New Account Procedures - Part I

by Dana Turner

Good new accounts procedures will aid in the detection of suspicious transactions and reduce the risk to the institution from criminal activity. Account applicants must be carefully screened to ensure minimal potential financial risks. If appropriate procedures are used at the time the account is opened, the incidence of check fraud losses will be reduced and the reputation of the institution will be enhanced.

Primary Components
The very basis of your policy and procedures should include a process for:
Identifying
Validating and verifying
Investigating
Monitoring
Documenting
Reporting
Auditing
Identifying

The three primary methods of identification are by:
Personal knowledge - known to the employee, or an existing customer
Documents - independent examination and comparison of all identification documents bearing photographs. (Making photocopies of ID documents is permissible in most states.)
Credible witness - introduction by a known, existing customer, but still accompanied by identification document examination.

Documents: Primary ID is a driver's license or identification card issued by a state.

Secondary forms of identification for use as validation documents may include:
Military ID
Passport
Immigration & Naturalization Service card
Social Security card
Utility service payment receipt or bill
Voter registration card
Professional association membership card

You may want to add an optional ID process such as a thumbprint on the signature card, or below the endorsement on negotiable instruments

Keep in mind you may have to make certain exceptions to requirements for identification in the case of disabled persons, senior citizens and minors.

Validating & Verifying
Validation is establishing that something exists. Verification establishes the truthfulness of information.

Safeguards to consider include:
Require original forms - not photocopies
In-person comparisons of documents and presenter
Credit checks
Confirmation of business status (particularly important)

Investigating
The really good new accounts person must be an investigator. Use technology to help you verify background information for commercial accounts. Internet sites that can help include www.sales.com which will give background on over 100,000 private and public companies; www.transunionbig.com has a data base for over 14 million businesses; www.infoUSA.com, which claims to have information on every USA business; www.infoam.com combines public records that establish relationships between businesses and people. Your lending officer may be able to tell you about more sources.

Monitoring
Certain types of accounts bear watching for the first few months, as we have learned that historically they often carry a higher risk of misuse. Included in these accounts are:

One person corporations
Sole proprietorship accounts - particularly in cash-intensive, frequently abused categories such as:
General contractors
Dining establishments
Drinking establishments
Accounts that strike you as existing for no apparent reason other than potential money laundering accounts or accounts that appear to be usable for check kiting

Documenting
All necessary documents relative to partnerships, corporate, or fiduciary accounts should be carefully examined and maintained, along with all investigations completed by the new accounts person when verifying the information given as identification.

Reporting
The new accounts person should be familiar with reporting requirements such as the Currency Transaction Report for cash deposits over $10,000, and the Suspicious Activity Report if it appears there is a suspected Bank Secrecy Act or Identity Theft Act violation.

Auditing
Periodic audits of the new accounts procedure should include reviewing the process for compliance with established policies, with an eye toward the recommendation of corrective actions for compromises to the process.

Keep In Mind
Opening a new account of any type establishes a contract between the financial institution and its depositor, a contract that requires each party to perform certain actions as part of the business relationship. The institution has no obligation to open an account simply because the applicant has applied for one. In fact, the institution must screen all account applicants carefully to ensure that it minimizes potential financial risks that may affect the business relationship.

This is the first in a series of training pages on new accounts. In the next issue, Dana suggests specific steps to take to help reduce check fraud losses. BANKERS' HOTLINE advisor, Dana Turner, Security Education Systems, is a security practitioner based near San Antonio, Texas. He can be reached at (210) 310-0212, or email secedsys@compuserve.com

Copyright © 1999 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 9, No. 10, 11/99