4.  Departments Assigned or Likely to be Assigned a Composite "4" or "5" Rating
 

C.1. Supervisory Responsibilities
The Board of Directors is responsible for supervising and administering the activities of the trust department. The following are certain administrative responsibilities charged to the Board of Directors which may be delegated to duly appointed committees.

C.1.a. Acceptance of New Accounts
Formal acknowledgment of new accounts should be noted in Board or committee minutes. The Board has the authority to delegate approval of accounts to a junior committee. However, this practice should be used judiciously as the Board continues to remain responsible for all accounts accepted.

Management should delineate standards for the acceptance of new business to control potential risks. The standards should define criteria for accepting or declining new business, given management's administrative capabilities. The ability of the trust institution's staff, systems, and facilities to handle the proposed duties must be considered, when accepting new accounts. Other areas for consideration include, but are not limited to:

• Purpose of the account,

• Identity of principals and beneficiaries,

• Existence of, or potential for, conflicts of interest,

• Complexity of provisions,

• Composition and nature of assets,

• Existence of administrative problems, and

• Profitability.

Examiners should note that the acceptance of an unprofitable account should not be necessarily viewed as unfavorable. Unprofitable accounts may be accepted for a number of reasons including, but not limited to: other related accounts which, when viewed as a whole, are profitable; major commercial bank relationships; pro-bono appointments for charitable or other worthy causes, etc. Fee concessions for director, officer, and employee accounts may be acceptable, if offered on a non-discriminatory basis and under well-defined policies.

C.1.b. Approval of Closed Accounts
Closed accounts should be reviewed to determine if the responsibilities under the instrument have been properly discharged and account administration was in accordance with the department's policies and procedures. The improper administration of an account can potentially expose the bank to reputation risk and financial liability.  A significant increase in the number of closed accounts may be indicative of other underlying operational or administrative issues.  Formal acknowledgement of closed accounts should be noted in the Board or committee minutes, along with the reason the account was closed.  Furthermore, trust department records must contain receipt for assets transferred from the successor trustee, administrator or beneficiaries.

C.1.c. Discretionary Distributions, Reallocation of Principal and Income, Extraordinary Expenditures, and Other Matters
The authority to grant discretionary distributions or reallocate principal and income (depending upon state law) is one of the most important powers vested in a fiduciary. The exercise of the power should be vested in the Board of Directors or a duly appointed committee (i.e., the trust committee or a subcommittee thereof) and approval or ratification of significant discretionary or reallocation actions should be noted in Board or committee minutes. Documentation of the approval of discretionary distributions or principal and income reallocations and denials should be retained in the individual account file to support ongoing administrative responsibilities.  In the same manner, extraordinary expenditures should be approved by the Board or a delegated committee.  The reasons for the expenditures and any communication with interested parties should be documented in the trust files.

The Uniform Principal and Income Act (UPIA) was most recently revised in 1997 to be consistent with the Prudent Investor Act, which looks to total return, rather than just interest or dividend income.  As a result, investments may be made in products that do not provide a current income stream, but have considerable capital appreciation.  Under the UPIA, specific assets and the uniform allocation is detailed.  A copy of the UPIA is included in Appendix C and a listing of the more common assets and their related allocations between principal and income are included in Chapter 2. 

The authority to grant discretionary distributions or reallocate principal and income are two of the most important powers vested in a fiduciary.  The exercise of power should be vested in the Board of Directors or a duly appointed committee and approval or ratification of significant discretionary or reallocation actions should be noted in the Board or committee minutes.  Documentation of the approval of discretionary distributions or principal and income reallocations, and denials should be retained in the individual account file to support on-going administrative responsibilities.  In the same manner, extraordinary expenditures should be approved by the Board or a committee that reports directly to the Board.  The reasons for the expenditures and any communication with interested parties should be documented in the trust files.

