Paying Claims and Preventing Electronic Funds Transfer Fraud
Managing city finances responsibly is essential for maintaining public trust and ensuring smooth operations. Cities must establish clear procedures for processing claims to prevent errors, delays, and legal issues. With the rise in Electronic Funds Transfer (EFT) fraud, cities must also implement cybersecurity measures to safeguard financial transactions. Here’s a practical guide to handling city claims efficiently, securely, and in compliance with legal requirements.
Key Steps in Processing City Claims
- Verify the Legitimacy of Claims
Before approving any payment, confirm that the claim is valid. This includes checking that:
- Goods or services were received as invoiced.
- The claim falls within the city’s budget and approved expenditures.
- Proper authorization is obtained from the relevant department or officials.
- Obtain Council Approval
Minnesota law requires that most city claims be reviewed and approved by the city council before payment. The city council must:
- Review each claim, ensuring compliance with policies.
- Approve claims during a public meeting, with records documented in meeting minutes.
- Issue authorization for payment only after proper vetting.
- Use Prepayment Only When Necessary
While most payments require prior approval, these are the exceptions that exist:
- Payroll expenses.
- Utility bills.
- Emergency payments necessary to avoid penalties or service interruptions.
For these exceptions, the council can authorize prepayment policies that streamline operations while maintaining oversight. Council authorization should occur prior to the issuing of the payment and is best documented using a resolution.
- Ensure Proper Documentation
Maintaining accurate records is crucial for financial transparency. Each claim should include:
- A properly itemized invoice.
- Proof of receipt of goods or services.
- Evidence of council approval or appropriate authorization.
- Issue Payments Securely and Prevent EFT Fraud
After approval, cities must ensure payments are processed securely and efficiently:
- Payments should be made via check, electronic transfer, or other city-approved methods.
- The mayor and clerk (or another designated official) should sign checks.
- Proper safeguards should be in place to prevent fraud and unauthorized disbursements.
- Implement a two-factor authentication process for accessing bank accounts online.
- Dual control is required when processing any EFT transaction involving at least two people.
- Implement positive pay banking service. This entails the city providing the bank with a list of checks issued. When a check is presented for payment, the bank compares the check to the list and if it doesn’t match the check is flagged and sent back to the issuer for review.
- Always validate new or updated bank account information received from vendors or employees with a confirmation call using independent known contact details such as the vendor master list or a discussion with the employee. Contact information that accompanies the request is not independent.
- Regularly remind staff and vendors that Finance and HR departments will never request sensitive financial information via email.
- Require a signed Form W-9 from all new payees and when changing mailing addresses, verifying with IRS taxpayer matching tools.
Best Practices for Cities
- Establish Clear Policies: Adopt written procedures that align with state laws and best practices, including a safe electronic transfers and payments policy.
- Maintain Transparency: Keep financial records accessible and ensure regular audits.
- Train Staff and Officials: Ensure everyone involved in financial processes understands their roles and responsibilities and is aware of social engineering threats such as phishing and fraudulent EFT requests.
By following these structured steps, cities can efficiently manage claims, minimize financial risks, and strengthen cybersecurity measures to protect public funds.
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