Mortgage auditing program division of a.m.t

Reinvested Dividends - If a trustee elects or continues a course of action to reinvest dividends in shares of stock of a distributing corporation or fund, the new shares would be principal.

However, if the trustee makes a decision, for example, to make an investment without incurring brokerage fees, the trustee should transfer cash from principal to income in an amount equal to the reinvested dividends. Mineral rights - 90 percent of oil and gas receipts are considered principal, while the remaining 10 percent are income.

Timber, Christmas trees, and Plywood for Commercial Sale or Use - If the timber cut and removed does not exceed the growth rate of timber during the accounting periods in which a beneficiary has a mandatory income interest, then net receipts are allocated to income. Any amount removed in excess of the growth rate is considered principal.

If the net receipts are from the lease of timberland or from a contract to cut timber from land owned by a trust, then net receipts may be allocated between income or principal. In determining net receipts to be allocated, a trustee should deduct and transfer to principal a reasonable amount for depletion. Liquidating assets, such as leaseholds, patents, copyrights, and royalty rights - Property subject to depletion was revised to allocate 90 percent of the amounts received to principal and the remainder to income.

Decedent's estate or terminating income interest - An income beneficiary's estate will be entitled only to the net income actually received by a trust prior to the beneficiary's death and not the accrued income. Derivatives such as interest rate swaps and Options not embedded - If the department does not maintain separate accounting records for these transactions, then the trustee shall allocate to principal, receipts from and disbursements made in connection with such transactions.

A gain or loss that occurs because the trustee marks securities to market or to another value during an accounting period is not a transaction in a derivative financial instrument that is income or principal under the Act. Only cash receipts and disbursements are included.

Options include an option to purchase real estate owned by the trustee and a put option purchased by a trustee to guard against a drop in value of marketable stock that must be liquidated to pay estate taxes. The practice of selling call options on securities owned by the trust, if the terms of the option require delivery of securities, is also included in this definition. However, this does not apply if the consideration received or given for an option is something other than cash or property, such as cross-options granted in a buy-sell agreement between owners of an entity.

Asset-backed securities, including real estate mortgages, credit card receivables, and Auto Loans - If a trust receives a payment, the trustee shall allocate to income the portion of the payment which the payer identifies as being from interest and the balance to principal.

If a trust receives one or more payments in exchange for the trust's entire interest in an asset-backed security in one accounting period defined as a calendar year or can be a month period if selected by a fiduciary , the trustee shall allocate the payments to principal.

If a payment is one in a series of payments that will result in the liquidation of the trust's interest in the security over more than one accounting period, the trustee shall allocate 10 percent of the payments to income, and 90 percent to principal. An example of the final point is a busted PAC tranche, where the class protection has been eliminated. Inflation-indexed bonds - Any increase in principal due to inflation after issuance is principal upon redemption, if the bond matures more than one year after the trustee acquires it; if it matures within one year, all of the increase is considered income.

Deferred compensation, annuities, and similar payments - If no part of a payment is characterized as interest, dividend, or equivalent, and all or part of the payment is required to be made, the trustee should allocate to income 10 percent of the part that is required to be made during the accounting period and the balance to principal. Payment is defined to include a payment made in money or property from the payer's general assets or from a separate fund created by the payer, including a private or commercial annuity, an IRA, and a pension, profit-sharing, stock-bonus, or stock-ownership plan.

If no part of the payment is required to be made or the payment received is the entire amount to which the trust is entitled, the trustee shall allocate the entire payment to principal. A payment is not "required to be made" is defined as to the extent that it is made because the trustee exercises a right of withdrawal.

To obtain an estate tax marital deduction for a trust, the trustee should allocate more to income to obtain the deduction. Disbursements from income are based on recurring items that are not specifically tied "To an" asset.

For example, trustees' fees can be charged against either principal or income or both, while title insurance and real estate taxes must be assessed against principal.

