I usually see the first reference to battle honors on Union flags starting with General Orders No. 19, February, 22, 1862 issued by General McClellan. While searching through the "ANNUAL REPORT OF THE ADJUTANT GENERAL OF THE STATE OF NEW YORK: TRANSMITTED TO THE LEGISLATURE JANUARY 15, 1862" I found the following information about April 17, 1861 on page 7:

Conduct so honorable to our citizen soldiery should have some appropriate recognition, and I respectfully recommend that these
regiments [5th, 6th, 7th, 8th, 12th, 13th, 25th, 28th, 69th, and 71st] be allowed to place on their regimental colors, the simple but significant inscription, "'WASHINGTON, APRIL, 1861."

Is this the first authorization of battle honors during the Civil War?

Ed