reports or communications, and responses by management thereto, submitted to the Committee by independent auditors that are required or referred to in SAS 61 (as amended) relating to the audit or other professional standards.  There are a number of possible events triggering reports requiring attention of the Committee.
  11. Attempt to resolve all disagreements between the Company’s independent auditors and management regarding financial reporting.
  12. On an annual basis (or prior to engagement of a new independent accounting firm), receive from the independent auditor the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board concerning independence, and discuss with the independent auditor the potential effects of the relationships that may reasonably be thought to bear on independence.
  13. Evaluate the performance of the independent auditor and, if so determined by the Audit Committee, replace the independent auditor.
  14. Review the Annual Audit Plan for internal audit.
  15. Assure preparation of the Committee Report required to be included in the Company’s annual proxy statement.
  16. Advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Sarbanes-Oxley Code of Ethics as reported to the Committee by regulatory agencies, external and internal auditors and legal counsel.
  17. To the extent appropriate as determined by the Committee, review with the Company’s legal counsel legal matters that may have a material impact on the financial statements, the Company’s compliance policies and any material reports or inquiries received from regulators or governmental agencies.
  18. Meet as needed with the Chief Executive Officer, Chief Financial Officer, the internal auditor and/or the independent auditor in executive sessions.
  19. Assure procedures are developed and in place for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
  20. Conduct investigations to address disagreements, if any, between management and the independent auditor or to address compliance with laws and regulations and the Company’s Sarbanes-Oxley Code of Ethics.
  21. Discuss with management the timing and process for implementing rotation of the lead audit partner, the concurring partner and any other active audit engagement team partner.
  22. Establish hiring policies governing employment by the Company or its subsidiary of employees of, or persons who have recently been employees of, the independent auditor.
  23. Approve the appointment, replacement, or dismissal of the internal auditor, and annually review the performance and independence of the internal auditor.
  24. Review the certifications by the Chief Executive Officer and Chief Financial Officer required under Sections 302 and 906 of the Sarbanes Oxley Act regarding internal control and fraud.

V.     Evaluation of the Committee

The Committee shall, on an annual basis, evaluate its performance under this Charter.  In conducting this review, the Committee shall evaluate whether this Charter appropriately addresses the matters that are or should be within its scope.  The Committee shall address all matters that the Committee considers relevant to its performance.

The Committee shall deliver to the Board a report setting forth the results of its evaluation, including any recommended amendments to this Charter and any recommended changes to the Company's or the Board's policies or procedures.

VI.     Investigations and Studies:  Outside Advisers

The Audit Committee shall have the authority, to conduct any investigation appropriate to fulfilling its responsibilities and to retain, without need of approval of the engagement by the Board or management and at Company expense, special legal, accounting or other consultants to advise the Committee.  The Committee may request any officer or employee of the Company, the Company's outside counsel, the internal auditor, or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.

VII. Adoption of Charter

This charter was adopted by the Board of Directors on March 9, 2004, and most recently amended and restated as of April 12, 2011.


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