Generation-skipping transfer taxes are payable from principal. Disbursements made for environmental matters - Includes reclamation, environmental assessments, remedy and removal of environmental contamination, monitoring of remedial activities and the release of substances, preventing future release of substances, collecting amounts from persons liable or potentially liable, penalties imposed by law or regulation, and defending claims based on environmental matters.

All environmental expenses are payable from principal, based on the assumption that the expenses will be extraordinary in nature. However, if the trustee is carrying on a business that uses or sells toxic substances, and cleanup costs would be a normal cost of doing business, then the expenses could be allocated to income.

Income tax obligations resulting from the ownership of Subchapter s corporation stock and interests in partnerships - Income from a partnership is based on actual distributions from the partnership, in the same manner as corporate distributions. Distributions from corporations and partnerships that exceed 20 percent of the entity's gross assets will be principal whether or not intended by the entity to be a partial liquidation.

Income tax obligations are allocated based on the source. If the tax is based on receipts allocated to income, the tax is paid from income. If the tax is based on receipts allocated to principal, then the tax is paid from principal. T he power to make adjustments between principal and income to correct inequities caused by tax elections or peculiarities in the way the fiduciary income tax rules apply. This allows fiduciaries to make adjustments as necessary to re-allocate principal and income to make taxes equitable, based on prior tax elections.

For example, individuals may elect to have taxes paid annually or at maturity on the income from savings bonds, although the income is not distributed, but added back to principal. In this situation, if the tax election was to pay taxes annually, the income beneficiary may be responsible for income tax on cash flows that the principal beneficiary may enjoy in the future.

When dealing with principal and income, however, examiners should be aware that the distinction between principal and income is not important for personal agency and employee benefit trusts. As previously stated, the trustee is under a duty to deal impartially with beneficiaries, when there are at least two beneficiaries.

For agency or employee benefit accounts, there is one class of beneficiaries. Carrying Values. Unlike commercial bank accounting, where assets and liabilities are carried at cost or book value, there is no generally accepted system for assigning carrying values to assets held by trust institutions. The examiner may find that the assignment of carrying values will vary not only from institution to institution, but also from one account to another within the same trust department.

This makes a meaningful analysis of trust department statements of condition difficult, if not impossible, without knowing which valuation methods are used to prepare the statements. One or several of the following methods are generally used as asset carrying values in any given institution:. For Call Report, Schedule T purposes, trust assets should be reported at market value, where asset values can be determined by a market or trading, or by other sources, such as appraisals.

Nominal values are permitted as described above. Accounting Records. As mentioned earlier, the level of sophistication of trust departments varies from institution to institution. Records will also vary since, in addition to the differences relating to the size and character of the accounts administered, trust accounting systems are not standardized.

However, the reporting requirements imposed on fiduciaries and the concepts involved remain the same. Therefore, the overall framework of each accounting system consists of the following:.

General Ledger The general ledger will comprise all control accounts of the department. It includes both customer and internal accounts used by the department to facilitate its operation.

Many automated systems have subsidiary control records but do not have the traditional "general ledger". The examiner must exercise judgment in determining the sufficiency of the records encountered. Asset Control Accounts These accounts should reflect the total holdings of the major asset categories, such as stocks, bonds, or deposits.

Subsidiary Asset Controls These accounts will reflect the total investments in specific issues of stocks, bonds, etc. Subsidiary Liability Controls These records will reflect the total of cash and investment holdings of each type of account administered. This category should be further subdivided to allow for transactions to be posted to individual accounts. The cash ledger should detail income and principal cash, and reflect transactions in chronological sequence. The investment ledger should reflect each asset held by a trust account.

Purchases, sales, stock dividends and splits should be recorded in chronological order. The examiner must bear in mind that some indentures provide for the reinvestment of income cash, and that it is common practice to invest "income" until it is distributed. In these situations, it will be necessary to maintain separate ledgers to account for those assets consisting of "invested income".

Trust Records. In addition to maintaining a reliable system of accounting, a trust department needs other records to administer accounts in a timely and cost-effective manner. The design and control of these support records can mean the difference between a smoothly functioning department and one that may have to search through unorganized records when an administrative action needs to be taken.

