CECL adoption

On November 6, 2024, members of the BerryDunn financial services team joined bankers and board members throughout the state of Maine at the annual Maine Bankers Association FDIC Directors’ College in Augusta, Maine. Here are our key takeaways from the event:

• Commercial real estate vacancies continue to increase, with the biggest concerns remaining in the office sector. And economists don’t believe vacancy rates are at their highest levels yet. These changes in vacancy rates have also had significant impacts on the values of such properties, possibly requiring the need for updated appraisals. If updated appraisals are received, institutions should review the inputs and assumptions used in these appraisals closely to ensure they appear reasonable given the current environment. These vacancy rates could also cause a lot of uncertainty in credit loss model forecasting, as vacancy rates may point towards the need for higher reserves, while low delinquency rates (see below) may indicate otherwise.
• Credit quality indicators remain strong. Even with the slight uptick in delinquencies seen recently, delinquency rates are still well below 1%. Although this is great news for the industry, the prolonged period in which these indicators have remained strong could mean that workout teams are not well equipped for a period of significant workout volumes. For instance, teams in place during the financial crisis may have retired or transitioned to a new role or employer. Thus, it is important for institutions to proactively ensure that workout teams have the tools and knowledge to effectively work through problem credits should there be an uptick in the demand for workouts.
• Third-party risk remains a focus for regulators. Although third parties can be seen as an opportunity for institutions, allowing institutions to diversify their services and products and possibly expand into new areas, such as banking as a service, substantial due diligence should be performed on these third parties prior to entering into any arrangements. Institutions should avoid “building the ship while it is sailing.” Many of these third parties are not privy to the regulations federally insured institutions must follow. Therefore, when a third-party arrangement is entered into by an institution, monitoring for regulatory compliance may need to expand beyond the institution’s policies, procedures, and control environment.
• Risk assessments are critically important. The FDIC had an entire session on risk assessments at the Directors’ College. Risk assessments should be an iterative process, not a “once and done” exercise, with reporting to the Board continuously occurring. If your institution plans to get into a new product or service, a risk assessment should be performed, or existing risk assessments should be revisited. Risk assessments also play a critical role in maintaining regulatory compliance, with changes in the regulatory landscape having impacts on risk assessments.
• Contingency funding plans continue to remain important. It is also important to establish a monitoring framework, conduct stress testing, and periodically test your contingency funding plans:
  • A monitoring framework should consider early warning indicators, which could be systemic, such as negative trends in economic or industry conditions, or bank-specific, such as an increase in delinquencies. The nature of these early warning indicators could have implications on the types of liquidity available to the institution.
  • Stress testing considerations:
    • Don’t assume that all contingent liquidity sources are created equally – access to FHLB borrowings is likely a faster liquidity source than sales of loans. It is important to diversify your liquidity sources, considering the amounts available and how quickly you can access these sources. Also, as noted above, the type of stress could also impact the liquidity sources available to your institution.
    • Consider the time buckets you are using in your stress testing – a 30-day bucket may not show deficiencies in liquidity, while a daily bucket may show deficiencies.
    • For directors, some questions to consider when evaluating stress testing:
      • Are scenarios stressful enough?
      • Are scenarios appropriate for my bank?
      • Are assumptions reasonable and supportable?
      • Are mitigating actions obvious, explained, and defendable?
      • Am I comfortable with the results?
  • Periodic testing considerations:
    • Ensure your institution’s roles and responsibilities are up-to-date and appropriate.
    • Ensure legal and operational documents are current and appropriate.
    • If the movement of collateral is part of your plan, ensure it is well tested, meaning it can be moved quickly and will be accepted as collateral.
    • Ensure contingent liquidity lines are available and accessible.

As always, if you have any questions on the above, or want to chat further, please don’t hesitate to reach out to your BerryDunn financial services team! We’re here to help.

The election created a sense of anxiety and uncertainty among many people for a variety of reasons. One such concern was around how the election would affect business value. Elections often lead to changes in consumer behavior, new regulations, and changes in existing policies, directly affecting business operations and value. Furthermore, elections influence market conditions and the economy, impacting factors such as interest rates, tax policies, and government spending, which in turn affect the cost of capital and the overall business environment. With the election uncertainty now behind us, we can now start making more informed decisions. The increased certainty in the political landscape allows us to better assess geopolitical risks and their implications on business value.

In our ESOP sector, we continue to perform annual valuations to assist employee-owned companies with share repurchases upon employee retirement. We saw a pickup in that activity in the third quarter, as not all of our ESOP clients have a calendar year valuation date. We are actively preparing for our “ESOP season” as we approach the end of the calendar-year.

