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4.5 SR 01-03-2022 Request for Action To Item Number Mayor and City Council 4.5 Agenda Section Meeting Date Prepared by Consent January 3, 2022 Katie Porath, Records Specialist Item Description Reviewed by Declare Official Depositories and Delegate Lori Ziemer, Finance Director Authority for Electronic Funds Transfer Reviewed by Cal Portner, City Administrator Action Requested  Adopt, by motion, a resolution authorizing the city’s official depositories for 2022 and delegate authority for electronic funds transfers.  Accept, by motion, a policy for safe electronic transfers and payments. Background/Discussion City code and state law require the city to annually designate official depositories for the deposit of funds and delegate authority to make electronic funds transfers. With the pandemic, there has been a substantial increase in electronic funds transfer (EFT) fraud attacks. These EFT fraud attacks usually start with a phishing email or a phone call purporting to be from a reputable company or trusted person in order to trick individuals into revealing sensitive information or making fraudulent payments. The League of Minnesota Cities has drafted a policy for safe electronic transfers and payments for a city to avoid EFT fraud. Financial Impact N/A Mission/Policy/Goal Elk River Municipal Mission Components: Responsible for every dollar – good stewards Attachments  Resolution  Electronic Transfers and Payments Policy The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community engagement that encourages and inspires prosperity. Updated: August 2020 City of Elk River City Council Resolution 22-____ A Resolution of the City Council of the City of Elk River Designating Depositories of City Funds and Delegating Authority for Electronic Funds Transfers WHEREAS, Minnesota Statutes §118A.02 sets forth the procedures for the deposit of public funds and; WHEREAS, it is necessary for the Elk River City Council or city finance director to annually designate a bank (or banks) as the official depository for city funds and manage collateral pledged to such funds; and WHEREAS, the Elk River City Council shall annually delegate the authority to make electronic funds transfers to the city finance director or the officer’s designee. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Elk River, Minnesota, that the following named banks are hereby designated as the city’s official depositories for the funds of the City of Elk River, Minnesota: 1. First National Bank of Elk River 2. 4M Fund 3. The Bank of Elk River 4. US Bank 5. UBS Financial Services BE IT FURTHER RESOLVED the city finance director may recommend additional depositories be designated for the purpose of investing funds and be delegated authority for electronic funds transfers. rd Passed and adopted this 3 day of January 2022. John J. Dietz, Mayor ATTEST: Tina Allard, City Clerk City of Elk River, Minnesota Electronic Transfers and Payments Policy Purpose The purpose of this policy is to establish procedures to prevent fraudulent payments or transfers to employees, vendors, and contractors. Scope This policy applies to all city departments and employees that have control over city disbursement transactions and governs the actions of all city employees. Background Cities are becoming more transparent with information on the internet and electronic banking is becoming widely accepted. Effective internal control policies and procedures need to be adopted to protect city funds from fraudulently being disbursed. Fraudsters are using social engineering tactics, such as impersonation and manipulation, to deceive employees with legitimate-looking correspondence or phone calls to obtain personal information such as bank accounts or address changes that will re-direct payments intended for an employee or vendor. Often a fraudster will follow city news to learn of newly contracted vendors, and use the information and proper timing to contact the city as the vendor impostor and request the first down payment. Cities should avoid listing dollar/percentage down payment details in City Council public meeting information. Commonly used software allows fraudsters to copy or create legitimate looking vendor invoices that include slight changes to the name and address. Tools to lower risk Common tools to lower the risk of fraudulent disbursement of public funds include:  Automated Clearing House (ACH) Positive Pay — is an online banking fraud mitigation service that allows cities to manage ACH debits and credits posted to your business account via filters and blocks.  Vendor/Supplier Portal — is a portal where vendors enter in critical information (name, address, bank account, tax ID number).  Employee Portal — is a portal where employees enter in requested changes to critical information (address, bank account information). Processes to prevent fraud Employee portals and city intranets should utilize dual authentication when available. Following are processes to prevent the fraudulent disbursement of public funds: Accounts payable 1. Vendor payment approvals a. Require at least two approvals within the city for all disbursements of funds. b. Require city administrator or designee approval on large payments exceeding amounts set in city policy. 2. Update and review vendor files annually a. Review and correct duplicate vendors in system with minor differences, i.e., LLC or Inc. b. Annually review list of vendors and close or inactivate vendors not currently used by the city. c. Review for unusual activity such as fluctuation in payment amounts, activity for closed vendors, etc. d. Compare vendor information such as phone numbers, address, and bank account information to employee records for other than employee expense reimbursements. e. Develop vendor change form for critical information such as electronic banking information, addresses, or billing practices. These forms should not be provided online, but requested from accounts payable and mailed to trusted information on file. f. Receive verbal communication using trusted information on file regarding all changes on critical information. g. Always perform a validation transfer (or test deposit) with a blind confirmation for all new vendors or vendors requesting a change in electronic banking information with payments equal to or greater than $100,000. 3. Do not provide copies of contracts on the city website unless payment terms are hidden within council packets. 4. Do not provide copies of vendor invoices on the city website. 5. Always require a signed Form W-9 from every new payee in advance of making any payments or change in a mailing address. This can be confirmed online or directly with the IRS. 6. Require wire transfers to have dual approvals, electronic or verbal authentication, with the banking institution. Payroll 1. Receive both written and verbal communication from the employee, confirming any requested changes to direct deposit banking information. 2. Develop employee change forms for critical information such as direct deposit banking information. These forms should not be provided online but requested from finance/human resources or kept on a secure employee intranet. All payroll and records containing data covered by Minnesota Government Data Practices Act must be stored and transmitted securely. Review and Maintainence of Policy The city finance department is responsible for maintaining and reviewing this Electronic Transfers and Payments policy.