Moreover, departments with detailed and accurate records are less likely to be adversely affected by personnel turnover, errors in judgment, or contingent liabilities. While some smaller, noncomplex trust departments may continue to maintain trust records manually, most institutions now maintain trust records electronically. Electronic recordkeeping systems are acceptable, provided that the institution has implemented adequate internal controls and procedures to ensure the integrity of trust department records.

Two important records are the Administrative File and the Tickler System. Administrative File The administrative file consists of interrelated records, which, as a whole, represent the history of an account. The records of the administrative file may be contained in a single file or in several files within the department. These records consist of:. Legal File Contains copies of all legal documents relevant to the account, including the document creating the account, such as a will, a trust agreement, or a court order.

Digest or Synopsis Synoptic records provide a concise summary of the principal duties and provisions of the legal documents governing the account, and may also provide other important information, such as beneficiaries, remaindermen, remittance instructions, and reporting requirements. Synoptic records are especially valuable to trust department management and administrative officers.

This document may be a paper document maintained in the account file or in an electronic format. Correspondence File Contains all correspondence related to the account. Investment Review File Contains asset reviews, which enable management to evaluate investment performance. Securities Transaction File Contains broker confirmations and other data related to changes in securities holdings during the life of the account. Tax File Contains tax-related documents and copies of tax returns filed for the account.

Tickler System A tickler system is a chronologically arranged system of records, which reminds department employees to collect income, distribute funds, calculate trust fees, etc. A tickler system can be maintained in electronic or paper format. Though simple in design and concept, the effective use of tickler systems can be critical for account administration. Other Records Other records which affect the operation of a department to a significant degree and which an examiner will find useful in the examination process are:.

Securities Transaction Register This record should list in chronological order all the securities transactions effected by the department. This record will most likely be in electronic format. The preparation and content of this document, as well as other records pertaining to securities transactions, are subject to Part of the Corporation's Rules and Regulations.

Vault Control Log This log is used to record the dates and identities of individuals who access the department's vault. Records should also be maintained indicating the items accessed and the reasons therefore. Broker Statements The statements reflect all transactions effected for the department by brokers. These statements should be reviewed carefully by the staff and reconciled to broker confirmations and the Securities Transaction Register.

Account Documentation. Documentation is as important as the administration itself, as fiduciaries must account for their actions to others. Challenges to account administration, resulting in complaints or litigation, may occur years after a particular transaction has occurred. The failure to maintain documentation that adequately supports the actions taken, including the rationale for such actions, may result in court-imposed surcharges or negotiated loss settlements. Examiners will encounter two basic types of documentation: documents evidencing the fiduciary's appointment and the creation of the account, and documents supporting the actions taken by the fiduciary during the term of the account.

Evidence of Appointment In general, a fiduciary should refrain from taking any action until it receives proper evidence of appointment and an original or authenticated copy of the instrument creating the account. Valid evidences of appointment depend upon the type of appointment. In the most basic appointment, such as a personal agency, the department need only execute an agreement with its customer. The same is true for a living trust. In accounts operating under court jurisdiction, such as estates, trusts under will, and court-appointed guardianships, the fiduciary will need to obtain a court order of appointment in addition to the instrument creating the account.

In estates where the executor has been named in the will, the court appointment is called Letters Testamentary. In estates where named executors cannot or do not accept the appointment, a court will appoint an administrator for the estate under Letters of Administration. Letters of Administration are also used to appoint an administrator where no valid will exists or where the will does not nominate an executor.

Trustees named in a will serve under Letters of Trusteeship. Guardians serving under court appointment are issued Letters of Guardianship. In corporate appointments, the fiduciary should obtain a resolution for appointment, as well as a copy of the instrument it will be serving under.

In accepting appointments to serve as successor to a prior trustee or executor, the fiduciary should obtain: Copies of the original court appointments if applicable , An authenticated copy of the instrument it will serve under, An accounting of the estate, trust, or agency from inception to its appointment, and Any other documents substantiating its appointment, or indemnifying it against the actions of others.