Meanwhile, other members of the valuation team have been focusing on assisting business owners with exit planning through their value acceleration service. Recently, Casey Karlsen from our valuation team presented about this topic at the Maine Tax Forum, highlighting its growing interest. The value acceleration exit planning framework is designed to help business owners identify and address value constraints and transferability limitations, but like turning a ship, it takes time. We recommend that business owners understand their strengths, limitations, and value at least five years before planning to exit. This proactive approach allows for a smoother transition and maximizes the business’s value.

We track trends in several databases of private company transactions, among them GF Data, Capital IQ, DealStats, and BIZCOMPS. As presented below, we saw a slight downturn in multiples in the third quarter of 2024. We also saw the number of transactions decrease slightly in the third quarter compared to the first and second quarters of 2024.

Don’t get too fixated on the multiples in this chart as an indicator of value for your company. Look at the trends. Multiples vary dramatically from industry to industry and business to business. If you are interested in exploring value drivers for your company, read this recent article.  

The value of privately held companies often isn’t as volatile as share prices for public companies. However, activity in the stock market provides general guidance that is often much more timely than data available for private companies.

There are a few indexes we keep an eye on. The S&P 500 is generally considered the go-to benchmark for stock market performance, although it is dominated by a handful of large tech stocks. The Russell Midcap Index cuts out the largest 200 companies in the Russell 1000 Index, keeping 800 US companies with market capitalizations between $2 billion and $10 billion. The Dow Jones Industrial Average is comprised of 30 “blue chip” US stocks that may be similar to many private companies.

Stock prices have followed a generally upward trend throughout the first three quarters of 2024.

Many drivers of business value can be influenced or controlled by the decisions of the business’s management team, including product diversification, brand recognition, and employee retention. Other drivers are outside of management’s control, such as inflation and unemployment rates. As summarized below, key drivers of the US economy generally remained near similar levels in 3Q as in 2Q.¹

¹ Source: Federal Reserve Economic Data, available at https://fred.stlouisfed.org/.

² Indicates the likely effect on business value for most businesses. Depending on the business model, certain businesses may demonstrate an inverse relationship to economic variables compared to the market as a whole.

As many of our clients are located in New England, we’ve included a summary below of some of the key economic drivers that affect businesses in the Northeast³. If your business is headquartered outside of New England, reach out to us for an economic analysis specific to your market area. 

Economic activity  

Economic activity was roughly flat overall. Employment was unchanged and wages rose moderately. Prices increased only slightly, although isolated cost pressures were still noted. Retail and tourism led in terms of activity—including moderate gains in international travel—but still showed only slight growth on balance as consumers’ price sensitivity persisted or even intensified. Manufacturing revenues were down slightly amid weak demand at most firms. Demand and revenues were steady among software and IT services firms. Home sales posted modest gains from a year earlier despite an especially soft summer. Commercial real estate activity was flat but varied across property types. Sentiment for late 2024 and 2025 was cautiously optimistic on average but ranged from bullish, among tourism contacts, to pessimistic, among some manufacturers.

Labor markets  

Employment was flat net of seasonal increases, and wages increased further at a moderate pace. Among IT services contacts, headcounts were stable, and wage increases ranged from slight to moderate. Summer hiring on Cape Cod in retail and hospitality was facilitated by a resurgence in short-term visas for foreign-born workers as well as increased supply of domestic seasonal workers. Hotel contacts around Boston also reported a normalization of labor supply, notwithstanding the ongoing hotel worker strike in the area. Manufacturing employment was stable overall, but one firm paused hiring and incentivized early retirement, while another increased headcount slightly. Manufacturers reported either no changes in wages or standard raises, but one firm continued to face above-average wage pressures, and another reported a large increase in healthcare costs. The outlook for hiring was subdued, as only one contact (a manufacturer) planned to expand its headcount significantly in the coming months; at the same time, no contacts intended to make layoffs.

Prices 

Prices increased slightly on balance. Most manufacturers held output prices steady over the quarter, in one case despite a significant rise in healthcare costs, but one offered discounts in response to declines in input prices. Otherwise, manufacturers’ nonlabor costs (excluding healthcare) increased modestly, and one firm was concerned about increased uncertainty in shipping costs. Among IT firms, output prices increased slightly to adjust for inflation. Retail prices were stable despite slight input cost pressures. Hotel room rates in the Greater Boston area rose modestly on a year-over-year basis, though marking a step down from the pace reported in the previous quarter. Hospitality contacts on Cape Cod said that average rates for accommodations were down slightly this past summer from the previous one. Across all sectors, planned output price increases for 2025 were modest, and contacts did not express major concerns about cost pressures aside from healthcare and shipping.

