By: Greg Lambert, CIA, CFSA, CTGA, NCCO – Internal Audit Manager
        Lindsey Becker – Internal Audit and Compliance Supervisorbsa-software-validation

The Bank Secrecy Act (BSA), commonly referred to as an anti-money laundering law (AML), requires U.S. financial institutions to assist governmental agencies detect and prevent money laundering. Tasked by the act to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 and report suspicious activity, financial institutions carry a heavy burden to remain in compliance.

Inundated With Manual Data

Processing thousands of transactions daily, it is nearly impossible for any financial institution to effectively monitor and analyze their system’s data manually. Depending on the demographics of your institution’s member/customer base, the process can become quite complex. For example if your institution offered several high-risk products, maintained over 2,500 business member/customer accounts, had locations in a high-intensity drug trafficking area and experienced a 10 percent growth, the ability to manually track this data with internal resources effectively becomes unachievable.

Taking a manual approach can also come with many consequences, some more severe than others.

BSA Software: An Automated Solution

Growing complexity and limited internal resources have triggered many financial institutions to rely on BSA software to help streamline their compliance programs.

While every software is different, most BSA software can help you with tasks, such as:

  • Maintain transaction records
  • Complete the filing of Currency Transaction Reports (CTRs)
  • Analyze transaction history to assist in the filing of Suspicious Activity Reports
  • Record 314(a) scans and the Office of Foreign Assets Control (OFAC) data base scans

Not only will BSA software increase efficiency, it will aid in managing your institution’s internal controls including policies, procedures and processes. This approach is designed to limit and control risk to help achieve compliance with the Bank Secrecy Act, as well as allow comparison of multiple systems for trends and unusual activity. Each institution will require a different system of internal controls to be present in the software based on its size, structure, risks and complexity.

Validating the Data

Although BSA software decreases the likelihood of error, it still has exposure if the data and model isn’t validated. Main causes of errors relate to methodology effectiveness, collection and uploading of accurate data, and the sufficiency of data to properly mitigate risk. As a result, completing an annual independent model and data valuation is highly suggested if you choose to use a BSA software.

Ensuring not only the monitoring systems’ programming methodology is effective in detecting potential suspicious activity, but that policies are in place and being followed is critical when using an automated approach. Having a formal process in place as to who can update parameters and approve any changes to the BSA software rules related to its model will help mitigate risks associated with the model.

Many financial institutions and vendors believe once a data validation has been accomplished, there is little need to do another one – but that’s not the case. The vendor may make changes to the way the software works through upgrades or your financial institution may change transactions codes as new products are developed. Changes to the monitoring software or to your core system can impact the accuracy and effectiveness of the BSA software. Because change is constant, it is wise to test data validity on a regular basis, at least annually.

Making the Move to BSA Software

Moving to a BSA software may be the next step for your institution, but there are many factors to be considered in the process. Which software will you use? What internal controls will the system strengthen? What is the cost/benefit? What policies will be in place for setting the monitoring system’s parameters? Who will you have perform validation procedures? Developing a complex BSA compliance program inclusive of the most appropriate software and documentation can be a daunting task. Doeren Mayhew has experienced BSA compliance specialists on staff that can assist you in the process. Contact them today!