Supporting Documentation During the term of an appointment, numerous actions may be taken to serve the needs of the account and its beneficiaries. At times these actions involve nothing more than processing an address change for an income beneficiary. Others may involve actions having serious consequences for the account, such as principal invasions or selling assets at a capital loss. A fiduciary must be able to support its actions by demonstrating it had the necessary legal authority and that it exercised sound judgment.

The fiduciary's legal authority will be found in common law, statutory law, and the underlying indenture. The rationale for its actions may be more difficult to demonstrate; therefore, it is essential that the fiduciary be able to justify its actions, which requires adequate documentation.

The types of documentation the fiduciary should maintain are:. Trust Committee Minutes Deliberation and action over matters affecting the account. Approvals Written approvals of discretionary actions are sometimes required by indentures and, at other times, are merely prudent.

Written approvals should always be sought from co-fiduciaries. When extraordinary actions affect individuals having a future interest in an account, the fiduciary should seek written approvals from all remaindermen. Indemnification Certain discretionary actions may involve controversial matters, such as purchasing own-bank or parent securities or performing duties not specified in trust indentures, but requested by others, such as co-fiduciaries or remaindermen.

These actions require more formalized written approvals in the form of agreements or court rulings indemnifying the fiduciary against loss. Accountings and Customers' Statements These are required for court-appointed accounts, but may be prepared for other types of accounts. Essentially, the listing or statements reflect all account transactions occurring during a specific period of time.

Either the court having jurisdiction, all interested parties, or both should approve accountings. Customer statements should be provided in compliance with the governing agreement or at least annually. Most trust departments provide at least quarterly statements. Account Reviews Periodic reviews performed by the trust committee. Receipt and Release This is a formal document acknowledging the receipt of cash or assets. It is given by the recipient to the fiduciary, and releases the fiduciary from any further obligation with respect to a bequest or other distribution.

This section applies to the physical transfer of assets and not to book-entry transfers. Other Documents There are numerous documents a fiduciary will obtain during the administration of an account.

These might include property appraisals, lease agreements, broker confirmations, receipts for contracted work, or investment research. Each has its own significance, and depending on the nature of the appointment, may serve to support and indemnify fiduciary actions.

Segregation of Duties One of the most fundamental methods of internal control is the segregation of duties. One individual should not be capable of initiating, authorizing, executing, and subsequently reviewing a transaction for appropriateness. In a trust department, this concept begins by segregating administrative from operational functions and continues by segregating duties within the operating system itself.

Many FDIC-supervised trust departments are relatively small in size and the segregation of duties is often not economically practical. In these cases, an institution should develop compensating controls. One compensating control easily employed by smaller institutions is the requirement that a second person be involved in executing a transaction.

This can be implemented by having a second individual approve a transaction in writing. But it is effective only if the second person reviews the supporting documentation and understands the transaction being approved.

Management is responsible for assessing the specific requirements of the department and adopting an overall system of policies and procedures. Examiners should evaluate the adequacy of these policies and procedures, and determine compliance therewith.

Vacation Policy Supervisory agencies and auditors have long recommended the practice whereby personnel are required to be continuously absent from their jobs or duties for a given amount of time and their duties assumed by another employee. During such an absence, the possibility of detecting irregularities is much greater, as the employee who is absent is unable to effectively control the situation.

The FDIC has encouraged an uninterrupted absence of at least two weeks. However, compensating controls, such as the rotation of personnel among different jobs and duties, can constitute an acceptable alternative to a policy requiring a continuous two week absence. Reconcilements The reconcilement of deposit accounts, suspense accounts, and securities depository statements should be performed regularly by individuals who are independent of these functions, i.

It is acceptable to have personnel in the commercial department reconcile he aforementioned trust accounts to maintain the separation of duties. Other Elements of Control The organizational structure of a trust department is another component of overall control.

