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AAP Handbook Flashcards

1
Q

Who are the ACH Operators?

A

Electronic Payments Network (EPN)
Federal Reserve Bank (FRB)

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2
Q

What is the function of an ACH Operator?

A

The ACH Operator is the central clearing facility for the clearing, delivery, and settlement of entries between and among participating DFI’s.

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3
Q

Do all financial institutions originate ACH payments?

A

No

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4
Q

Are all F.I.’s that originate ACH payments required to receive ACH transactions (either directly or indirectly)?

A

Yes

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5
Q

What are common uses for preauthorized debit transactions?

A

Recurring Payments (ex. Loans, insurance, utility, membership)

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6
Q

What rules and federal regulations govern the processing of ACH Transactions?

A

NACHA Operating Rules & Guidelines; Title 31 CFR Part 210; Regulation E; Regulation CC; Regulation D; UCC4A & UCC4

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7
Q

Name two banking industry conventions responsible for the efficient evolution of automated check processing.

A

Routing number policy adopted by the American Bankers Association (ABA) in 1911; National Standard for imprinting checks with machine-readable numbers and characters in magnetic ink (MICR) in 1956

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8
Q

Compare ACH and Wire Transfers in terms of how transactions are processed.

A

ACH Network: Net settlement. Batch processing, store and forward system (transactions are accumulated throughout the day, sent to ACH Operator, sorted by destination and transmitted in groups at specific times).
Wire Transfers: Processed individually in real-time via gross settlement (simultaneously crediting RDFI & debiting sending depository F.I. FRB accounts).

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9
Q

Which regulations govern Fedwire funds transfer transactions?

A

Regulation J, Subpart B; UCC4A; Regulation CC; BSA; OFAC; Federal Reserve Policy on Payments System Risk.

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10
Q

Can debits be sent via RTP?

A

No (only credits may be sent via RTP system)

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11
Q

What is the transaction limit for RTP?

A

RTP credit push transactions can be $1,000,000 or less.

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12
Q

What is the key difference between MasterCard send and Visa Direct?

A

Visa Direct features (credit and debit) push pull options while MasterCard Send is a credit only platform.

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13
Q

Define the Transaction Set: ASC X12 835

A

Heath Care Claim Payment/Advise: Used by health insurers, informs the health care provider what services or treatments a payment is covering. The 835 Transaction Set can be used to send either the payment or the remittance, or both together. (Hint: Age 35 you might need more insurance)

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14
Q

Define the Transaction Set: ASC X12 813

A

Electronic Filing of Tax Return Data: Used for electronic filing of tax return data. Of of these transactions can be enveloped within the addenda records of a CTX format. (Hint: 13 - unlucky i.e. taxes)

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15
Q

Define the Transaction Set: ASC X12 823

A

Lockbox: Used for processing lockbox payments. (Hint: 23=LaBron James’ , needs BIG lockbox for his shoes)

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16
Q

Define the Transaction Set: ASC X12 521

A

Income or Asset Offset: Used by an agency or other entity to require an employer or other asset holder to withhold and deliver assets or income on behalf of a person or entity to whom such assets/income are owed, as in a levy, lien, or garnishment. (Hint: Only one beginning with “5”; 21=Blackjack 21, you have income which is an asset).

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17
Q

Define the Transaction Set: ASC X12 103

A

Abandoned Property Filing: Used to report abandoned property filing information, such as uncashed checks or abandoned bank account balances, to government agencies and may be used by government agencies to distribute information on abandoned property for publication to general public. (Hint: 103=by the time properties are 103 years old they may be abandoned.)

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18
Q

Define the Transaction Set: ASC X12 820

A

Payment Order: Provides the EDI format for transmitting information relating to payments (Hint: On August 20 Tiger Woods wins 3rd major in a calendar year and gets good payment!)

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19
Q

What transaction set(s) can be used with the CTX Addenda Record in the ACH Network?

A

ASC X12. 813 (tax), 820 (pmt order/remittance), 823 (lockbox), 835 (healthcare), 521 (income asset), 103 (abandoned property)

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20
Q

What does EBT Stand for? Explain the program

A

Electronic Benefits Transfer. Used to electronically disburse government benefits. (ex. food stamps, cash assistance benefits) using card technology to recipients. Recipients can access their benefits through ATMs and retail point-of-sail (POS) terminals. the Quest Operating Rules from the foundation for standardized electronic transfer.

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21
Q

What are the five types of risk inherent to the ACH Network?

