Funds Transfer Risk

Funds transfers represent heightened degrees of risk depending on frequency of requests, dollar amount, geographic risk considerations of the originator and beneficiaries, and relationship of the originator or beneficiary to the financial institution. Potential fraud may be identified through transaction profiling of accounts and historical activity or through methods of communication used to initiate a transfer request.

The most important part of any risk management program is to have documented policies and procedures. Many financial institutions develop easy-to-follow flow charts, which help to identify important steps and questions to ask. Policies should make clear that no funds are transferred for non-accountholders and should not be processed against uncollected and settled funds. These two items can be easily incorporated into a flow chart.

Policies should also outline dual control through segregation of duties so that no single individual can execute a transfer from beginning to end. All acceptance and authentication of transfer requests should be separated from the processing and approval of the requested transaction. In smaller institutions, where segregation is not always practical, controls should be used to ensure proper checks and balances, and to provide a second review removed from the transaction. Accountholders that have never transferred from a line of credit or conducted internal or large-dollar transfers should raise additional concerns, and policy should require elevation through levels of management.

Establishing limits on transfer authority should also be a part of any policy. Limitations on who can initiate a transfer and to what limit ensures that dual control mechanisms are being utilized. At least annually, a review of all individuals should be conducted to ensure administrative restrictions are in place within systems, approval limits are reviewed and affirmed, and that those users with permissions have a logical purpose for that authority.

Providing service to accountholders is often manipulated by fraudsters in perpetrating a scam, causing erosion of established controls. Methods such as fax, phone and internet banking or e-mail are common, and advancing technological capabilities are introducing additional methods. Regardless of the method accepted by the financial institution, each should be assessed for risks and such a review should be a foundation for establishing controls. Each method may involve a different set of controls.  It may be in the interest of the accountholder and the financial institution to establish a separate funds transfer agreement, especially in situations of frequent transfer activity.

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