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Does your institution’s vacation policy encourage effective internal control? The Federal Deposit Insurance Corporation’s (FDIC) Division of Supervision is restating the agency's long-standing position encouraging insured institutions to use a vacation policy as an effective internal control. Here is what FDIC recommends and how it can benefit your institution.

Recommended Policy:

• FDIC recommends a vacation policy that allows active officers and employees to be absent from their duties for an uninterrupted period of no less than two consecutive weeks.
• During the vacation period, duties and responsibilities should be assumed by other employees. The benefits of this policy may be substantially, if not totally, eroded if the duties performed by an absent individual are not assumed by someone else.
• In situations where exceptions to the two-week policy occur, the institution should have adequate compensating controls, such as an effective rotation of personnel, that is strictly enforced.
• When the vacation policy does not conform to the recommended two-week absence, the institution's board of directors should review and approve the policy actually followed and the exceptions allowed.

Benefits of the Policy:

• This basic control has proven to be an effective internal safeguard in preventing fraud.
• The policy benefits the well-being of the employees and can be a valuable aid to the institution's overall training program.
• A sound vacation policy is one element of an institution's overall internal control system.
• Such a policy is considered an important internal safeguard because perpetration of an embezzlement of any substantial size usually requires the constant presence of the embezzler in order to manipulate records, respond to inquiries from customers or other employees, and otherwise prevent detection.

To make sure your institution is benefiting from this effective internal control, encourage active officers and employees to use their vacation time and follow the vacation policy described above. It is also a good idea to have the board of directors review and approve the policy followed and exceptions allowed. This simple policy can improve employee satisfaction and production as well as prevent internal fraud.

To stay up-to-date on fraud trends and news, frequently visit our blog. TRC Interactive also offers online, interactive training on various fraud related topics. To learn more, contact us at info@trcinteractive.com or (800) 222-9909.

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As of April 1, 2013, financial institutions are required to use the new FinCEN reports, which are available only electronically through the BSA E-Filing System. Financial institutions that continue to file mandated reports in paper format will fail to meet Bank Secrecy Act (BSA) reporting requirements and may be subject to civil money penalties.

Last February, the Financial Crimes Enforcement Network (FinCEN) issued a Final Notice requiring the electronic filing of most BSA reports. Specifically, this action mandates the electronic submission of “mandated reports”, such as Suspicious Activity Reports (SARs), Currency Transaction Reports (CTRs), Registration of Money Services Business (RMSBs), and Designation of Exempt Person Reports (DOEPs). These electronic reports have been available since March 2012.

As of March 31, 2013, FinCEN may reject any mandated reports filed in paper format and return them to the filing institution. In order to meet BSA reporting requirements and avoid penalties, it is essential that you remain current on all requirements and carefully follow the most up-to-date procedures.

To stay up to date on the new requirements, frequently visit our blog. TRC Interactive also offers online, interactive training on topics such as the Bank Secrecy Act. To learn more, contact us at info@trcinteractive.com or (800) 222-9909.

It is tax season, and that means financial institutions need to be on the lookout for tax refund fraud and related identity theft. Due to the increase in refunds being distributed via direct deposit, financial institutions may also see an increase in tax refund fraud and related suspicious activity.

The Financial Crimes Enforcement Network (FinCEN) recently issued an Advisory to remind financial institutions of previously-published information concerning tax refund fraud and the subsequent reporting of such activity through the filing of Suspicious Activity Reports (SARs). FinCEN worked closely with the IRS to identify the following indicators of tax refund fraud.