C.1.d. Supervision of Investments
<To the extent the bank has investment discretion, management has several important responsibilities, including:

• Conservation of the value of the assets entrusted to its care of trust corpus;

• Optimization of income or growth in value consistent with prudent practices, the terms of the agreement, and the needs of the beneficiaries; and

The Board of Directors or its trust committee is responsible for the approval of all purchases and sales of assets, and for the retention or disposition of investments. However, in larger departments, senior management or the trust investment committee often reviews purchases and sales. The frequency (weekly or monthly) and method of review will vary depending upon management preferences, the volume of trades, and the trust accounting system utilized. Some departments may use an exception-based review process. Each review method provides management the opportunity to monitor compliance with internal policies and/or approved investment lists. Regardless of the method chosen, the review of purchases and sales is essential for a strong risk management program. Additional information on investments can be found in the Asset Management section. The suitability of assets held by each individual account should be incorporated into the account's annual investment review. Refer to the Account Review program for items to consider in an investment review.

C.1.e. Account Reviews
As discussed in the Statement, the trust committee should review each trust account initially upon acceptance and at least annually thereafter. Frequently, large trust departments delegate this responsibility to another committee or a disinterested trust officer. The annual review should incorporate an administrative review, and a review of investments, when the department exercises investment discretion. The scope of the annual review should be addressed in appropriate written policies which give consideration to the department's fiduciary responsibilities, the type and size of accounts, and other relevant factors. Refer to Account Review Program in this section.

C.1.f. Audit and Regulatory Reporting
The Board must ensure that appropriate internal and/or external audits of fiduciary activities are conducted. The adoption of a thorough audit program allows the Board to identify practices that contravene policies or violate fiduciary laws and regulations. It is essential for the Board or its designee to review the findings of the audit(s) and document the actions taken to respond to the findings. Additionally, the Board should review all examination reports by supervisory agencies and note corrective actions taken in the minutes. Refer to audits and accounting issues . 

C.1.g. Retention of Legal Counsel
Management must effectively identify, measure, monitor, and control the legal risks inherent in the trust business. Therefore, informal or formal policies should be developed to assist management in the selection and retention of competent legal counsel, either in-house or external. Accounts considered for acceptance that involve pending or threatened litigation, complex or unusual documentation, or ambiguous language should be reviewed by counsel.

C.1.h. Adequacy of Insurance Coverage
An effective risk management program includes adequate insurance coverage. The Board has a responsibility to maintain sufficient coverage for the risks inherent in the fiduciary business.  Furthermore, management must periodically review the policies for continued suitability. However, the Board and management should not rely on insurance coverage to compensate for poor operational controls or the absence of proper oversight.

C.2. Organizational Structure
A Board resolution or the bank's bylaws should prescribe the structure and function of the trust department.  Any workable system of organization of the trust department is acceptable, as long as it enables the directors, management and staff of the trust department to fulfill their respective responsibilities.

The Board of Directors may fulfill its fiduciary responsibilities by adopting an organizational plan that effectively accommodates the volume and type of fiduciary services offered, the competitive environment and future growth. The organizational plan should include effective communication processes that facilitate the exchange of all information necessary to inform all levels of trust department personnel of the institution's policies and directives, and allow senior management to verify that the trust department's operations comply with such policies and directives.   

C.3. Committee Structure
Although the Board may elect to attend to all fiduciary matters, the handling of routine administrative and operational details is usually delegated to others. If the Board chooses to assign functions to a committee(s), all committee actions pertaining to the oversight of fiduciary functions should be recorded in minutes or similar records. Trust department committees should be structured to be flexible and workable. Functions and objectives should be clearly defined and effectively executed. Regular attendance and active participation by committee members are essential for effective oversight. Utilization of the committee process does not relieve the Board of its responsibilities for the actions taken by those groups.  

C.3.a. Trust Committee
Normally, the Board of Directors does not directly supervise trust department activities. Depending on the size of the institution, the Board may establish a trust committee. In such cases, the committee should include at least three directors of the Board, and in institutions with outside directors, the committee should include at least one director who is not a bank officer. If the bank has no outside directors, the committee should not include any officers who participate significantly in the administration of the bank's fiduciary responsibilities. Examiners should assess trust committee independence and make recommendations where appropriate.