Retail and tourism 

First District⁴ retail and tourism contacts reported slight growth in revenues in recent months. Retailers on Cape Cod had a strong summer season, with activity that was roughly level with the summer of 2023. An online retailer had stable revenues overall but observed a growing gap in sales volumes between promotional periods and off-promotion periods, especially for higher-priced items. Airline passenger traffic through Boston increased moderately year-over-year, with international travel up more than 15% over 2019 levels. Hotel occupancy in greater Boston rose modestly in August from earlier in the summer, consistent with seasonal expectations and on par with August 2023. Contacts are forecasting strong tourism and convention activity for Boston for the rest of 2024 and early 2025, supported by both domestic and international visitors. Retailers expressed cautious optimism that demand would hold steady moving forward.

Manufacturing and related services 

Manufacturing revenues were down slightly from the previous quarter. Most firms described demand as weak, although a frozen food producer reported strong growth in year-to-date revenues compared with the same period in 2023. For one contact, third-quarter revenues beat expectations despite declining slightly from a year earlier, while a semiconductor manufacturer said that recent results fell short of expectations because of an ongoing industrywide slump. Inventories rose modestly at selected firms, approaching higher-than-desired levels. Capital expenditures were consistent with previous plans, with one firm spending much more than last year to add a new production facility. Most firms expected stable or improving demand for the rest of 2024, but the outlook for 2025 was mixed. Half of contacts were either cautiously or unreservedly optimistic, but the other half perceived a high degree of uncertainty and feared that sales would fall short of targets.

IT and software services 

Among First District IT services contacts, demand and revenues held steady on average. Concerning revenues, one firm beat expectations with a healthy increase from the previous quarter, and another saw a temporary dip that was attributed to the firm’s transition to a subscription-based model. Capital spending was flat at very low levels or declining in one case due to increased reliance on cloud-based servers. Contacts held neutral-to-positive expectations for activity at their respective businesses, based on beliefs that demand for their products and services was on the rise. Nonetheless, contacts saw risks to the overall business climate from uncertainty surrounding the presidential election, and one firm worried that inflation could surge again and hurt its profit margins.

Commercial real estate 

Commercial real estate activity was stable on average, but office leasing fell short of seasonal expectations. In the Boston area, legal and financial tenants continued to provide decent office demand, but weak demand from high-tech firms persisted. The life sciences industry buoyed leasing activity in Providence, but not enough to drive meaningful changes in vacancy rates or rents. Contacts reported no recent office foreclosures, though many properties remained distressed. Industrial leasing was stable but on the slower side, especially for larger spaces, although industrial sales picked up moderately. Retail leasing was stable, and retail rents showed slight increases. Lending conditions remained tight relative to historical norms, especially for office properties, while funding was comparatively more available for industrial and multifamily properties. The outlook for the sector was mixed, with some contacts expecting no major changes in conditions and others expecting a significant increase in activity in 2025 as election-related uncertainty was resolved and interest rates fell further.

First District contacts described commercial real estate activity as flat overall. Office leasing slowed somewhat, as is typical for summer, but fell to an extremely low level in Hartford, CT. Office rents were flat, and office vacancy rates increased slightly. After having softened earlier in the year, industrial leasing was stable. Industrial vacancy rates remained extremely low, and industrial rents have reportedly stabilized at levels well above 2019 averages. The retail sector experienced steady demand, but tenants showed greater caution amid worries about consumer spending. Investment sales were flat, even though demand for non-office properties remained healthy. In general, bank lending to commercial real estate remained weak, but the CMBS market and life insurance companies continued to provide funding. However, one small regional bank expanded its (non-office) CRE portfolio modestly. Construction was flat or down slightly and still concentrated in the multifamily sector. For non-office properties, contacts expected stable, if restrained, activity going forward, reflecting elevated political and economic uncertainty. The outlook for office properties weakened further, as contacts expected a significant increase in foreclosures in the coming 12 months.

