As we enter the new year, it's a great time to reflect on how your institution can strengthen its risk management practices.
Our team has identified top findings from last year's Remote Deposit Capture (RDC) Audit and Risk Assessment services. Let’s talk about these findings, as well as practical recommendations to enhance your institution's RDC processes.
RDC Merchant Deposit Errors
One of the most common findings we identified during RDC services was surrounding improper deposit practices by RDC merchants. Issues identified include improper or missing endorsements and items made payable to entities not listed within RDC Agreements.
How to Prevent This
- Endorsement Training: Ensure your RDC merchants understand the importance of proper endorsements and how to endorse checks properly. Emphasize that missing or incorrect endorsements can result in rejected deposits that will slow down the merchant cash flow expectations. All deposited checks should be endorsed according to your institution's guidelines.
- Deposit Review: Establish a process to periodically review deposits for errors and compliance with RDC agreements. If errors are identified, provide on-the-spot education to the merchant to prevent errors in the future.
- Agreements: Ensure the RDC Agreements properly list all entities for which the RDC Merchant can accept deposits. During periodic agreement reviews, verify that the list of entities is still accurate.
RDC Agreement Errors
Another common finding was RDC Merchant Agreements that were missing signatures and didn't address recommended topics by the Federal Financial Institution Examination Council (FFIEC).
How to Prevent This
- Standardize Agreement Collection: Implement a process to ensure all agreements are fully executed, including the signatures of all parties and signature dates. This process can help ensure agreements are complete and legally enforceable.
- Periodic Review of Agreements: Regularly review RDC agreements to ensure they align with industry best practices and comply with your financial institution's policies and procedures.
- Ensure Agreements Address Key Topics: RDC agreements should include critical components such as original check retention requirements, dispute resolution and endorsement requirements.
Lack of RDC Merchant Education
We often find that RDC merchants are not provided periodic education, especially regarding check fraud prevention. Your RDC merchants are an extension of your front line, and without sufficient training, they could inadvertently process fraudulent items or otherwise misuse RDC technology.
How to Prevent This
- Develop an Education Program: Create a training program for your RDC Merchants and cover key topics, such as recognizing fraudulent items and adhering to proper deposit procedures. This training should be conducted during onboarding and throughout the relationship with the merchant.
- Check Fraud: Inform merchants of common types of check fraud, such as duplicate deposits and altered and counterfeit items, to assist them in identifying fraudulent items prior to depositing.
- Ongoing Training: Additionally, ensure merchants are aware of the latest fraud trends and scams. Not only does this safeguard the integrity of your RDC processing, but it can also prevent your account holders from incurring losses through other payment methods.
Lack of Comprehensive RDC Policy
Another finding we often encounter is the absence of a formal RDC policy or one that does not appropriately address all relevant areas of RDC operations. This includes RDC oolicies that omit mobile deposit, ATM capture and branch capture—these fall under the umbrella of RDC as well!
How to Prevent This
- Develop an RDC Policy: Ensure that your institution has an RDC policy that addresses all aspects of your RDC processing, including Merchant Agreements, fraud detection and endorsement requirements.
- Address All Capture Methods: Your policy should account for all forms of RDC (merchant, mobile, ATM and branch) your institution is involved in. It should also outline how each capture method is managed and monitored.
- Regular Policy Reviews: Review and update your RDC policy regularly to align with vendor changes and your current practices and risk management strategies.
While RDC offers significant advantages in terms of convenience and operational efficiency, it also presents unique risks that should be carefully managed. As seen in our 2024 RDC Audits and Risk Assessments, issues such as improper deposits, incomplete agreements, insufficient merchant education and weak or missing policies can expose financial institutions to unnecessary risk. By taking steps to prevent these types of findings, your institution can reduce its overall exposure to risk and protect both your financial institution and your account holders.
Did you know that EPCOR auditors conduct a wide range of audits and risk assessments, including RDC, RTP, ACH and wire transfer? Our team offers expert guidance across a variety of payment systems to help you identify and address risks before they become problems.
Looking for expert assistance? Our auditors are ready to help! We offer both RDC Risk Assessments and Audits to provide actionable recommendations specific to your financial institution to ensure your RDC operations are compliant and risks are adequately mitigated.
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