According to the Statement, the trust committee should meet at least quarterly. The trust committee should meet more frequently when necessary and prudent to fulfill its responsibilities.  

C.3.b. Management Committees
Although not required, it is common practice to have management committees in both large and small departments. These committees typically review items requiring immediate attention or routine department activities.  The two most frequently encountered committees are the trust administration committee and the trust investment committee. Larger departments may employ additional sub-committees (proxy, fee deviation, etc.) of the management committees. Management committees should maintain adequate minutes of meetings held and actions taken, which subsequently should be reviewed by the trust committee or its designee.  

D.  Management Appraisal

Examiners must assess management's ability to serve those fiduciary accounts presently under administration and those to which the bank has made a commitment. Although a primary measure of management's ability is the condition of the trust department and the quality of fiduciary services rendered, its potential to handle anticipated business is also significant, and therefore, examiners must evaluate the level of strategic planning by executive officers. 

D.1. Trust Officer Duties and Management Skills
The Board of Directors should designate a qualified and competent officer to administer the activities of the trust department. In assessing competence, the qualifications of management should be evaluated in relation to the duties assigned.  Administrative duties of the trust officer include at a minimum, the following:

• Represent the institution in all fiduciary matters;

• Oversee administration of trust department accounts;

• Report all matters requiring its attention to the trust committee;

• Execute policies and instructions of the directors and the trust committee;

• Maintain adequate records such as entries, settlement sheets, and follow-up systems;

• Maintain adequate documentation to ensure all assets are properly safeguarded.

The senior trust officer/trust department manager may have limited knowledge of fiduciary matters, yet possess the managerial skills necessary to effectively guide the affairs of a particular trust department. In such cases, the examiner should emphasize the need for fiduciary expertise at middle management levels. The managerial skills of the senior trust officer/trust department manager should be evaluated in consideration of the following areas:

• Planning - A trust officer should establish a predetermined course of action. This includes setting both short-term and long-term objectives and establishing policies, procedures, and programs to reach these objectives.

• Organizing - A manager, along with the directorate, should establish an organizational structure designed to achieve the department's goals. The grouping of these activities, delegating of authority to perform these activities, and providing for coordination of relationships in the organizational structure should be analyzed.

• Staffing - Management should employ a sufficient number of qualified employees. This involves effectively recruiting, training, and retaining employees.

• Directing - Management should provide ongoing guidance and supervision of trust personnel to achieve the trust department's stated objectives.

• Controlling - Management should review, evaluate, and regulate the work in progress to ensure the activities meet established plans.

The examiner should analyze the type and depth of training offered to all trust personnel and evaluate the adequacy of the training program. Training may include in-house development programs, on-the-job training, correspondence courses, banking schools and seminars, training facilities of larger banks, and tuition aid programs.

The examiner should consider expertise available from sources outside the bank. Management may compensate for "in-house" weaknesses in such areas as investments, tax law, or accounting by employing outside professional services if permitted under state law. The examiner should determine whether management understands and can effectively evaluate the information and recommendations made by these services. Management should be able to use such services effectively. Before contracting with an outside servicer, a due diligence review of the counterparty and the contract should be performed. Refer to outside contracting for fiduciary services for additional information on due diligence reviews.

The competence of management should be questioned, if serious shortcomings or criticisms exist. When deficiencies are of short duration, middle management may often be responsible. However, senior management must be held responsible for any long-standing or widespread deficiencies. The examiner-in-charge must describe management deficiencies and make appropriate recommendations to correct them.

D.2. Assessment Factors
Examiners should look at the following factors when evaluating the competence and expertise of management, such as:

• Experience - What is the experience level of trust department management and does this experience correspond to the individual duties and responsibilities assigned?

• Training - What kind of professional training, such as schools and seminars, is provided to management personnel, and has it been effective?

• Education - What is the level of academic achievement within the department and the relationship to managerial positions?