Residential real estate 

First District residential home sales in August 2024 were up modestly from a year earlier but were down slightly from June net of seasonal factors. Single-family home sales increased moderately on a year-over-year basis (to August 2024) in most states but fell slightly in Massachusetts. (No data were available for Connecticut.) Contacts in Massachusetts said that summer home sales were muted, even relative to seasonal norms, as prospective buyers waited for mortgage rates to fall further; the same contacts noted that home prices softened for two consecutive months but still increased moderately from a year earlier. Home prices were also up moderately from August 2023 in the other First District states, on average, but the price changes were somewhat mixed across markets. For-sale inventories rose substantially on a year-over-year basis (to August) in every market except Massachusetts, where inventories were flat from one year earlier. Contacts were guardedly optimistic that home sales would improve further in late 2024 and into 2025, based on the likelihood that mortgage rates would fall further during that period.

³ Quoted from the Beige Book – October 2024 from the Board of Governors of the Federal Reserve System.

⁴ The Federal Reserve System’s First District includes Connecticut (excluding Fairfield County), Massachusetts, Maine, New Hampshire, Rhode Island, and Vermont.

• To learn more about ESOPs, here is a brief overview of ESOPs we put together. 
• Interested in learning more about business valuations? Read more here or pick up a copy of our book, A Field Guide to Business Valuation.
• Today’s business reading, suggested by senior manager, Casey Karlsen, is Traction: Get a Grip on Your Business by Gino Wickman.

Where to find us

Casey Karlsen and Seth Webber are leading a four-part workshop series for business owners about increasing business value and liquidity. We previously summarized this content in a couple of blog posts (Session 1 and Session 2). Take a look if you missed us! The next session is February 11. Register to join us here. Each session is designed to stand alone, so don’t worry if you missed the first two sessions.

Erik Olson, Seth Webber, and Casey Karlsen will be hosting a transaction advisory overview session on January 15.

Interested in meeting the team? Please reach out to us. We would love to connect. 

From workforce shortages to rising costs to regulatory changes, today’s healthcare organizations face greater challenges than ever. By properly managing the revenue cycle, healthcare providers can reduce operational costs, improve patient satisfaction, and ultimately reinvest in better care and services.

The revenue cycle is an intricate system involving interdependent functions. Like an ecosystem, each component plays an important role. To optimize your revenue cycle, it helps to understand these four components of the ecosystem and the roles they play.

The role of patient access in the revenue cycle

Patient access is the first point of contact a patient has with your organization. It’s one of the most critical interactions your team will have, setting the tone for the patient’s experience and ensuring that information is collected accurately. Key aspects of the patient access component include:

• Scheduling appointments, registration, and gathering essential patient information
• Verifying insurance coverage and benefits, a vital step in preventing claim denials and ensuring provider reimbursement
• Financial counseling, helping patients understand their financial obligations and reducing the likelihood of unpaid bills
• Accurate data collection, eliminating errors that can lead to claim denials, delays, and additional administrative work

The role of coding and compliance in the revenue cycle

The process of translating medical diagnoses, procedures, and services into standardized codes is a fundamental part of revenue cycle management and an essential means of ensuring compliance with various federal, state, and payer-specific regulations. Proper coding and compliance play a vital role in:

• Accurate billing and reimbursement, ensuring that healthcare providers are paid correctly for their services and reducing billing errors and claim denials
• Adherence to legal requirements, ensuring that medical records are correctly documented and billed, reducing the risk of fraud and legal issues
• Data analysis and research, providing a standardized way to record patient information, track health trends, and evaluate treatment outcomes

The role of billing in the revenue cycle

The billing component of the healthcare revenue cycle plays a critical role in optimizing your organization’s financial performance. Proper billing management can reduce administrative costs and improve patient satisfaction by ensuring transparency and accuracy in financial transactions. Important aspects of the billing process include:

• Creating and submitting accurate and properly coded claims for reimbursement to insurance companies
• Tracking and processing payments from insurers and patients, including posting payments to patient accounts and managing discrepancies
• Billing patients, generating bills for out-of-pocket expenses, and ensuring that patients are aware of their financial responsibilities
• Following up on accounts receivables and promoting timely collection of outstanding amounts

The role of denial management in the revenue cycle

Despite your best efforts to ensure accuracy at every point in the revenue cycle, claims can be denied for a variety of reasons. Effective denial management includes a proactive process for reviewing denied claims, understanding the reasons for the denial, making necessary corrections, resubmitting claims, and appealing if necessary. The denial management process plays a role in:

• Maintaining your organization’s financial health by reducing revenue loss and delays in reimbursement
• Identifying and addressing the underlying coding, coverage, billing, or other issues related to each claim denial in order to reduce future denials
• Improving coding accuracy through ongoing staff training and education, real-time reviews, and automated coding tools

BerryDunn’s revenue cycle consultants engage with your healthcare organization to objectively review existing processes and develop actionable strategies for short- and long-term performance improvement. With experts along the entire continuum of care, our approach focuses on cash acceleration, revenue integrity, and helping to ensure that every dollar owed is collected. Based on best practices, we help bolster performance and improve the efficiency and effectiveness of your revenue cycle. Learn more about our services and meet our team.  

