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• Establish backup location (s) for the company’s funds-transfer system. Maintain a consolidated list of user names and passwords and be sure the bank has call-back verification procedures.
• Arrange key employee home access for treasury workstation and electronic banking systems with back-up authorization and approval procedures.
• Arrange with banks for backup for payroll and other critical funds transfers.
Management of Corporate Payment Systems Risks
• Arrange backup transmission for payroll, lockbox, payables, and receivables files.
• Arrange alternative check printing locations.
• Review sources for information about disaster planning and outsourcing alternatives.
The authors suggest that the management of risks to corporate payment systems in disaster mode be periodically reviewed so that special requirements are not overlooked.
The following checklists, extracted from the chapters of this book, can guide a thorough risk management assessment and documentation of procedures. The discussion in each chapter provides an explanation of the risks and the mitigation opportunities.
MANAGING CHECK PAYMENT SYSTEM RISKS
Chapter 3 contains a detailed discussion of the topics in this risk management checklist.
Company That Issues Checks
The issuer should plan and document dual controls for all aspects of issuing checks, from inception through the process of reconciling bank statements.
• Approved vendors. Control should be established for the approval of new vendors to the company.
• Payment approvals. Before checks are issued, the invoices or other written requests for payment should be approved by a process independent of the signatory to the check.
• Check writing. The check stock removed from storage for check writing should be logged, and void checks should be logged as well.
• Check signing. The signature process may be automated under dual controls.
• Bank controls. The drawer can mitigate risks of unauthorized, high-dollar withdrawal transactions (whether by check, wire, or ACH) through controls at its bank.
Managing Check Payment System Risks
• Timely review of bank statements. The issuer of checks should timely review and reconcile its bank statements.
• Check stock log. A log document should record beginning and ending check numbers of check stock as ordered and received.
• Controlled access storage and record of checks used. The company should create continuously locked storage for the check stock with dual access controls.
• Control of ordering checks. The company management should determine who is authorized to order checks and to whose attention checks are delivered for entry into the controlled access storage.
• Check stock. Elaborate check stock security features are available through check stock printing companies.
• Positive pay arra.ngements. An agreement with the company’s bank for the provision of positive pay services is an extremely effective way to prevent certain types of fraud. It is important to note, however, that a typical positive pay arrangement does not detect all types of check fraud.
Company That Receives Checks
A number of businesses receive checks by mail, and many businesses receive many checks at the point of sale (POS).
Retail POS risk procedures require an assessment of the degree of risk that the company is willing to accept.
• Verify identity. Most retailers verify the identity of the person who is the drawer of the check with the information preprinted on the check.
• Verify MICR stripe appearance. Training those who accept POS checks to review the appearance of the magnetic ink character recognition (MICR) line on the check helps deter the acceptance of forged checks.
Management of Corporate Payment Systems Risks
• Third-party checks. Knowledge of the potential problems in regard to “holder in due course” will facilitate an understanding of why retailers rarely accept third-party checks.
General business receipts are receipts outside the retail POS environment.
• Large payments not made by wire transfer. A business expecting very large payments to be made by check, instead of by wire, may request payment by “certified check,” or official bank checks sometimes called “bank drafts,” “cashier’s checks,” or “teller’s checks.”
• Ensure that the checks received are all deposited to the company’s account. Lockbox processing by a bank provides another method for this control.
• Reviewing accounts receivable and “past due” accounts helps catch theft and improves cash flow as well.
• Reconcile reports of change in accounts receivable to the total of bank deposits.
MANAGING WIRE TRANSFER PAYMENT SYSTEM RISKS
Chapters 4 and 5 contain detailed discussions of the topics in this risk management checklist.
Important: The risks of a funds-transfer payment system are best controlled before a wire transfer order is released by the company to its bank. Preventing errors and fraud is very difficult thereafter.