Bank of America's accountants shouldn't be the only ones blushing about their recent blunder. External auditors and federal regulators for five years overlooked the mistake, too. 

Charlotte-based BofA on Monday disclosed its regulatory capital ratios since 2009 had been miscalculated, resulting in a slight downward revision. As a result, the  bank suspended its dividend increase and share repurchase plan. Shares in the company dropped more than 6% the same day.  Bank of America  is the largest banking operation in North Texas based on local deposits.

The mistake, a  complicated accounting process that wasn't carried out properly, dates back to 2009 when the bank bought Merrill Lynch and has been repeated year after year. People inside the bank last week caught the error and spoke up. It was then reported to federal regulators. 

While it's certainly the bank's fault, for five years the blunder managed to avoid being detected by internal auditors, BofA's external auditors and regulators at the Federal Reserve. 

"This should have been caught by a lot of different people," says UNC Charlotte finance professor Tony Plath. "That's the point of external audits, to backstop the accounting."

The error resulted in a $4 billion reduction in BofA's total regulatory capital under the Basel 3 regulatory requirements. The bank expects to return less capital to shareholders in 2014 as a result.

Bank of America's external auditor is PricewaterhouseCoopers. A spokesman at the company declined comment, citing a policy prohibiting publicly discussing "client matters."

BofA's capital plans are also submitted each year to the Federal Reserve, where they are stress-tested and reviewed for safety and soundness. Fed officials look for red flags and investigate. No one ever saw BofA's capital miscalculation. 

"When something like this happens, obviously, we would go back and evaluate the processes in place," says Fed spokeswoman Barbara Hagenbaugh. 

She declined to comment about BofA's case specifically, other than to say the bank will resubmit its corrected capital plan. 

At BofA, spokesman Jerry Dubrowski says the bank isn't passing blame. People inside the bank discovered the error and the company will engage a third party to review its processes. 

"At the end of the day, this is our responsibility," he says.

The episode both confirms and calls into question heightened regulatory scrutiny at the country's largest banks.

On one hand, the annual Fed stress tests, known as CCAR, or Comprehensive Capital Analysis and Review, and capital plan approval processes likely encouraged BofA to report its mistake to authorities and the public, triggering a new review of its capital plans. This ensures the bank won't continue paying out dividends if the error makes it imprudent to do so. 

Of course, some may now question the effectiveness of the oversight, given that BofA reported more regulatory capital than it should have without being caught. It also begs questions about how many other banks have made (or continue to make) accounting errors of their own.

"We are learning as we go, but maybe this shows the CCAR is a good idea," Plath says. "The lasting result is the Fed will have to pay more attention to the accounting in the capital plans." (Adam O'Daniel Charlotte Business Journal.)