• Character - Are the personality, disposition, and reputation of trust department management consistent with the requirements imposed by their individual duties and responsibilities? Are there any other influences or factors that could cause a person's integrity, reliability, or ethics to be suspect?

In small trust departments, management must generally be well versed in all facets of the fiduciary services offered by the department. In moderate or larger departments, middle-level personnel may specialize (i.e., investment officers, account administrators, operations officers, taxation specialists, or new business development officers). Each should have a level of competence commensurate with the size and complexity of the department's activity.

D.3. Personnel, Staffing Levels, and Authority Lines
A plan of personnel organization should provide for continuity and include procedures for recruiting, training, and evaluating personnel. The staff should be adequate to handle the volume of work. Lines of authority, duties, and responsibilities should be clearly defined and effectively communicated to all personnel in order to promote the efficient, productive, and orderly execution of the department's functions. The lines of authority can be structured on a legal entity, business line, or functional basis. Reviewing lines of authority allows the examiner to assess the department's ability to identify, communicate and manage risks. An organizational chart is helpful as a starting point. The functional organizational structure should be designed to promote an orderly flow of the trust department's daily work and be sufficiently flexible to accommodate peak workloads without sacrificing efficiency or accuracy.  

D.4. Personnel Policy
A personnel policy should cover the size of the trust department staff, qualifications of personnel, organizational structure, employee ethics, salary administration, and employee benefits. A code of ethical standards should deal with such matters as: acceptance of gratuities, gifts, favors, and bequests; acceptance of loans from fiduciaries, beneficiaries, customers, or agents; disposition of fees earned by employees for personal services rendered in the performance of fiduciary duties; employees accepting benefits for serving as co-fiduciary with the bank; employees exerting influence on fiduciary customers for personal gain; and employees maintaining confidentiality of the bank's fiduciary relationships.  

D.5. Management Succession
The retention of qualified employees is essential in discharging the bank's fiduciary obligations. Undue reliance on one individual or several key individuals should be avoided where possible. The Board and management must ensure, through appropriate planning, that minimal disruption will occur should there be an unexpected departure of a key individual(s).

E.  Risk Management

• Establish the level of risk that management is willing to assume. Examiner emphasis should be placed on reviewing the planning process, policies related to the process, and underwriting standards of accounts and new products.  

• Identify the various risks associated with the institution's key products and services, as well as its operating environment. This includes an analysis of methods employed in determining fiduciary insurance coverage, loss reserves, and the impact of fiduciary risk on capital adequacy. Litigation concerns should also be analyzed.

• Implement adequate controls and monitoring systems. This includes establishing a system of checks and balances, reviewing audit coverage, the compliance management system, and the overall scope and reliability of existing management information systems.

• Supervise operations and the implementation of procedures when new accounts are obtained. Guidelines should provide information as to day-to-day management of  fiduciary activities, operating systems, and internal controls.

F.  Watch Lists

G.1. New Account Reviews
The initial review of new accounts for which the bank has investment responsibility should be conducted promptly following acceptance. Industry practice is to complete the review within 60-90 days of opening. The initial review should establish an investment program consistent with the needs and objectives of the account, and ensure that the synoptic record is complete and accurate.  

G.2. Scope of Annual Account Reviews
The scope of the account review primarily depends on the department's fiduciary responsibilities and the type of account under review. An account review should generally cover the administration of the account (administrative review) and the suitability of the account's assets (investment review). Refer to Content of Account Reviews in this section for additional information on administrative and investment reviews. Departments that provide services to third parties, or who obtain services from third parties, should ensure that all affected accounts are reviewed by the appropriate party as outlined in the written agreements. The scope of an account review is dependent upon the nature of fiduciary responsibilities and types of account, as outlined below.

• Collective Investment Funds - The review of collective investment funds should include both an administrative and an investment review. The administrative review should ensure that the operation of each collective investment fund complies with applicable laws, and regulations (e.g. OCC Regulation 9, SEC regulations, ERISA and DOL regulations, the Internal Revenue Code and IRS regulations, etc.) and standard industry practice. The investment review should ensure that investments are consistent with the stated investment purpose of each fund. Fund performance for each collective investment fund should also be included in the annual review.