As energy costs continue to rise, rural businesses and agricultural producers face increasing pressure to find cost-effective, sustainable solutions. The Rural Energy for America Program (REAP) Grant offers a unique opportunity to help businesses reduce energy expenses by investing in renewable energy systems or improving energy efficiency. Administered by the US Department of Agriculture (USDA), the REAP Grant provides financial support that can significantly ease the burden of upgrading or modernizing energy systems.

In this guide, we’ll explore the key benefits of the REAP Grant, explain who should consider applying, and highlight the important tax implications to help you make informed decisions about whether this program is right for your business.

What is the REAP Grant?

The REAP Grant, provided by the US Department of Agriculture (USDA), provides financial support that can significantly ease the burden of upgrading or modernizing energy systems through renewable energy projects such as solar, wind, geothermal, and biomass, as well as energy efficiency improvements such as HVAC upgrades, insulation, and lighting.

• Grant amount: Covers up to 25% of eligible project costs, with a cap of $500,000 for renewable energy projects and $250,000 for energy efficiency projects.
• Loan guarantees: USDA loan guarantees cover up to 75% of the project cost, making larger projects more accessible.

Who should consider a REAP Grant?

The REAP Grant is ideal for:

• Agricultural producers who generate at least 50% of their income from farming or related activities and want to reduce energy costs, such as those related to irrigation, heating, or grain drying.
• Rural small businesses located in areas with populations under 50,000. These businesses can benefit from cutting utility costs through energy efficiency upgrades or renewable energy systems.

If your business plans to invest in renewable energy or update inefficient equipment, the REAP Grant could be a valuable resource.

How can a REAP Grant benefit your business?

A REAP Grant has many benefits for your business, including: 

• Reducing energy costs: Improve energy efficiency or install renewable systems to lower utility bills and enhance profitability.
• Increasing energy independence: Renewable energy systems reduce reliance on fluctuating energy prices, offering long-term savings.
• Enhancing market appeal: Sustainable practices attract eco-conscious customers and improve your brand image.
• Accessing financing for larger projects: Loan guarantees make financing for significant energy projects easier to obtain.

What are the requirements for a REAP Grant?

To apply, you must be an agricultural producer or rural small business, and your project must involve renewable energy systems or energy efficiency improvements. The application requires:

• A detailed project proposal
• Financial projections showing cost savings
• An energy audit or assessment for energy efficiency projects
• Environmental compliance documentation

Grants cover up to 25% of project costs, but you must provide the remaining 75% through self-funding or other financing.

When are the application deadlines?

• Small projects (under $80,000): Deadlines are typically October 31 and March 31.
• Larger projects: The deadline is March 31.

Loan guarantees are available year-round, but early submission is recommended due to limited funding.

What are the tax implications of receiving a REAP Grant?

Receiving a REAP Grant has tax consequences:

1. Taxable income: The grant is considered taxable income and must be reported on your federal tax return.
2. Interaction with tax credits: If your project qualifies for the Investment Tax Credit (ITC), the portion funded by the REAP Grant must be subtracted from the ITC-eligible project costs. For example:

   Solar project cost	$400,000
   REAP Grant received	$100,000
   ITC-eligible amount	$300,000

3. Depreciation: You can depreciate the project under the Modified Accelerated Cost Recovery System (MACRS), but the depreciable basis is reduced by the grant amount.

What tax incentives are available? 

In addition to the REAP Grant, you can take advantage of tax incentives such as:

• Investment Tax Credit (ITC): Up to 30% of eligible renewable energy costs.
• MACRS depreciation: Accelerated depreciation of energy assets over five years.
• State-level incentives: Many states offer additional tax benefits, such as sales tax exemptions or property tax relief for renewable energy projects.

Why should I work with a tax professional?

Due to the complexity of integrating the REAP Grant with federal and state tax incentives, consulting a tax professional is highly recommended. BerryDunn has specialized tax professionals in place to help determine if the REAP Grant is right for your business. They can help you maximize your benefits while ensuring compliance with tax regulations.

