We are a federal savings association and have a variety of internal accounts that we maintain, such as expense accounts with checks issued by our accounting department, disbursement accounts with automated clearing house transactions and checks issued by our back office, and network settlement accounts. What are the legal requirements for internal account documentation? Do we need a signature card and resolution identifying authorized signers for each account? We are trying to find the most efficient method for dealing with situations when signers for these accounts change.

We are not aware of any laws or regulations specifically requiring federal savings banks to document authorized signers for a bank’s internal accounts.

The former Office of Thrift Supervision’s Examination Handbook (which the OCC states is still applicable to federal savings associations) stresses the importance of establishing key areas of authority and responsibility for operating activities to assure accountability. Additionally, the manual advises segregating the duties of certain personnel — particularly, responsibilities for authorizing transactions and recording transactions, and maintaining custody of assets — to reduce the opportunity to conceal errors and wrongdoing.

We note that signature cards are designed to confirm the signature of an authorized signer on an account, while also often defining and limiting an authorized signer’s authority. Without appropriate signature cards and resolutions assigning specific personnel authority to act on internal accounts, it will be more difficult to establish who should be held accountable for errors and wrongdoing that may occur. Additionally, it will be more difficult to keep track of employees’ duties for the purposes of ensuring that responsibilities have been properly segregated.

Consequently, we recommend that authorized signers for your internal accounts be properly established and verified through a reliable practice and procedure, such as the use of signature cards.

For resources related to our guidance, please see:

OCC, Internal Control (“For information applicable to federal savings associations, refer to former Office of Thrift Supervision Examination Handbook section 340, ‘Internal Control.’”)

Office of Thrift Supervision, Examination Handbook, Internal Control (October 2009), page 340.2 (“The types of control breakdowns typically seen in problem and failed institutions can be grouped into five categories: . . . The absence or failure of key control structures and activities, such as segregation of duties, approvals, verifications, reconciliations, and review of operating performance. . . .”)

Office of Thrift Supervision, Examination Handbook, Internal Control (October 2009), page 340.9 (“PCAOB Auditing Standard No. 5 defines internal control over financial reporting as [including] those policies and procedures that: . . . Provide reasonable assurance . . . that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company. . . .’”)

Office of Thrift Supervision, Examination Handbook, Internal Control (October 2009), page 340.10 –.11 (“Management must plan, execute, control, and monitor association objectives. It must establish key areas of authority and responsibility and appropriate lines of reporting. The appropriateness of an entity’s organizational structure depends, in part, on its size and the nature of its activities. . . .”)

Office of Thrift Supervision, Examination Handbook, Internal Control (October 2009), page 340.10 –.11 (“Assignment of Authority and Responsibility: This factor includes how the board and senior management assign authority and responsibility for operating activities and establish reporting relationships and authorization hierarchies.”)

Office of Thrift Supervision, Examination Handbook, Internal Control (October 2009), page 340.12 (“Control activities are the policies, procedures, and practices established to help ensure that association personnel carry out board and management directives at every business level throughout the association. Control activities should assure accountability in the association’s operations, financial reporting, and compliance areas. They include a range of activities as diverse as approvals, authorizations, verifications, reconciliations, review of operating performance, security of assets, and segregation of duties.”)

Office of Thrift Supervision, Examination Handbook, Internal Control (October 2009), page 340.14 (“Management must assign different people the responsibility of authorizing transactions and recording transactions, and maintaining custody of assets. Management also should ensure that personnel adhere to vacation requirements and periodic rotation of duties for personnel in sensitive positions. This segregation of duties should reduce the opportunities to perpetrate and conceal errors, irregularities, or wrongdoing. An independent third party should periodically review this area to ensure segregation of duties is effective.”)