As financial institutions and Third-Party Senders continue to navigate the complex landscape of ACH transactions, it's crucial to maintain robust risk management practices. NEACH Payments Group’s recent Q2 ACH Risk Assessments have revealed several common areas where organizations can enhance their processes and controls. In this article, we'll explore these key findings and provide recommendations for improvement.
Enhancing Systems and Controls
Our assessments consistently show that many organizations need to strengthen their overall ACH governance structure. This includes developing comprehensive ACH policies, improving reporting to the Board of Directors, and enhancing ACH-related training for both Board members and staff.
Recommendation: Conduct a thorough review of your ACH policies and procedures. Ensure they are up-to-date, comprehensive, and aligned with current regulations and best practices. Implement regular ACH training programs and establish a routine for reporting ACH activities and risks to your Board.
Improving Credit Management
Effective credit management is crucial in the ACH ecosystem. We've observed that many institutions lack robust processes for monitoring excessive returns and reviewing Originators. Additionally, high transaction limits and inadequate prefunding processes can pose significant credit risks.
Recommendation: Implement automated systems to monitor return rates and flag excessive returns. Develop a comprehensive Originator review process, including initial due diligence and ongoing monitoring. Consider implementing or enhancing prefunding requirements for higher-risk Originators.
Strengthening Compliance Management
Compliance remains a critical concern, with many organizations needing to update their procedures related to error resolution, consumer liability, and disclosures. Keeping pace with evolving regulations like Regulation E and Nacha Rules is essential.
Recommendation: Regularly review and update your compliance procedures. Ensure all disclosures, especially those related to NSF/overdraft fees, are clear and compliant. Implement a process for staying informed about regulatory changes and updating your policies accordingly.
Enhancing Third-Party/Vendor Management
As reliance on third-party vendors increases, so does the need for robust vendor management practices. Many organizations lack comprehensive policies for vendor due diligence and ongoing monitoring.
Recommendation: Develop a formal vendor management program that includes thorough initial due diligence, regular performance reviews, and ongoing risk assessments. Create contingency plans for potential vendor-related issues to ensure business continuity.
Streamlining Operational and Transactional Processes
Operational efficiency is key to managing ACH risks effectively. Our assessments revealed the need for updated operational procedures, better segregation of duties, and improved processes for handling Notifications of Change (NOCs) and returns.
Recommendation: Review and update your operational procedures regularly. Implement dual controls where appropriate and ensure clear segregation of duties. Develop efficient processes for managing NOCs and returns to minimize errors and improve customer service.
Strengthening Information Technology Controls
In an increasingly digital world, robust IT controls are crucial. Many organizations need to improve their Business Continuity Plans (BCP), conduct more frequent Online Banking Risk Assessments, and enhance their disaster recovery planning for ACH functions.
Recommendation: Regularly test and update your BCP. Conduct comprehensive Online Banking Risk Assessments at least annually. Develop and test specific disaster recovery procedures for your ACH operations.
Addressing Same Day ACH Challenges
As Same Day ACH continues to grow, many organizations need to develop or enhance their policies and controls to manage the associated risks effectively.
Recommendation: Develop specific policies and procedures for Same Day ACH. Implement additional controls to mitigate the increased risk of fraud and errors associated with faster processing times.
By addressing the key areas we’ve highlighted, financial institutions and third-party senders can significantly enhance their ACH risk management practices. Remember, effective risk management is an ongoing process that requires regular assessment and adaptation to changing circumstances and regulations.
We encourage all organizations to use these insights to review their own ACH risk management practices. By doing so, you can not only mitigate risks but also improve operational efficiency and customer service in your ACH operations. If you’re unsure of where to begin or could benefit from an external, expert opinion, our payments professionals would be happy to assist you in strengthening your compliance programs. Reach out today!