Would anyone be willing to share how they are tracking loan disbursement funds for BSA purposes? It was a recommendation in one of our audits for loans over $10,000 not secured by real estate.

Tracking disbursements? Can you explain a little more? Normally you hand the borrower a check or send payment to a third party. What is to track?

Well I think the auditors were wanting us to have some kind of way to track loan disbursements that went straight into the customers deposit accounts or if they deposit the loan proceed check into an account at our bank. This was just a recommendation and I wasn't sure how far to take it. As of right now, I am keeping a spreadsheet to track loan funds as they use them. If the loan proceed check was cashed or negotiated somewhere else, that is the end of the road as far as tracking is concerned. But, for those that get loan proceeds deposited or deposit a loan proceed check, I am manually monitoring what they use the funds for. I just wanted other opinions on if this was a recommendation to anyone else or if maybe this was already being done at other banks.

Your auditors are nuts.

Look at it this way. Just because you are a smaller bank, your monitoring does not have to be more robust than a large bank's. Think of trying to do this when you make 20,000 loans a month.

I totally agree with you. My compliance officer/BSA officer has me printing everything the customer does with the funds and putting it in the loan file, but I felt that was overkill and resorted to keeping an Excel spreadsheet, which I STILL feel is overkill, but would satisfy them. The auditor that suggested this will be back in October so I will be able to ask EXACTLY what she wants when she suggested tracking loan disbursement funds. I am new to this department, coming from loans and was just curious what others were doing or if they were doing it all.

You need to maintain records of the purpose of these loans, but tracking the disbursements... you'll need to ask your auditor.

Here's what you do need a record of (https://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_116.htm):

"Extension of Credit in Excess of $10,000 (Not Secured by Real Property)

This record shall contain:
•Name of borrower.
•Address of borrower.
•Amount of credit extended.
•Nature or purpose of loan.
•Date of loan."

This is the exact wording used in our recommendations from our last audit:

"If proceeds are disbursed to the customer, it is beneficial and a best practice to have
documentation in file that the proceeds were used for the stated purpose. This could
be in the form of cancelled checks, bill of sale, etc. This process will help to validate
the stated purpose and aid in identifying loan fraud."

Maybe I am misunderstanding something. I just know we have a lot of people that get loans for rental repairs or some other type of loan where they use the money over a period of time and write MANY checks in all amounts and it is extremely hard to track that.

If I got that recommendation from an auditor (internal or external) I would tell them - thanks for the recommendation, we will take it under advisement.

And then proceed to go about my business.

If this came from an external audit firm, I would be examining the value that they are actually providing to the bank.

If that ever made it into a report from an external, that would be the last report they wrote for us.

Thank y'all for the input.