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Originator and Its Bank
A company should have a written agreement with its bank for the bank to accept and execute the company’s wire transfer payment orders.
The agreement should not allow the bank to shift its legal liabilities back to the company by short-period reporting requirements. For example, a company should be wary of a provision that states, “Customer shall notify Bank within __________ days after
Managing ACH Payment System Risks
receipt of the periodic statement” of an alleged fraudulent or erroneous item. See Chapter 4 about this very high priority for managing corporate wire transfer payment system risk.
• The personnel of the company responsible for sending wire transfers should carefully double-check the wire transfer amounts and instructions before sending a wire.
• Establish procedures consistent with the bank’s written agreement if a payment order is canceled or amended.
• Dual control review of nonrecurring wire transfer instructions.
• For recurring wire transfers, preformatted wire transfer orders and dual review of variable input of transaction amounts.
• Use the bank’s reporting services to verify that payment orders have been executed.
• Promptly review and verify with the company’s records all bank notices and bank statements.
• Keep current records of the name of the responsible persons in departments at the bank to whom notices of errors or problems should be addressed.
Foreign payments: A company’s personnel should not try to reinvent the wheel; they should rely on its bank’s guidance and expertise for the payment systems appropriate to the locations, currencies, frequency, and amounts required.
Sending and Receiving Banks
The originator should carefully consider the risk of specifying intermediary banks for its wire transfer payment orders.
MANAGING ACH PAYMENT SYSTEM RISKS
In managing ACH payment system risks, the issues are generally similar to those associated with computer processing of checks and electronic terminal processing of outgoing wire transfers. In
Management of Corporate Payment Systems Risks
general, the methods of controlling electronic funds transfers should also be applied to ACH transactions.
• Train accounting and treasury personnel to have a clear understanding of the ACH Rules and any notices or reports the company may receive, either as an Originator or a Receiver.
• Establish a daily reconciliation procedure, and be prepared to notify the company’s ODFI or RDFI of any errors or questions. Never miss the time deadlines of the ACH Rules. Management should review to see that the daily procedures are being followed.
• Plan continuing controls for the risks of electronic origination of entries to receive funds and the timely and accurate accounting for receipt of those funds.
• Establish internal controls for authorizing the receipt of funds by ACH processing. Customer account records need to be noted for ACH processing.
• Make certain that prior written authorization is obtained for withdrawals from consumer accounts.
• Establish dollar limits for transactions to be processed and for warning messages.
Important: A business using ACH payment systems should modify its internal procedures to synchronize with its financial institution’s deadlines under the ACH Rules.
Unwavering maintenance of legal rights and continuing attention to internal controls, checklists, and procedures, and promptly initiating written inquiries about any questions or problems, are key to effective management of corporate payment systems risks.
1. AFP Payments Advisory Group, “In the Aftermath: Guarding
Against Payments Disruptions,” AFP Update Vol. 22, No. 1
(December 2001/January 2002): 4. This is sent to members
ACH or Automated Clearing House System A funds-transfer system for the clearing of paperless interbank transfers created as an alternative to the check system. Approximately 35 regional ACH associations are members of the National Automated Clearing House Association (NACHA). The system clears electronic entries pursuant to the NACHA Rules. An ACH Operator provides clearing, settlement, and delivery services for the ACH entries. The Federal Reserve Banks act as the ACH Operators in each of the Federal Reserve Districts; in some districts, private sector entities may also act as the ACH Operators under an agreement with NACHA.
American Bankers Association (ABA) The trade association of American bankers. The ABA is authorized to assign routing and transit identification numbers.
Association for Financial Professionals (AFP) The trade association of corporate treasury executives, the corporate counterpart of the ABA.
Authorized account An account of a bank customer that is designated by the customer as a source from which payment orders for funds transfers under U.C.C. Article 4A, sent to the bank by the customer and executed by the bank, may be reimbursed to the bank.