A

Credit Risk, Operational Risk, Fraud Risk, Compliance Risk, Systemic Risk (FOCCS)

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22
Q

What is operational risk? List sources of operational risk in the ACH Network.

A

Risk that the exchange of ACH Transactions will not be completed accurately or on time due to an operational failure at some point in the process. Sources of operational risk include hardware failure, software failure, telecommunications or power failure, human error or staffing problems, and the risk of disaster, such as explosion, fire, flood or earthquake.

23
Q

Define Segregation of Duties.

A

In operations, duties should be separate and assignments rotated so that the same staff member does not always do the same thing. Dual control can be important to control for errors and fraud activity to establish accountability.

24
Q

What criteria should ACH Origination credit limits be based upon?

A

ODFI to consider originator’s credit rating, review financial reports to determine creditworthiness before establishing exposure limits with knowledge of the customer and industry conditions. Along with, transaction volume and type of ACH applications it will use.

For businesses without internal or public credit reporting, the ODFI could require it to prefund the account.

25
Q

What are the security issues particular to DFI relationships with Third-Party Service Providers? What may be implemented to prevent?

A

Data breaches, viruses, network intrusion, account takeover. Third-Party Service providers may implement and/or require multi-factor authentications for business accounts to initiate funds transfers. FI’s should conduct due diligence on the contractual agreements and restrict the type of transactions that may be initiated along with retaining the right to suspend or terminate those who do not comply with the NACHA operating rules.

26
Q

What elements should be included in a contingency plan for an ODFI? [Disaster Recovery]

A

ACH Operations may continue in a limited mode, or it may be necessary to relocate to another operating site. Should include: alternate modes of operations or sites. Contact info the people who will set up the alternate site and plan for how communications will be established at the new site. Plans for recovering work in progress at the time of disaster. Regular testing should take place.

27
Q

What must the RDFI do to ensure ACH operations remain viable, even under unusual conditions? Specifically for hardware/software failure, telecommunications, power, human error, staffing problems or disaster?

A

Hardware/Software problems may be reduced with reliable equipment, regular maintenance and adequate backup. Telecommunications issues can be mitigated with good diagnostic tools and back up mods of transmission. Power failure risk may be reduced with an uninterrupted power supply system, as well as back up procedures. Human error can be reduced with good supervision, training and procedures. Cross training, job rotation, depth in staffing and good supervision can help with staffing issues.

28
Q

What physical security should be considered in an audit of ACH operations?

A

ACH operations, computer operations, and telecommunications should be secure. Sites that contain sensitive equipment should be housed in a limited access room without windows. Visitors should be escorted by an employee at all times. Terminals should time out if there has been no activity for prescribed periods of time. Data should be in a secure storage area.

29
Q

What regulations govern funds availablity?

A

Regulation CC. However, since the NACHA Operating Rules provide for greater funds availability, they supersede.

30
Q

What is EFTPS?

A

Electronic Funds Transfer Payment System is the Bureau of the Fiscal Service’s free electronic tax collection system. Individuals, businesses and federal agencies can all pay their taxes electronically using EFTPS.

31
Q

What is Direct Access?

A

Direct Access occurs when an originator, third-party service provider or third-party sender transmits credit or debit entries directly to an ACH Operator using an ODFI routing and settlement account.

32
Q

What is a Third-Party Service Provider (TPSP)?

A

Third-Party Service Provider is an organization that performs any function of ACH processing of entries on behalf of the originator, Third-Party Sender, ODFI or RDFI. (ex. creating an ACH file on behalf of an originator or ODFI or acting as a Sending Point or Receiving Point on behalf of ODFI or RDFI).

33
Q

How are some TPSP used by RDFIs?

A

May receive their ACH entries through Third-Party Service Provider (receiving point) that provides electronic receiving services.

34
Q

How are some TPSP used by ODFIs?

A

ODFI may designate a third-party as their sending point (transmit entries to the ACH operator on their behalf).

35
Q

How are some TPSP used by Businesses?

A

May contract with a Third-Party Service Provider to create ACH files on their behalf (ex. Payroll Processor)

36
Q

How can financial institutions and businesses limit their risk when dealing with Third-Party Service Providers?

A

Using a TPSP does NOT relieve the F.I. of its responsibilities. Ways to limit risk: Enter into an agreement that addresses areas of potential risk. ODFIs should establish dollar limits on the files that the Third-Party Service Provider can deposit with the ACH Operator. ODFIs should require Third-Party Service Providers to notify the ODFI of dollar totals for each file deposited with the ACH Operator.

