Paid by the piece-are AML alerts gadgets/gizmos/widgets?

In the BSA/AML/OFAC world, trends come and go. Outsourcing is a trend that is here to stay, and that makes vendor management, and the Quality Control (QC) over the vendor, even more critical to BSA/AML/OFAC Officers.

Sally is an experienced and astute BSA/AML/OFAC Officer who has just executed a sizable contract with a vendor for AML and OFAC alert working (dispositioning.) Said vendor will provide 5 consultants to work AML and OFAC alerts throughout the year to augment Sally's staff. Sally diligently negotiated how the bank will pay the vendor for their services. She didn't ask how the vendor pays their staff... she didn't think it was important.

The vendor's consultants were on-boarded, and after a few weeks Sally hears from a few of them that they are paid by the piece by their employer -- meaning they are paid for each alert they disposition. Sally ponders this information, using a risk-based approach. Initially, she's concerned that consultants being paid by the piece, like the alert is a widget, might be pressured financially to move through the alerts quickly by skimping on the analysis. Or maybe the consultants would move alerts to full case investigations quickly, since less time is involved in bumping an alert up to a case, rather than analyzing and documenting why activity isn't suspicious. Both of those actions are bad news to an AML department. The first could result in missed suspicious activity -- an effectiveness issue. The second could result in full cases (and the overhead that accompanies them) that didn't need to be cases, and could have been dispositioned as alerts -- an efficiency issue.

Sally discusses her thoughts with her supervisor, the Chief Risk Officer (CRO), to obtain her input. They involve the bank's Vendor Management leader, as well. They noodle over how to address Sally's concerns. On the one hand, if the quality and efficiency of the work produced by the consultants meets Sally's requirements, it shouldn't matter if the consultants are paid by the piece. On the other hand, the situation places a lot of stress on the department's QC area. QC oversight is always performed on the work of consultants (try not performing oversight on a vendor... it doesn't end well) but does this situation demand even more QC oversight because of the financial incentive on the consultants to move through alerts quickly? Sally reminded the CRO and the Vendor Management leader that there is no perfect way to pay for the working of alerts. One could argue that paying by the hour (the traditional way) could lead to a consultant dragging out an analysis on an alert and being less efficient. All agreed that the working of alerts is both art and science, but they came back to the same question: "Do we need more QC because of this?"

Examiners could ask the same question.

Assume, for Sally's situation, the answer to the question is "yes." A few years ago the bank had some remediation to do and there was no appetite at the bank to un-remediate the progress that had been made! Sally placed additional QC oversight over the alert-working production of the consultants... at least initially.

At the very least, Sally, the CRO, and the Vendor Management leader came away from the situation with a learning opportunity. The questions "in what manner do you pay your consultants" and "do you pay consultants for each alert they work?' were added to the vendor management questionnaire for BSA/AML/OFAC vendors being considered for outsourcing work. Sally perceived it as a "transparency" area. Better to know about it up front rather than hear about it from the consultants two weeks after they on-board.

There's no let-up in the trend to outsource the working of AML and OFAC alerts. There's also no let-up in examination scrutiny over those outsourced relationships and situations. This is an area where transparency up front can save some scurrying down the road.