• Discretionary Personal and Employee Benefit Accounts - In personal and employee benefit accounts where the institution has investment discretion, an account review generally should consist of both an administrative and investment review. The administrative review will differ according to the type and purpose of a given account.

• Nondiscretionary Personal Accounts - The account review should primarily focus on the appropriateness of account administration, which will differ according to the type and purpose of a given account. There may be no requirement or responsibility to review investments, but as in all nondiscretionary accounts, a corporate fiduciary may be held accountable for the actions of a co-fiduciary, due to bank's professional corporate trust status. 

• Nondiscretionary ERISA Employee Benefit Accounts - Review of self-directed employee benefit accounts is normally limited to coverage of administrative matters. These will differ according to the type of responsibilities (such as participant record keeping, participant loan programs, etc.) administered by the bank. In these accounts, a cursory review of the investments is also in order to avoid flagrant violation of the insider and prohibited transaction provisions of ERISA. Trustees directed by named fiduciaries have liability to determine whether directions are proper, meaning that they are in accordance with the plan, and not contrary to ERISA and/or applicable regulations.  See ERISA Section 403(a)(1). A corporate fiduciary is held to a higher standard because of its purported knowledge and expertise in fiduciary matters.

• Nondiscretionary non-ERISA Employee Benefit Accounts - These accounts are generally sponsored by church organizations or state, county, or municipal governments and their agencies. Only the administrative reviews, as covered above for nondiscretionary ERISA employee benefit accounts, need to be performed.

• Self-Directed IRAs and Keoghs - Self-directed IRA and Keogh accounts are considered trust accounts under Internal Revenue Code Section 408(h).  Therefore, examiners should ensure that an administrative review is performed and that proper controls are in place to limit liability. For a discussion of the proper controls, refer to the Operations, Internal Controls and Auditing section regarding Self-Directed IRAs and Keoghs.

• Custodial Accounts - Although custodial accounts are not always considered fiduciary accounts (the classification depends on state law), administrative reviews should be performed on all custodial accounts. This also applies to custodial accounts for ERISA employee benefit plans. Management has the responsibility of ensuring that custodial relationships are being administered in accordance with signed agreements.

• Discretionary Corporate Bond Trusteeships - Bond indentures for corporate and municipal debt issues (bonds, debentures, notes, etc.) usually delineate how available funds are to be invested. Nonetheless, the bank may have discretion in selecting the actual investments. In such cases, the investments held for the account should be reviewed, as well as the administration of the account.

• Nondiscretionary Corporate Bond Trusteeships and Agencies - These accounts generally involve corporate and municipal debt issues, securities transfer agencies, paying agencies, etc. Since there are either no assets on hand or the bank has no discretion over their investment, only administrative reviews need to be conducted.

G.3. Frequency and Authority Level of Account Reviews
The Statement of Principles of Trust Department Management requires that all trust accounts be reviewed during each calendar year.  The Board of Directors is responsible for conducting account reviews and outlining the frequency and authority level of account reviews in a departmental policy. The Board can establish an organizational structure of its choice, including the delegation of account reviews to subcommittees or disinterested account officers. 

Certain accounts may warrant a more frequent review or a review at a higher level in the organization than other accounts. For example, those accounts where the bank has investment discretion may require a more frequent review than accounts where no investment discretion is exercised. The reviews should be conducted by a committee in order to obtain group experience and knowledge. In addition, accounts which should receive more frequent and senior-level reviews include accounts that: possess unique or unusual characteristics or circumstances, involve substantive complaints from grantors or beneficiaries, involve substantive or repeated criticism by regulatory authorities, involve pending litigation, or invest in complex and/or high risk investments. 

In turn, certain accounts may be of a size or complexity that they can be, at the judgment of the Board, collectively reviewed. Collective review procedures would normally be performed on the smallest and least complex of trust department accounts. However, collective reviews may also include some larger, self-directed IRA or 401(k) employee benefit plans. In addition, de minimus accounts may qualify for "non-review" if Board approved procedures establish criteria for including or excluding these accounts from the non-review category. The examiner should ensure that collective and de minimus review procedures are reasonable. 