Management must define functional lines of responsibility and establish an organizational framework along those lines. Work should flow in a logical manner. The organizational structure should take into account the need for checks and balances, as well as the need for an efficient, practical system. Control systems should be reviewed regularly and updated as necessary. Examiners should consider the extent to which the Board and management have provided for the following: Adequate staffing to provide for efficient and timely processing and appropriate separation of duties; Compensating controls where limited staff precludes separation of duties; Clearly defined responsibilities, duties, and lines of authority; Prompt reporting and correction of internal control deficiencies; Adoption of a comprehensive operations manual, which is updated to reflect changes as needed.

Examiners should assess the effectiveness of the department's internal control practices in protecting and controlling trust assets. Controls may include the following:. Examiners should consider the extent to which the department's recordkeeping systems provide for accurate and reliable recordkeeping and reporting:.

Examiners should realize that an effective system of internal controls designed to establish dual control, separation of duties, and the rotation of employees may be costly. Many trust departments are unprofitable measured by any standard, and trust officers may resist implementation of expensive control measures. Examiners need to exercise judgment in assessing a department's control systems. One or more basic points may have deficiencies, but the system may be strengthened by bolstering others.

Often this is accomplished by reliance upon a strong audit, whether by an internal or external auditor. Fraudulent Acts While the discovery of fraudulent acts is not the primary objective of a trust examination, the examiner should be alert to a culture that permits such acts.

Vanness C. Pratts v. Steiner , 32 Ohio St. Cook, J. Cotton , U. Tubbs Jones v. Suster , 84 Ohio St. A distinction exists between a court that lacks subject-matter jurisdiction over a case and a court that improperly exercises subject-matter jurisdiction once conferred upon it.

Beasley , 14 Ohio St. State v. Montgomery, Huron App. H, Ohio A voidable judgment is subject to direct appeal, R. A Civ. If a judgment is deemed void, it is considered a legal nullity which can be attacked collaterally. Conversely, if a judgment is deemed voidable, it will have the effect of a proper legal order unless its propriety is successfully challenged through a direct attack on the merits.

Ohio: Wash. Bank v. Novak, No. App, 8th Dist. Such ratification, joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest. Campbell , 20 Ohio St. See State ex rel. Smith v.

Smith , 75 Ohio St. LTV Steel Co. Gwin , 64 Ohio St. Suster; First Union Natl. Hufford , Ohio App. See, also, MacLellan v. Motorist Ins. Transcon Builders, Inc. LEXIS Further, defendant did not raise this contention until five years after the complaint was filed. Accordingly, the objection that Washington Mutual was not the real party in interest was not timely raised as a matter of law and was waived.

First Union Natl. Hufford, supra. Burrows, Ohio Consumers later discovered monthly charges for the software on their bank or credit card statements.

In both suits, Madigan is asking the court to ban the companies from operating in Illinois, void any pending contracts with consumers and provide restitution. The lawsuits also ask the court to assess penalties based on violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.

Learn more or update your browser. Login Login toggle menu. Do more with the Mobile Banking app Set customizable alerts Snap a photo to deposit a check, and get instant confirmation Use your fingerprint or Face ID for quicker access on the go. Your activities are protected by industry-leading security features. Get the Mobile Banking app. Get it on the App Store Before you leave our site, we want you to know your app store has its own privacy practices and level of security which may be different from ours, so please review their policies.

Or we can text a download link directly to your phone. Please enter a valid digit phone number. Or we can send you a link by email. Please enter a valid email address. Get it on Google Play Before you leave our site, we want you to know your app store has its own privacy practices and level of security which may be different from ours, so please review their policies.

Our mobile app isn't available for all devices If you don't see an app for your device, you may still be able to access our mobile website by typing bankofamerica. Learn more about mobile banking options and supported devices. Get the mobile banking app Before you leave our site, we want you to know your app store has its own privacy practices and level of security which may be different from ours, so please review their polices.

We sent an email with the download link to We sent a text message with the download link to. We couldn't send the link We're sorry we weren't able to send you the download link. Please try again, or use your mobile device to get the app from its app store. Business Checking Convenient checking solutions to fit your unique business needs.

Online Banking. Mobile Banking. Schedule an appointment. Signature Services. My Rewards All your rewards in one place. Savings made simple and rewarding.