Risk Management Manual of Examination Policies - FDIC

Risk Management Assessment (Continued) 99999
4. Are risk management processes adequate in relation to and consistent with, the institution’s
business plan, competitive conditions, and proposed new activities or products?
No. Refer to comments under Management on the ECC page.
5. Are internal controls, audit procedures, and compliance with laws and regulations adequate
(includes compliance with the Bank Secrecy Act [BSA] and related regulations)?
No. As indicated under Management on the ECC page, apparent violations of Financial Recordkeeping
regulations and Regulation O are cited during this examination. Full details of these citations can be
found on the Violations of Laws and Regulations page. In addition, the audit and internal control function
lacks independence.
Internal Controls
Examiners noted the following weaknesses in the bank’s system of internal controls:
• Dual Control of Negotiable Collateral – The bank does not maintain dual control over negotiable
collateral. Several bearer bonds are maintained in a dual-lock drawer in the vault; however, both keys
to the drawer are readily accessible to tellers. The bank's external certified public accountant also
noted this deficiency in its December 2003 audit. An effective system of dual control should be
implemented.
• Vacation Policy – The bank's vacation policy requires employees to be absent from their normal duties
for an uninterrupted period of two weeks each calendar year. Executive Vice President Leslie S.
Commander did not remain absent during her two-week vacation in 2003 as she returned daily to
reconcile the Federal funds sold account. Management is strongly encouraged to enforce its policy,
particularly for employees who are responsible for sensitive transactions.
• Reconcilement of Correspondent Bank Accounts – The bank has not reconciled its correspondent bank
accounts for the past three months. While these accounts were reconciled during the examination,
they should be reconciled at least monthly.
President Lincoln stated he would take action to address these deficiencies.
6. Is Board supervision adequate, and are controls over insider transactions, conflicts of interest, and
parent/affiliate relationships acceptable?
No. Board supervision is less than satisfactory. (Refer to comments under the Management heading on
the ECC page.) Additionally, two loans are cited as apparent violations of Federal Reserve Regulation O
regarding prior approval on loans to related interests of President Lincoln and Director Larry G.
Killingbird. Refer to the Violations of Laws and Regulations page of this Report for details.
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