37
Q

How can ODFIs limit their risk when dealing with TPS?

A

ODFI must have an agreement with the Third-Party Sender and that agreement should have details addressing areas of risk between the TPS and the Originator including, but not limited to, data security, liability, and compliance.

38
Q

What does warehousing of an entry mean?

A

Storage of pending files until release or settlement date.

39
Q

What is ODFI warehousing versus RDFI warehousing?

A

RDFI = files come in and RDFI must store until appropriate settlement date. ODFI = storing files received from the Originator until the appropriate release date in order to settle on the intended effective date.

40
Q

When must RDFI post ACH entries to Receivers account for Non-Same Day ACH Credit Entries received on banking day prior to settlement day from ACH Operator?

A

Available for withdrawal by receiver:
- if files received BEFORE 5PM (RDFI local) = no later than 9AM (RDFI local) on settlement date
- if files received AFTER 5PM (RDFI local) = no later than end of settlement date of entry for withdrawal

41
Q

When must RDFI post ACH entries to Receivers account for Same Day ACH Credit Entries?

A

Made available to RDFI by its ACH Operator on settlement date to receiver:
First same-day window = no later than 1:30 PM (RDFI Local)
Second same-day window = no later than 5PM (RDFI Local)
Third same-day window = no later than end of processing for that settlement date. (RDFI east of Atlantic Time Zone and west of international date line no later than 9AM on following banking day).

42
Q

What is an Extended Return?

A

RDFI may transmit debit entry provided return is made available to the ODFI no later than opening of business on 60th calendar day following settlement date of original entry.

43
Q

What is the requirements for ‘‘recrediting’’ an account?

A

RDFI must promptly recredit the amount of a debit entry upon receipt of Written Statement of Unauthorized Debt (WSUD) provided it is received in time and manner that it reasonably meets the deadline for transmitting an extended return entry.

44
Q

Examples of typical reasons why an ACH entry may be returned? Where is the complete listing of all Return Reason Codes with descriptions listed?

A

NSF, Acct Closed, Invalid Acct, Unauthorized. Complete listing may be found in appendix 4 of NACHA Operating Rules.

45
Q

Under what circumstances may an ODFI dishonor a return entry?

A

-RDFI failed to return the entry within time limits established by the Rules
-Information is missing in one or more of the following fields: DFI Acct #, Original Trace #, Amount, Individual ID #, Tran Code, Company ID#, or Effective Entry Date
-Misrouted
-Duplicated
-Rtn entry coded as requested by ODFI when it wasn’t or permissible by ODFI but wasn’t
-Result in unintended credit to Receiver (ex. ODFI has already originated a reversing credit, or erroneous entry correction)

46
Q

How long does an ODFI have to dishonor a return?

A

ODFI must transmit to its ACH Operator within 5 banking days after settlement date of the Return entry.

47
Q

Who should respond to an NOC?

A

The Originator must respond by making requested changes. The ODFI must make the NOC information available to the Originator within two banking days of the settlement date of the NOC.

48
Q

When advised of an NOC, within what time frame must the Originator make the changes?

A

Originator must make changes specified in the NOC or corrected NOC within 6 banking days of receipt, or prior to initiating another entry to Receivers account, whichever is later. Not required, may be changed at discretion of Originator: ARC, BOC, POP, RCK, Single-entry TEL & WEB, XCK.

49
Q

What are the timing requirements for transmission of an NOC by an RDFI?

A

Transmitted within 2 banking days (except merger acquisitions).

50
Q

What is a reversal? When may a reversal be used?

A

Reversing entry/file is a debit or credit entry/file to reverse an erroneous or duplicate entry/file. Originator or ODFI is responsible to initiate reversing entry.

51
Q

What are the timing requirements associated with reversals?

A

Each reversing entry/file must be transmitted to the ACH Operator in time to be made available to the RDFI within 5 banking days following settlement date (including any correcting files) OR 24 HOURS within discovery.

52
Q

When must Originator notify the Receiver of a reversal?

A

Originator must make reasonable attempts to notify the Receiver of the reversing entry and the reason for the reversing entry no later than settlement date of the reversing entry. For a PPD (payroll) entry, the Originator must notify the Receiver upon check delivery.

53
Q

Check Clearing Vs. Check Collection

A

Clearing = Path check follows
Collection = Process ensuring that the funds are debited and credited to the appropriate accounts.

AAP Flashcards (21 decks)

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