The REAP Grant provides a significant opportunity for rural businesses and farms to reduce energy costs, increase sustainability, and secure financing for larger projects. Although the grant is taxable, combining it with federal tax incentives like the ITC and MACRS can greatly reduce the cost of energy upgrades. With careful planning and expert guidance, the REAP Grant can be a smart investment in your business's future.

Read this if you are responsible for your bank’s fraud risk management.

Fraud in the banking industry is a persistent and evolving threat that has significant implications for financial institutions and their customers. As technology advances, so do the methods employed by fraudsters, making it crucial for banks to stay vigilant and proactive in their fraud prevention efforts. This article explores the current trends in banking fraud, highlighting traditional schemes, emerging threats, and effective preventive measures.

Introduction to banking fraud

Banking fraud is the illegal act of deceiving a financial institution or its customers for financial gain. This type of fraud has been a significant problem for centuries, impacting the banking sector in various ways. The consequences of banking fraud can be severe, including financial losses, damaged reputations, and legal repercussions. Moreover, it can erode trust in the banking system and affect the overall economy.

Traditional banking fraud schemes

One of the oldest and most common forms of banking fraud is check fraud. Despite the decline in the use of checks, they remain a prevalent payment method, making them a target for fraudsters. Check fraud can take several forms, including forgery, alteration, and counterfeiting. For instance, check washing involves stealing a check, erasing the original details, and altering the payee name and amount before cashing it. Another method is creating counterfeit checks using real account numbers but depositing them under fake identities.

The statistics are alarming. In 2022, there were 680,000 reports of check fraud, nearly double the number reported in 2021. The surge in mail-theft-related check fraud has also been significant, with a 161% increase in mail theft complaints from March 2020 to February 2021. Criminals have even resorted to armed robberies of postal carriers to obtain master keys that open mailboxes, providing easy access to checks.

Emerging banking fraud trends for 2025

As technology evolves, so do the methods employed by fraudsters. Identity theft and synthetic identity fraud are two emerging trends that pose significant threats to the banking industry. Identity theft involves stealing someone's personal information to obtain credit or other financial benefits, while synthetic identity fraud involves creating a fictitious identity using a combination of real and fake information. Both types of fraud can have serious consequences for victims, including financial losses and damage to their credit scores.

Phishing and social engineering attacks are also on the rise. Phishing attacks use email, messaging, or other means to trick individuals into divulging sensitive information, such as passwords or credit card numbers. Spear phishing attacks are more targeted, using personal information to make the attack seem more legitimate. Social engineering attacks manipulate individuals psychologically to obtain sensitive information.

The rise of artificial intelligence (AI) has introduced new dimensions to banking fraud. Fraudsters use AI-driven techniques, such as deep learning and natural language processing, to perpetrate fraud, including phishing and account takeover attacks. For example, deepfakes, a form of AI-generated media, can impersonate individuals and trick employees into transferring funds. In January 2024, a Hong Kong-based firm lost $25 million to fraudsters who used deepfake technology to impersonate the firm's chief financial officer on a video call.

Banking fraud: Preventive measures and detection techniques

Preventing and detecting banking fraud requires a multi-faceted approach. Traditional methods, such as signature verification and positive pay, remain effective in combating check fraud. Positive pay involves companies informing their bank about issued checks ahead of time, allowing the bank to verify the checks before processing them. Fraud detection software, which uses algorithms to analyze check data and identify potential instances of fraud, is also a valuable tool.

For emerging fraud trends, constant training and testing are essential. Periodic self-study trainings and fake phishing emails can help keep fraud red flags front of mind for employees. Acknowledging and celebrating individuals who follow bank policies and prevent fraudulent activity can also reinforce good practices.

AI-powered analytics tools can analyze large amounts of data and identify patterns and anomalies that may indicate fraudulent activity. Some banks are already using AI to automate fraud detection processes and send investigations to the appropriate teams. For instance, JPMorgan uses large language models to detect signs of fraud in email compromises, while Mastercard's Decision Intelligence tool scans a trillion data points to predict if a transaction is genuine.

Banking fraud is a complex and evolving challenge that requires continuous vigilance and adaptation. By understanding traditional fraud schemes and emerging trends, financial institutions can implement effective preventive measures and detection techniques to protect themselves and their customers. As fraudsters become more sophisticated, the banking industry must leverage technology, such as AI, to stay one step ahead and ensure the security and integrity of the financial system. As always, please don’t hesitate to reach out to the BerryDunn financial services team should you have any questions.