• Multiple direct deposit tax refund payments, directed to different individuals, are made to a demand deposit or prepaid access account held in the name of a single accountholder.
• Suspicious or authorized account opening at a depository institution, on behalf of individuals who are not present, with the absent individuals being accorded signatory authority over the account. The subsequent deposits are comprised solely of tax refund payments. This activity often occurs with fraudulent returns for the elderly, minors, prisoners, the disabled, or recently deceased.
• A single individual opening multiple prepaid card accounts in different names, using valid TINs for each of the supplied names and having the cards mailed to the same address. Shortly after card activation, Automated Clearing House (ACH) credit(s) from Treasury, state or local revenue offices, representing tax refunds, occur. This is followed quickly by ATM cash withdrawals and/or point-of-sale purchases.
• Business accountholders processing third-party tax refund checks in a manner inconsistent with their stated business model or at a volume inconsistent with expected activity. Similarly, individuals processing third-party tax refund checks through a personal account with no business or apparent lawful purpose.
• Business accountholders processing third-party tax refund checks and conducting transactions inconsistent with normal business practices.
• Multiple prepaid cards that are associated with 1) the same physical address [individuals involved in criminal activity may also contact the Customer Service Department requesting to change their address for their permanent prepaid card shortly after opening their temporary prepaid card account online]; 2) the same telephone number; 3) the same email address; or 4) the same Internet Protocol (IP) address, which receive tax refunds as the primary or sole source of funds.
• The opening of a business account for a check cashing business at a financial institution, which subsequently processed a high volume of tax refund checks issued to individuals from other states.
• A sudden increase in volume involving the cashing of tax refund checks issued to individuals from across the United States, moving through the account of an existing check cashing service.
• Individuals using bank accounts where the majority of the transactions are ACH federal tax refunds or refund anticipation loans.
• Individuals attempting to negotiate double endorsed Treasury tax refund checks with questionable identification.
• Individuals accompanying multiple parties to the bank to negotiate Treasury tax refund checks. Such items may or may not be double endorsed checks.
• The freezing or closure of a personal or business account due to suspicious activity involving either Treasury tax refund checks or ACH Treasury deposits.
• The signature/endorsement on the back of the check(s) does not match the identification of the individual conducting the transaction.
• The same signature/endorsement is used on multiple checks, with multiple names.

If a financial institution knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution involves funds derived from illegal activity, the financial institution may be required to file a SAR. When completing SARs on suspected tax refund fraud, financial institutions should use the term “tax refund fraud” in the narrative section of the SAR and provide a detailed description of the activity.

Due to the time sensitive nature of these transactions, a financial institution may also wish to contact their local IRS Criminal Investigation Field Office to alert them that a SAR has been filed related to tax refund fraud. In order to obtain contact information for your local IRS Criminal Investigation Field Office, financial institutions can call the FinCEN Regulatory Helpline at (866) 556-3974.

To stay up to date on fraud trends and news, frequently visit our blog. TRC Interactive also offers online, interactive training on topics such as the Bank Secrecy Act. To learn more, contact us at info@trcinteractive.com or (800) 222-9909.

In an attempt to prevent fraudulent property flipping, six federal financial regulatory agencies recently issued a final rule that establishes new appraisal requirements for "higher-priced mortgage loans." It will become effective on January 18, 2014.

The new rule requires creditors to use a licensed or certified appraiser who prepares a written appraisal report based on a physical visit of the interior of the property. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.

If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors will have to obtain a second appraisal at no cost to the consumer. This ensures that the value of the property legitimately increased.

The rule exempts several types of loans:

• qualified mortgages
• temporary bridge loans
• construction loans
• loans for new manufactured homes
• loans for mobile homes, trailers, and boats that are dwellings

The rule also has exemptions from the second appraisal requirement to facilitate loans in rural areas and other transactions.

The rule implements amendments to the Truth in Lending Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Under the Dodd-Frank Act, mortgage loans are higher priced if they are secured by a consumer's home and have interest rates above certain thresholds.

In response to public comments, the agencies intend to publish a supplemental proposal to request additional comment on possible exemptions for "streamlined" refinance programs and small dollar loans, as well as to seek clarification on whether the rule should apply to loans secured by existing manufactured homes and certain other property types.

To stay up to date on the new requirements, frequently visit our blog. TRC Interactive also offers online, interactive training on topics such as the Dodd-Frank Act. To learn more, contact us at info@trcinteractive.com or (800) 222-9909.