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Managing. The risk of Payment System - Turner P.

Turner P. Managing. The risk of Payment System - John Wiley & Sons, 2003. - 253 p.
ISBN 0-471-32848-0
Download (direct link): managingtherisksofpayment2003.pdf
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Notice: Any person who knowingly and with Intent to defraud any Insurance company or other person files an application for insurance containing any materially false information, or conceals for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime. (In New York, such crime is subject to a civil penalty not to exceed five thousand dollars and the stated value of the claim for each violation.)
Signed by:_______________________________________________________________Dated:__________________________
Please attach the following supporting documentation when submitting this application:
Annual Report and 10k Audited Financial Statement CPA Management Letter and Management's Response Thereto
Samuel Y. Fisher, Jr., ARM, CPCU 2002 - S. Fisher & Associates, LLC All Rights Reserved
Source: Samuel Y Fisher, Jr., ARM, CPCU © 2002, S. Fisher & Associates, LLC. All rights reserved. Reprinted with permission.
Review of Contractual Risk Allocation
Chapters 3, 4, and 5 discuss how risk is allocated in U.C.C. Articles
3, 4, and 4A with respect to checks and wire transfers, and Chapter 6 discusses the rules for ACH transfers. The Company will have entered into agreements with its bank for the provision by the bank of wire transfer and ACH services. A detailed discussion of the negotiation of these agreements with the bank is beyond the scope of this book.
We have observed, however, and it is of great importance to note in the context of risk management, that the standard form of bank agreement often varies the statutory allocation of risk. For example, a provision that exculpates the bank from liability “except to
Management of Corporate Payment Systems Risks
the extent that the Bank’s conduct shall have constituted gross negligence or willful misconduct” would significantly vary the liability of the bank for fraudulent checks and for fraudulent or erroneous funds transfers.
Short-period reporting requirements also indirectly vary the liability of the bank. Within the context of risk management, the importance of prompt reconciliation of bank statements has been emphasized. It may appear reasonable for a company to agree to report fraudulent or erroneous transfers shortly after the receipt of its bank statements. A company should be wary, however, of a provision that states, “Customer shall notify Bank
within ____ days after receipt of the periodic statement” of an
alleged fraudulent or erroneous item. That kind of provision may impose significant liability on the company that would otherwise have been imposed on the bank by law.
It is one thing for company management knowingly to agree to assume liability greater than that imposed by law, but quite another thing for the company to assume such liability in ignorance of how the liability is allocated by statute. Management must, of course, rely on counsel. Yet even very competent counsel is often unfamiliar with payment system law. Perhaps it would not be unduly audacious for treasury personnel to suggest to counsel that this book or similar reading might be a useful addition to the law library.
Backup files and off-site storage are important to a reliable plan for the management of corporate payment systems risks attributable to payment systems disruptions. Updating of the backup files and the regular transfer of records to off-site storage should be documented. Periodic testing to confirm that the procedures are followed and workable should be overseen by senior management. After the September 11, 2001, attack on the United States and the resulting disruptions in the New York City financial center, the Association for Finance Professionals (AFP) published a checklist for its membership,1 paraphrased as follows:
Managing Payment Systems Disruptions
• Maintain a current list of bank contacts and store at a backup site and on handheld computers or personal digital assistants (PDAs). Keep printouts at off-site locations and at the home of key treasury personnel.
• Image important documents and store two copies at two different off-site locations.
• Maintain a list of key employees, with home and cell telephone numbers, and ensure that they have the list at their homes and on PDAs.
• Cross-train employees for emergency work at different physical locations.
Payments Applications
• Encourage direct deposit of payroll.
• Promote electronic bill payment.
• Evaluate impact on the company of delays in cash receipts.
• Plan liquidity—how to manage if commercial paper cannot be settled or sold. Are credit lines available if not ordinarily used? Can global liquidity play a role?
• What happens if the telephone lines go down at the company? At the bank(s)?
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