Accounts where the bank does not have investment discretion, other than those discussed previously as deserving of a higher level of review, may, at the discretion of the Board, be reviewed by a disinterested account officer, that is, an officer who is not responsible for the account's administration. 

Examiners should strongly encourage management to adopt account review procedures and should criticize failure to review accounts in accordance with the Statement of Principles of Trust Department Management or departmental policies in the Report of Examination.  

G.4. Content of Account Reviews
A comprehensive account review includes both an administrative and an investment review. Management may choose to address both aspects in one review or perform two separate and distinct reviews. Both methods are acceptable as long as each review, by itself, is complete in nature. Whether performed separately or together, the reviewing authority (trust committee, subcommittee, or disinterested account officer) should perform the review in light of the governing instruments, applicable laws and regulations,  fiduciary responsibilities, and needs of the beneficiaries.

No listing can appropriately denote every item which should be considered in an account review since the reviews vary based on the department's fiduciary responsibilities, type of account, assets held, and other circumstances. Nonetheless, the general areas noted below are illustrative of the areas that should receive coverage in either an administrative or investment account review.

Administrative Review

An administrative review may include, but is not limited to, the following items:

1. Governing instrument (trust, will, plan, indenture, etc.) - Is a copy on file?

2. Synoptic record - Is the record complete, accurate, current, and reliable?

3. Tickler system - Is the system up-to-date and accurate?

4. Cash transactions - Are remittances, disbursements, and overdrafts posted correctly to income and principal? Is there any evidence of unusual cash flow activity, such as free riding? Is there any suspicion of money laundering? If so, has management filed, or considered filing, a Suspicious Activity Report (SAR) as per FDIC Part 353.

5. Securities transactions - Were appropriate approvals and authorizations obtained for non-discretionary and discretionary transactions? As applicable, were confirmations sent within the prescribed time frames? Did the confirmations or account statements contain the appropriate disclosure documentation? Refer to the full text of Part 344 of the FDIC Rules and Regulations for specifics.

6. Own-bank and affiliate obligations - Are purchases properly authorized?

7. Accountings and statements - Are they accurate and timely?

8. Commissions and fees - Are they accurate, consistent with the established fee schedule, and being collected?

9. Co-fiduciary approvals/denials - Are approvals/denials documented?

10. Committee approvals/denials - Are approvals/denials documented?

11. Internal policies and procedures - Is the account in compliance?

12. Complaints - Are complaints by grantors, beneficiaries, plan administrators, etc. being reviewed? Have previous complaints been resolved?

13. Criticisms - Is corrective action being taken with regard to criticisms noted by internal and/or external auditors and regulatory authorities?

Note: Examiners should be flexible in assessing the adequacy of the administrative review process. An evaluation of an institution's administrative review process should focus on the effectiveness of the process, rather than the manner in which the review process is conducted. While a formal review session approach (one in which those performing the administrative review meet formally at specific intervals to review the administration of some or all accounts) may work well in small and medium size trust departments, such an approach may be both impractical and inefficient in large departments that administer thousands of accounts. Such institutions may adopt administrative review methods that employ a "due diligence" approach to account review. In lieu of a "sit down and checklist" methodology, the "due diligence" approach uses a combination of internal audits, tickler systems, checks and balances and other procedures to verify that, over the course of the year, all accounts are properly administered. Examiners should not automatically criticize the absence of formal account review sessions, but instead should evaluate the effectiveness of the "due diligence" process in providing assurance that all accounts are administered properly. The "due diligence" process should promptly identify administrative deficiencies and promote the timely correction of identified weaknesses. The results of the administrative review process should be periodically reported to the Board, or a Board committee thereof, and senior management.

