The Vacation Imperative: How Automation Supports Fraud Prevention and Boosts the Employee Experience

When employees feel they can’t take a vacation, they suffer from burnout and become disengaged. Meanwhile, when institutional knowledge goes unchecked and process know-how resides with only one individual or a small team of employees, it becomes harder to enforce dual control requirements and uncover potential collusion or fraud.

Through automation, banks and credit unions can confidently allow their employees to take a “true” vacation, helping to boost employee engagement while enhancing fraud prevention and risk management.

The History of Vacation Requirements in Financial Services: Fraud Prevention and Regulatory Compliance

Since the mid-twentieth century, the banking industry has required key employees to take two consecutive weeks of vacation each year.

This requirement was viewed as an important safeguard against internal fraud, as it removed key staff’s access to sensitive areas of the operation, allowing management and audit sufficient time to uncover any accounting or financial processing irregularities.

This provision helped ensure that individual employees in sensitive roles like cash handling, payments and transfer processing, and trading don’t have unmonitored and unfettered access to customer accounts and high-risk processes.

The two-week vacation requirement became industry standard in the 1970s and 1980s, spurred by high-profile fraud and embezzlement cases like the 1974 Franklin National Bank scandal, which resulted in the collapse of the nation’s twentieth-largest banking institution at the time.

By the 1990s, federal banking regulators including the FFIEC and OCC had issued formal guidance recommending the two-week mandatory vacation requirement for employees performing certain sensitive duties.

This guidance ensured that individual employees (or two employees working in collusion) would be forced to turn their responsibilities over to another party for a period of time, increasing the likelihood that any fraudulent activity (such as embezzlement and account takeovers) would be uncovered during their time away from the operations.

But times have changed, and so have industry best practices and regulatory requirements.

In recent years, new technology and the emergence of remote work has prompted federal and state regulators to introduce more flexibility into their mandatory vacation guidance.

For example, in 2022 the New York State Department of Financial Services issued a guidance letter amending its 1996 guidance on vacation policy as an internal control safeguard. Whereas the original guidance required all New York Regulated Banking Organizations to employ a mandatory two-week absence policy, the current regulation only requires subject institutions to document a written “absence from office” policy customized for the institution’s unique needs and applicable to employees in sensitive positions.

As this example illustrates, regulators are recognizing that prudent internal controls can be maintained without the employment of a strict two-week mandatory vacation rule, especially given the emergence of AI, continuous transaction monitoring, and modern automation technologies.

But establishing a mandatory vacation/out-of-office requirement for sensitive employees remains a best practice in the industry, and not only for internal control reasons.

Elevating Employee Engagement

Encouraging staff to disconnect from the office has been shown to help improve employee morale, reduce stress, and decrease on-the-job burnout for tenured staff.

Offering a generous vacation package (and ensuring employees actually use it!) is also a powerful talent attraction tool, as well as an important factor in improving employee retention, especially in hard-to-hire positions like IT.

Notably, talent acquisition and retention ranks as a top concern for 41% of banks and 24% of credit unions, making any opportunity to boost employee engagement highly valuable.

Lastly, requiring key employees to take vacation can enable more cross-training and job sharing for highly specialized roles, ensuring that institutional knowledge does not get in the way of operational efficiency, outstanding service, and innovation.

Enforcing Dual Control and Separation Of Duties

Financial services is a highly regulated industry with strict dual control and separation of duties requirements. When only certain employees maintain knowledge of key processes and infrastructure, it leaves financial institutions out of compliance and vulnerable to fraud.

Through cross-training, diligent documenting, and automation of key processes, financial institutions can ensure all proper dual control protocols are followed, reducing reliance on individual employees and ensuring regulatory compliance is maintained.

“We’re able to enforce dual control for ACH uploads to the Fed, which is part of our due diligence and regulatory requirements,” says Erik Lubbock, Director of Core Applications Services at Oregon State Credit Union. “Whoever creates the ACH origination file from the core cannot also upload it to the Fed. We need to maintain a segregation of duties, and OpCon makes it seamless.”

Automation Supports Dual Control and Enhances Employee Experience

By automating your critical processes, you can enforce dual control requirements while ensuring continuity in operations and protecting institutional knowledge from being lost when a key employee takes vacation (or leaves the organization).

Through innovative features like Self-Service buttons, automation also empowers individual business functions to manage their own processes while ensuring control remains centralized. This allows business users to initiate repeatable processes quickly and easily, with no risk.

“My experience with the self-service buttons is—they’re a big deal,” says Robert Carter, Systems Engineering Manager at HAPO Community Credit Union. “Because what those allow me to do is give very specific power and functionality to other individuals without giving them direct access to the tools that implement that functionality.”

Automation allows your employees in the most sensitive roles to take a “true” vacation. It’s instrumental in improving morale, reducing job burnout, and allowing your talent to return to work rested, refreshed, and ready to go!

“With automation, people can actually take a vacation, which helps morale, too,” says Damien Burgess, IT System Analyst at Andrews Federal Credit Union. “Ultimately, automation impacts your employee experience as well.”

Your talented employees deserve a “true” vacation! Prioritize employee experience while reducing opportunity for internal fraud and collusion. Talk to the financial services automation experts at SMA Technologies about how automation can support these goals. Contact us or request a demo of OpCon today.