Investment Review

If the bank has discretion over the account's assets, sufficient information should be provided to the reviewing authority to enable it to make informed and intelligent decisions. At a minimum, information considered necessary to perform an investment review includes:

• Investment powers authorized by the trust instrument and/or governing law,

• Investment objective of the account (income, growth, etc.),

• Listing of account assets, reflecting cost and market values,

• Projected yields on individual assets,

• Projected income of the overall account, and

• Amount of principal and income cash on hand.

An investment review may include, but is not limited to, the following items:

1. Investment objectives - Are they consistent with the objectives of the trust? Are assets held consistent with the chosen investment objectives and/or asset allocation models?

2. Diversification of discretionary investments - Is the account properly diversified consistent with either the Prudent Investor Act or Prudent Man Rule, as applicable?

3. Concentrations - Are there any undue concentrations, either within a type of security, industry, or specific obligation?

4. Own-bank or affiliate obligations - Is the purchase appropriate, yield adequate, and authorization documented?

5. Investments in companies related to, or loans made to, bank insiders - Are there any conflict of interest or self-dealing concerns?

6. Approved hold, buy, and sell lists - Is the account in compliance?

7. Maturity of assets - Are there excess funds invested in short-term (lower yielding) investments? Is there adequate liquidity?

8. Asset valuations - Are assets including real estate, limited partnerships, closely held businesses, real estate syndications, and derivatives valued accurately?

9. Insurance coverage - Is it adequate?

10. Environmental risk factors - Are there any environmental risk concerns?

11. Complaints - Are complaints by grantors, beneficiaries, plan administrators, etc. being reviewed? Have previous complaints been resolved?

12. Criticisms - Is corrective action being taken in regards to criticisms noted by internal and external auditors and regulatory authorities?

All of the items listed above will not necessarily be included in every trust department's account review program. Therefore, examiners must exercise discretion in assessing the adequacy of account reviews. An assessment should be made after giving consideration to the department's overall account review program, fiduciary responsibilities, committee minutes, file documentation, account officer expertise, and account sampling. Some trust departments may believe that completion of an investment review satisfies the account review requirement for discretionary accounts. Examiners should remind management that fulfilling account administrative duties (i.e., timely mailing of customer statements, income distributions, fee calculations, etc.) is also a fiduciary responsibility that should be reviewed to reduce exposure to liability.

If the account review program is materially deficient, the Report of Examination should contain criticisms of management .  The examiner-in-charge should obtain management's response and plan for corrective action.  

G.5. Records of Account Reviews
The bank should be able to satisfactorily demonstrate that account reviews are accomplished according to the standard set by the Statement of Principles of Trust Department Management and departmental policy. Normally, two types of records of account reviews are maintained: one at the reviewing authority level (i.e., trust committee, subcommittee, or disinterested account officer), and the other at the trust account level.  

G.5.a Reviewing Authority Level
The purpose of a record at this level is to document the fact that the institution has accorded proper reviews of its trust department accounts. An appropriate record should be maintained at the reviewing authority level (committee or disinterested account officer) substantiating that a review was conducted. The record should list individual accounts reviewed and provide details of any decisions made concerning the accounts. Examiners should review management's methodology for conducting reviews and determine if adequate exception reporting has been implemented and is being monitored.

A summary report of these reviews should be submitted to the next highest committee (or subcommittee) level for ratification. Copies of the actual review documents or material(s) on which the review was conducted do not need to be routinely provided to the next highest committee, however, such documentation should be made available for review if requested.  

G.5.b. Account Level
The purpose of a record at this level is to document the fact that the individual trust account received an appropriate review. A record of the review should appear in the individual account file, as it is management's duty to keep clear and accurate accounts. The actual review documents or materials on which the review was based should be kept at this level. Any noted exceptions to the governing instrument or department policies should be retained in the file along with sufficient documentation outlining corrective action. Objections, complaints, and lawsuits over trust accounts often occur years after a transaction occurs. The information provided in this record can be an important defense  in explaining the rationale for actions taken in prior years. Account review information should be more easily assembled from this source than from information recorded in committee minutes . 

H.  Trust Policies